UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the year ended March 31, ~~2007~~2009

Commission File Number 000-51010

MOBILEPRO CORP.

(Name of Registrant in Its Charter)

DELAWARE	87-0419571
(State or Other Jurisdiction of	(IRS. Employer
Incorporation or Organization)	Identification No.)
6701 Democracy Boulevard, Suite 202, Bethesda, Maryland	20817
401 Professional Drive, Suite 128, Gaithersburg, Maryland	20879
(Address of Principal Executive Offices)	(Zip Code)

(301) ~~315~~571-~~9040~~3476

(Registrant’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o __ No xX

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o __ No xX

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

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oX

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

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

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

The aggregate market value of the voting and nonvoting common shares of our common stock held by non-affiliates ~~computed~~as byof ~~reference~~September to30, 2008 (the ~~price~~last atbusiness ~~common~~day ~~shares~~of ~~were~~the ~~last~~registrant’s ~~sold~~most ~~($0.0225~~recently oncompleted ~~April~~second ~~27,~~fiscal ~~2007~~quarter) ~~was~~ : $15341,~~099,152.~~ 106

As of ~~June~~March 1031, ~~2007~~2009, the Company had ~~775~~1,~~079~~409,~~608~~864,653 shares of its common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement for the 2007 Annual Meeting of Stockholders to be held on October 2, 2007 are incorporated by reference in Part III.

TABLE OF CONTENTS

~~ITEM NUMBER AND CAPTION~~	ITEM NUMBER AND CAPTION	PAGE	~~PAGE~~
PART I
Item 1.	Business	3	1
Item 1A.	Risk Factors	24	31
Item 1B.	Unresolved Staff Comments	30	37
Item 2.	Properties	30	37
Item 3.	Legal Proceedings	30	38
Item 4.	Submission of Matters to a Vote of Security Holders	33	40
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	34	40
Item 6.	Selected Financial Data	37	44
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	39	46
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	53	64
Item 8.	Financial Statements	53	64
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		64
Item 9. Item 9A. Item 9B.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information	53 53 55
Item 9A.	Controls and Procedures		64
PART III
Item 9B.	Other Information		66
Item 10.	Directors, Executive Officers and Corporate Governance	55
PART III
Item 11.	Executive Compensation	59
Item 10.	Directors, Executive Officers and Corporate Governance		66
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 11.	Executive Compensation		66
Item 13.	Certain Relationships and Related Transactions, and Director Independence	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		66
Item 14.	Principal Accountant Fees and Services	67
Item 13.	Certain Relationships and Related Transactions, and Director Independence		66
Item 15.	Exhibits and Financial Statement Schedules	68
Item 14.	Principal Accountant Fees and Services		66
Item 15.	Exhibits and Financial Statement Schedules		67

-2-

PART I

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

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

Item 1. Business

The Company

We are a ~~broadband~~holding ~~wireless,~~company with subsidiaries in the integrated telecommunications, pay telephone and mobile content industries and an affiliate in the software industry. The integrated ~~data~~telecommunications ~~communication~~business was previously ~~services~~classified ~~company~~as discontinued operations; it has subsequently been reclassified due to our continued ownership of the business. We ~~deliver~~previously owned broadband wireless, telecommunications and integrated data communication services companies which delivered a comprehensive suite of voice and data ~~communications~~ communications services, including local exchange, long distance, enhanced data, Internet, wireless and broadband services to ~~our~~ end- user customers. At WeJune ~~are~~30, ~~focused~~2007, onwe ~~growing~~marketed and sold our ~~current~~integrated ~~customer~~telecommunications ~~bases~~services through nine branch offices in seven states and we serviced over 123,000 ~~deploying~~billed ~~wireless~~accounts representing ~~technologies~~over 211,000 equivalent subscriber lines including approximately ~~acquiring~~110,000 local and ~~growing~~long-distance ~~telecommunications~~telephone ~~and~~lines, ~~broadband~~approximately ~~companies~~38,000 dial-up lines, approximately 5,000 DSL lines, approximately 25,000 fixed and ~~forging~~mobile ~~strategic~~wireless ~~and~~lines, ~~marketing~~approximately ~~alliances~~6,000 ~~with~~cellular ~~well~~lines ~~positioned~~and ~~companies~~the ~~with~~remaining are other ~~complementary~~Internet-related ~~product~~accounts. We ~~lines~~owned and operated approximately 22,200 payphones located predominantly in ~~complementary~~44 ~~industries~~states and the District of Columbia through September of 2007. Most of our subscribers are residential customers.

~~The adoption of initiatives by cities to create areas within city limits where residents~~Historically, ~~visitors, students, and businesses can obtain wireless access to~~ the Internet has created an increased interest in so-called wireless access zones. We are concentrating efforts on the deployment, management and ownership of such municipally sponsored wireless access zones. As a result, we are an innovator in the deployment of wireless broadband networks and services. Our wireless broadband networks and services will be provided in our ~~wireless~~revenues ~~access~~have ~~zones to be~~been ~~primarily~~generated ~~located~~through inthree ~~municipality sponsored areas. These network systems are scalable and flexible and will be readily modified to offer a variety~~ of ~~broadband~~ ~~services. Currently, we are deriving revenues from~~ our ~~initial~~four ~~network deployments~~business ~~in Tempe, Arizona, Farmers’ Branch, Texas, and Longmont,~~reporting ~~Colorado.~~segments:

~~We market and~~Wireless ~~sell~~Networks ~~our~~Our ~~integrated~~broadband ~~communications~~wireless ~~services~~network ~~through~~deployment ~~nine~~efforts ~~branch~~had ~~offices in seven~~been ~~states~~conducted ~~and~~by weour ~~service~~wholly ~~over~~owned ~~127~~subsidiary,~~958~~ ~~billed accounts representing approximately 221~~NeoReach,~~504~~ ~~equivalent subscriber lines~~Inc., ~~including approximately 113~~(“NeoReach”),~~430~~ ~~local~~ and ~~long-distance~~its ~~telephone lines~~subsidiary, ~~approximately~~Kite 41Networks,~~047~~ ~~dial-up lines,~~Inc. ~~approximately~~(“Kite 5Networks,~~410~~” ~~DSL lines~~formerly, ~~approximately~~NeoReach 25Wireless,~~191~~ ~~fixed~~Inc.). orThis ~~mobile wireless~~segment ~~lines,~~also ~~and~~included ~~approximately 7,345 cellular lines and~~ the ~~remaining~~operations ~~are other Internet related accounts. The acquisition~~ of ~~subscriber~~Kite ~~contracts~~Broadband, ~~in January~~LLC ~~2007~~(“Kite ~~that~~Broadband”), isa ~~discussed~~wireless ~~below~~broadband ~~added~~Internet ~~over 7,000 cellular~~ service ~~customers.~~ Weprovider ~~own~~located ~~and~~in ~~operate approximately 26~~Ridgeland,~~517~~ ~~payphones~~Mississippi. ~~located predominantly~~The inbusiness 46of ~~states~~Neoreach and ~~the~~Kite ~~District~~Broadband ofis ~~Columbia.~~referred ~~Most~~to ofas ~~our~~the ~~subscribers are~~“Wireless ~~residential~~Networks ~~customers~~Business”.

~~Our revenues are generated through three of our four business reporting segments:~~-3-

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

Voice Services	Our voice services segment has been led by CloseCall America, Inc. (“CloseCall”), a competitive local exchange carrier (“CLEC”, which is a term applied under the Telecommunications Act of 1996 to local telephone companies which compete with incumbent local telephone companies) based in Stevensville, Maryland; American Fiber Network, Inc. (“AFN”), a CLEC based in Overland Park, Kansas; and Davel Communications, Inc. (“Davel”), an independent payphone provider based in Cleveland, Ohio. The business of CloseCall and AFN is referred to as the “Integrated Telecom Business”. CloseCall offered its customers a full array of telecommunications products and services including local, long-distance, 1-800-CloseCall anytime/anywhere calling, digital wireless, high-speed telephone (voice over IP), and dial-up and DSL Internet services. AFN is licensed to provide local access, long distance and/or Internet services throughout the United States. Davel was previously one of the largest independent payphone operators in the United States.

Internet Services	Our Internet services segment included DFW Internet Services, Inc. (“DFW”, doing business as Nationwide Internet), an Internet services provider (“ISP”) based in Irving, Texas, its acquired Internet service provider subsidiaries and InReach Internet, Inc. (“InReach”), a full service ISP located in Stockton, California that we acquired on November 1, 2005. Our Internet services segment (the “ISP Business”) provided dial-up and broadband Internet access, web-hosting services, and related Internet services to business and residential customers in many states.

Corporate	Our corporate reporting segment serves as the holding company of the operating subsidiaries that are divided among the other three business reporting segments, provides senior executive and financial management, and performs corporate-level accounting, financial reporting, and legal functions. Occasionally, its employees may provide services to customers resulting in the recognition of consulting service revenues. This segment also includes our Internet gaming and mobile content subsidiary, ProGames Network, Inc. (“ProGames”) that we founded in December 2005.

1Prior to January 2004, we were a development stage company. Although we were incorporated only nine years ago, we have undergone a number of changes in our business strategy and organization. In June 2001, we focused our business on the integration and marketing of complete mobile information solutions to meet the needs of mobile professionals. In April 2002, we acquired NeoReach and shifted our focus toward solutions supporting the third generation wireless market that provides broadband to allow faster wireless transmission of data, such as the viewing of streaming video in real time. We shifted our business strategy in December 2003 with a new management team, expanding significantly the scope of our business activity to include Internet access services, local and long distance telephone services and the ownership and operation of payphones. In 2005, we began to invest in the business of deploying broadband wireless networks and providing wireless network access services in wireless access zones to be primarily located in municipality-sponsored areas. As indicated above, we entered these businesses primarily through acquisitions. We completed twenty-two (22) acquisitions during this period. Accordingly, our experience in operating the acquired businesses was limited.

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

Revenues for the reportable business segments for the fiscal years ended March 31, 2007, 2006 and 2005 were as follows:

Business Segment	2007		2006		2005
Voice Services	$	62,559,069	$	72,356,453	$	32,009,084
Internet Services		15,030,633		16,940,513		13,884,060
Wireless Networks		11,499,521		9,716,501		-
Corporate		105		-		615,000
Total Revenues	$	89,089,328	$	99,013,467	$	46,508,144

The revenues for each business segment, expressed as a percentage of total revenues for the respective years, were as follows:

Business Segment	2007			2006			2005
Voice Services		70.2	%		73.1	%		68.8	%
Internet Services		16.9			17.1			29.9
Wireless Networks		12.9			9.8			-
Corporate		0.0			-			1.3
Total Revenues		100.0	%		100.0	%		100.0	%

The revenues of the voice services business segment are provided primarily by the operations of Davel and CloseCall. Davel’s revenues represented approximately 48.0% and 33.7% of voice services revenues and consolidated revenues, respectively, for the fiscal year ended March 31, 2007. CloseCall’s revenues represented approximately 39.1% and 27.5% of voice services revenues and consolidated revenues, respectively, for the fiscal year ended March 31, 2007.

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

Prior to January 2004, we were a development stage company. Although we were incorporated only seven years ago, we have undergone a number of changes in our business strategy and organization. In June 2001, we focused our business on the integration and marketing of complete mobile information solutions to meet the needs of mobile professionals. In April 2002, we acquired NeoReach and shifted our focus toward solutions supporting the third generation wireless market that provides broadband to allow faster wireless transmission of data, such as the viewing of streaming video in real time. We shifted our business strategy in December 2003 with a new management team, expanding significantly the scope of our business activity to include Internet access services, local and long distance telephone services and the ownership and operation of payphones. In 2005, we began to invest in the business of deploying broadband wireless networks and providing wireless network access services in wireless access zones to be primarily located in municipality-sponsored areas. As indicated above, we entered these businesses primarily through acquisitions. We completed twenty-two (22) acquisitions during this period. Accordingly, our experience in operating our current businesses is limited.

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

On March 21, 2002, Mobilepro entered into an Agreement and Plan of Merger with NeoReach, a private Delaware company, pursuant to which a newly formed, wholly owned subsidiary of Mobilepro merged into NeoReach in a tax-~~free transaction. The merger was consummated on April 23, 2002. As a result of the merger, NeoReach is now a wholly owned subsidiary of Mobilepro.~~ 4-

3On March 21, 2002, Mobilepro entered into an Agreement and Plan of Merger with NeoReach, a private Delaware company, pursuant to which a newly formed, wholly owned subsidiary of Mobilepro merged into NeoReach in a tax-free transaction. The merger was consummated on April 23, 2002. As a result of the merger, NeoReach became a wholly owned subsidiary of Mobilepro.

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

On October 15, 2004, we closed our acquisition of CloseCall. One month later, we closed our acquisition of Davel. On June 30, 2005, we acquired AFN.

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

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

~~Our principal~~On ~~executive offices are located at 6701 Democracy Boulevard, Suite~~July ~~202~~8, ~~Bethesda,~~ MD2007 ~~20817~~we ~~and~~sold our ~~telephone~~interests ~~number~~in atKite ~~that address is (301) 315-9040. We maintain a corporate Web site at www.mobileprocorp.com. We make available free of charge through our Web site our annual report on Form 10-KSB~~Broadband, ~~quarterly reports~~Kite onNetworks ~~Form 10-QSB, current reports on Form 8-K,~~ and ~~all amendments to~~ ~~those reports,~~Neoreach. See asdiscussion ~~soon~~below asconcerning ~~reasonably practicable after we electronically file or furnish such material with or to~~ the ~~SEC.~~sale ~~The contents~~ of ~~our~~the ~~Web site are~~Wireless ~~not~~Networks ~~a part~~Business ofto ~~this report~~Gobility. ~~The SEC also maintains a Web site at www.sec.gov that contains reports, proxy statements, and other information regarding Mobilepro.~~

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

~~Through~~During ~~our~~June ~~various~~and ~~businesses,~~September we2007 ~~provide service to customers located throughout~~ the ~~United~~ ~~States.~~Company ~~However,~~entered ~~certain~~into ~~portions~~a series of ~~our~~transactions ~~consolidated business are~~to ~~concentrated~~sell ~~in certain geographic markets. For example,~~ the ~~business~~majority of ~~CloseCall~~ isits ~~concentrated~~pay ~~in the mid-Atlantic region of the country~~telephones. See ~~Although Davel~~discussion ~~has payphones located across the United States 16,252 or 61.3%, of the~~below ~~payphones~~concerning ~~are located in warm climate states of~~ the ~~southwest,~~sale ~~southeast and west; 10,265 or 38.7%~~ of the ~~payphones~~payphone ~~are located in midwest, northwest, and northeast sections of the country, with usage during the winter months thereby negatively affected by the cold climate~~assets. The Internet services business provides service to customers that are primarily located in the states of Texas, Arizona, Louisiana, Kansas, Missouri, Wisconsin, Ohio, Washington and California.

Our principal executive offices are located at 401 Professional Drive, Suite 128, Gaithersburg, MD 20879 and our telephone number at that address is (301) 571-3476. We maintain a corporate Web site at www.mobileprocorp.com. We make available free of charge through our Web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such material with or to the SEC. The contents of our Web site are not a part of this report. The SEC also maintains a Web site at www.sec.gov that contains reports, proxy statements, and other information regarding Mobilepro.

Going Concern Uncertainty

Our business has historically lost money. Our accumulated deficit at March 31, 2009 ~~2007~~ was $77106,~~271~~992,~~245~~868. In the years ended March 31, ~~2007~~2009, ~~2006~~2008 and ~~2005~~2007, we sustained net losses of $4511,~~898~~360,~~288~~021, $1018,~~176~~361,~~407~~602 and $545,~~359~~898,~~722~~288, respectively. Over this three-year period, most of ~~our~~the acquired businesses experienced declining revenues. Although restructuring measures ~~have~~ controlled other operating expenses, the weCompany ~~have~~was ~~been~~ unable to reduce the corresponding costs of services. In addition, wethe ~~have~~Company funded the start-up and operations of the municipal wireless networks and ~~online~~mobile ~~gaming~~content businesses without these companies achieving expected revenues. As a result, the amount of cash used in operations during ~~the~~ fiscal ~~year~~ years ended March 31, ~~2007 was $6~~2009,~~558,708.~~ ~~Future~~2008 ~~losses~~and ~~are~~2007 ~~likely~~were ~~to occur.~~$70,223, ~~Accordingly~~$3,558,996 ~~we will continue to experience liquidity~~ and ~~cash flow problems if we are unable to improve the Company’s operating performance~~6, ~~to sell assets for cash~~558,708, ~~or to raise additional capital as needed and on acceptable terms~~respectively.

In December 2006, we engaged an investment banking firm to assist in evaluating strategic alternatives for the wireless networks business conducted by its Kite Networks and Kite Broadband subsidiaries. To date, efforts to secure investment capital for this business or to find a willing buyer have been unsuccessful. Consequently, despite obtaining lease financing and deferring payments to several large vendors, we have not been relieved of the need to help fund the operations of these businesses.-5-

4The decline in cash used in operation was largely due to the reduction in corporate expenses and the elimination of cash used for discontinued operations. The Company also received $810,215 of receipts relating to claims involving over-billings by certain telecommunications carriers of Davel in violation of regulatory rulings (“Regulatory Receipts”), including $718,314 received from Qwest in the second fiscal quarter. See “Item 3. Legal Proceedings”. Although the Company continues to operate the Integrated Telecom Business which has been consistently profitable and able to generate significant cash flow for the Company, we are likely to continue to experience liquidity and cash flow problems due to the Company’s current debt service requirements, including amounts due under the remaining equipment obligations and leases of the former Wireless Networks Business and the secured convertible debenture owed to YA Global Investments, L.P. (“YA Global”, f/k/a Cornell Capital Partners, L.P.) which is currently past due.

InThe ~~March 2007,~~Company’s wefinancial ~~announced~~statements ~~that~~have webeen ~~had~~prepared ~~signed~~on a ~~definitive~~going ~~agreement~~concern ~~for~~basis, which contemplates the ~~merger~~ realization of assets and settlement of liabilities and ~~ProGames,~~commitments ~~our~~based ~~online~~on ~~gaming~~recorded ~~subsidiary~~amounts for the foreseeable future. To date, ~~with~~the Company ~~and~~has ~~into~~been ~~Winning~~unable ~~Edge~~to permanently eliminate the cash requirements to fund ~~International,~~certain ~~Inc.~~remaining ~~Consummation~~liabilities of the ~~transaction~~Wireless ~~was~~Networks ~~subject~~Business tofor awhich ~~number~~the Company is co-obligor. In addition, Mobilepro is in default of its obligations ~~closing~~under the secured convertible debenture owed to YA Global and, given current market conditions ~~including~~and ~~the~~Mobilepro’s ~~arrangement~~financial ofcondition, obtaining the required financing ~~that~~to ~~would~~retire ~~have~~the secured convertible debenture is unlikely to occur in ~~sustained~~the immediate future. YA Global has informed the ~~operations~~Company ofthat it intends to exercise its rights as the ~~combined~~company’s ~~entity~~senior secured creditor. Such ~~Financing~~rights ~~has~~include, but are not ~~been~~limited to, foreclosing on ~~arranged~~the assets of the Company. AsIn asuch ~~result,~~event the ~~merger~~Company ~~agreement~~will ~~was~~not ~~terminated~~have ~~and~~the weability to continue as a going concern. The consolidated financial statements do not ~~to fund~~include ~~the~~any ~~operating~~adjustments ~~costs~~that might result from the outcome of ~~ProGames~~this uncertainty.

~~During~~Operations ~~the~~and ~~fourth~~Disposition quarter of the current year, we also engaged in extensive negotiations with a company that intended to purchase Davel, the Company’s payphone operator. The negotiations did not result in a transaction. As a result, the losses incurred by Davel continue to adversely affect our consolidated operating results. Activities

ToWe have ~~date, Cornell~~historically ~~Capital~~operated ~~Partners,~~in ~~L.P.~~four ~~(“Cornell~~segments: ~~Capital”~~(1) ~~has~~Wireless ~~been~~Networks, a(2) ~~significant source~~Voice ~~of capital for us~~Services, ~~providing~~(3) ~~financing~~Internet inServices ~~several~~and ~~forms~~(4) Corporate. ~~Most~~In ~~recently~~April 2007, wethe Company ~~borrowed~~announced ~~funds~~that ~~under~~its aBoard ~~series~~ of ~~convertible~~Directors ~~debentures.~~had ~~The~~decided ~~total amount owed~~ to ~~Cornell~~explore ~~Capital~~potential ~~under~~strategic alternatives for the ~~debentures~~entire ~~at March 31~~Company, ~~2007~~and ~~was~~that ~~$18,149,650. Using shares~~it ofhad ~~our~~received ~~common~~inquiries ~~stock~~from potential ~~registered~~buyers onregarding ~~Form~~the ~~S-3~~purchase inof ~~November~~portions ~~2006,~~of weits ~~made~~business. This ~~principal~~initiative ~~and~~was ~~interest~~undertaken ~~payments~~with on the ~~debentures~~goals ~~that~~of ~~totaled~~maximizing ~~$4,880,489 during~~ the ~~fiscal~~value ~~year~~of ~~ended~~the Company’s ~~March 31~~assets, ~~2007,~~returning ~~and~~value ~~that~~to ~~totaled~~the ~~$1,967,908~~Company’s ~~from~~stockholders ~~April~~and eliminating ~~2007~~the ~~through~~Company’s ~~May 2007. However~~debt, ~~the~~particularly ~~supply~~amounts ofpayable ~~shares registered that related~~ to ~~the~~ ~~convertible~~YA ~~debentures has been exhausted~~Global. ~~Cornell~~During ~~Capital has agreed~~fiscal ~~to delay~~2008 ~~additional~~the ~~installment~~Company ~~payments~~disposed ~~until~~of ~~early~~its ~~July~~Wireless ~~2007~~Networks ~~when~~and weInternet ~~will~~Services ~~be obligated~~segments, toas ~~make~~well ~~total~~as ~~weekly~~the ~~principal~~majority ~~payments~~ of ~~$375,000~~its ~~plus~~pay ~~accrued interest.~~telephones ~~Unless~~which ~~additional~~had ~~shares~~been previously ~~are~~operated ~~registered~~in by the ~~Company~~Voice ~~under~~Services segment. In addition, the ~~Securities~~Company ~~Act~~entered ofinto ~~1933~~an ~~(the~~agreement ~~“Securities~~to ~~Act”),~~sell ~~shares~~its ~~acquired~~Integrated byTelecom ~~Cornell~~Business, which ~~Capital~~was ~~are~~subsequently ~~tradable~~terminated. ~~under~~The ~~Rule~~Company ~~144~~is ofcontinuing ~~the~~to ~~Securities~~search ~~Act,~~for ora ~~shares~~buyer ~~of our~~for ~~common~~its ~~stock~~Integrated ~~are~~Telecom ~~otherwise~~Business, ~~freely~~which ~~tradable~~had bybeen ~~Cornell~~previously ~~Capital~~operated ~~without restriction,~~in wethe ~~will~~Voice Services besegment. The ~~required~~disposition toactivities ~~make~~are ~~these~~discussed ~~payments in~~further ~~cash~~below.

~~Consequently,~~Because the cash required to fund the continuing operating losses and to complete the inbuild-out ~~April~~of ~~2007~~planned municipal wireless networks exceeded the Company’s available capital, wein ~~announced~~December ~~that~~2006, ~~our~~the ~~Board~~Company ofengaged ~~Directors~~an ~~had~~investment ~~decided~~banking firm to ~~explore potential~~assist in evaluating strategic alternatives for the ~~entire~~wireless ~~Company,~~networks business ~~and~~conducted ~~that~~by itits ~~had received~~Kite ~~inquiries~~Networks ~~from~~and ~~potential~~Kite ~~buyers~~Broadband ~~regarding~~subsidiaries. ~~the~~Efforts to ~~purchase~~secure ofinvestment ~~certain portions~~capital offor ~~its~~this business. ~~This~~or ~~initiative~~to ~~has~~find ~~been~~a ~~undertaken~~willing ~~with~~buyer resulted in the ~~goals~~Company selling these companies to Gobility, Inc. (“Gobility”) ~~of maximizing~~for $2 million paid with the ~~value~~issuance of ~~our~~a ~~assets,~~convertible ~~returning~~debenture ~~value~~ to Mobilepro. Despite ~~our~~obtaining ~~stockholders~~lease financing and deferring payments ~~eliminating~~to ~~the~~several ~~Company’s~~large ~~debt~~vendors, ~~particularly~~the ~~amounts~~Company ~~payable~~was required to ~~Cornell~~fund ~~Capital.~~the operations of these businesses through the date of the sale.

WeGobility ~~have received~~expected ~~letters~~to ofraise ~~interest~~capital ~~regarding~~for ~~the~~its ~~acquisition~~operating ofpurposes ~~the~~from ~~CloseCall,~~an ~~AFN~~identified source ~~and the~~pursuant ~~Internet~~to ~~service~~a ~~provider~~funding ~~businesses~~commitment ~~(the~~letter ~~“Wireline~~that ~~Business”),~~was ~~and~~presented ~~several of~~to ~~these~~the ~~firms~~Company ~~have~~at closing. ~~engaged~~Because inthis ~~due~~funding ~~diligence~~has ~~investigation~~not ~~activities.~~been Ifobtained, ~~the expected~~Gobility ~~amount~~has ofbeen ~~cash~~unable ~~proceeds~~to fund ~~from~~its operations including the ~~sale~~payment of ~~the~~amounts ~~Wireline~~due ~~Business~~under isa series of ~~received~~capital byequipment ~~us,~~leases weand ~~expect~~other toequipment-related beobligations. inOn athe ~~position~~date of the sale to ~~retire~~Gobility, the ~~Cornell~~aggregate ~~Capital debentures~~amount ~~plus~~of ~~accrued~~this ~~interest~~debt included in the ~~first~~balance sheet ~~half~~ of ~~fiscal~~Kite ~~year~~Networks ~~2008.~~was ~~In May 2007,~~approximately ~~we borrowed~~ $16,~~100~~111,000. Because ~~from~~the equipment ~~Cornell~~leases ~~Capital~~and ~~under~~other aequipment ~~promissory~~purchases ~~note~~were ~~in order~~co-signed toby ~~help~~Mobilepro, ~~bridge~~if Kite ~~our~~Networks ~~cash~~fails ~~flow~~to ~~shortfall~~pay ~~until~~the aleases, ~~sale~~the ofCompany ~~the~~could ~~Wireline Business~~be isrequired ~~completed.~~to pay this debt.

IfOn March ~~we fail~~10, to2008, ~~eliminate~~Gobility sold the ~~cash~~assets ~~requirements~~of ~~presented by~~ the wireless network in Longmont, ~~business~~Colorado, ~~Davel~~ and ~~ProGames,~~the orCompany ifreceived athe ~~sale~~related ofproceeds in the ~~Wireline~~form ~~Business~~of promissory isnotes ~~not consummated~~from onthe ~~favorable~~purchaser ~~terms~~totaling $1,800,000. weIn ~~will~~addition, ~~not~~the Company ~~have~~entered into a forbearance agreement with the ~~ability~~principal equipment vendor and agreed to ~~continue~~pay asthe $1,591,978 equipment obligation, with interest at the prime rate, and a ~~going~~ ~~concern~~related ~~beyond~~lease obligation in the ~~second~~principal ~~quarter~~amount of $149,749. In March 2008, the ~~current~~Company ~~fiscal~~also ~~year~~satisfied ~~without a significant~~the ~~restructuring~~terms of one of the ~~Cornell~~leases ~~Capital~~relating ~~debt.~~to Asthe ~~described~~Tempe, inArizona ~~Note 4~~wireless tonetwork with an aggregate ~~the~~principal ~~Consolidated~~balance ~~Financial~~of ~~Statements~~$318,595, weplus ~~recorded~~accrued ~~substantial~~interest, ~~impairment~~by paying $93,000 in cash ~~charges~~and athaving ~~March~~the 31$250,000 ~~2007~~certificate ~~related~~of todeposit that secured the ~~goodwill~~lease applied thereto. As a result of the ~~Internet~~sale ~~service provider~~to Gobility and ~~wireless~~these ~~networks~~transactions, ~~businesses~~the ~~and~~Company recorded ~~certain~~a ~~fixed~~net ~~and~~loss ~~intangible~~on the sale of its Wireless Networks Business of $3,433,843 ~~assets~~that was reported in the loss on sale of ~~Davel~~discontinued ~~and~~operations ~~Kite~~for ~~Networks.~~the fiscal year ended March 31, 2008.

~~Operations~~-6-

WeOn August ~~currently~~1, ~~operate~~2008, inthe ~~four~~Company ~~segments:~~executed ~~(1)~~a ~~Wireless~~promissory ~~Networks,~~note ~~(2)~~and ~~Voice~~release ~~Services~~with Data Sales Co., Inc. (3“Data Sales”) ~~Internet~~in ~~Services~~the ~~and~~principal ~~(4)~~amount ~~Corporate~~of $330,000. ~~For~~The ~~additional~~note ~~financial~~is ~~information~~in full ~~about~~satisfaction ~~our~~of ~~segments~~a ~~see~~$1,231,138 ~~“Management’s~~lease ~~Discussion~~obligation ~~and~~for ~~Analysis~~which ofthe ~~Financial~~Company was a ~~Condition~~co-borrower ~~and~~with ~~Results~~Kite ofNetworks ~~Operations”~~and inreflects ~~Item 7~~the impact of ~~this~~a ~~annual~~sale ~~report~~of ~~and~~certain ~~Note~~uninstalled 15wireless equipment by Data Sales to ~~our~~an ~~Consolidated~~unaffiliated ~~Financial~~third ~~Statements~~party purchaser that was consummated in ~~Item 8~~July 2008. The Company recorded a gain of ~~this~~$901,138 ~~annual~~in the second fiscal quarter of the year ended March 31, 2009 ~~report.~~as a result of the transaction.

~~Wireless~~The Company continues to cooperate with Gobility in its efforts to sell the remaining assets of Kite Networks. In the event Gobility is unsuccessful in its attempts to sell the remaining assets and satisfy the equipment lease obligations, the Company, subject to any defenses it might have, could be required to make the payments on the remaining equipment leases. Two leasing companies have sued the Company for payment under a lease in which Kite/Gobility have defaulted. See Item 3 - “Legal Proceedings”. At March 31, 2009, the aggregate amounts recorded on the consolidated balance sheet for the capital lease obligations, accrued interest, and the note payable and equipment obligation were $2,385,736, $447,412 and $1,613,647, respectively. The Company has also recorded the certificates of deposits securing the lease obligations of $937,664.

~~Municipally~~In March ~~Sponsored~~2007, ~~Broadband~~the ~~Wireless~~Company ~~Networks~~announced that it had signed a definitive agreement for the merger of ProGames, its mobile content subsidiary, with and into Winning Edge International, Inc. Consummation of the transaction was subject to a number of closing conditions including the arrangement of financing that would have sustained the operations of the combined entity. The anticipated financing was not procured. As a result, the merger agreement was terminated and the Company continues to fund the operating costs of ProGames. The Company is currently exploring strategic alternatives with respect to its investment in ProGames. The net loss incurred by ProGames in the twelve months ended March 31, 2009 and 2008 was $302,969 and $679,100, respectively.

InThe ~~May~~operating losses incurred by Davel adversely affected the consolidated operating ~~2005,~~results ~~our~~of ~~municipal~~the ~~wireless~~Company. However, ~~network~~most ~~business~~of ~~was~~the ~~established~~payphones ~~when~~have ~~NeoReach~~been sold ~~Wireless~~to ~~(renamed~~unaffiliated ~~Kite~~payphone ~~Networks~~operators in the fiscal year ended March ~~2006)~~31, ~~acquired~~2008. ~~Transcordia~~In June 2007, the Company sold approximately 730 operating payphones and received in excess of $200,000 in cash proceeds. On September 7, 2007, Davel sold approximately 21,405 payphones to Sterling Payphones, LLC (“Sterling”). Under the terms of the sale agreement, ~~d/b/a/~~the Company received $50,000 in cash, ~~WazAlliance~~$1,839,821 ain ~~network~~cash was paid to its secured lender, YA Global, to reduce the amount of ~~metro-wide~~principal ~~commercial~~and interest owed under the outstanding convertible debentures, and, ~~residential~~pursuant ~~wireless~~to the sale agreement, other amounts were placed in ~~Internet~~escrow ~~access~~to ~~zones~~pay certain key vendors of Davel and to satisfy potential indemnification claims. Sterling also assumed certain liabilities of Davel. Effective September 30, 2007, Davel sold an additional 300 payphones for approximately $85,000. After these sales, Davel’s remaining operations have been significantly reduced. Davel’s remaining operations are being continued and Davel is pursuing the recovery of certain claims including the AT&T, Sprint and Qwest claims described in Item 3 – “Legal Proceedings”.

The Company received letters of interest regarding the acquisition of CloseCall, AFN and the ISP Business. On June 30, 2007, the Company entered into an agreement to sell the Integrated Telecom Business and ISP Business to USA. The total purchase price of $27.7 million ($30.0 million face value) included cash proceeds of approximately $21.9 million and convertible preferred stock with an $8.1 million face value which was originally valued for accounting purposes at $5.8 million. The sale of the ISP Business closed on July 18, 2007 resulting in the Company’s receipt of $500,000 cash, the payment of $2,000,000 to YA Global, and the Company’s receipt of a promissory note in the amount of $2,000,000 and 8,100 shares of convertible preferred stock of USA. The payment to YA Global retired the $1.1 million promissory note issued in May 2007 and approximately $25,000 in related accrued interest and convertible debenture principal and accrued interest of approximately $393,000 and $482,000, respectively. On January 3, 2008, the Company entered into an amendment to the $2,000,000 promissory note due from USA. USA made payments of $500,000 each on January 4 and January 11, 2008 with the remaining balance of $1,000,000, together with accrued interest at the rate of 7.75%, due on the earlier of the date of the closing of the sale of the Integrated Telecom Business or March 31, 2008. Of the $1,000,000 of payments, the Company received $125,000 and the remaining $875,000 was used to pay principal and interest on the convertible debentures due to YA Global. USA was in default on the remaining principal balance of $1,000,000 and accrued interest on March 31, 2008. In July 2008, the Company revised the payment terms relating to the USA note and received payments totaling $200,000. The remaining principal balance and accrued interest at 12% per annum was due on December 29, 2008. USA is in default with respect to the note balance of $859,128 and related accrued interest which continues to accrue at a default rate of 18% per annum. During the fiscal year ended March 31, 2009, the Company wrote down the carrying value of the note and accrued interest due from USA by approximately $345,000.The Company is currently pursuing USA and related parties to collect on the balance owed under the terms of the promissory note. See Item 3. “Legal Proceedings”.

In June 2005, we acquired Evergreen Open Broadband (“Evergreen”), a wholesale wireless Internet service provider based in Boston, Massachusetts. Evergreen provided to us a developed scoring model that we have utilized to evaluate municipal wireless network opportunities. -7-

InOn ~~August 2005~~January 14, we2008, ~~executed~~the aCompany ~~definitive,~~received ~~five-year~~notice ~~agreement,~~from ~~with~~USA ~~two~~purporting ~~five-year~~to terminate ~~extensions,~~the USA Agreement with respect to the ~~city~~sale of ~~Tempe~~the ~~Arizona,~~Integrated ~~for~~Telecom ~~the deployment~~Business, ~~ownership,~~ ~~and management~~but ~~of a~~provided ~~city-wide~~that ~~wireless~~USA ~~network~~remained ~~covering~~interested 40in ~~square~~discussing ~~miles~~terms ~~and~~upon which it ~~serving~~would acomplete ~~population~~the ofsale. The ~~approximately~~Company ~~160,000~~disputes ~~people.~~the ~~The~~validity ~~network~~of ~~reaches~~the ~~approximately~~claims ~~65,000~~alleged ~~households,~~for ~~1,100~~the ~~businesses,~~purported 50termination,~~000~~ ~~students,~~which ~~and~~include the ~~annual~~ ~~visitors~~alleged failure to ~~Tempe.~~obtain ~~The~~certain ~~deployment~~regulatory ofand ~~the~~contractual ~~Tempe~~approvals ~~network~~and ~~was~~the ~~substantially completed~~alleged inbreach ~~February~~of certain ~~2006~~representations atand ~~which~~warranties ~~time~~set weforth ~~began~~in tothe ~~acquire~~USA ~~paying customers~~Agreement. The AtCompany ~~March~~believes ~~31,~~the ~~2007,~~purported wetermination ~~had~~was ~~approximately~~in ~~650~~bad ~~customers~~faith ~~paying~~and ~~monthly~~is pursuing any ~~subscription~~and ~~fees~~all legal and ~~approximately~~equitable ~~170~~remedies ~~nomadic~~available ~~customers~~to ~~paying~~it ~~weekly,~~against ~~daily,~~USA. During the orfourth ~~hourly~~quarter ~~subscription~~of ~~fees~~fiscal 2008, ~~allowing~~the ~~access~~Company tore-assumed ~~multiple~~operating ~~Internet~~control ~~service~~of AFN ~~providers.~~and ~~Regardless~~CloseCall ofand terminated the ~~term~~USA ofAgreement. Although the ~~subscription,~~Company continues ~~subscribers~~to ~~paying~~seek ~~for a particular~~an ~~bandwidth~~alternate ~~level~~buyer ~~will~~for ~~receive~~ the ~~same~~Integrated ~~level~~Telecom ofBusiness, ~~service.~~it ~~In order~~has ~~to complete~~been ~~the~~unable ~~Tempe~~to ~~network,~~find ~~the~~a ~~capital~~buyer ~~expenditures~~to ~~totaled~~purchase ~~approximately $3,000,000 including~~ the ~~development~~business ofat ~~the~~price ~~deployment~~that ~~plan,~~is ~~networking~~acceptable ~~equipment~~to ~~(i.e.,~~the ~~antennas,~~Company ~~transmitters~~in ~~and~~the ~~network~~current ~~routers)~~economic ~~and equipment installation~~environment.

We YA ~~believe~~Global ~~that~~has ~~the~~been ~~Tempe~~a ~~broadband~~significant ~~wireless~~source ~~network~~of ~~project~~capital isfor ~~one~~the ofCompany, providing financing in several forms. During the ~~first and~~fiscal ~~largest~~year ofended ~~its~~March ~~kind~~31, by2007, ~~providing~~the Company borrowed funds under a ~~cost-effective~~series ~~alternative~~of toconvertible ~~residential~~debentures. Using shares of ~~dial-up~~its ~~service~~common ~~and~~stock ~~local~~registered ~~area~~on ~~hot~~Form S-~~spot~~3 ~~wireless~~in ~~access~~November ~~and~~2006, ~~serving~~the asCompany anmade ~~alternative~~principal and~~/or~~ ~~complement~~interest topayments ~~DSL~~on ~~and~~the ~~cable.~~debentures ~~The~~that ~~Tempe~~totaled ~~network~~$4,880,489 ~~represents~~and ~~an open~~$1,967,908 ~~platform~~during the fiscal years ended March 31, ~~offering~~2007 ~~freedom~~and 2008, respectively. However, the supply of ~~service~~shares ~~choices~~registered tothat ~~subscribers~~related ~~over~~to athe ~~mixture~~convertible ofdebentures ~~public,~~has ~~restricted~~been exhausted and ~~licensed~~the ~~bands.~~Company ~~Wireless~~was ~~Internet~~unable ~~access~~to ismake ~~available~~the weekly principal and interest payments in ~~these~~accordance ~~areas~~with onthe aterms ~~fixed~~of ~~and~~the ~~mobile~~convertible debentures ~~basis~~as amended through January 16, 2008. As a result, we were delinquent with respect to the ~~city,~~convertible debentures. The total principal and accrued interest amounts owed to ~~residents~~YA Global under the debentures at March 31, 2008 was ~~businesses~~$13, ~~students~~168,944 and ~~visitors~~$167,370, respectively. ~~The~~In ~~network~~fiscal ~~also~~2009, ~~provides~~we ~~municipal~~continued ~~services~~ to negotiate ~~the~~with ~~city’s~~YA ~~police~~Global, ~~fire,~~which ~~emergency~~had verbally granted forbearance, and ~~administrative~~were ~~personnel~~able to obtain a revised payment schedule and an extension of the maturity date. Effective ~~The~~June ~~network~~30, 2008, the Company issued a secured ~~enables~~convertible debenture with a ~~range~~maturity date of ~~free~~May ~~and~~1, ~~fee-based~~2009 ~~services~~to ~~and~~YA ~~provides~~Global ~~secure~~with ~~high-speed~~an ~~access~~aggregate toprincipal ~~data,~~balance ~~voice~~of $13,391,175, replacing the previous convertible debentures and ~~video~~amendments. ~~throughout~~During the ~~coverage~~fiscal ~~area.~~year ~~Any~~ended ~~subscriber may~~March ~~use~~31, an2009 ~~existing~~YA ~~Web-based~~Global has ~~email~~made ~~account~~conversions inwhich ~~connection~~have ~~with~~resulted in the ~~wireless~~reduction of $324,840 of ~~service~~principal. AThe ~~subscriber~~Company isdid ~~able~~not topay ~~use~~the anremaining ~~existing~~principal ~~Internet~~balance ~~account~~of $13,029,125 ifthat anwas ~~access~~due May 1, 2009. On May 5, 2009, the Company executed an agreement iswith inYA ~~place~~Global, ~~between~~pursuant usto which YA Global has agreed to forbear from enforcing its rights and remedies against the ~~subscriber's~~Company ~~Internet~~under ~~service~~the convertible ~~provider~~debenture through May 31, 2009. Although YA Global initially extended the forbearance period through June 5, 2009, YA Global has not agreed to further extend the forbearance period.

~~During~~The ~~the~~Company’s ~~fiscal~~financial ~~year~~statements ~~ended~~have ~~March~~been ~~31,~~prepared ~~2007,~~on wea ~~completed~~going concern basis, which contemplates the ~~deployment~~realization of ~~similar~~assets and settlement of liabilities and ~~city-wide~~commitments ~~wireless~~based ~~networks~~on recorded amounts for the ~~communities~~foreseeable offuture. ~~Farmers’~~Although ~~Branch~~YA Global initially extended the forbearance period through June 5, ~~Texas~~2009, ~~and~~YA Global ~~Longmont,~~has ~~Colorado.~~not ~~The~~agreed ~~community~~to offurther ~~Farmers’~~extend ~~Branch~~the ~~covers~~forbearance 12period ~~square~~or ~~miles~~restructure ~~and~~the ~~includes~~payment aterms ~~population~~ of ~~about~~the ~~26,000~~obligations ~~people~~owing under the secured convertible debenture. As ~~The~~a ~~city~~result, ofMobilepro ~~Longmont~~is ~~covers~~in 25default of its obligations ~~square~~under ~~miles~~the ~~and~~secured ~~includes~~convertible adebenture ~~population~~owed ofto ~~about~~YA 82Global and,~~000~~ ~~people.~~given Atcurrent market ~~March~~conditions 31and Mobilepro’s financial condition, obtaining the required ~~2007,~~financing weto ~~had~~retire ~~approximately~~the ~~530~~secured ~~customers~~convertible ~~paying~~debenture ~~monthly~~is ~~subscription~~unlikely ~~fees~~to ~~and~~occur in ~~200~~the ~~nomadic~~immediate ~~customers~~future. YA ~~paying~~Global ~~weekly,~~has ~~daily,~~informed orthe ~~hourly~~Company ~~subscription~~that ~~fees~~it intends into exercise its rights as the Company’s senior secured ~~these two~~creditor. Such ~~municipalities~~rights include, ~~allowing~~but ~~access~~are not limited to, ~~multiple~~foreclosing ~~Internet~~on the ~~service~~assets ~~providers~~of the Company. In such event the Company will not have the ability ~~We incurred~~to ~~capital~~continue ~~expenditure~~as ~~costs~~a ofgoing ~~approximately~~concern. ~~$1,600,000~~The ~~and~~consolidated ~~$2,000,000,~~financial statements do not ~~respectively,~~include ~~related~~any toadjustments ~~the~~that ~~deployments~~might inresult ~~Farmers’~~from ~~Branch~~the ~~and~~outcome ~~Longmont.~~of this uncertainty.

~~Initially,~~Geographic our target customers were wholesale Internet service providers that would provide e-mail messaging, VoIP, Web-hosting and emergency services to subscribers. We have not been successful in establishing these types of arrangements. As a result, subscriber growth has occurred one subscriber at a time during a period when the business had limited amounts of cash to use on advertising and other business development activities. Further, we had to overcome unexpected technical problems with the deployed equipment in Tempe. These problems interrupted the increase in subscribers and required us to increase the number of receivers deployed throughout the city, increasing the overall cost of the project. As a result, in general, the growth in revenues provided by these wireless networks has failed to reach originally expected levels.Markets

~~The~~Through ~~securing~~our ofIntegrated aTelecom ~~city~~Business, ~~contract~~we isprovide aservice ~~multi-step~~to ~~process~~customers ~~that~~located throughout ~~can~~the ~~take~~United ~~over~~States ~~six months~~with toconcentrations ~~complete~~in California, ~~including~~Kansas, Maryland, ~~the~~Missouri, ~~RFP~~New ~~preparation~~Jersey, ~~response~~Pennsylvania and ~~evaluation,~~Texas. Our pay telephone ~~contract~~business ~~negotiation~~is concentrated in the State of Ohio. Historically, ~~development~~certain portions of ~~the~~our ~~deployment~~consolidated ~~plan~~business ~~and~~have ~~equipment~~been concentrated in certain ~~installation~~geographic ~~and~~markets. ~~testing~~For ~~any~~example, ~~may~~the ~~include~~Davel apayphones ~~pilot~~had ~~demonstration~~previously asbeen alocated ~~pre-requisite~~across tothe ~~final~~United ~~award.~~States; ~~The~~approximately ~~cities~~60% of ~~Chandler,~~the ~~Yuma~~payphones ~~and~~were ~~Gilbert,~~located ~~Arizona,~~in ~~and~~warm ~~Akron~~climate ~~and~~states ~~Cuyahoga~~of ~~Falls,~~the ~~Ohio~~southwest, ~~have~~southeast ~~also~~and ~~selected~~west; usapproximately ~~for~~40% of the ~~proposed deployment~~payphones were located in midwest, ~~ownership~~northwest, and ~~management~~northeast sections of ~~their~~the country, ~~planned~~with ~~wireless~~usage ~~networks~~during the winter months thereby negatively affected by the cold climate. The ISP Business previously provided service to customers ~~deployments~~primarily located in ~~several~~the states of ~~these~~Texas, ~~cities~~Arizona, ~~are~~Louisiana, ~~behind~~Kansas, ~~schedule~~Missouri, Wisconsin, Ohio, Washington and California.

6-8-

Kite Broadband LLC

In June 2005, we participated in the formation of Kite Broadband, a wireless broadband Internet service provider, investing $3,825,000 cash and resulting in the 51% ownership of this venture. On January 31, 2006, we acquired the remaining 49% of Kite Broadband.

On June 30, 2005, Kite Broadband executed a Master Agreement for Services with Sprint under which Kite Broadband shall provide services to Sprint’s broadband customers in 14 metropolitan markets for a period of three years utilizing the Sprint mark. The agreement covers, among other things, the provisioning of certain customer-facing services, such as customer operations and call center management, sales, marketing, billing, collection, installation, and repair. Sprint continues to provide network support and transport services. The customers remain Sprint customers during the three-year term of the agreement. Kite Broadband is entitled to have Sprint remit all collected customer revenues in exchange for these services and remit a monthly fee back to Sprint for the network support and transport services.

Upon expiration of the agreement, Kite Broadband will have the option to acquire the then existing customers pursuant to the terms of the agreement. All network and spectrum assets will remain the property of Sprint. Also, Kite Broadband provided a complete and experienced team of employees who, in addition to running the operations of Kite Broadband, assumed responsibility for the management of our municipal wireless network business.

Research and Development

As we have emphasized the growth of the Company through the acquisition of service-oriented companies, our research and development activities have been reduced. In fiscal ~~2007~~2009 and 2008, we did not pursue new research ~~initiatives but rather~~ ~~looked to harvest the value of the intellectual property portfolio which we own via licensing, joint venture and/or sale of certain intellectual property~~initiatives.

~~NeoReach~~Prior to its entry into the wireless network business, NeoReach previously conducted development efforts related to certain wireless antenna and ~~networking~~ networking technologies, in particular, ZigBee chip development work. NeoReach also worked toward developing a semiconductor chip for use in home networking and selected industrial monitoring applications based on the ZigBee standard. ZigBee is an IEEE standard (802.15.4) developed for certain low power, short-range devices. The scope of this development activity was significantly reduced over the last few years. In the year ended March 31, 2006, we incurred research and development costs of approximately $139,000 in connection with this effort with the objective of making the technologies ready for sale or licensing on an OEM basis. The development of these technologies was unrelated to the deployment, ownership, and management of the broadband wireless networks inand the Company ~~Tempe.~~ maintains its interest in this intellectual property

The ZigBee chip project continues, in our view, to have potential future value as ZigBee chips can be used for sensors and other wireless devices, including potentially as a complement to Wi-Fi. However, shareholders should be advised that given the limited focus and limited resources we plan to devote to these initiatives, material revenue should not be expected from this investment. If the U.S. patent office were to grant certain patent claims made in our patent filings with respect to ZigBee and other wireless technologies, we may choose to re-focus on these initiatives; however, there can be no assurance that the U.S. patent office will act in a prompt manner or, if it does act, that it will resolve favorably our patent claims. In sum, we do not anticipate that these activities will represent a meaningful percentage of our revenue in the future.

NeoReach filed a total of eight patent applications with the U.S. Patent and Trademark Office in the areas of “Smart Antenna” technology and RF Transceiver Chip Design for “Low Noise Amplifier for wireless communications.” As of March 31, 2006, we had been granted approval of ~~five~~seven patents in the area of “Smart Antenna” technology and ~~three~~one patent applications ~~were~~was still pending approval. In fiscal year March 31, 2007, we sold the Smart Antenna technology to an unaffiliated company, receiving $300,000 in cash proceeds.

Voice Services

~~Competitive~~Integrated ~~Local~~Telecom ~~Exchange Carrier~~ Business

Overview

Our efforts in the ~~competitive~~Integrated ~~local~~Telecom ~~exchange~~Business ~~carrier~~have ~~business~~historically ~~are~~been led by CloseCall, a company that we acquired in October 2004 and AFN, a company we acquired in June 2005. CloseCall and AFN offer ~~our~~its customers a full array of telecommunications products and services including local, long-distance, ~~1-800-CloseCall~~ ~~anytime/anywhere calling,~~ digital wireless, ~~high-speed~~digital telephone (voice over Internet protocol, or “VoIP”), and dial-up and DSL Internet services.

Our entrance into this business began with two acquisitions consummated in the summer of 2004. In June 2004, we acquired US1 Telecommunications, Inc. (“US1”), a long distance provider located in Kansas. In July ~~2004~~2005, we completed our acquisition of Affinity, a Michigan-based CLEC, and long distance carrier. The operations of US1 and Affinity have been integrated into the operations of AFN and CloseCall, respectively.

In a transaction that was effective January 1, 2007, CloseCall acquired mobeo® Wireless reseller assets from TeleCommunication Systems, Inc. (“TCS”) including over 7,000 cellular telephone service contracts and certain related net assets. This transaction enables CloseCall to sell RIM Blackberry® products and network access to enterprise and retail subscribers nationwide. Since the acquisition, some of the customers acquired have discontinued services with CloseCall.

-9-

Business Strategy

~~Our~~As ~~primary~~previously ~~objective~~discussed, in the ~~voice~~Company ~~division~~entered isinto toan beagreement awith ~~leading~~USA ~~provider~~to ofsell, ~~high-quality~~among ~~integrated~~other ~~communications~~things, ~~services~~its inIntegrated ~~each~~Telecom ofBusiness. ~~our~~The ~~major~~sale ~~service~~of the Integrated ~~areas,~~Telecom ~~acting~~Business ashas anot ~~reseller~~been ofconsummated ~~local,~~and ~~long~~the ~~distance,~~Company ~~wireless,~~continues ~~Internet~~to ~~access~~pursue ~~and~~potential ~~data~~buyers ~~services~~for tothe ~~residential~~Integrated ~~customers,~~Telecom ~~small~~Business. toSee ~~medium-sized~~discussion ~~businesses,~~above concerning the sale of the ISP and ~~select~~Integrated ~~large~~Telecom ~~business~~Businesses ~~enterprises~~to USA. During Wethis ~~deliver~~time ~~high-value~~period, ~~bundled~~the ~~and individual~~Company ~~services~~has ~~tailored~~continued to operate the ~~needs~~Integrated ofTelecom ~~our~~Business ~~customers~~until ~~presented~~such ontime as a ~~single~~sale transaction could be ~~invoice~~consummated.

~~When~~While the ~~economically~~Company ~~advantageous~~continues ~~for us~~ to dooperate ~~so,~~the weIntegrated ~~seek~~Telecom toBusiness ~~bundle~~its ~~our integrated~~primary ~~communications~~objective ~~services.~~is ~~Our~~to ~~targeted~~be ~~customers~~a ~~often~~leading ~~will~~provider ~~have~~of ~~multiple~~high-quality ~~vendors for~~integrated ~~voice and data~~ communications services, in each of ~~which~~our ~~may~~major beservice ~~billed separately. Unlike many of these vendors~~areas, weacting ~~are~~as ~~able to provide~~ a ~~comprehensive package~~reseller of local ~~telephone~~, long distance, wireless, Internet access, and ~~other~~data ~~integrated communications~~ services. ~~The~~to ~~success~~residential ofcustomers, small ~~this~~to ~~business~~medium-sized ~~will~~businesses, beand ~~based,~~select inlarge ~~part,~~business enterprises. The ~~on the~~Integrated ~~establishment~~Telecom ofBusiness ~~effective~~delivers ~~cross~~high-~~selling~~value ~~programs~~bundled inand ~~order~~individual services tailored to ~~leverage~~ the ~~combined~~ ~~customer~~needs ~~base~~ of ~~the~~its ~~voice~~customers ~~and~~presented ~~Internet~~on ~~service~~a ~~provider business~~single ~~segments,~~invoice. It ~~the~~also ~~effective~~provides ~~delivery~~value ofadded ~~such~~data ~~services~~management and ~~the provision of excellent~~processing ~~customer service~~services.

~~CloseCall~~When ~~has~~economically ~~focused~~advantageous onfor ~~the~~us ~~expansion~~to ofdo ~~its~~so, ~~telecommunications~~the ~~service~~Integrated ~~offerings~~Telecom ~~and~~Business seeks ~~the securing~~to ofbundle ~~long-term~~our ~~agreements~~integrated ~~with~~communications ~~local exchange carriers~~services. ItOur ~~has~~targeted ~~five-year~~customers often ~~commercial~~will ~~agreements~~have ~~with~~multiple ~~Verizon~~vendors ~~and~~for ~~SBC~~voice ~~covering six~~ and ~~thirteen~~data ~~states, respectively.~~communications ~~In addition~~services, weeach ~~executed a similar agreement with BellSouth~~of ~~covering~~which ~~nine~~may ~~states~~be ~~that~~billed ~~runs through December 31, 2007~~separately. ~~Completion~~Unlike many of these ~~agreements~~ 1)vendors, ~~allows~~ the ~~expansion~~Integrated Telecom ofBusiness ~~CloseCall’s~~is ~~overall~~able ~~geographic~~to ~~market,~~provide ~~and the~~a ~~expansion~~comprehensive ~~and~~package ~~bundling~~ of ~~service~~local ~~offerings~~telephone, long indistance, ~~these~~Internet ~~states including Florida~~access, and 2)other ~~provides~~integrated ~~predictability~~communications ofservices. The ~~the~~success ~~pricing~~ of ~~wholesale~~this ~~services provided~~business towill usbe bybased, ~~these~~in ~~carriers~~part, ~~during~~on the ~~terms~~establishment of ~~the agreements. CloseCall~~ ~~makes~~effective ~~extensive~~cross-selling ~~use of direct mail~~ programs toin ~~market~~order ~~its services~~ to ~~customers. It~~leverage ~~also~~the ~~uses~~combined ~~print,~~customer ~~signage, radio, and television advertising to market~~base ~~services to customers~~ of ~~certain local professional sports teams including~~ the ~~Baltimore~~ ~~Ravens,~~voice ~~Baltimore~~service ~~Orioles,~~business ~~Ripken Baseball~~segment, ~~Aberdeen~~the ~~Ironbirds, Frederick~~effective ~~Keys,~~delivery ~~Bowie~~of ~~Baysox,~~such services and the ~~Delmarva~~provision ~~Shorebirds~~of ~~under~~excellent ~~contractual arrangements~~customer ~~with the ball clubs~~service.

InCloseCall ~~the fiscal~~has ~~year~~focused ~~ended~~on ~~March~~the ~~31,~~expansion ~~2006,~~of weits ~~completed~~telecommunications ~~two~~service ~~acquisitions~~offerings ~~that~~and ~~added~~the ~~revenues,~~securing ~~profits~~of ~~and~~long-term ~~licensed~~agreements ~~coverage~~with ~~areas~~local toexchange ~~our voice services segment~~carriers. It ~~On June~~has commercial ~~30,~~agreements ~~2005,~~which weexpire ~~acquired~~in ~~AFN~~2011 ~~which~~with ~~added~~Verizon ~~approximately~~and AT&T ~~15,000~~covering ~~customer~~eighteen ~~lines to~~and ~~our~~thirteen ~~customer~~states, ~~base~~respectively. ~~AFN~~Completion isof these ~~focused~~agreements on1) ~~four~~allows ~~major~~the ~~customer~~expansion ~~segments~~of -CloseCall’s ~~hotels~~overall geographic market, and ~~resorts,~~the ~~corporate~~expansion ~~housing,~~and ~~resort-area~~bundling ~~property~~of ~~management~~service ~~and~~offerings ~~other~~in these states ~~business~~including ~~services.~~Florida, Itand ~~has~~2) ~~developed~~provides ~~customized~~predictability ~~provisioning~~of ~~and~~the ~~billing processes~~pricing ~~that~~of ~~enables~~wholesale services itprovided to ~~accurately~~us ~~and~~by ~~efficiently~~these ~~meet~~carriers during the ~~unique requirements~~terms of ~~these~~the ~~types~~agreements. CloseCall makes extensive use of ~~customers.~~direct ~~AFN~~mail ~~also~~programs ~~leverages~~to market its ~~service~~services ~~supply~~to ~~capabilities~~customers. byCloseCall ~~providing~~previously ~~connection~~used print, signage, radio, and television advertising to market services to ~~payphone~~customers ~~telephone~~of ~~operators~~certain local professional sports teams including ~~Davel.~~the ~~This~~Aberdeen ~~operating~~Ironbirds, ~~profit~~Frederick ~~was~~Keys, ~~favorably~~Bowie ~~affected~~Baysox, byand the ~~timing~~ ~~of costs~~Delmarva ~~and~~Shorebirds ~~expenses~~under ~~incurred~~contractual byarrangements ~~AFN’s~~with ~~affiliated~~the ~~service~~ball ~~company during 2006~~clubs. The ~~service~~Company ~~agreement~~has ~~expired~~re-evaluated onthe ~~October~~effectiveness ~~31,~~of ~~2005~~its advertising and no longer participates in these programs. InA ~~September~~new ~~2005,~~focus ~~AFN~~of ~~acquired~~CloseCall is to secure wholesale ~~the~~arrangements ~~assets~~with ofother ~~AllCom~~telecommunications ~~USA~~companies ~~and~~that ~~their~~wish ~~long~~to ~~distance~~share CloseCall’s cellular and ~~T-1~~Blackberry ~~customers~~relationships. As of March 31, ~~providing~~2009, ~~an additional~~CloseCall ~~customer~~provides ~~base~~such ~~for~~services ~~bundled~~to ~~services~~three other companies.

Services

This portion of our voice business segment provides service to over approximately ~~129~~83,~~991~~358 equivalent subscriber lines, including approximately ~~113~~70,~~430~~533 local and long distance lines. This business also has approximately 7,~~345~~876 cell phone and Blackberry® subscribers. Despite the acquisition of business subscribers from TCS, the majority of our customers of CloseCall are residential.

Bundled Services Approach. We ~~offer our~~The Integrated Telecom Business offers integrated communications services in a high-quality bundle to residential customers and small to medium-sized businesses at attractive prices. When economically advantageous ~~for us~~ to do so, wethe Integrated ~~seek~~Telecom Business seeks to bundle ~~our~~its integrated ~~communications~~ communications services. ~~Our~~Its targeted customers often will have multiple vendors for voice and data communications services, each of which may be billed separately. WeIt ~~are~~is able to provide a comprehensive package of local telephone, long distance, Internet access, and other integrated communications services.

Local Services. The ~~We offer~~Integrated Telecom Business offers a wide range of local services, including local access services, voicemail, universal messaging, directory assistance, call forwarding, return call, hunting, call pick-up, repeat dialing and speed dialing services. ~~We provide~~It ~~our~~provides local services primarily over local connections utilizing Incumbent Local Exchange Carrier (ILEC) facilities.

~~Long Distance Services. We offer both domestic and international switched and dedicated long distance services, including “1+” outbound dialing, inbound toll~~-free and calling card services. Many of our customers prefer to purchase our long distance services as part of a bundle that includes some of our other integrated communications services offerings. We also offer for convenience an away from home or business service using our own network platform with 110-~~800-CloseCall.~~

~~Blackberry® PDA~~Long Distance Services. ~~With~~The ~~the acquisition~~Integrated ofTelecom ~~subscribers~~Business ~~from~~offers ~~TCS~~both domestic and ~~the~~international ~~assignment~~switched ~~of the master supply~~and ~~agreement~~dedicated ~~between~~long ~~TCS~~distance ~~and~~services, ~~Research~~including in“1+” ~~Motion~~outbound ~~Corporation~~dialing, ~~CloseCall~~inbound toll-free ~~now~~and ~~can provide~~calling ~~this~~card ~~popular~~services. ~~personal~~Many ~~data~~of ~~assistant~~its ~~(PDA)~~customers ~~service~~prefer ~~and~~to ~~supply~~purchase ~~Blackberry®~~long ~~equipment,~~distance ~~accessories,~~services ~~software~~as ~~and~~part ~~support~~of ~~contracts~~a tobundle ~~its~~that includes some of our other ~~customers~~integrated communications services offerings.

~~High~~Blackberry® PDA Services. ~~Speed~~With ~~Internet~~the ~~Access~~acquisition ~~via~~of ~~Digital~~subscribers ~~Subscriber~~from ~~Line. We offer~~TCS ~~xDSL~~and ~~combined~~the ~~with~~assignment ~~our~~of ~~local~~the master ~~access~~supply ~~service~~agreement inbetween ~~selected~~TCS ~~markets.~~and ~~DSL~~Research in Motion Corporation, ~~technology~~CloseCall provides ~~continuous~~this ~~high-speed~~popular ~~local~~personal ~~connections~~data toassistant ~~the~~(PDA) ~~Internet~~ service and supply toBlackberry® ~~private~~equipment, accessories, software and ~~local~~support ~~area~~contracts ~~networks~~to its customers.

High Speed Internet Access. Wevia ~~offer dial-up~~Digital ~~and~~Subscriber ~~broadband~~Line. ~~Internet~~The ~~access~~Integrated ~~utilizing~~Telecom ~~multiple~~Business ~~wholesale~~offers ~~vendors~~xDSL ~~and also~~combined ~~offer~~with our ~~five~~local ~~times~~access ~~(“5X”)~~service ~~traditional~~in ~~dial~~selected markets. DSL technology provides continuous high-upspeed ~~speeds~~local inconnections ~~select~~to the Internet and to private ~~locations~~and local area networks.

~~Digital Wireless~~Internet ~~Phones~~Access. WeThe ~~offer digital~~Integrated ~~wireless~~Telecom ~~phone~~Business ~~services~~offers indial-up ~~many~~and ofbroadband ~~our~~Internet ~~target markets. We believe that~~access ~~CloseCall~~utilizing ~~America~~multiple iswholesale ~~one~~vendors ofand ~~the~~also ~~few~~offer ~~companies~~our ~~that~~five ~~have~~times ~~the capability to add~~(“5X”) ~~wireless~~traditional ~~service~~dial-up tospeeds anin ~~existing~~select ~~customer invoice~~locations.

Digital Wireless ~~Data~~Phones. The ~~We offer~~Integrated Telecom Business offers digital wireless ~~data~~phone services in many of our target markets. We believe that CloseCall ~~America~~ is one of the few companies that have the capability to add wireless ~~data~~service ~~services~~ to an existing customer invoice.

Digital Wireless Data. The ~~Broadband~~Integrated ~~Phones~~Telecom ~~via~~Business ~~Voice~~offers ~~over~~digital IPwireless ~~(“VoIP”).~~data Weservices in many of our ~~offer digital~~target ~~phones~~markets. ~~for~~We ~~customers~~believe that ~~have~~CloseCall ~~access~~is toone ~~high-speed~~of ~~Internet~~the ~~connections~~few companies that have ~~utilizing~~the ~~VoIP~~capability ~~technologies~~to ~~provided~~add bywireless ~~several~~data ~~third-party~~services ~~VoIP~~to ~~service~~an existing customer ~~providers~~invoice.

9Digital Broadband Phones via Voice over IP (“VoIP”). The Integrated Telecom Business offers digital phones for customers that have access to high-speed Internet connections utilizing VoIP technologies provided by several third-party VoIP service providers.

Payphone Services

Overview

Our subsidiary, Davel, ishas been one of the largest independent payphone service ~~providers~~ providers in the United States. Davel operates in a single business segment within the telecommunications industry, and ~~primarily~~previously ~~utilizes~~utilized subcontractors to operate, service, and maintain its system of payphones throughout the United States. On November 15, 2004, we completed our acquisition of 100 percent of the ~~senior~~ senior secured debt of Davel and received an assignment of the secured lenders’ ~~shares~~ shares of Davel common stock representing approximately 95.2 percent of Davel ~~issued~~ issued and outstanding common stock. We subsequently acquired the remaining 4.8 ~~percent~~ percent of the issued and outstanding Davel common stock in May 2005.

AsDuring ~~of March~~fiscal ~~31,~~2008 ~~2007,~~ Davel ~~owned~~entered ~~and~~into ~~operated~~ a ~~network~~series of ~~approximately~~transactions ~~26,517~~to sell the majority of ~~payphones~~its ~~predominantly~~pay ~~located in~~telephones. See 44discussion ~~states~~above ~~and~~concerning the ~~District~~sale of ~~Columbia,~~the ~~providing~~pay ittelephones. As ~~with one~~ of ~~the~~March ~~broadest~~31, ~~geographic~~2008 ~~ranges~~Davel ofowned ~~coverage~~and ofoperated ~~any~~a ~~payphone~~nominal ~~service~~number ~~provider,~~of orpay ~~PSP,~~telephones located in the ~~country~~State of Ohio. Davel does not intend to expand its existing pay telephone base. Davel’s installed ~~payphone~~ payphone base generates revenue through coin calls (local and long-distance), non-coin calls (calling card, credit card, collect, and third-party billed calls ~~using~~ using the Company’s pre-selected operator services providers) and dial-around ~~calls~~ calls (utilizing a 1-800, 1010XXX or similar “toll free” dialing method to select a carrier other than the Company’s pre-selected carrier). ~~Approximately~~The ~~20.6% of~~revenue ~~Davel’s~~generated ~~revenues,~~by orthe ~~approximately~~pay ~~7.0%~~telephones ofis ~~consolidated~~no ~~revenues,~~longer ~~was~~material ~~comprised of~~to ~~dial-around~~the ~~revenues. A~~operations ~~significant portion~~ of ~~Davel’s payphones are~~the ~~located~~Company. See inItem ~~high-traffic~~3. ~~areas~~“Legal ~~such~~Proceedings” asfor ~~convenience~~the ~~stores,~~discussion ~~shopping centers,~~of ~~truck~~several ~~stops,~~matters ~~service~~that ~~stations,~~relate ~~and~~to ~~grocery stores~~Davel.

Since its acquisition by us, Davel has experienced revenue declines as increased competition from cellular and other telecommunications products has caused payphone telephone use to decline. At the time of acquisition, Davel owned and operated approximately 40,000 payphones that provided, on average, annual revenues of approximately $1,334.28 per phone. As a result of declining usage, Davel’s strategy has been to remove low revenue payphones that do not meet its minimum criteria of profitability and to promote improved density of its payphone routes. During the fiscal years ending March 31, 2007 and 2006, Davel removed approximately 8,324 and 3,300 payphones, respectively. Despite the removals, the overall annual average revenues for fiscal 2007 were $967.08 per phone. -11-

~~Although~~Payphone aServices ~~portion~~Business of– the payphone removals resulted from competitive conditions or decisions not to renew contracts with location owners under unfavorable terms, a large portion of the removals were intended to eliminate unprofitable payphonesBackground. Prior to the expiration or renewal of the term of its agreements with location owners, Davel regularly evaluates the economics of such agreements to determine whether more favorable terms can be negotiated in order to minimize the number of payphones that do not meet its minimum criteria of profitability and which may be subject to removal.

The fixed nature of the significant operating costs of this business, including carrier circuits, location contract commissions and payphone service subcontractor fees, makes it extremely difficult to reduce costs at the same rate as revenue decreases. The arrangements under which these services are supplied may be based on term agreements that may require the payment of fixed or minimum monthly fees. The requirements to make fixed payments as payphone usage and revenues decline have eroded Davel’s operating profitability. On the other hand, Davel has reduced its operating expenses, and we have leveraged the administrative support of Davel’s employees for the benefit of the entire Company. For example, the finance group of Davel also serves as the Company’s accounting operations center, and the former CEO of Davel serves as the Company’s General Counsel and directs the Company’s human resources and administrative functions. In addition, Davel converted a number of its local access connections previously provided by other carriers to lines provided by AFN for which it pays AFN approximately $200,000 per month.

On September 30, 2005, Davel sold the majority of the payphones and certain related assets and liabilities of its Bronx, New York, field service office, representing approximately 2,200 payphones, for a net cash selling price of approximately $960,000. On the same date, Davel also entered into agreements with the purchaser of the New York payphones to acquire certain of its payphones in Florida and to maintain, to service and to collect Davel’s remaining payphones in the New York City area. As a result, Davel acquired 2,240 payphones located in Florida for a net cash purchase price of $784,000. We expected that the purchase of the payphones in Florida would allow Davel to maintain a substantially similar level of revenues at a reduced level of operating expenses.

On or about May 10, 2006, Davel entered into an agreement with its operator service provider to, among other things, extend the term of its existing agreement through May 1, 2010. In consideration of the extension, the operator service provider granted Davel a credit in the amount of $600,000 to be applied against current and future monthly call charges incurred by Davel under the terms of the agreement.

During the fourth quarter, Davel commenced negotiations with its largest contractor to amend the terms of its service agreement to reduce certain minimum requirements contained in the agreement. Davel expects that the anticipated amendment will reduce its service and maintenance costs for those phones serviced by the contractor; however, to date, the parties have not yet reduced their agreement to writing. As such, Davel cannot predict the likelihood that its efforts to reduce service and maintenance costs will be successful.

Despite these actions, Davel continues to operate at a loss. As a result, Davel has begun to sell groups of payphones to local operators for cash and, under its ongoing program, to identify additional payphones to be removed based upon low revenue performance and route density considerations. Davel expects to sell and remove additional payphones in the first half of fiscal year 2008.

See “Item 3. Legal Proceedings” for the discussion of several matters that relate to Davel, including a recent ruling favorable to Davel that was issued by the Supreme Court of the United States.

Payphone Services Business - Background

Today’s telecommunications marketplace was principally shaped by the 1984 court-approved divestiture by AT&T of its local telephone operations (the “AT&T Divestiture”), and the many regulatory changes adopted by the FCC and state regulatory authorities in response to and subsequent to the AT&T Divestiture, including the authorization of the connection of competitive or independently owned payphones to the public switched network. The “public switched network” is the traditional, copper based, domestic landline public telecommunications network used to carry, switch, and connect telephone calls. The connection of independently owned payphones to the public switched network has resulted in the creation of additional business segments in the telecommunications industry. Prior to these developments, only the consolidated Bell system or independent LECs were permitted to own and operate payphones. Following the AT&T Divestiture and subsequent FCC and state regulatory rulings, the independent payphone sector developed as a competitive alternative to the consolidated Bell system and other LECs with the goal of providing more responsive customer service, lower cost of operations and higher commissions to the owners or operators of the premises at which a payphone is located.

Prior to the AT&T Divestiture, the LECs could refuse to provide payphone service to a business operator or, if service was installed, would typically pay no or relatively small commissions for the right to place a payphone on the business premises. Following the AT&T Divestiture and the FCC’s authorization of payphone competition, Independent Payphone Providers (“IPPs”) began to offer location ~~Location~~owners ~~Owners~~ higher commissions on coin calls made from the payphones in order to obtain the contractual right to install the equipment on the ~~Location Owners~~location owners’ premises. Initially, coin revenue was the only source of revenue for the payphone operators because they were unable to participate in revenues from non-coin calls. However, the operator service provider, or OSP, industry emerged and enabled the competitive payphone operators to compete more effectively with the regulated telephone companies by paying commissions to payphone owners for non-coin calls. For the first time, IPPs were able to receive non-coin call revenue from their payphones. With this incremental source of revenue from non-coin calls, IPPs were able to compete more vigorously on a financial basis with RBOCs and other LECs for site location agreements, as a complement to the improved customer service and more efficient operations provided by the IPPs.

As part of the Telecommunications Act of 1996, or 1996 Telecom Act, Congress directed the Federal Communications Commission, or FCC, to ensure widespread access to payphones for use by the general public. Estimates of payphone deployment released by the FCC in February 2007 suggest that there are approximately 1.0 million payphones currently operating in the United States, of which approximately 500,000 are operated by local exchange carriers, or LECs. The remaining approximately 500,000 payphones are owned or managed by the more than 600 independent payphone providers, or IPPs, currently operating in the United States.

Business Strategy

~~Outsourcing~~Davel ~~Service,~~owns ~~Maintenance~~ and ~~Collection~~operates ~~Activities.~~a ~~Davel has outsourced~~nominal ~~the~~number ~~assembly~~of ~~and~~pay ~~repair~~telephones oflocated ~~its~~in ~~payphone~~the ~~equipment~~State asof Ohio. The ~~well~~revenues asgenerated by the pay telephones is no longer ~~collection,~~material ~~service,~~to ~~and~~the ~~maintenance~~Company; ofhowever, ~~its~~Davel ~~payphones~~is party to acertain ~~limited~~litigation ~~number~~pending against ofvarious long distance companies, that if successful, could result in a ~~unrelated~~substantial ~~third~~recovery ~~parties~~to the Company. ~~Davel~~See ~~plans~~“Item to3. ~~continue~~Legal toProceedings” ~~evaluate~~for ~~additional~~the ~~outsourcing~~discussion ~~opportunities~~of ~~and~~several tomatters ~~implement~~that ~~those~~relate ~~strategies~~to ~~that~~Davel. Davel ~~can~~intends ~~further~~to ~~reduce~~vigorously ~~its~~pursue ~~fixed~~such ~~operating costs~~litigation.

Utilize Advanced Payphone Technology. The payphones installed and operated by Davel utilize “smart” technology which provides voice synthesized calling instructions, detects and counts coins deposited during each call, informs the caller at certain intervals of the time remaining on each call, identifies the need for and the amount of an additional deposit in order to continue the call, and provides other functions associated with the completion of calls. Through the use of a non-volatile, electronically erasable, programmable memory chip, the payphones can also be programmed and reprogrammed from Davel’s central computer facilities to update rate information or to direct different types of calls to particular carriers. Davel’s payphones can also distinguish coins by size and weight, report to its central host computer the total amount of coin in the coin box, perform self-diagnosis and automatically report problems to a pre-programmed service number.

Apply Sophisticated Monitoring and Management Information Systems. Davel utilizes a blend of enterprise-class proprietary and non-proprietary software that continuously tracks coin and non-coin revenues from each payphone, as well as expenses relating to each payphone, including commissions payable to the location owners. Davel’s technology also allows it to efficiently track and facilitate the activities of its subcontractors via interactions from the pay telephone with its computer systems and technical support personnel at its headquarters.

Provide Outstanding Customer Service. The technology used by Davel enables it to (i) respond quickly to equipment malfunctions and (ii) maintain accurate records of payphone activity that can be verified by customers. Davel strives to minimize “downtime” on its payphones by identifying service problems as quickly as possible. Davel employs both advanced telecommunications technology and utilizes trained subcontractors as part of its commitment to provide superior customer service. The records generated through Davel’s technology also allow for the more timely and accurate payment of commissions to location owners.

Consolidation of Carrier Services. As part of its strategy to reduce costs and improve service quality, Davel has consolidated its coin and non-coin services with a limited number of major carriers. This enables Davel to maximize the value of its traffic volumes and has translated into more favorable economic and service terms and conditions in these key aspects of its business. Davel has entered into service agreements with certain Competitive Local Exchange Carriers (“CLECs”), including AFN, which has allowed it to significantly reduce its costs of obtaining local line service while improving the efficiency and quality of entering its billing information through electronically generated billing.

Pursue Regulatory Improvements. Davel continues to actively pursue regulatory changes that will enhance its near and long-term performance and viability. Notably, Davel is pressing, through regulatory channels, the reduction in line and related charges and improvements to the dial around compensation collection system that are critical to the economic viability of the payphone industry generally and Davel’s operations specifically.

Internet Services

Overview

We provide broadband, dial-up, Web-hosting and Web design services, VoIP, and other related Internet services to business and residential customers in over 40 states through the efforts of DFW and its eight ISP subsidiaries and InReach.

During the last eighteen months, the activities of this operation have focused on the integration of the operations of the acquired companies comprising this business segment. The efforts were focused on combining service offerings, consolidating network operations and customer support locations, improving the quality and reliability of the services, updating service features, enhancing customer service, and reducing operating costs. However, dial-up subscribers represent the largest group of customers of the Internet services group (approximately 55%), and this business continues to experience a steady loss of customers as they switch to faster alternative services. The erosion of this customer base is likely to continue.

The negative customer churn of dial up Internet service provider customers has exceeded our expectations, contributing to the net losses incurred by this segment during the last two fiscal years and resulting in our recording a series of goodwill impairment charges since December 31, 2005. In the fiscal years ended March 31, 2007 and 2006, impairment charges related to this business were $6,474,889 and $2,627,635, respectively.

On November 1, 2005, we completed the acquisition of InReach. The management team of InReach has assumed overall responsibility for our Internet service provider business, eliminating duplicate activities and resulting in the closure of DFW’s offices in the Dallas, Texas, area.

As a result of these efforts, we recorded restructuring charges of approximately $284,000 and $826,000 during the fiscal years ended March 31, 2007 and 2006, including amounts related to the loss expected on the abandonment of leased facilities, the loss expected upon the disposal of excess equipment, and employee termination costs.

However, despite the reductions in operating expenses achieved by this business segment, revenues have declined faster than we have been able to reduce corresponding costs of services, particularly the costs of circuits and connections provided by carriers. Such services are typically provided under term agreements with fixed monthly fees. The requirements to make fixed payments as dial-up usage and revenues decline have eroded the operating profitability of this business.

Business Strategy

In January 2004, the Company began the execution of a strategy to quickly create a viable telecommunications company positioned to capitalize on emerging opportunities, including municipally sponsored broadband wireless networks. This strategy was launched through the acquisition of a series of readily available, reasonably priced ISPs, operating in second and third tier markets and largely providing dial-up Internet access service.

Most of our efforts in the Internet services business segment have been led by DFW, d/b/a Nationwide Internet, a Texas-based ISP that we acquired in January 2004. Nationwide provides a wide array of Internet services tailored to meet the needs of individual and business subscribers. As of March 31, 2007 and including InReach, we served approximately 74,333 equivalent subscriber lines, including approximately 48,360 residential customers and business customers.

Services

We offer Internet services tailored to meet the needs of both individual and business subscribers. Our primary service offerings are dial-up and broadband Internet access, as well as related value-added services. For our business subscribers, we offer dedicated high speed Internet access, Web hosting, co-location, VoIP and other business related services. Our services are offered in several different packages to provide subscribers a broad range of choices to satisfy their Internet needs. The majority of our consumer subscribers have month-to-month subscriptions and the majority of our business customers are under service contracts for a term. We bill consumer subscribers through automatic charges to their credit cards or bank accounts, and by invoice and we bill most of our business customers by monthly invoices.

High Speed Connectivity; DSL Services. We offer broadband connectivity for business and consumers, including 64k/128k Integrated Service Digital Network (ISDN) access, 1.5M Asymmetrical Digital Subscriber Lines (ADSL), 1.5M Symmetrical Digital Subscriber Lines (SDSL), fractional to full T-1, DS-3 level connectivity and wireless connectivity. Our DSL products provide high-speed Internet access over existing telephone lines, and may allow subscribers to simultaneously use a single telephone line for voice service and for access to the Internet. DSL and T-1 products provide an “always on” connection thereby removing wait times associated with dialing into a network. The DSL products offer our residential and business subscribers a cost-effective way to substantially increase the speed at which they access the Internet.

Dial-Up Internet Access. Our most popular dial-up Internet access package includes basic Internet access and related Internet applications such as World Wide Web browsing, e-mail, spam and virus filtering, file transfer protocol (FTP), and news access. Available value-added services include multiple e-mail mailboxes, national roaming services, personalized e-mail addresses, and personal Web sites.

Web Services. We offer Web hosting for businesses and other organizations that wish to create their own World Wide Web sites without maintaining their own Web servers and high-speed Internet connections. Web hosting subscribers are responsible for building their own Web sites and then uploading the pages to a Nationwide server or they can contract with us to design, build and maintain the site for them. This Web hosting service features state-of-the-art servers for high speed and reliability, a high quality connection to the Internet, specialized customer support and advanced services features, such as secure transactions and site usage reports.

T1/VoIP. We deliver VoIP services over a single all-IP network using SDSL and T-1 connections. This gives us the ability to provide a wide range of voice and data services. Unlike traditional voice-centric circuit switched communications networks, which require separate networks in order to provide voice and data services, we employ a single integrated network, which uses technologies that digitize voice communications into IP packets and converges them with other data services for transport on an IP network. Our network design exploits the convergence of voice and data services and requires significantly lower capital expenditures and operating costs compared to traditional service providers using legacy technologies. The integration of our network with our automated front and back office systems allows us to monitor network performance, quickly provision customers and offer our customers the ability to add or change services online, thus reducing our customer care expenses. We believe that our all-IP network and automated support systems will enable us to continue to offer new services to our customers in an efficient manner.

Customer Service

We focus on scalability, reliability, and speed in the technical design and maintenance of our systems. In addition to the provision of quality systems and network performance, we emphasize high quality customer care and technical support. We strive to retain our subscribers by prompt response to customer problems via telephone, email, and newsgroups.

Customer service is available to subscribers 24-hours-a-day, 7-days-a-week. The customer care department is organized in tiers designed to respond to varying types of support needs. In addition to diagnosing and resolving subscribers’ technical problems, our customer care department answers questions about account status and billing information, provisions new product requests and provides configuration information.

Infrastructure

Our network provides subscribers with local dial-up across the United States and broadband (DSL, T-1 and T-3) in select markets. Our systems and network infrastructure are designed to provide reliability and speed. Reliability is achieved through redundancy in mission critical systems that minimize the number of single points of failure. Speed is achieved through clustered systems, diverse network architecture, multi-peered Internet backbone connections, and aggressive load balancing. Our network is comprised of industry-standard Cisco network hardware with multi-homed network elements procured from multiple providers.

Physical and Virtual POPs. Subscribers dial a local phone number and connect to one of our points of presence (POPs), consisting of inbound telephone lines, modems and related computer equipment. The POPs are either facilities owned by Nationwide or “Virtual POPs” owned by other telecommunication companies. Virtual POP architecture allows us to provide local access services without deploying additional physical infrastructure. The Virtual POP architecture enables subscribers to dial a local phone number and connect to a modem owned and housed by a telecommunications provider. The subscriber’s data call is then routed across leased lines to our internal network. Unlike simply leasing network capacity from a third-party provider, the Virtual POP architecture allows us to maintain substantial control over quality of service and capacity. The benefits of this architecture include substantially reduced capital expenditures and reduced exposure to technological obsolescence. In addition, when entering new markets, the Virtual POP architecture allows us to more precisely match capacity needs to actual sales in that market.

Internal Network Infrastructure. Subscribers enter our network from either the physical POP or Virtual POP. Our primary internal network is designed to maximize sustained high-speed traffic and provide both resiliency to failure and redundancy. Our facilities are powered by a computer controlled uninterruptible power supply that provides battery backup, surge protection, and power conditioning. Automatic onsite diesel generators provide power for prolonged power outages.

We also maintain a distributed Network Operations Center (“NOC”) with locations in Tucson, Arizona, Stockton, California, Ridgeland, Mississippi, and Stevensville, Maryland. The Tucson facility is staffed 24 hours a day. The NOC is responsible for monitoring the status of all network facilities, components, servers, applications, and equipment deployed throughout our infrastructure. The NOC is responsible for operational communications among internal departments and is also responsible for communication with external service providers.

We maintain our applications on a variety of systems from a number of vendors. The major applications, such as e-mail and newsgroup access services, utilize a network of EMC blade array servers, which are connected directly to our network backbone through high-availability network switches. We deploy industry standard PC-style hardware in clusters for distributing the load of our applications and providing fault-tolerance against hardware or application failure.

Corporate Activities

Overview

Our Corporate business segment ~~generally~~has ~~serves~~historically served as the holding company for ~~our~~ our three operating business segments: voice services, wireless networks, and ~~Internet~~ Internet services. The corporate office primarily provides overall business management, accounting, financial reporting, and legal support to the business. In the past, executives have also provided contracted business consulting services to unaffiliated companies whereby the Company received compensation for ~~the~~ the services.

For example, in June 2004, we entered into a ~~Business~~business ~~Development~~development ~~Agreement~~agreement with Solution Technology International, Inc., a Frederick, Maryland-based software company, or STI,. ~~whereby~~The ~~the~~ Company provided services to STI in exchange for a non-affiliate equity ownership interest in STI which was initially valued in the amount of $150,000 ~~and it is reflected in the consolidated balance sheet at March 31, 2007 in this amount~~. We Inown ~~August 2004, we announced our intention to issue a property dividend of a portion of our~~ shares of ~~common stock of~~ STI ~~to our stockholders. In March~~ ~~2005,~~stock ~~STI~~which ~~withdrew~~were ~~its~~subsequently ~~registration~~written-off in ~~statement previously filed with~~ the ~~United States~~2008 ~~Securities~~ and ~~Exchange~~2009 ~~Commission. On May 19, 2005, STI executed an~~fiscal ~~agreement and plan of merger with Networth Technologies, Inc~~years., an OTC Bulletin Board listed company. The completion of this transaction is subject to closing conditions. We intend to pursue the issuance of a property dividend upon STI obtaining its public listing. At this time, no date has been established for such listing. We own 5,121,855 shares of STI restricted stock.

In August 2004, we signed a Business Development Agreement with Texas Prototypes, Inc., an electronic prototype manufacturing company, to jointly pursue a working relationship covering a number of potential technology projects and business development initiatives. We received a non-affiliate equity ownership interest in Texas Prototypes as consideration for services under the agreement. We valued this ownership at $300,000 and it is reflected in the consolidated balance sheet at March 31, 2007 at this amount. Texas Prototypes completed its process of becoming a publicly traded company following its reverse merger with Stock Market Solutions, Inc., and its shares of common stock are now quoted on the Over12-~~the-Counter Bulletin Board under the symbol “TXPO.” We own 1,116,226 shares of TXPO restricted stock.~~

In August 2004, we signed a business development agreement with Texas Prototypes, Inc., (“Texas Prototypes”) an electronic prototype manufacturing company, to jointly pursue a working relationship covering a number of potential technology projects and business development initiatives. We received a non-affiliate equity ownership interest in Texas Prototypes as consideration for services under the agreement which we initially valued at $300,000. Texas Prototypes completed its process of becoming a publicly traded company following its reverse merger with Stock Market Solutions, Inc., and its shares of common stock began trading on the Over-the-Counter Bulletin Board under the symbol “TXPO.” In fiscal year 2008, the Company sold its shares and received proceeds of $361,503.

ProGames Network, Inc.

ProGames was formed by Mobilepro in order to focus on the development of tools, content and specialized connectivity for online and mobile gamers. ProGames has launched its website, www.progamesnetwork.com, where visitors may obtain an understanding about the type of exclusive content and online games that ProGames offers.

ProGames plans that the website eventually will include, among other offerings, 1) large, multiplayer online role-playing games, 2) a selection of exclusive games for mobile gamers, 3) a selection of skill, action and casual games, 4) current gaming articles and product reviews, 5) interactive ability for online gamers to communicate with each other, evaluate games and provide feedback. The website will also include an exclusive vertical game space search engine that will empower visitors to search for almost any type of content or game that is available online or via mobile devices.

ProGames is in the business of providing online gamers with a new and unique offering of content, news, original games, social networking and special connectivity. Currently, it is devoting all of its resources to development of this business. ProGames utilizes corporate personnel and office space for which Mobilepro accrues a monthly management fee. To date, the revenues of ProGames have ~~been~~not ~~immaterial~~been material.

In March 2007, the Company announced that it had signed a definitive merger agreement pursuant to which ProGames would be merged with and into Winning Edge International, Inc. Consummation of the transaction was subject to a number of closing conditions including the arrangement of financing that would have sustained the operations of the combined entity. Financing ~~has~~was not ~~been~~ arranged. As a result, the merger agreement was terminated and the Company continues to fund the operating costs of ProGames.

Competition

~~Wireless~~The ~~Networks~~Integrated Telecom Business

~~Wireless~~The ~~broadband~~communications ~~services~~industry ~~are~~is ahighly ~~segment~~competitive. The Integrated Telecom Business competes primarily on the basis of the ~~broadband~~quality of our offerings, quality of our customer service, bundling (offering multiple services), ~~market~~price, availability, reliability, and variety. ~~The~~Our ability to compete effectively depends on our ~~market~~ability ~~for~~to ~~broadband~~maintain high-quality services isat ~~highly~~prices ~~competitive~~generally equal to or below those charged by our competitors. In particular, ~~and~~price ~~includes~~competition ~~companies~~in our sector ~~that offer~~has abeen ~~variety~~intense ofand ~~services~~is ~~using~~not aexpected ~~number~~to ofdecrease. ~~distinctly~~Our ~~different~~competitors ~~technological~~include, among ~~platforms~~others, ~~such~~various “competitive carriers” like us, as ~~cable~~well ~~modems~~as larger providers such as Verizon, ~~DSL~~AT&T, ~~third-generation~~Sprint ~~cellular~~and Qwest. These larger providers have substantially greater infrastructure, ~~satellite~~financial, ~~wireless~~ ~~internet~~personnel, ~~service~~technical, marketing, and other ~~emerging~~resources, ~~technologies~~larger numbers of established customers and more prominent name recognition than CloseCall and AFN. We ~~compete~~increasingly ~~with~~face ~~these companies~~competition onin the ~~basis~~local ofand ~~the~~long ~~portability,~~distance ~~ease~~market offrom ~~use~~local carriers, resellers, ~~speed~~cable companies, wireless carriers and ~~price~~satellite ofcarriers, and may ~~our~~compete with electric utilities. We also face substantial competition from ~~respective~~businesses offering long distance data and voice services over the Internet such as Comcast, Vonage and Skype. These businesses enjoy a significant cost advantage because, even though Congress is considering a bill to “level the playing field,” they currently do not pay carrier access charges.

Kite Networks primarily operates in the city-sponsored sector of this industry. Municipalities often select companies to build and operate municipal wireless broadband networks through a competitive bidding process. In those cases we compete with other companies for rights to provide city-sponsored municipal wireless broadband services. Many of the companies with which we compete are larger and have substantially greater financial and other resources.

Cable Modem and DSL Services

We compete with companies that provide Internet connectivity through cable modems or DSL. Principal competitors include cable companies, such as Cox and Comcast, and incumbent telephone companies, such as AT&T or Verizon. Both the cable and telephone companies deploy their services over wired networks initially designed for voice and one-way data transmission that have subsequently been upgraded to provide for additional services.

Cellular and PCS Services

Cellular and PCS carriers have substantially broader geographic coverage than we have and, for the foreseeable future, than we will have. If one or more of these providers can display technologies that compete effectively with our services, the mobility and coverage offered by these carriers may provide even greater competition than we currently face. Moreover, more advanced cellular and PCS technologies, such as 3G mobile technologies currently offer broadband service with packet data transfer speeds of up to 2 Mbps for fixed applications, and slower speeds for mobile applications. We believe mobile operators, including AT&T, Sprint Nextel, T-Mobile, Verizon, and others, are rolling out 3G cellular services across most major U.S. markets. We also expect that 3G technology will be improved to increase connectivity speeds to make it more suitable for a range of advanced applications. In addition, within the next 12 months, the FCC is scheduled to auction spectrum licenses in the 700 MHz that may be used for the provision of nationwide voice services.

Satellite

Satellite providers offer broadband data services that address a niche market, mainly less densely populated areas that are unserved or underserved by competing service providers. Although satellite offers service to a large geographic area, latency caused by the time it takes for the signal to travel to and from the satellite may challenge the ability to provide some services, such as VoIP, and reduces the size of the addressable market.

WISPs

We also compete with other wireless Internet service providers that use both licensed and unlicensed spectrum. Unlicensed spectrum may be subject to interference from other users of the spectrum, which can result in disruptions and interruptions of service. The Sprint Broadband Direct business operated by Kite Broadband operates using FCC licensed spectrum, where interference is typically not an issue. The municipal wireless networks operate in the unlicensed spectrum, where interference may occur. Many of the unlicensed operators recognize the need to coordinate unlicensed frequencies with other unlicensed operators. Coordination has allowed us to operate successfully in the unlicensed spectrum in various networks over the past several years. Additionally, to date the municipalities have awarded the citywide WiFi contracts to a single operator in a market, thereby limiting network-wide interference, which could arise from multiple operators. Any interference that is experienced by users is typically localized to a very small area, with the interference typically arising from a cordless phone or wireless router within a home or business. . In addition, within the next 12 months, the FCC is scheduled to auction spectrum licenses in the 700 MHz that may be used for the provision of nationwide wireless Internet access services.

Other

We believe other emerging technologies may also seek to enter the broadband services market. For example, we are aware that several power generation and distribution companies intend to provide broadband Internet services over existing power lines. While this technology is unproven, we believe offering broadband Internet services over power lines could cause interference with the use of spectrum, both licensed and unlicensed.

We also face competition from other wireless broadband service providers that use licensed spectrum. In addition to these commercial operators, many local governments, universities, and other governmental or quasi-governmental entities are providing or subsidizing free WiFi networks.

Voice Services

The communications industry is highly competitive. We compete primarily on the basis of the quality of our offerings, quality of our customer service, bundling (offering multiple services), price, availability, reliability, and variety. Our ability to compete effectively depends on our ability to maintain high-quality services at prices generally equal to or below those charged by our competitors. In particular, price competition in our sector has been intense and is not expected to decrease. Our competitors include, among others, various “competitive carriers” like us, as well as larger providers such as Verizon, AT&T, Sprint and Qwest. These larger providers have substantially greater infrastructure, financial, personnel, technical, marketing, and other resources, larger numbers of established customers and more prominent name recognition than CloseCall and AFN. We increasingly face competition in the local and long distance market from local carriers, resellers, cable companies, wireless carriers and satellite carriers, and may compete with electric utilities. We also increasingly face competition from businesses offering long distance data and voice services over the Internet such as Comcast, Vonage or Skype. These businesses could enjoy a significant cost advantage because, even though Congress is considering a bill to “level the playing field,” they currently do not pay carrier access charges.

We face significant competition from “competitive carriers” that are similar to us, principally in terms of size, structure and market share. Some of these carriers already have established local operations in some of our current and target markets. We cannot predict which of these carriers will be able to continue to compete effectively against us over time.

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We also compete in the provision of local services against the incumbent local telephone company in each market, which is either Verizon or AT&T in a large majority of our market areas. Incumbent carriers enjoy substantial competitive advantages arising from their historical monopoly position in the local telephone market, including pre-existing customer relationships with all or virtually all end-users. Further, we are highly dependent on incumbent carriers for local network facilities and wholesale services required in order for us to assemble our own local services. In addition, incumbent carriers may compete in each other’s markets in some cases or attempt to merge and create even larger competitors, which will increase the competitive pressures we face. Wireless communications providers such as T-Mobile are competing with wireline local telephone service providers, which further increases competition.

Local and long-distance marketing is converging, as most other carriers offer integrated communications services. For example, the mergers of AT&T and SBC and Verizon and MCI have created companies that can offer a full array of products and services to customers, a strategy similar to what our CloseCall subsidiary has pursued. These companies already have extensive fiber optic cable, switching, and other network facilities that they can use to provide local and long distance services throughout the country. We also compete with numerous direct marketers, telemarketers and equipment vendors and installers with respect to portions of our business.

A recent trend toward deregulation, particularly in connection with incumbent carriers and service providers that use Voice over Internet Protocol applications increases the level of competition that we face in our markets and, in turn, may adversely affect our operating results. Incumbent carriers continue to seek deregulation for many of their services at both the federal and state levels. If their efforts are successful, these companies will gain additional pricing flexibility, which could affect our ability to compete with them. The recent emergence of service providers that use Voice over Internet Protocol applications also presents a competitive threat. Because the regulatory status of Voice over Internet Protocol applications is largely unsettled, providers of such applications may be able to avoid costly regulatory requirements, including the payment of inter-carrier compensation. This could impede our ability to compete with these providers on the basis of price. More generally, the emergence of new service providers will increase competition, which could adversely affect our ability to succeed in the marketplace for communications and other services.

Our payphone business competes for payphone locations directly with LECs and other IPPs. We also compete, indirectly, with long-distance companies, which can offer Location Owners commissions on long-distance calls made from LEC-owned payphones. Most LECs and long-distance companies against which we compete, as well as some IPPs, may have substantially greater financial, marketing and other resources than us. Many LECs and IPPs faced with competition for payphone locations have increased their compensation arrangements with Location Owners to offer increased commission payments.

We believe that the competitive factors among payphone providers are (1) the quality of service and the availability of specialized services provided to a Location Owner and payphone users, (2) the ability to serve accounts with locations in several LATAs or states, (3) the commission payments to a Location Owner, and (4) responsiveness to customer service needs. We believe we are currently competitive in each of these areas.

We also compete with inter-exchange carriers (“IXCs”) that provide access to alternative operator services and long distance services, which can be accessed through our payphones. Payphone calls placed using this method are referred to as “dial around calls.” Certain national long-distance operator service providers and prepaid calling card providers have implemented extensive advertising promotions and distribution schemes which have increased dial-around activity on payphones owned by LECs and IPPs, including us, thereby reducing traffic to our primary providers of operator assisted and long-distance services.

Notwithstanding the foregoing, we believe that our principal competition in our payphone business is from providers of wireless communications services for both local and long distance traffic. Certain providers of wireless communication services have introduced rate plans that are competitively priced with certain of the products offered by us and have negatively impacted the overall usage of payphones throughout the nation.

Although certain RBOCs such as Qwest and Bell South have exited the payphone business due to declining call volumes and lower revenues, there remain a large number of LECs, IXCs and IPPs that compete for payphone locations. Davel continues to renew its existing location contracts and compete for new business at sites that can generate sufficient call volumes to support the installation of payphones.

Internet Services

We compete for subscription revenues with multiple companies providing Internet services, such as AOL, the Microsoft Network, Earthlink, AT&T Worldnet, NetZero and smaller regional ISPs. We also compete with companies that provide Internet access via narrowband and broadband technologies, such as Internet access providers, cable companies, and telephone companies. Like us, other companies offer some of the same Internet connectivity services to their customers. We also compete more broadly for subscription revenues and members’ time with cable, information, entertainment, and media companies. We compete for advertising and commerce revenues with a wide range of companies, including those that focus on the Internet, such as online services, internet access companies, Web-based portals and individual Web sites providing content, commerce, community and similar features, as well as media companies, such as those with newspaper or magazine publications, radio stations and broadcast stations or networks.

We face competition in developing technologies, and risks from potential new developments in distribution technologies and equipment in Internet access. In particular, we face competition from developments in the following types of internet access distribution technologies or equipment: broadband distribution technologies used in cable Internet access services; advanced personal computer-based access services offered through DSL technologies offered by local telecommunications companies; other advanced digital services offered by wireless companies; television-based interactive services; personal digital assistants or handheld computers; and enhanced mobile phones. We must keep pace with these developments and also ensure that we either have comparable and compatible technology or access to distribution technologies developed or owned by third parties.

Governmental Regulation

Wireless Broadband

Overview. Wireless broadband services are provided using radio spectrum allocated by the FCC. We provide wireless broadband services using both unlicensed spectrum and licensed spectrum. This section addresses FCC regulation of the spectrum we use to provide wireless broadband services. For a discussion of governmental regulation of Internet services generally, see “Internet Services” below.

Kite Networks. Our Kite Networks subsidiary provides wireless internet access services using unlicensed frequency bands. Unlike licensed frequency bands, anyone may use unlicensed frequency bands without obtaining prior authorization from the FCC and without giving prior notice of operations. Users of unlicensed spectrum may begin, change, or end operations at any time. All users of unlicensed spectrum must comply with specific operational limits, including maximum transmission power levels, which are established by FCC rules. For our operations in the 2.4 GHz band we purchase and deploy commercially manufactured “off-the-shelf” transmitters and receivers that the manufacturers have represented comply with FCC power limits and other requirements, however, we are responsible for ensuring that these devices operate within FCC prescribed limits.

Our municipal broadband wireless networks operate in a portion of the 2.4 gigahertz frequency band that is allocated by the FCC for unlicensed operations. Our fixed wireless broadband services are provided in a portion of the 5.8 gigahertz frequency band that is allocated by the FCC for unlicensed operations. We do not have exclusive rights to use of the 2.4 GHz and 5.8 GHz frequency bands. Each band is used by others for personal and for commercial broadband access services. The 2.4 GHz band in particular is extensively used for other wireless broadband services and for unrelated purposes. The 2.4 GHz equipment we use is subject to interference from microwave ovens, cordless telephones and other devices that use the same spectrum. Such interference, when it occurs, can degrade our services and require us to modify our networks.

Kite Broadband. Through our relationship with Sprint, we provide fixed wireless broadband service using frequencies in the 2.5 GHz band that are licensed to Sprint by the FCC or leased to Sprint by the FCC licensee. On July 29, 2004, the FCC adopted new, more flexible technical and service rules to facilitate wireless broadband operations in the 2.5 GHz band. In particular, the FCC adopted new rules expanding the permissible uses of this band to allow fixed and mobile high-speed data and voice services. On April 27, 2006, the FCC revised and clarified its rules governing use of the 2.5 GHz frequencies. Petitions for Reconsideration of this Order are pending. Although we cannot predict what actions the FCC might take, we do not believe that our agreements with Sprint will be adversely affected by the pending reconsideration petitions.

Voice Services

~~Competitive~~Integrated ~~Local~~Telecom ~~Exchange Carrier~~Business

Overview. ~~Our~~ The services provided by the Integrated Telecom Business are subject to federal, state, and local regulation. Through our wholly owned subsidiaries, we hold numerous federal and state regulatory authorizations. The Federal Communications Commission, or FCC, exercises jurisdiction over telecommunications common carriers to the extent they provide, originate or terminate interstate or international communications. The FCC also establishes rules and has other authority over some issues related to local telephone competition. State regulatory commissions retain jurisdiction over telecommunications carriers to the extent they provide, originate, or terminate intrastate communications. Local governments may require us to obtain licenses, permits or franchises to use the public rights-of-way necessary to install and operate our networks.

Federal Regulation. AFN and WeCloseCall are classified as a non-dominant carrier by the FCC and, as a result, are subject to relatively limited regulation of ~~our~~its interstate and international services. Some general policies and rules of the FCC apply to ~~us,~~AFN and CloseCall, including how we may use and how we must protect ~~our~~ customers’ proprietary network information, and weAFN and CloseCall are subject to some FCC reporting requirements, but the FCC does not review ~~our~~ its billing rates, though weAFN and CloseCall must comply with FCC rules regarding the disclosure of rates, terms and conditions and the content of our invoices. The FCC also has jurisdiction to adjudicate complaints regarding ~~our~~ services provided by AFN and CloseCall. WeAFN and CloseCall are also required to pay various regulatory fees to support programs authorized by the FCC. WeAFN and CloseCall possess the operating authority required by the FCC to conduct ~~our~~ its long distance business as it is currently conducted. As a non-dominant carrier, we AFN and CloseCall may install and operate additional facilities for the transmission of domestic ~~interstate~~ interstate communications without prior FCC authorization, except to the extent that radio licenses are required. The FCC does require prior approval for transfer of control and assets transfers.

Local Competition. The FCC’s role with respect to local telephone competition arises principally from the Telecommunications Act of 1996 (the “Telecommunications Act”) that preempts state and local laws to the extent that they prevent competition in the provision of any telecommunications service. Subject to this limitation, state and local governments retain telecommunications regulatory authority over intrastate telecommunications. The Telecommunications Act imposes a variety of duties on local carriers, including competitive carriers such as CloseCall and AFN, to promote competition in the provision of local telephone services. These duties include requirements for local carriers to: interconnect with other telecommunications carriers; complete calls originated by customers of competing carriers on a reciprocal basis; permit users to retain their telephone numbers when changing carriers; implement dialing parity so that all customers must dial the same number of digits to place the same type of call, and provide competing carriers access to poles, ducts, conduits and rights-of14-~~way at regulated prices.~~

~~Incumbent carriers~~Local ~~like~~Competition. ~~Verizon~~The ~~and~~FCC’s role ~~AT&T~~with ~~(which~~respect ~~now~~to ~~includes~~local ~~SBC~~telephone ~~and~~competition ~~BellSouth)~~arises ~~also~~principally from the ~~are~~1996 ~~subject~~Telecom Act that preempts state and local laws to ~~additional~~the ~~duties.~~extent ~~These~~that ~~duties~~they prevent ~~include~~competition ~~obligations~~in the provision of ~~incumbent carriers~~any telecommunications service. Subject to: ~~offer~~this ~~interconnection~~limitation, onstate aand ~~non-discriminatory~~local ~~basis;~~governments ~~offer~~retain telecommunications ~~co-location~~regulatory ofauthority ~~competitors’~~over ~~equipment~~intrastate attelecommunications. ~~their~~The ~~premises~~1996 onTelecom ~~a non-discriminatory~~Act ~~basis;~~imposes ~~make~~a ~~available~~variety ~~certain~~ of ~~their~~duties ~~network~~on ~~facilities~~local carriers, ~~features~~including ~~and~~competitive carriers ~~capabilities~~such onas ~~non-discriminatory~~CloseCall and AFN, ~~cost-based~~to ~~terms;~~promote ~~and~~competition ~~offer~~in ~~wholesale versions~~the provision of ~~their~~local telephone ~~retail~~ services. These duties include requirements for ~~resale~~local atcarriers ~~discounted~~to: interconnect ~~rates.~~with ~~The~~other ~~FCC~~telecommunications incarriers; complete calls originated ~~certain~~by ~~cases~~customers ~~agreed~~of tocompeting ~~forbear~~carriers ~~from~~on ~~applying~~a ~~its~~reciprocal ~~unbundling~~basis; ~~requirements~~permit inusers to retain ~~certain~~their ~~geographic~~telephone ~~markets~~numbers inwhen ~~which~~changing itcarriers; ~~finds~~implement ~~that~~dialing ~~sufficient~~parity ~~competition~~so ~~exists~~that inall customers must dial the ~~provision~~same number of ~~local~~digits ~~telecommunications~~to ~~services~~place the same type of call, and provide competing carriers access to poles, ducts, conduits and rights-of-way at regulated prices.

~~Collectively,~~Incumbent ~~these~~carriers ~~requirements~~like ~~recognize~~Verizon ~~that~~and ~~local~~AT&T also ~~telephone~~are ~~service~~subject ~~competition~~to isadditional ~~dependent~~duties. ~~upon~~These ~~cost-based~~duties ~~and~~include obligations of incumbent carriers to: offer interconnection on a non-discriminatory ~~interconnection~~basis; ~~with,~~offer ~~and use~~ co-location of, ~~some~~competitors’ equipment ~~elements~~at oftheir ~~incumbent~~premises ~~carrier~~on ~~networks~~a ~~and~~non-discriminatory ~~facilities~~basis; ~~under~~make ~~specified~~available ~~circumstances.~~certain ~~Failure~~of totheir ~~achieve~~network facilities, features and ~~maintain~~capabilities ~~such~~on non-discriminatory, ~~arrangements~~cost-based ~~could~~terms; ~~have a material~~and ~~adverse~~offer ~~impact~~wholesale onversions ~~our~~of ~~ability~~their retail toservices ~~provide~~for ~~competitive~~resale ~~local~~at ~~telephone services~~discounted rates. The ~~Under~~FCC ~~the~~in ~~Telecommunications~~certain cases ~~Act,~~agreed ~~incumbent~~to ~~carriers~~forbear ~~are~~from ~~required~~applying its unbundling requirements in certain ~~to negotiate~~geographic markets in ~~good~~which ~~faith~~it ~~with~~finds ~~carriers~~that ~~requesting~~sufficient ~~any~~competition orexists ~~all~~in the provision of ~~the~~local ~~foregoing arrangements~~telecommunications services.

20Collectively, these requirements recognize that local telephone service competition is dependent upon cost-based and non-discriminatory interconnection with, and use of, some elements of incumbent carrier networks and facilities under specified circumstances. Failure to achieve and maintain such arrangements could have a material adverse impact on the ability of AFN and CloseCall to provide competitive local telephone services. Under the 1996 Telecom Act, incumbent carriers are required to negotiate in good faith with carriers requesting any or all of the foregoing arrangements.

In August 2003, the FCC adopted changes to the rules defining the circumstances under which incumbent carriers must make network elements available to competitive carriers at cost-based rates. These rule changes were appealed by both incumbent carriers and competitive carriers to a federal court of appeals, which in March 2004 vacated and remanded to the FCC several aspects of those changes. In February 2005, the FCC issued a decision in response to the court’s March 2004 ruling. That decision, which is known as the Triennial Review Remand Order, or TRRO, became effective on March 11, 2005, and revised the rules for when incumbent carriers must unbundle and make available to competitive carriers various types of UNEs, including high-capacity loops and interoffice transport. The FCC also confirmed in the TRRO that the availability of special access services for competitive carriers does not excuse incumbent carriers from the requirement to make available prescribed UNEs at rates based on the FCC’s “Total Element Long Run Incremental Cost,” or TELRIC, pricing methodology.

On June 16, 2006, the U.S. Court of Appeals, D.C. Circuit, rejected various CLEC arguments in connection with the FCC’s decisions on the unbundling of local switching and UNE-P rate increases, including the overall elimination of the mass market local switching unbundling requirement. The court also rejected ILEC arguments to eliminate DS1, DS3 loop and DS1 transport unbundling. The court also rejected arguments that the FCC cannot preempt the states over such matters.

~~Although~~TELRIC Pricing. The FCC has ~~CloseCall~~initiated a re-examination of its TELRIC pricing methodology for network elements. The FCC has anproposed ~~embedded~~a ~~base~~number of ~~UNE-P~~changes ~~customers~~to these pricing rules that, if wepromulgated ~~have~~in ~~begun~~their current form, could be unfavorable to ~~migrate~~the Integrated ~~our existing~~Telecom ~~UNE-P~~Business. ~~customers~~Legislation tohas ~~other~~been ~~provisioning~~proposed ~~arrangements~~in ~~where~~Congress wein ~~have facilities~~the past and itmay be isproposed ~~advantageous~~in ~~for~~the usfuture tothat dowould ~~so.~~further Werestrict ~~also~~the ~~have~~access aof ~~five-year~~competitive ~~“commercial~~carriers ~~agreement”~~to inincumbent ~~place~~carriers’ ~~with~~network ~~Verizon~~elements. ~~that~~Future ~~locks~~restrictions on, or reductions in, ~~rates~~the ~~through~~network ~~2010~~ elements available to AFN and ~~agreements~~CloseCall, or any increase in ~~place~~the ~~with~~cost ~~BellSouth~~to them of such network elements, ~~AT&T~~could ~~and~~have ~~Qwest~~a material adverse effect on the Integrated Telecom Business.

TELRIC Pricing. The FCC has initiated a re-examination of its TELRIC pricing methodology for network elements. The FCC has proposed a number of changes to these pricing rules that, if promulgated in their current form, could be unfavorable to us. Legislation has been proposed in Congress in the past and may be proposed in the future that would further restrict the access of competitive carriers to incumbent carriers’ network elements. Future restrictions on, or reductions in, the network elements available to us, or any increase in the cost to us of such network elements, could have a material adverse effect on our business.

Broadband. In the future, an important element of providing competitive local service may be the ability to offer customers high-speed broadband local connections. The FCC has reduced the number and types of unbundled network elements, such as Fiber-to-the-Curb (FTTC) and Fiber-to-the-Home (FTTH) that incumbent carriers must make available to competitive carriers to enable them to provide broadband services to customers using incumbent carrier networks. The FCC is considering requests by competitors that would require incumbent carriers to continue to make available to competitors certain older transport and switching technologies that the incumbents plan to retire as they implement new digital switching and fiber transport. The FCC also recently held that incumbent carriers such as Verizon cannot be required by state commissions to make digital subscriber line services available to end users when a competitive carrier provides the end user with voice service. This is known in the industry as “naked DSL.” However, both Verizon and AT&T, as conditions for the approval of recent mergers, have agreed to make available naked DSL in certain markets for a prescribed period of time.

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In other proceedings affecting broadband policy, the FCC has ruled that digital subscriber line service, wireless broadband service and broadband over power line should all be classified as information services, subject to minimal federal and very limited state regulation. This regulatory treatment is consistent with the FCC’s decision in 2002 that cable modem service is an information service. The FCC has also ruled that facilities-based Internet Service Providers must comply with the Communications Assistance Law Enforcement Act (“CALEA”) which requires that companies must construct their networks to facilitate law enforcement access for lawful surveillance of the service provider’s customers.

The FCC has sought comment on a number of other regulatory proposals that could affect the speed and manner in which high-speed broadband local services are deployed, including whether broadband services should be subject to network neutrality rules and open access. Network neutrality generally refers to principles allowing access by consumers to their choice of Internet content, connection of equipment and applications without unreasonable restrictions by broadband providers. Open ~~Access~~access generally requires that a broadband operator ~~permit~~ permit unaffiliated entities to provide Internet service over the operator’s ~~broadband~~ broadband facilities. We cannot predict the outcome of these proposals at the FCC or in the courts or the effect they will have on ~~our~~the Integrated ~~business~~Telecom Business and the industry.

Internet Protocol-Enabled Services. The FCC has not issued final rules on the appropriate regulatory clarification and regulatory status of services and applications using Internet Protocol, including VoIP offerings. VoIP is an application that manages the delivery of voice information across data networks, including the Internet, using Internet Protocol. Rather than send voice information across traditional circuits, Voice over Internet Protocol sends voice information in digital form using discrete packets that are routed in the same manner as data packets. Voice over Internet Protocol is widely viewed as a more cost-effective alternative to traditional circuit-switched telephone service. Because Voice over Internet Protocol can be deployed by carriers in various capacities, and because it is widely considered a next-generation communications service, its regulatory classification has not yet been determined.

The FCC thus far has issued a series of rulings in connection with the regulatory treatment of Voice over Internet Protocol (“VoIP”), but those rulings have been narrowly tailored. In one case, the FCC held that a computer-to-computer VoIP application provided by Pulver.com is an unregulated information service, in part because it does not include a transmission component, offers computing capabilities, and is free to its users. In another case, the FCC reached a different conclusion, holding that AT&T’s use of VoIP within its network to transmit the long-haul portion of certain calls constitutes a telecommunications service, thus subjecting it to regulation, because the calls use ordinary customer premises equipment with no enhanced functionality, originate and terminate on the public switched telephone network, and undergo no net protocol conversion and provide no enhanced functionality to end users. In a third case, which involved the VoIP application of Vonage, the FCC preempted the authority of the State of Minnesota (and presumably all other states) and ruled that Vonage’s VoIP application, and others like it, is an interstate service subject only to federal regulation, thus preempting the authority of the Minnesota commission to require Vonage to obtain state certification. On March 21, 2007, this decision was upheld by the United States Court of Appeals for the ~~Eight~~Eighth Circuit. The FCC, however, refused to rule in the Vonage case whether Vonage’s VoIP application is a telecommunications service or an information service, thus leaving open the question of the extent to which the service will be regulated.

In 2004, ~~The~~the FCC initiated a more generic proceeding to address the many regulatory issues raised by the development and growth of VoIP services, including the extent to which VoIP will be regulated at the federal level, and has expressly reserved the right to reconsider its declaratory rulings in the generic proceeding. As a result of this proceeding, the FCC has imposed a number of requirements on what it calls ‘interconnected VoIP services,” which the FCC defines as a service that enables real-time, two way voice communications; requires a broadband connection from the user’s location; requires Internet Protocol compatible customer premises equipment and permits users generally to receive calls that originate and terminate on the public switched telephone network. These include requiring interconnected VoIP service providers to comply with the ~~Communications Assistance Law Enforcement Act (“~~CALEA”) which requires that companies must construct their networks to facilitate law enforcement access for lawful surveillance of the service provider’s customers; requiring interconnected VoIP service providers to contribute to the Universal Service Fund; requiring interconnected VoIP service providers to offer E-911 to their subscribers; requiring interconnected VoIP service providers and equipment manufacturers to comply with rules facilitating access to VoIP services by the disabled, including the opportunity to access Telecommunications Relay Services for the Deaf; and, requiring interconnected VoIP service providers to comply with Commission rules concerning the use and protection of customer proprietary ~~network~~ network information. The FCC continues to consider questions regarding the applicability of access charges to VoIP. Additional federal and state rulings in connection with VoIP will likely have a significant impact on us, our competitors and the communications industry.

Congress also has considered in the past, and may consider in the future, legislation addressing Voice over Internet Protocol. We cannot at this time predict if or when such legislation will be enacted, or its effect on our business and the industry.-16-

Inter-carrier Compensation. The FCC regulates the interstate access rates charged by local carriers for the origination and termination of interstate long distance traffic. These access rates make up a significant portion of the cost of providing long distance service. The FCC has adopted policy changes that over time are reducing incumbent carriers’ access rates, which have the impact of lowering the cost of providing long distance service, especially to business customers. In addition, the FCC has adopted rules that require competitive carriers to reduce the levels of their tariffed access charges to rates no greater than those of the incumbent carriers with which they compete. In March 2005, the FCC initiated a proceeding designed to examine and reform comprehensively intercarrier compensation, including access charges, in the telecommunications market. Intercarrier compensation typically is the largest single expense incurred by companies that provide telecommunications services, including us. Further FCC action in this area may reduce most access charges in the future or shift all forms of intercarrier compensation to flat rate pricing. We cannot predict at this time the result of this proceeding, the full impact of the FCC’s decisions in this area, or the effect these decisions will have on our business and the industry.

The FCC has granted incumbent carriers some flexibility in pricing their interstate special and switched access services. Under this pricing scheme, local carriers may establish pricing zones based on access traffic density and charge different prices for access provided in each zone. The FCC recently has been granting incumbent carriers additional pricing flexibility on a market-by-market basis as local competition develops in their markets. This pricing flexibility could place us at a competitive disadvantage, either as a purchaser of access for our long distance operations or as a vendor of access to other carriers or end-user customers.

In April 2001, the FCC issued a ruling changing the compensation mechanism for traffic exchanged between telecommunications carriers that is destined for Internet service providers. In doing so, the FCC prescribed a new rate structure for this traffic and prescribed gradually reduced caps for its compensation. In the course of our business, we may exchange the traffic of Internet service providers with other carriers. The FCC’s ruling in connection with such traffic affected a large number of carriers, including us, and further developments in this area could have a significant impact on the industry and on us. Although a federal court remanded that FCC decision for further consideration, the court did not reverse the decision, so it remains in effect. In March 2005, in the context of its generic proceeding on intercarrier compensation, the FCC sought comment on broad policy changes that could harmonize the rate structure and levels of all forms of intercarrier compensation, and ultimately could eliminate most forms of carrier-to-carrier payments for interconnected traffic, including traffic destined for Internet service providers.

Universal Service. Universal Service programs administered by the FCC promote the availability of quality ~~services~~ services at affordable rates; increase access to advanced telecommunications services throughout the Nation, including to consumers in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas, and provide that all schools, classrooms, health care providers, and libraries should, generally, have access to advanced telecommunications services. Universal Service programs historically have been funded by access charges and direct contributions from telecommunications carriers based on a percentage of their interstate revenues. The FCC is considering changing the methodology by which telecommunications carriers contribute to the Universal Service Fund, including one proposal that would assess payments based on the number of telephone numbers used by carriers. Any reform in connection with universal service, will, by necessity, require revisions to the FCC’s intercarrier compensation policies. Congress is currently considering changes to the USF rules; however, it is unclear what changes, if any, will ultimately become law. Because the effects of these revisions are uncertain, the fees we pay to subsidize universal service may increase or decrease substantially in the future.

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Detariffing. The FCC required non-dominant long distance companies, including us, to detariff interstate long distance domestic and international services in 2001. In 2001, the FCC also permitted competitive local exchange carriers, including us, to choose either to detariff the interstate access services that competitive carriers sell to long distance companies that originate or terminate traffic from or to their local customers, or to maintain tariffs but comply with rate caps. Tariffs set forth the rates, terms and conditions for service and must be updated or amended when rates are adjusted or products are added or removed. Before detariffing, we filed tariffs with the FCC to govern our relationship with most of our long distance customers and with long distance companies that originated or terminated traffic from or to our local customers. The detariffing process has required us, among other things, to post these rates, terms and conditions on our Web site instead of filing them as tariffs with the FCC. Because detariffing precludes us from filing our tariffs with the FCC, some may argue that we are no longer subject to the “filed rate doctrine,” under which the filed tariff controls all contractual disputes between a carrier and its customers. The detariffing process has effectively required us to enter into individual contracts with each of our customers and to notify our customers when rates are adjusted or products are added or removed. This process increases our costs of doing business. Detariffing may expose us to legal liabilities and costs if we can no longer rely on the filed rate doctrine to settle contract disputes.

Other Federal Regulations. The FCC imposes prior approval requirements on transfers of control and assignments of radio licenses and operating authorizations. The FCC has the authority generally to condition, modify, cancel, terminate, revoke, or decline to renew licenses and operating authority for failure to comply with federal laws and the rules, regulations and policies of the FCC. Fines or other penalties also may be imposed for such violations. The FCC or third parties may raise issues with regard to our compliance with applicable laws and regulations.

Federal Excise Tax Changes. IRS Notice 2006-50 instructs companies collecting the Federal Excise Tax to "cease collecting and paying over tax under §4251 of the Internal Revenue Code on on nontaxable service billed after July 31, 2006". Several recent rulings have held that "service for which there is a toll charge that varies with elapsed transmission time and not distance (time-only service) is not taxable toll telephone service." On August 1, 2006 the Company ~~will~~was no longer be responsible for collecting and remitting the Federal Excise Tax. Regarding bundled services, the ~~Company~~CLEC is expected to “reasonably identify” the local services portion or else the whole bundled billing is considered FET taxable.

State Regulation. WeAFN and CloseCall are subject to various state laws and regulations. Most state public ~~utility~~ utility commissions require providers such as AFN and CloseCall to obtain authority from the commission before initiating service in the state and the filing of tariffs that detail the rates, terms and conditions for our services. The WeIntegrated ~~are~~Telecom Business is subject to various reporting and record-keeping requirements. The WeIntegrated ~~are~~Telecom Business is generally required to pay fees and assessments related to our provision of telecommunications service in the state. In addition, some states are ordering the ~~de-tariffing~~detariffing of services, which may impede ~~our~~AFN and CloseCall’s reliance on the filed rate doctrine and increase our costs of doing business.

Many issues remain open regarding how new local telephone carriers will be regulated at the state level. For example, although the ~~Telecommunications~~1996 Telecom Act preempts ~~the~~ the ability of states to forbid local service competition, the ~~Telecommunications~~1996 Telecom Act preserves the ability of states to impose reasonable terms and conditions of service and other regulatory requirements. The scope of state regulation will be refined through rules and policy decisions made by public utility commissions as they address local service competition issues.

State public utility commissions have responsibility under the ~~Telecommunications~~ 1996 Telecom Act to to oversee relationships between incumbent carriers and their new competitors ~~with~~ with respect to such competitors’ use of the incumbent carriers’ network elements and wholesale local services. Public utility commissions arbitrate ~~interconnection~~ interconnection agreements between the incumbent carriers and competitive carriers such as CloseCall when necessary. Pursuant to the ~~Telecommunications~~ 1996 Telecom Act, the decisions of state public utility commissions with regard to interconnection disputes may be appealed to federal courts.

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There also remain unresolved important issues regarding the scope of the authority of public utility commissions and the extent to which the commissions will adopt policies that promote local telephone service competition. It is difficult to predict how this and other matters will affect our ability to pursue our business plan.

States also regulate the intrastate carrier access services of the incumbent carriers. WeAFN and CloseCall are required to pay access charges to the incumbent carriers when they originate or terminate our intrastate long distance traffic. ~~Our~~The Integrated ~~business~~Telecom Business could be harmed by high access charges, particularly to the extent that the incumbent carriers do not incur the same level of costs with respect to their own intrastate long distance services or to the extent that the incumbent carriers are able to offer their long distance affiliates better access pricing or volume pricing to larger carriers. Some states also regulate the intrastate access charges of competitive carriers. Some states have also developed intrastate universal service charges parallel to the interstate charges created by the FCC. Another issue is the use by some incumbent carriers, with the approval of the applicable public utility commissions, of extended local area calling that converts otherwise competitive intrastate toll service to local service. Our business could be harmed by these developments.

WeThe ~~also~~ Integrated Telecom Business will also be affected by how states regulate the retail prices of the incumbent carriers with which we compete. We believe that, as the degree of intrastate competition increases, the states will offer the incumbent carriers increasing pricing flexibility and deregulation of particular services deemed to be competitive. This flexibility and deregulation may present the incumbent carriers with an opportunity to subsidize services that compete with ~~our~~ services provided by the Integrated Telecom Business with revenues generated from their non-competitive services, thereby allowing incumbent carriers to offer competitive services at prices lower than most or all of their competitors.

Many states also require prior approval for transfers of control of certified carriers, corporate reorganizations, acquisitions of telecommunications operations, assignment of carrier assets, stock offerings, and incurrence by carriers of significant debt obligations. Certificates of authority generally can be conditioned, modified, canceled, terminated or revoked by state regulatory authorities for failure to comply with state law or the rules, regulations and policies of state regulatory authorities. Fines or other penalties also may be imposed for such violations. Public utility commissions or third parties may raise issues with regard to our compliance with applicable laws or regulations.

Payphone Service Providers

~~The~~Although ~~Telecommunications~~Davel ~~Act~~has ~~substantially~~sold ~~restructured~~a ~~the~~majority ~~telecommunications industry~~of its payphones, ~~included~~regulations ~~specific~~regarding ~~provisions~~payphone service ~~related~~providers still apply to ~~the~~Davel. ~~payphone~~In ~~industry~~addition, ~~and~~Davel continues to pursue a ~~required~~number ~~the~~of ~~FCC~~claims toagainst ~~develop~~third ~~rules~~parties ~~necessary~~which, toif ~~implement~~successful, ~~and~~could ~~administer~~provide significant recoveries applicable to the ~~provisions~~ operations of ~~the~~Davel ~~Telecommunications~~in ~~Act~~prior onyears. Regulations ~~both~~relating anto ~~interstate~~payphone service providers provide a basis for certain litigation and ~~intrastate~~claims currently being pursued by Davel. See Item 3. – “Legal ~~basis~~Proceedings”.

The 1996 Telecom Act substantially restructured the telecommunications industry, included specific provisions related to the payphone industry and required the FCC to develop rules necessary to implement and administer the provisions of the 1996 Telecom Act on both an interstate and intrastate basis.

Federal Regulation of Local Coin and Dial-Around Calls. The Telephone Operator Consumer Services Improvement Act of 1990, or TOCSIA, established various requirements for companies that provide operator services and for call aggregators, including payphone service providers, or PSPs, who send calls to those operator service providers, or OSPs. The requirements of TOCSIA as implemented by the FCC included call branding, information posting, rate quotations, the filing of informational tariffs and the right of payphone users to access any OSP in order to make non-coin calls. TOCSIA also required the FCC to take action to limit the exposure of payphone companies to undue risk of fraud upon providing this “open access” to carriers.

TOCSIA further directed the FCC to consider the need to provide compensation to IPPs for dial-around calls made from its payphones. Accordingly, the FCC ruled in May 1992 that IPPs were entitled to dial-around compensation. Because of the complexity of establishing an accounting system for determining per call compensation for these calls, and for other reasons, the FCC temporarily set this compensation at $6.00 per payphone per month based on an assumed average of 15 interstate carrier access code dial-around calls per month and a rate of $0.40 per call. The failure by the FCC to provide compensation for 800 “toll free” dial-around calls was challenged by the IPPs, and a federal court subsequently ruled that the FCC should have provided compensation for these toll free calls.

Pay Phone Services. In 1996, recognizing that IPPs had been at a severe competitive disadvantage under the existing system of regulation and had experienced substantial increases in dial-around calls without a corresponding adjustment in compensation, Congress enacted Section 276 to promote both competition among payphone service providers and the widespread deployment of payphones throughout the nation. Section 276 directed the FCC to implement rules by November 1996 that would:19-

·Payphone ~~create~~Services. In 1996, recognizing that IPPs had been at a ~~standard~~severe ~~regulatory~~competitive ~~scheme~~disadvantage ~~for~~under ~~all~~the existing ~~public~~system of regulation and had experienced substantial increases in dial-around calls without a corresponding adjustment in compensation, Congress enacted Section 276 to promote both competition among payphone service providers; and the widespread deployment of payphones throughout the nation. Section 276 directed the FCC to implement rules by November 1996 that would:

·- ~~establish~~create a ~~per~~standard ~~call~~regulatory ~~compensation~~scheme ~~plan~~for ~~to ensure that~~ all public payphone service providers ~~are fairly compensated for each and every completed intrastate and interstate call, except for 911 emergency and telecommunications relay service calls~~;

·- ~~terminate~~establish ~~subsidies~~a per call compensation plan to ensure that all payphone service providers are fairly compensated for ~~LEC~~each ~~payphones~~and ~~from~~every ~~LEC~~completed ~~regulated~~intrastate ~~rate-base~~and ~~operations~~interstate call, except for 911 emergency and telecommunications relay service calls;

·- ~~prescribe,~~terminate atsubsidies afor ~~minimum, nonstructural safeguards to eliminate discrimination between LECs and IPPs and remove the~~ LEC payphones from ~~the~~ LEC’s regulated ~~asset~~ rate-base operations;

·- ~~provide~~prescribe, ~~for~~at ~~the~~a ~~RBOCs~~minimum, nonstructural safeguards to ~~have~~eliminate ~~the~~discrimination ~~same~~between ~~rights~~LECs ~~that~~and IPPs ~~have~~and toremove ~~negotiate with Location Owners over~~ the ~~selection~~LEC ofpayphones ~~interLATA~~from ~~carrier services, subject to~~ the ~~FCC~~LEC’s ~~determination~~regulated ~~that~~asset ~~the selection right is in the public interest and subject to existing contracts between the Location Owners and interLATA carriers~~base;

·- provide for the ~~right~~RBOCs ofto ~~all~~have ~~PSPs~~the same rights that IPPs have to ~~choose~~negotiate ~~the~~with ~~local,~~location ~~intraLATA~~owners ~~and~~over the selection of interLATA ~~carriers~~carrier services, subject to the ~~requirements~~FCC’s ~~of,~~determination ~~and~~that ~~contractual~~the ~~rights~~selection ~~negotiated~~right ~~with,~~is ~~Location~~in ~~Owners~~the public interest and ~~other~~subject ~~valid~~to ~~state~~existing ~~regulatory~~contracts ~~requirements~~between the location owners and interLATA carriers;

25- provide for the right of all PSPs to choose the local, intraLATA and interLATA carriers subject to the requirements of, and contractual rights negotiated with, location owners and other valid state regulatory requirements;

·- evaluate the requirement for payphones which would not normally be installed under competitive conditions but which might be desirable as a matter of public policy, and establish how to provide for and maintain such payphones if it is determined they are required; and

·- preempt any state requirements which are inconsistent with the FCC’s regulations implementing Section 276.

In September and November 1996, the FCC issued its rulings implementing Section 276, or the 1996 Payphone Order. In the 1996 Payphone Order, the FCC determined that the best way to ensure fair compensation to independent and LEC PSPs for each and every call was to deregulate, to the maximum extent possible, the price of all calls originating from payphones. For local coin calls, the FCC mandated that deregulation of the local coin rate would not occur until October 1997 in order to provide a period of orderly transition from the previous system of state regulation.

To achieve fair compensation for dial-around calls through deregulation and competition, the FCC in the 1996 Payphone Order directed a two-phase transition from a regulated market. In the first phase, November 1996 to October 1997, the FCC prescribed flat-rate compensation payable to the PSPs by the interexchange carriers (“IXCs”) in the amount of $45.85 per month per payphone. This rate was arrived at by determining that the deregulated local coin rate was a valid market-based surrogate for dial-around calls. The FCC applied a market-based, deregulated coin rate of $0.35 per call to a finding from the record that there was a monthly average of 131 compensable dial-around calls per payphone. This total included both carrier access code calls dialed for the purpose of reaching a long distance company other than the one designated by the PSP as well as 800 “toll free” calls. The monthly, per phone flat-rate compensation of $45.85 was to be assessed only against IXCs with annual toll-call revenues in excess of $100 million and allocated among such IXCs in proportion to their gross long-distance revenues. During the second phase of the transition to deregulation and market-based compensation (initially from October 1997 to October 1998, but subsequently extended in a later order by one year to October 1999), the FCC directed the IXCs to pay the PSPs on a per-call basis for dial-around calls at the assumed deregulated coin rate of $0.35 per call. At the conclusion of the second phase, the FCC set the market-based local coin rate, determined on a payphone-by-payphone basis, as the default per-call compensation rate in the absence of a negotiated agreement between the PSP and the IXC. To facilitate per-call compensation, the FCC required the PSPs to transmit payphone-specific coding digits which would identify each call as originating from a payphone and required the LECs to make such coding available to the PSPs as a tariffed item included in the local access line service.

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In July 1997, a federal court responded to an appeal of the 1996 Payphone Order, finding that the FCC erred in (1) setting the default per-call rate at $0.35 without considering the differences in underlying costs between dial-around calls and local coin calls, (2) assessing the flat-rate compensation against only the carriers with annual toll-call revenues in excess of $100 million, and (3) allocating the assessment of the flat-rate compensation based on gross revenues rather than on a factor more directly related to the number of dial-around calls processed by the carrier. The Court also assigned error to other aspects of the 1996 Payphone Order concerning inmate payphones and the accounting treatment of payphones transferred by an RBOC to a separate affiliate.

In response to the Court’s remand, the FCC issued its modified ruling implementing Section 276, or the 1997 Payphone Order, in October of 1997. The FCC ~~determined~~adjusted ~~that distinct and severable costs of $0.066 were attributable to coin calls that did not apply to~~ the ~~costs incurred by the PSPs in providing access for dial-around calls. Accordingly, the FCC adjusted the~~ per call rate during the second phase of interim compensation to $0.284 ~~(which is $0~~.~~35 less $0.066).~~ While the FCC tentatively concluded that the $0.284 default rate should be utilized in determining compensation during the first phase and reiterated that PSPs were entitled to compensation for each and every call during the first phase, it deferred a decision on the precise method of allocating the initial interim period (November 1996 through October 1997) flat-rate payment obligation among the IXCs and the number of calls to be used in determining the total amount of the payment obligation.

On March 9, 1998, the FCC issued a Memorandum Opinion and Order, FCC 98-481, which extended and waived certain requirements concerning the provision by the LECs of payphone-specific coding digits, which identify a call as originating from a payphone. Without the transmission of payphone-specific coding digits, some of the IXCs have claimed they are unable to identify a call as a payphone call eligible for dial-around compensation. With the stated purpose of ensuring the continued payment of dial-around compensation, the FCC’s Memorandum and Order issued on April 3, 1998 left in place the requirement for payment of per-call compensation for payphones on lines that do not transmit the requisite payphone-specific coding digits but gave the IXCs a choice for computing the amount of compensation for payphones on LEC lines not transmitting the payphone-specific coding digits of either accurately computing per-call compensation from their databases or paying per-phone, flat-rate compensation computed by multiplying the $0.284 per call rate by the nationwide average number of 800 subscriber and access code calls placed from RBOC payphones for corresponding payment periods. Accurate payments made at the flat rate are not subject to subsequent adjustment for actual call counts from the applicable payphone.

On May 15, 1998, the Court again remanded the per-call compensation rate to the FCC for further explanation without vacating the $0.284 per call rate. The Court opined that the FCC had failed to explain adequately its derivation of the $0.284 default rate. The Court stated that any resulting overpayment may be subject to refund and directed the FCC to conclude its proceedings within a six-month period from the effective date of the Court’s decision.

In response to the Court’s second remand, the FCC conducted further proceedings and sought additional comment from interested parties to address the relevant issues posed by the Court. On February 4, 1999, the FCC released the Third Report and Order and Order on Reconsideration of the Second Report and Order, or 1999 Payphone Order, in which the FCC abandoned its efforts to derive a “market-based” default dial-around compensation rate and instead adopted a “cost-based” rate of $0.24 per dial-around call, which was to be adjusted to $0.238 on April 21, 2002. ~~Both PSPs and IXCs petitioned the Court for review of the 1999 Payphone Order’s determination of the dial-around compensation rate.~~ On June 16, 2000, the Court affirmed the 1999 Payphone Order setting a $0.24 dial-around compensation rate. On all the issues, including those raised by the IXCs and the IPPs, the Court applied the “arbitrary and capricious” standard of review and found that the FCC’s rulings were lawful and sustainable under that standard. The new $0.24 rate became effective April 21, 1999 and was applied retroactively to the period beginning on October 7, 1997 and ending on April 20, 1999 (the “intermediate period”), less a $0.002 amount to account for FLEX ANI payphone tracking costs, for a net compensation rate of $0.238 per call.

In a decision released January 31, 2002, or the 2002 Payphone Order, the FCC partially addressed the remaining issues concerning the “true-up” required for the earlier dial-around compensation periods. The FCC adjusted the per-call rate to $0.229, for the interim period only, to reflect a different method of calculating the delay in IXC payments to PSPs for the interim period, and determined that the total interim period compensation rate should be $33.89 per payphone per month ~~($0~~.~~229~~ ~~multiplied by an average of 148 calls per payphone per month).~~ The 2002 Payphone Order deferred to a later order its ~~determination~~ determination of the allocation of this total compensation rate among the various carriers required to pay compensation for the interim period. In addition to addressing the rate level for dial-around compensation, the FCC has also addressed the issue of carrier responsibility with respect to dial-around ~~compensation~~ compensation payments.

On October 23, 2002 the FCC released its Fifth Order on Reconsideration and Order on Remand, or the Interim Order, which resolved all of the remaining issues surrounding the interim/intermediate period true-~~up and specifically addressed how the liability for flat rate monthly per~~21-phone compensation owed to PSPs would be allocated among the relevant dial-around carriers. The Interim Order also resolved how certain offsets to such payments would be handled and a host of other issues raised by parties in their remaining FCC challenges to the 1999 Payphone Order and the 2002 Payphone Order. In the Interim Order, the FCC ordered a true-up for the interim period and increased the adjusted monthly rate to $35.22 per payphone per month, to compensate for the three-month payment delay inherent in the dial-around payment system. The new rate of $35.22 per payphone per month is a composite rate, allocated among approximately five hundred carriers based on their estimated dial-around traffic during the interim period. The FCC also ordered a true-up requiring the PSPs, including Davel, to refund an amount equal to $0.046 (the difference between the old $.284 rate and the current $.238 rate) to each carrier that compensated the PSP on a per-call basis during the intermediate period. Interest on additional payments and refunds is to be computed from the original payment due date at the IRS prescribed rate applicable to late tax payments. The FCC further ruled that a carrier claiming a refund from a PSP for the Intermediate Period must first offset the amount claimed against any additional payment due to the PSP from that carrier. Finally, the Interim Order provided that any net claimed refund amount owing to carriers cannot be offset against future dial-around payments without (1) prior notification and an opportunity to contest the claimed amount in good faith (only uncontested amounts may be withheld); and (2) providing PSPs an opportunity to “schedule” payments over a reasonable period of time.

27On October 23, 2002 the FCC released its Fifth Order on Reconsideration and Order on Remand, or the Interim Order, which resolved all of the remaining issues surrounding the interim/intermediate period true-up and specifically addressed how the liability for flat rate monthly per-phone compensation owed to PSPs would be allocated among the relevant dial-around carriers. The Interim Order also resolved how certain offsets to such payments would be handled and a host of other issues raised by parties in their remaining FCC challenges to the 1999 Payphone Order and the 2002 Payphone Order. In the Interim Order, the FCC ordered a true-up for the interim period and increased the adjusted monthly rate to $35.22 per payphone per month, to compensate for the three-month payment delay inherent in the dial-around payment system. The new rate of $35.22 per payphone per month is a composite rate, allocated among approximately five hundred carriers based on their estimated dial-around traffic during the interim period. The FCC also ordered a true-up requiring the PSPs, including Davel, to refund an amount equal to $0.046 (the difference between the old $.284 rate and the revised $.238 rate) to each carrier that compensated the PSP on a per-call basis during the intermediate period. Interest on additional payments and refunds is to be computed from the original payment due date at the IRS prescribed rate applicable to late tax payments. The FCC further ruled that a carrier claiming a refund from a PSP for the Intermediate Period must first offset the amount claimed against any additional payment due to the PSP from that carrier. Finally, the Interim Order provided that any net claimed refund amount owing to carriers cannot be offset against future dial-around payments without (1) prior notification and an opportunity to contest the claimed amount in good faith (only uncontested amounts may be withheld); and (2) providing PSPs an opportunity to “schedule” payments over a reasonable period of time.

Davel and its billing and collection clearinghouse have previously reviewed the order and prepared the data necessary to bill or determine the amount due to the relevant dial-around carriers pursuant to the Interim Order. AsAlthough ofDavel ~~November~~was ~~15, 2004,~~entitled ~~the date~~to wereceive ~~acquired Davel, Davel had accrued~~ a ~~liability~~substantial ~~relating~~amount toof additional dial-around compensation ~~due to certain carriers~~ pursuant to the Interim Order ~~of $1~~,~~172,789.~~ Insuch ~~addition~~amounts, ~~Davel~~subject ~~had~~to ~~recorded~~certain $2limitations,~~683,774~~ ~~relating~~were assigned to ~~the sale of a portion of~~ Davel’s ~~accounts~~former ~~receivable~~secured ~~bankruptcy~~lenders ~~claim~~in exchange for ~~dial-around compensation due from WorldCom (now MCI),~~ a ~~part~~reduction ~~of which related to the amount~~in ~~due~~Davel’s ~~from~~secured ~~WorldCom~~debt ~~under~~prior ~~the Interim Order. Subsequent~~ to the acquisition ~~date, Davel~~of ~~received~~such ~~$2,683,774~~debt ~~million~~by inMobilepro ~~cash~~(see ~~and MCI common stock in full~~the ~~settlement~~discussion of the ~~remaining~~Gammino ~~portion~~lawsuit ~~of its claim, including the accounts receivable bankruptcy claim previously sold and Davel’s retained interest~~ in ~~the bankruptcy~~Item ~~claim~~3. In“Legal ~~January 2005, certain carriers deducted $453,431 from their current dial-around compensation payments, thus reducing the liability accrued by Davel applicable to the Interim Order~~Proceedings”). ~~The remaining amounts outstanding were deducted from the quarterly payments of dial-around compensation received by Davel in April 2005.~~

~~For~~On August ~~the fiscal~~2, ~~year~~2002 ~~ended~~and ~~March~~September 312, ~~2005~~2002 respectively, ~~Davel~~the ~~received~~American ~~$420~~Public Communications Council,~~366~~ ofthe ~~receipts~~APCC, ~~from carriers~~and ~~under~~the Regional Bell Operating Companies, the ~~Interim~~RBOCs, ~~Order~~filed petitions ~~that~~with ~~has~~the ~~been~~FCC ~~reported~~to asrevisit ~~revenues~~and inincrease the ~~consolidated~~ ~~statements~~dial-around ofcompensation ~~operations~~rate level. InUsing ~~accordance~~the ~~with Davel~~FCC’s ~~accounting policy~~existing onformula ~~regulated~~and ~~rate~~adjusted ~~actions,~~only ~~revenue~~to ~~from~~reflect ~~dial-around~~current costs ~~compensation~~and ~~pursuant to~~call volumes, the ~~Interim~~APCC ~~Order~~and ~~was~~RBOCs’ ~~recognized~~petitions assupported ~~revenue~~an inapproximate doubling ~~March~~of ~~2005,~~ the ~~period~~current ~~such revenue~~$0.24 ~~was received~~rate. ~~Although~~On ~~Davel~~August is12, ~~entitled~~2004, tothe ~~receive~~FCC areleased ~~substantial amount~~an oforder ~~additional~~to increase the dial-around compensation ~~pursuant~~rate tofrom ~~the~~$0.24 ~~Interim~~to ~~Order,~~$0.494 ~~such~~per ~~amounts~~call, ~~subject~~or tothe ~~certain~~2004 ~~limitations,~~Order. ~~were~~The ~~assigned~~new torate ~~Davel’s~~became ~~former~~effective ~~secured lenders~~September in27, ~~exchange~~2004, ~~for~~30 days aafter ~~reduction~~publication inof ~~Davel’s~~the ~~secured~~2004 ~~debt~~Order ~~prior~~in to the ~~acquisition~~ ofFederal ~~such~~Register, ~~debt~~and bymay ~~Mobilepro~~be subject ~~(see~~to ~~the~~appeal ~~discussion~~by ofIXCs ~~the~~or ~~Gammino~~other ~~lawsuit in “Item 3~~parties. ~~Legal Proceedings”).~~

~~On August 2,~~In ~~2002 and September 2, 2002 respectively, the American Public Communications~~an ~~Council,~~order ~~the~~that ~~APCC,~~became ~~and~~effective ~~the~~on ~~Regional~~July ~~Bell Operating Companies~~1, ~~the RBOCs~~2004, ~~filed petitions with~~ the FCC toimposed ~~revisit~~certain requirements ~~and~~on ~~increase the dial~~facilities-~~around~~based ~~compensation rate level.~~telecommunications ~~Using~~carriers ~~the~~to ~~FCC’s~~ensure ~~existing~~that payphone ~~formula~~providers ~~and~~are ~~adjusted~~fairly ~~only~~compensated tofor ~~reflect~~every ~~current costs~~payphone ~~and~~originated call that ~~volumes,~~is ~~the~~completed. The ~~APCC~~requirements ~~and~~included ~~RBOCs’~~establishing ~~petitions supported an approximate~~detailed ~~doubling~~procedures offor ~~the~~tracking ~~current~~payphone ~~$0.24~~originated ~~rate. On August 12~~calls, ~~2004,~~engaging ~~the~~a ~~FCC~~third ~~released an~~party ~~order~~auditor to ~~increase~~verify ~~the~~that ~~dial-around~~these ~~compensation~~procedures ~~rate~~are ~~from~~in ~~$0.24 to $0.494 per call~~place, orfiling ~~the~~annually ~~2004~~a ~~Order. The new rate became effective September 27, 2004,~~system ~~30 days~~audit ~~after~~report ~~publication~~with of the ~~2004~~FCC ~~Order in the Federal Register,~~ and ~~may~~making ~~be subject~~quarterly ~~to appeal by IXCs or other parties. Dial~~dial-around ~~revenues~~compensation ~~at the new~~payments ~~rate of~~to ~~$0.494~~payphone ~~per call, which aggregated approximately $6,198,000 for the year ended March 31, 2007, are included in revenues reported in the Mobilepro’s consolidated financial statements~~providers.

In an order that became effective on July 1, 2004, the FCC imposed certain requirements on facilities-based telecommunications carriers to ensure that payphone providers are fairly compensated for every payphone originated call that is completed. The requirements included establishing detailed procedures for tracking payphone originated calls, engaging a third party auditor to verify that these procedures are in place, filing annually a System Audit Report with the FCC and making quarterly dial-around compensation payments to payphone providers.

Regulatory actions and market factors, often outside Davel’s control, could significantly affect Davel’s dial-around compensation revenues. These factors include (i) the possibility of administrative proceedings or litigation seeking to modify the dial-around compensation rate, and (ii) ongoing technical or other difficulties in the responsible carriers’ ability and willingness to properly track or pay for dial-around calls actually delivered to them.

Effect of Federal Regulation of Local Coin and Dial-Around Calls. To ensure “fair compensation” for local coin calls, the FCC previously determined that local coin rates from payphones should be generally deregulated by October 7, 1997, but provided for possible modifications or exemptions from deregulation upon a detailed showing by an individual state that there are market failures within the state that would not allow market-based rates to develop. On July 1, 1997, a federal court issued an order that upheld the FCC’s authority to deregulate local coin call rates. In accordance with the FCC’s ruling and the court order, certain LECs and IPPs, including Davel, have increased rates for local coin calls. Initially, when Davel increased the local coin rate to $0.35, Davel experienced a large drop in call volume. When Davel subsequently raised its local coin rates to $0.50, it did not experience call volume declines at the same levels. Davel has experienced, and continues to experience, lower coin call volumes on its payphones resulting not only from increased local coin calling rates, but from the growth in wireless communication services, changes in call traffic and the geographic mix of Davel’s payphones, as well.

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Other Provisions of The Telecommunications Act and FCC Rules. As a whole, the ~~Telecommunications~~1996 ~~Act~~Telecom Act and FCC Rules significantly altered the competitive framework of the payphone industry. Davel believes that implementation of the ~~Telecommunications~~1996 Telecom Act has addressed certain historical inequities in the payphone marketplace and has, in part, led to a more equitable and competitive environment for all payphone providers. However, there remain several key areas of implementation of the ~~Telecommunications~~1996 Telecom Act yet to be fully and properly implemented such that the 1996 congressional mandate for widespread deployment of payphones is not being realized. This circumstance creates an uncertain environment in which Davel and the industry must operate. Davel has identified the following such uncertainties:

Various matters pending in several federal courts and raised before the Congress which, while not directly challenging Section 276, relate to the validity and constitutionality of the ~~Telecommunications~~1996 Telecom Act, as well as other uncertainties related to the impact, timing and implementation of the ~~Telecommunications~~1996 Telecom Act.

The 1996 Payphone Order required that LEC payphone operations be removed from the regulated rate base on April 15, 1997. The LECs were also required to make the access lines that are provided for their own payphones equally available to IPPs and to ensure that the cost to payphone providers for obtaining local lines and services met the FCC’s new services test guidelines, which require that LECs price payphone access lines at the direct cost to the LEC plus a reasonable allocation of overhead. Proceedings are still pending in various stages and formats before the FCC and numerous state regulatory bodies across the nation to implement these provisions.

In the past, RBOCs were allegedly impaired in their ability to compete with the IPPs because they were not permitted to select the interLATA carrier to serve their payphones. Recent changes to the FCC Rules remove this restriction. Under the existing rules, the RBOCs are now permitted to participate with the Location Owner in selecting the carrier of interLATA services to their payphones; effective upon FCC approval of each RBOC’s Comparably Efficient Interconnection plans. Existing contracts between ~~Location~~location ~~Owners~~owners and payphone or long-distance providers that were in effect as of February 8, 1996 were grandfathered and will remain in effect pursuant to their terms.

The 1996 Payphone Order preempts state regulations that may require IPPs to route intraLATA calls to the LEC by containing provisions that allow all payphone providers to select the intraLATA carrier of their choice. Outstanding questions still exist with respect to 0+ local and 0 - call routing, whose classification will await the outcome of various state regulatory proceedings or initiatives and potential FCC action.

The 1996 Payphone Order determined that the administration of programs for maintaining public interest payphones should be left to the states within certain guidelines. Various state proceedings have been undertaken in reviewing this issue, but no widespread or effective actions have been taken to stem the tide of payphone removal around the nation. The FCC has pending various “universal service” proposals under consideration, which may impact Davel, both positively and negatively.

Billed Party Preference and Rate Disclosure. On January 29, 1998, the FCC released its Second Report and Order on Reconsideration entitled In the Matter of Billed Party Preference for InterLATA 0+ Calls, Docket No. 92-77. Effective July 1, 1998, all carriers providing operator services were required to give consumers using payphones the option of receiving a rate quote before a call is connected when making a 0+ interstate call. The system appears to be functioning adequately to meet its designated goals.

State and Local Regulation. ~~State~~ State regulatory authorities have been primarily responsible for regulating the rates, terms and conditions for intrastate payphone services. Regulatory approval to operate payphones in a state typically involves submission of a certification application and an agreement by Davel to comply with applicable rules, regulations, and reporting requirements. The states and the District of Columbia have adopted a variety of state-specific regulations that govern rates charged for coin and non-coin calls, as well as a broad range of technical and operational requirements. The ~~Telecommunications~~1996 Telecom Act contains provisions that require all states to allow payphone competition on fair terms for both LECs and IPPs. State authorities also in most cases regulate LEC tariffs for interconnection of independent payphones, as well as the LECs’ own ~~payphone~~ payphone operations and practices.

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Davel is also affected by state regulation of operator services. Most states have capped the rates that consumers can be charged for coin toll calls and non-coin local and intrastate toll calls made from payphones. In addition, Davel must comply with regulations designed to afford consumers notice at the payphone location of the long-distance company or companies servicing the payphone and the ability to access alternate carriers. Davel believes that it is currently in material compliance with all such regulatory requirements.

In accordance with requirements under the Telecommunications Act, state regulatory authorities are currently reviewing the rates that LECs charge IPPs for local line access and associated services. Local line access charges have been reduced in certain states, and Davel believes that selected states’ continuing review of local line access charges, coupled with competition for local line access service resulting from implementation of the Telecommunications Act, may lead to more options available to Davel for local line access at competitive rates. Davel cannot provide assurance, however, that such options or local line access rates will become available in all states.

Davel believes that an increasing number of municipalities and other units of local government have begun to impose taxes, license fees and operating rules on the operations and revenues of payphones. Davel believes that some of these fees and restrictions may be in violation of provisions of the Telecommunications Act prohibiting barriers to entry into the business of operating payphones and the policy of the Act to encourage wide deployment of payphones. However, in at least one instance, involving a challenge to a payphone ordinance adopted by the Village of Huntington Park, California, the FCC declined to overturn a total ban on payphones in a downtown area. The proliferation of local government licensing, restriction, taxation and regulation of payphone services could have an adverse affect on Davel and other PSPs unless the industry is successful in resisting or moderating this trend.

Internet Services

The FCC generally does not regulate Internet access services. In recent proceedings the FCC has ruled that Internet Access provided over digital subscriber line service, wireless broadband service or broadband over power line should all be classified as information services, subject to minimal federal regulation. This regulatory treatment is consistent with the FCC’s decision that cable modem service is an information service. The classification as an information service generally precludes states from regulating Internet service providers as telecommunications carriers. However, the FCC has ruled that facilities-based Internet Service Providers must comply with the Communications Assistance Law Enforcement Act (“CALEA”) which requires that companies must construct their networks to facilitate law enforcement access for lawful surveillance of the service provider’s customers.

The FCC has sought comment on a number of other regulatory proposals that could affect the speed and manner in which high-speed broadband local services are deployed, including whether broadband services should be subject to network neutrality rules and open access. Network neutrality generally refers to principles allowing access by consumers to their choice of Internet content, connection of equipment and applications without unreasonable restrictions by broadband providers. Open Access generally requires that a broadband operator permit unaffiliated entities to provide Internet service’s over the operator’s broadband facilities. We cannot predict the outcome of these proposals at the FCC or in the courts or the effect they will have on our business and the industry.

Employees

As of March 31, ~~2007~~2009 we employed ~~287~~64 full-time employees. We anticipate that we will need additional people to fill administrative, sales, and technical positions if we continue to be successful in raising capital to implement our strategic business plan. We have no collective bargaining agreements with our employees. The breakout of full-time employees is as follows:

Finance, accounting legal and administration		15 employees
Finance, accounting, legal and administration	4 employees
Retail operations (includes CloseCall America, Inc. and the call centers)		162 employees
Integrated Telecom Business operations	60 employees
Wireless networks (includes Kite Broadband, LLC and NeoReach Wireless, Inc.)		65 employees
Business operations (includes Davel Communications, Inc and American Fiber Network, Inc.)		45 employees

Item 1A. Risk Factors

Investing in our securities involves a high degree of risk. Our business, financial position and future results of operations may be impacted in a materially adverse manner by risks associated with the execution of our strategic plan and the creation of a profitable and cash-flow positive business, our ability to obtain capital or to obtain capital on terms acceptable to us, the successful integration of acquired companies into our consolidated operations, our ability to successfully manage diverse operations remotely located, our ability to successfully compete in highly competitive communications industries, rapid technological change and the emerging services market, the effective protection of our intellectual property rights, the successful resolution of ongoing litigation, our dependence upon key managers and employees and our ability to retain them, and potential fluctuations in quarterly operating results, among other risks. Before investing in our securities, in addition to this summary of risks, ~~Our~~our future results may also be impacted by other risk factors listed from time to time in our future filings with the SEC, including, but not limited to, our Quarterly Reports on Form 10-Q.

Failure to Consummate a Restructuring of our Debt with YA Global Would Cause a Material Adverse Effect

We have attempted to negotiate an extension of the maturity date and payment terms to our existing debt owed to YA Global. Notwithstanding those negotiations, we have been unsuccessful in obtaining an extension of the maturity date and payment terms. As a result, Mobilepro is in default of its obligations under the Convertible Debenture owed to YA Global and, given current market conditions and Mobilepro’s financial condition, obtaining the required financing to retire the Convertible Debenture is unlikely to occur in the immediate future. YA Global has informed the Company that it intends to exercise its rights as the Company’s senior secured creditor. Such rights include, but are not limited to, foreclosing on the assets of the Company. Additionally, if YA Global declares a default on the Convertible Debenture, interest would accrue at the default rate of 24% per annum. The Company does not have sufficient cash available to satisfy the YA Global obligations and YA Global could potentially foreclose on the Company’s assets. In such event, the Company may be forced to seek protection under the applicable bankruptcy laws or seek some form of out of court settlement with creditors and would likely be unable to continue as a going concern.

We Have Limited Cash Resources

We have limited unrestricted cash available to sustain the Company’s ongoing operations. Although the Company continues to generate cash from the operations of its Integrated Telecom Business, such cash has been used to fund the Company’s interest payments due to YA Global and is not sufficient to fund the Company’s other debt service requirements, corporate overhead and the expenses of ProGames. We do not have access to a line of credit or other funding source to provide cash to fund the ongoing operations of the business, including corporate overhead. Although the Company is taking aggressive measures to reduce its expenses to avoid depleting its existing cash resources, there can be no assurance that expenses can be reduced by an adequate amount. In the event the Company does not obtain additional cash through the payment of monies due and owing on notes receivable or arriving at the successful conclusion of one or more of the District Court Litigation matters (see Item 3. – “Legal Proceedings”), the Company may not be able to sustain its operations which would result in a material adverse effect to our business and our stock price.

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Our Limited Cash Resources May Preclude Continued Quotation on the Over-the-Counter Bulletin Board

Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “MOBL.” In order to maintain the quotation on the Over-the-Counter Bulletin Board the Company must be current in the reporting required to be filed with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934. Given the Company’s limited cash resources, the Company may not be able to fund the cost of compliance in order to continue to timely satisfy the reporting requirements. In such event, the Company’s would no longer satisfy the requirements for quotation on the Over-the Counter Bulletin Board and may be required instead to obtain a quotation on the Pink Sheets. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them and could cause our stock price to further decline.

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

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

If Gobility is unsuccessful in facilitating a sale of some or all of its assets, the Company will be unable to permanently eliminate the cash requirements represented by the Wireless Networks Business as planned. In such an event, the Company will not have sufficient cash to sustain operations without the completion of the Integrated Telecom Business sale, raising additional capital or arriving at the successful conclusion of one or more of the District Court Litigation matters (see Item 3. - “Legal Proceedings”).

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

Included in its audit report on our consolidated financial statements included for the fiscal year ended March 31, 2009, our independent registered public accounting firm included a paragraph describing that there is substantial doubt about the Company’s ability to continue as a going concern.

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

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

-25-

Mobilepro remains a co-obligor on certain capital leases transferred to Gobility. The total principal balance of these leases was approximately $3,569,518 at March 31, 2008. Monthly payments on these capital leases totaled approximately $175,000 at that time and they are currently more than twenty months in arrears. In addition, Mobilepro was a co-purchaser of certain wireless network equipment obtained by Kite Networks. The amount originally owed to the supplier of this equipment for the purchase of this equipment was $1,591,978. The Company entered into a forbearance agreement with the equipment vendor and agreed to pay the equipment obligation over time, with interest at the prime rate. In the event certain assets are sold by Gobility, the proceeds of such asset sale will be used to satisfy all or a portion of the equipment obligation.

On March 10, 2008 Gobility sold the assets of the wireless network in Longmont, Colorado and the Company received the related proceeds in the form of promissory notes from the purchaser totaling $1,800,000. Thereafter, in July 2008 Data Sales sold certain of the leased assets to a third party, further reducing the total principal balance of the leases by approximately $1,231,000. In connection with the foregoing asset sale, the Company executed a promissory note and release with Data Sales in the principal amount of $330,000. Although Gobility has previously represented to us that it is pursuing the sale of its remaining wireless network assets, we understand that Gobility has not yet closed on the sale of those wireless networks and that it has defaulted in making scheduled lease payments. If Gobility fails to consummate the sale of its remaining wireless network assets and make the required payments on the liabilities described above, it is likely that the creditors described above will demand payment of the past due amounts from Mobilepro. As a result of Gobility’s failure to satisfy the monthly lease obligations, two leasing companies have commenced legal action against Mobilepro, which is currently proceeding in its initial phases of discovery (see the Harborside Litigation and Commonwealth Litigation in Paragraphs 4 and 8 of Item 3. “Legal Proceedings”). Other leasing companies may also elect to commence legal action and may elect to accelerate the payment date for the balance of the remaining monthly payments. In such event, Mobilepro would not have sufficient cash to satisfy the obligations to the leasing companies. Further, if we were unsuccessful in defending lawsuits from the leasing companies and were required to satisfy the obligations to the leasing companies, the Company may not be able to meet its principal and interest payment obligations on the convertible debenture and YA Global could potentially foreclose on the assets of the Company.

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

The Company has historically lost money. The Company’s accumulated deficit at March 31, ~~2007~~2009 was $77106,~~271~~992,~~245~~868. In the years ended March 31, ~~2007~~2009, ~~2006~~2008 and ~~2005~~2007, the Company sustained net losses of $4511,~~898~~360,~~288~~021, $1018,~~176~~361,~~407~~602, and $545,~~359~~898,~~722~~288, respectively. Over this three-year period, most of the acquired businesses of Mobilepro have experienced declining revenues. Although restructuring measures have reduced other operating expenses ~~by about 3% from the prior year~~, the Company ~~has~~had been unable to reduce the corresponding costs of services. In addition, the Company has funded the start-up and operations of the municipal wireless networks and online gaming businesses without these companies achieving expected revenues and continues to fund the Company’s corporate overhead. As a result, the amount of cash used in operations during the fiscal year ended March 31, ~~2007~~2009 and 2008 was $670,223 and $3,558,~~708~~996, respectively. The decline in cash used in operation was largely due to the reduction of corporate expenses, the elimination of cash used for discontinued operations and $810,215 of regulatory receipts relating to claims against certain telecommunications carriers of Davel, including $718,314 received from Qwest in the second quarter of fiscal 2009 (see Paragraph 6 of Item 3. – “Legal Proceedings”). Future losses are likely to occur. Accordingly, the Company will continue to experience liquidity and cash flow problems if it is unable to improve its operating performance, to sell assets for cash including the Integrated Telecom Business, or to raise additional capital as needed and on acceptable terms.

WeIf DoYA ~~Not~~Global ~~Have~~or ~~Enough~~Other ~~Registered~~Large Stockholders Sell Part or All of Their Shares toof ~~Cover~~Common Stock in the ~~Scheduled~~Market, ~~Debenture~~Such ~~Payments with~~Sales ~~Our~~May ~~Common~~Cause Our Stock Price to Decline

ToFrom time ~~date~~to time, ~~Cornell~~ ~~Capital~~YA ~~has~~Global ~~been~~and aother ~~significant~~selling ~~source~~stockholders ofmay ~~capital~~sell ~~for the Company, providing financing~~ in ~~several forms. Most recently,~~ the ~~Company~~public ~~has borrowed~~market ~~funds~~up ~~under~~to aall ~~series~~ of ~~convertible debentures. The total amount owed to Cornell Capital under~~ the ~~debentures at March 31, 2007 was $18,149,650. Using~~ shares of ~~its~~ common stock ~~registered~~owned onat ~~Form S-3 in November 2006, the Company made principal and interest payments on the debentures~~ that ~~totaled~~time. ~~$4,880,481~~Under ~~during~~ the ~~fiscal year ended March 31, 2007, and that totaled $1,967,908 from April~~ ~~2007~~Convertible ~~through May 2007. However~~Debenture, ~~the~~YA ~~supply~~Global ofhas ~~shares registered for Cornell Capital’s benefit related to~~ the ~~convertible~~right ~~debentures has been exhausted. Cornell Capital has agreed~~ to ~~delay~~convert ~~additional~~its ~~installment~~debt ~~payments~~into ~~until early~~common ~~July~~stock ~~2007~~of ~~when~~ the Company. ~~will~~We bebelieve ~~obligated~~such toshares ~~make~~can ~~total~~be ~~weekly~~sold ~~principal payments of $375,000 plus accrued interest. Unless additional shares are registered~~ by ~~the~~YA ~~Company~~Global under ~~the~~Rule 144 ~~Securities Act~~ of ~~1933 (~~the “Securities Act~~”),~~. ~~shares~~YA ~~acquired~~Global byhas ~~Cornell~~converted ~~Capital~~and ~~are~~sold ~~tradable under Rule 144 of the Securities Act~~629,042,857 or shares of ~~the Company’s~~ common stock ~~are~~during ~~otherwise~~fiscal ~~freely tradable~~2009 byand ~~Cornell~~has ~~Capital~~converted ~~without~~and ~~restriction,~~sold ~~the~~at ~~Company will be required~~least ~~to make~~290,700,000 ~~these~~shares ~~payments~~since inMarch ~~cash.~~31, 2009.

31-26-

~~Because~~Any ofsignificant ~~the~~downward ~~decline~~pressure inon ~~the~~our ~~total~~stock ~~market~~price ~~value~~caused ofby the ~~outstanding~~sale ~~shares~~ of ~~our~~stock ~~common~~by ~~stock,~~large weselling ~~are~~stockholders ~~not~~could ~~now~~encourage ~~eligible~~short tosales ~~use~~by ~~Form~~third ~~S-3~~parties. ~~As a result, we may be required~~Such toshort ~~use~~sales acould ~~more~~place ~~extensive~~further ~~and~~downward ~~time-consuming~~pressure ~~process~~on ~~in order to register additional shares of~~ our ~~common~~ stock ~~in the future~~ price.

~~The~~Legal ~~Company~~Actions ~~may~~May ~~not~~Be ~~have~~Required ~~the~~by ~~ability~~Us toin ~~continue~~order asto aEnforce ~~going~~Certain ~~concern beyond the~~Legal ~~second quarter of the current fiscal year without a significant restructuring of the Cornell Capital debentures.~~Rights

The ~~Sale~~telecommunications ofindustry ~~Portions~~includes hundreds of ~~Our~~companies, ~~Business~~many ~~May~~with substantially ~~Not~~greater Beinfrastructure, ~~Concluded~~financial, personnel, technical, marketing, and other resources, and larger numbers of established customers and more prominent name recognition than us. We ~~May~~transact ~~Not~~business ~~Have~~with certain of ~~Sufficient~~these ~~Cash~~companies. In addition, certain of our businesses operate in areas of the industry that are subject to ~~Continue~~federal ~~Operations~~and/or state regulations. As a result, in order to enforce rights under negotiated contracts with transaction partners or to obtain the benefits of certain government regulations, we may be forced to initiate or to participate in legal action. For example, as discussed in Item 3, Paragraph 2 - “Legal Proceedings”, Davel is engaged in a lengthy and expensive legal process relating to ~~Retire~~the nonpayment of dial-around compensation by large, long distance carriers. Using their greater resources, defendants have taken and may in the ~~Convertible~~future continue to take actions that stretch the duration of ~~Debentures~~litigation and substantially delay our receipt of the benefits of favorable legal decisions. Furthermore, there can be no guarantee that the legal actions taken by the Company will ultimately result in a favorable legal decision to the Company.

InAdverse ~~December~~Decisions ~~2006, the Company engaged an investment banking firm to assist~~ in ~~evaluating~~ ~~strategic~~Litigation ~~alternatives~~Could ~~for~~Cause ~~the~~a ~~wireless~~Material ~~networks~~Adverse ~~business~~Effect ~~conducted by its Kite Networks~~ and ~~Kite Broadband subsidiaries. To date, efforts to secure investment capital for this business~~ /or toCause ~~find a willing buyer have been unsuccessful. Consequently, despite obtaining lease financing and deferring payments to several large vendors,~~ the Company ~~has not been relieved of the need~~ to ~~help~~Cease ~~fund the operations of this business.~~Operations

InThe ~~March~~Company is a defendant in the Harborside Litigation and the Commonwealth ~~2007~~Litigation, which is described in Item 3 – “Legal Proceedings”. Although the Company ~~announced~~believes that it ~~had~~has ~~signed~~meritorious defenses ato ~~definitive~~the ~~agreement~~claims ~~for~~raised in this and the ~~merger~~ ofother ~~ProGames~~matters ~~with~~identified in Item 3 – “Legal Proceedings” and ~~into~~intends ~~Winning~~to ~~Edge~~vigorously ~~International,~~defend ~~Inc.~~itself ~~Consummation~~in each matter, ofthere ~~the~~can ~~transaction~~be ~~was~~no ~~subject~~guarantee tothat athe ~~number~~Company ofwill ~~closing~~ultimately ~~conditions~~succeed ~~including~~in doing ~~the arrangement~~so. If ofan ~~financing~~adverse ~~that~~ruling ~~would~~is ~~have~~ultimately ~~sustained~~issued against the ~~operations~~Company ofin the Harborside Litigation and or the ~~combined~~ ~~entity.~~Commonwealth ~~Financing~~Litigation, ~~has~~we may not ~~been~~have sufficient ~~arranged.~~funds Asavailable to satisfy a ~~result~~judgment. In such event, the ~~merger~~Company ~~agreement~~could ~~was~~cease ~~terminated~~operations and/or be required to seek the ~~Company~~protection ~~continues~~of the bankruptcy court to ~~fund~~protect the ~~operating~~interests ~~costs~~ of ~~ProGames.~~its secured creditor.

During the fourth quarter, the Company was also engaged in extensive negotiations with a company that intended to purchase Davel, the Company’s payphone operator. The negotiations did not result in a transaction. As a result, the losses incurred by Davel continue to adversely affect the operating results of the consolidated Company. -27-

~~In April 2007~~Similarly, Davel and its subsidiaries are plaintiffs in the ~~Company~~District ~~announced~~Court ~~that~~Litigation ~~its~~in which ~~Board~~it seeks recovery of ~~Directors~~significant ~~had~~amounts ~~decided~~of tononpaid ~~explore~~dial around ~~potential~~compensation ~~strategic~~from ~~alternatives~~large, ~~for~~long ~~the~~distance ~~entire~~carriers. Although the Company believes Davel’s litigation efforts will ultimately result in a favorable legal decision in the District Court Litigation, ~~and~~there can be no guarantee that itDavel ~~had~~will ~~received~~ultimately ~~inquiries~~succeed, ~~from~~or ~~potential~~that ~~buyers~~it ~~regarding~~will ~~the~~ultimately ~~purchase~~recover, ofor ~~portions~~timely recover, significant amounts of ~~its~~ ~~business~~money owed to it. In ~~This~~the ~~initiative~~event ~~has~~Davel ~~been~~is ~~undertaken~~unable to ~~with~~recover the ~~goals~~monies ofowed ~~maximizing~~ to it for the ~~value~~non-payment of dial around compensation, and the Company’s ~~assets,~~is ~~returning~~otherwise ~~value~~unable to ~~the~~raise ~~Company’s~~additional ~~stockholders~~capital, ~~and eliminating~~ the Company’s ~~debt,~~could ~~particularly~~be ~~amounts~~forced ~~payable~~ to ~~Cornell Capital.~~cease operations.

IfFurther ~~the Company~~Declines ~~fails~~in ~~to eliminate~~ the ~~cash~~Economy ~~requirements~~May ~~represented~~Adversely byAffect ~~the~~our ~~wireless network~~Operations ~~business, Davel~~ and ~~ProGames,~~Impair ~~or if a sale of the Wireline Business~~Our ~~is not~~Ability ~~consummated in accordance with expected terms, the Company will not likely have the ability~~ to ~~continue~~Generate asCash afrom ~~going~~and/or ~~concern~~Sell ~~beyond~~ the ~~second~~Integrated ~~quarter of~~Telecom ~~fiscal year 2008.~~Business

The U.S. Economy has entered a recession, unemployment claims have increased and consumers’ incomes have been reduced. Given our Integrated Telecom Business ’s exposure to business travel (through its temporary housing and hospitality business) and consumer welfare (through our residential business), our business has been negatively affected and further declines in the economy could materially adversely affect our Integrated Telecom Business, impairing our ability to sell it at a price sufficient to retire our debt. Such failure may cause us to further reduce the goodwill attributable to the Integrated Telecom Business.

Poor Operating Performance by the Companies With Which We have Notes Receivable May Cause Us to Further “Write Down” the Carrying Value of our Notes Receivable, Reducing the Book Value Per Share of Our Company

DHB Networks, USA and Microlog all owe us money in the form of notes receivable. If any or all of these three businesses has poor operating performance and is unable to service the payments, we may be required to take additional write downs of the carrying value of the notes receivable. We have already taken write downs against the DHB and USA notes. Such write downs would reduce the book value per share of our Company.

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

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

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

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

Additionally, Davel indirectly competes with other telecommunications providers, including providers of wireless services and prepaid calling card companies, for end users to utilize our pay telephones to make local and long distance calls. The proliferation of wireless communication devices has continued to reduce the use of pay telephones. For example, the cellular telephone business of CloseCall represents indirect competition for Davel. Furthermore, certain providers of wireless communication devices have continued to introduce rate plans, including pre-paid rate plans, that are competitively priced with certain of the products offered by us and have negatively impacted the usage of pay telephones throughout the nation. The effect on our business is that revenues of Davel are steadily declining. Davel’s revenues were $30,028,114 for the fiscal year ended March 31, 2007 compared with $40,305,697 for the corresponding period of the prior year, a decline of 25.5%.

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

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

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

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

Finally, the viability of existing revenue models for municipal wireless network deployments is being threatened by a competitor’s offer of free Internet access to users.

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

The successful deployment and management of a broadband wireless network, like the Tempe network, depends on our ability to obtain the necessary technical equipment and to acquire such equipment when needed at prices and on terms acceptable to us. Required equipment includes antennas, transmitters and network routers. To date, we have incurred approximately $10,000,000 in equipment costs related to wireless network deployments.

Obtaining flexible payment terms from suppliers for large equipment purchases has been important to our ability to complete deployments. Such terms have allowed us to more effectively manage our cash flow and/or negotiate sale/leaseback transactions. For example, suppliers granted extended payment terms to us in connection with the deployments of the equipment in Tempe and Longmont. Negotiations are underway in attempts to obtain extended payment terms from the likely suppliers of equipment for the Gilbert and Chandler deployments. However, the fact that substantially all of the balance due for the Longmont equipment (approximately $1,569,000) is overdue is adversely affecting the negotiations. The supplier’s position is that payment of this amount must occur before discussions continue. However, we have identified a source of lease financing for this equipment, and we are currently engaged in negotiations in an attempt to structure a transaction that is acceptable to all of the affected parties. Payment of this overdue amount prior to our arranging lease financing or securing funding from some other source would reduce our unrestricted cash balance significantly. Further, the transmission equipment being installed by us incorporates certain new technologies that are largely untested in these types of networks. Should functionality prove to be ineffective, we may be required to make additional expenditures to upgrade or replace equipment that has already been installed.

There can be no assurance that our purchasing efforts will continue to be successful. If we are unable to acquire the remainder of the equipment necessary for the successful completion of the wireless networks that we have been awarded when needed, or are unable to purchase equipment for future networks, all at prices and on terms acceptable to us, the deployment, ownership and management of broadband wireless networks could be delayed.

We were contractually obligated to complete the deployment of the Yuma and Gilbert deployments by March 31, 2007. Because we have not yet obtained the required equipment, we were not able to complete the deployments by then. The completion of the Chandler network is also overdue. If we do not continue to be granted extensions by the cities, we could lose the deployment opportunities. The loss of any of these contracts would adversely affect the growth of our wireless network business, and could adversely affect our ability to sell this business.

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

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

In November 2006, we filed a registration statement on Form S-3 covering the resale by selling stockholders of up to 404,474,901 shares of common stock that was declared effective by the SEC. To date, we have issued 175,779,290 shares of our common stock to Cornell Capital that were covered by the registration statement. The remaining number of shares registered in this offering represents approximately 33.0% of the total number of shares of common stock outstanding at March 31, 2007. In the event that the selling stockholders dispose of some or all of the remaining shares of common stock covered by this registration statement, such sales may cause our stock price to decline.

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

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

We May Not Successfully Integrate Our TCS Acquisition Which Could Harm Our Business

In January 2007, CloseCall acquired certain cellular telephone service contracts from TCS, representing over 7,000 cellular subscribers, plus related accounts receivable and inventory. As structured, the transaction should enhance revenues, operating profits and cash flow from operations by leveraging the existing CloseCall organization while adding a small group of salespersons experienced in selling telecommunications services to commercial customers. We expect this transaction to immediately add over $5,000,000 to the annual revenues of CloseCall.

However, our plans require the rapid integration of the major processes required to support the acquired customers, including provisioning, customer billing, cash collections and customer care. Certain aspects of the acquired business are new and the experience of CloseCall’s employees with the required integration tasks is limited. Failure to execute our integration efforts quickly or effectively could harm our business, resulting in poor service, the unexpected loss of subscribers, the inability to obtain new customers, the unanticipated costs of maintaining separate processes, and/or the loss of key employees. In addition, unexpected difficulty with the integration could divert the attention of key management from other essential tasks.

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

During its review of Amendment No. 1, filed on November 30, 2005, to our Registration Statement on Form SB-2, originally filed on September 30, 2005 and withdrawn by us on September 22, 2006, the SEC issued a comment stating that it believed that the repayment of promissory notes to Cornell Capital using proceeds from advances under the SEDA may have somehow violated Section 5 of the Securities Act of 1933 (the “Securities Act”). We requested guidance from the SEC regarding these transactions and how the transactions we had completed implicated Section 5. The only guidance we received was a reference to Section VIII of the Commission’s Current Issues and Rulemaking Projects Quarterly Update dated March 31, 2001 (the “Quarterly Update”). We analyzed each requirement for an equity line to comply with the Securities Act set forth in the Quarterly Update. We believe that we fully complied with the SEC’s guidance and that the guidance does not explicitly or implicitly prohibit or in any way limit the use of proceeds under the SEDA to repay debt obligations to Cornell Capital or any other party or limit any other use of proceeds. We are not aware of any other law, regulation or interpretive guidance on this subject and have not been advised of the existence of any by the SEC. Once we became aware of the new position of the staff of the SEC on this issue, however, we nevertheless immediately changed our repayment of notes issued to Cornell Capital to ensure that such repayments of debt were made only from cash generated by our operations or provided from other sources. Furthermore, all such notes payable to Cornell Capital were repaid during the quarter ended June 30, 2006, and no such notes were payable to Cornell Capital at March 31, 2007.

Accordingly, we do not believe that these transactions constitute a violation of the Securities Act. However, the SEC could commence an enforcement action against us, and if these transactions were held by a court to be in violation of the Securities Act, we could experience a material adverse effect and the market price of our common stock could decline, which could force us to sell or merge the company because our ability to raise additional financing would be significantly compromised. Any claim would be bound by the one-year statute of limitations under Section 13 of the Securities Act.

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

The Unavailability of Telecommunication Lines Could Threaten Our Business

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

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

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

Although the Telecommunications Act of 1996, as implemented by the FCC, addressed certain historical inequities in the payphone marketplace, uncertainties relating to the impact and timing of the implementation of this framework still exist. The uncertainty with the greatest potential financial impact relates to revenue from and collectibility of access code calls and toll-free dialed calls, or dial around compensation. Dial around compensation accounts for a material percentage of our revenues. Historically, many parties legally obligated by the FCC to pay dial around compensation have nevertheless failed to do so. We believe that such failures exist today. While we believe that we would have the right to sue in order to collect amounts owed, such efforts may consume management time and attention and our cash, and there can be no assurance that such efforts would result in the collection of any additional amounts. Consequently, such illegal nonpayment activities may adversely affect our cash flows, receivable collectibility, and future business profitability.28-

InAlthough ~~addition~~the 1996 Telecom Act, ~~decisions~~as implemented by the FCC, addressed certain historical inequities in the payphone marketplace, uncertainties relating to ~~abolish~~the ~~"UNE-P"~~impact ~~rules~~and timing of the implementation of this framework still exist. The uncertainty with the greatest potential financial impact relates to revenue from and collectability ~~rates~~of ~~will~~access ~~likely~~code calls and toll-free dialed calls, or dial around ~~increase~~compensation. ~~local~~Dial ~~line~~around ~~rates~~compensation has previously accounted for a material percentage of our ~~payphone~~revenues. Historically, many parties legally obligated by the FCC to pay dial around compensation have nevertheless failed to do so. We believe that such failures exist today. While we believe that we would have the right to sue in order to collect amounts owed, such efforts may consume management time and ~~CLEC~~attention and our cash, and there can be no assurance that ~~businesses~~such efforts would result in the collection of any additional amounts. Consequently, such illegal nonpayment activities may adversely affect our cash flows, receivable collectability, and future business profitability.

~~Our~~In ~~Payphone~~addition, ~~Division’s~~the ~~Revenue~~FCC Ishas ~~Subject~~issued torecent ~~Seasonal~~orders concerning, among other things, ~~Variations~~universal service contribution methodology and inter-carrier compensation. It is unclear whether these orders will ultimately be implemented by the FCC, and if implemented, what impact, if any, they will have for our Integrated Telecom Business.

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

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

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

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

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

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

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

-29-

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

The Unavailability of Telecommunication Lines Could Threaten Our Business

Our ability to deliver good quality services at competitive prices depends on our ability to obtain access to T-l and dial-up lines pursuant to pricing and other terms that are acceptable to us. Access to these lines necessary for providing services to a significant portion of our subscribers is obtained from incumbent local exchange carriers like Verizon and AT&T. To date, we have been successful in reaching certain important agreements with each of these carriers providing us with opportunities to expand services and the geographic coverage of such services and predictable prices, avoiding any interruption in service to our customers. In the event that any of the carriers would be unable or unwilling to provide service to us, even if legally required to do so, our ability to service existing customers or add new customers could be adversely impaired in a material manner.

Our Shareholders Have Authorized Our Board of Directors to Implement up to a 1-for-10 reverse Stock Split, which, if implemented, could cause you to have fewer shares and lower total value of your shares

While, in theory, a reverse stock split should cause a company's stock to increase by the reciprocal of the amount of the reverse stock split, in practice there is no guarantee that the stock price will indeed behave that way. Therefore, a reverse stock split may cause a reduction in the value of your stock and further reduce the market capitalization of the Company.

Item 1B. Unresolved Staff Comments

~~None~~Not applicable.

Item 2. Properties

Our principal executive offices are located in approximately 21,~~000~~040 square feet of leased office space at ~~6701~~401 ~~Democracy~~Professional ~~Boulevard~~Drive, Suite ~~202~~128, ~~Bethesda~~Gaithersburg, Maryland ~~20817~~20879. The term of the lease expires on ~~February~~June 2830, ~~2009~~2014.

In addition, our subsidiary operations currently occupy leased office space in locations around the country. A description of the occupancy terms for each of our significant locations follows.

CloseCall occupies approximately 14,000 square feet of leased office space in Stevensville, Maryland, that includes management, finance, sales, and a customer support call center under a lease with a term that has been extended by written amendment to February 28, ~~2008~~2011.

AFN occupies approximately 3,600 square feet of leased office space in Overland Park, Kansas that includes management, finance, sales, and operations. The term of the lease, as amended, expires on July 31, 2014.

Davel occupies approximately ~~16,700~~350 square feet of leased office space in ~~Cleveland~~Independence, Ohio; the lease term expires on ~~September~~December 2931, ~~2008~~ 2009. Approximately 4,000 square feet of storage space is also rented in Cleveland on a month-to-month basis.

Kite Broadband operates 1) a call center in Tucson, Arizona, under a lease of 8,150 square feet that expires on July 31, 2008, and that includes two three-year options, and 2) a data center in Ridgeland, Mississippi, under a lease of 1,500 square feet that expires on August 31, 2008. It shares a corporate office with Kite Networks in Ridgeland, Mississippi, occupying approximately 6,100 square feet of space under a lease term that expires on February 28, 2009.

The operations of our Internet services business segment, including DFW, occupy small leased office space facilities in numerous locations around the United States. The lease expiration dates for the most significant remaining properties are September 30, 2010 (Houston, Texas), January 31, 2010 (Irving, Texas), February 29, 2008 (Tucson, Arizona) and November 1, 2007 (Stockton, California). The charge for restructuring costs that we recorded in the quarter ended December 31, 2005 is based on our plan to close certain of these Internet services facilities.

Item 3. Legal Proceedings

In addition to certain other litigation arising in the normal course of its business that we believe will not materially affect our financial position or operating results, we were involved with the following legal proceedings during the fiscal year ended March 31, ~~2007~~2009.

1) At the time that we acquired Davel, there was existing litigation brought against Davel and other defendants regarding a claim associated with certain alleged patent infringement. Davel has been named as a defendant in a civil action captioned Gammino v. Cellco Partnership d/b/a Verizon Wireless, et al., C.A. No. 04-4303 filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiff claims that Davel and other defendants allegedly infringed its patent involving the prevention of fraudulent long30-distance telephone calls. The plaintiff is seeking monetary relief of at least $7,500,000. Davel does not believe that the allegations set forth in the complaint are valid and 2007 Davel filed a Motion for Summary Judgment, which is pending before the court. In a similar action filed by the plaintiff in the United States District Court of Texas against Southwestern Bell Telephone, LP and SWBT Texas, LLC the Court recently granted the defendants’ Motion for Summary Judgment and dismissed the case with prejudice based upon that court’s finding that the Gammino Patents were invalid.

~~According to~~1) At the time ~~terms~~that ofwe ~~the~~acquired Davel ~~acquisition~~, ~~the~~there ~~former~~was ~~secured~~existing ~~lenders~~litigation ofbrought against Davel, ~~subject~~and toother ~~certain~~defendants ~~limitations~~regarding ~~addressed~~a ~~below,~~claim ~~have~~associated ~~agreed~~with tocertain ~~reimburse~~alleged ~~the~~patent ~~Company~~infringement. ~~for~~Davel ~~the~~was ~~litigation~~named ~~cost~~as ~~and~~a ~~any~~defendant ~~losses~~in ~~resulting~~a ~~from~~civil ~~the~~action captioned Gammino ~~lawsuit~~v. ~~The~~Cellco ~~former~~Partnership ~~secured~~d/b/a ~~lenders~~Verizon ~~have~~Wireless, ~~agreed~~et toal., ~~fund~~C.A. ~~such~~No. ~~costs~~04-4303 ~~from~~filed ~~future~~in ~~Regulatory~~the ~~Receipts~~United ~~that~~States ~~were~~District ~~assigned~~Court tofor ~~them~~the byEastern ~~Davel.~~District ~~The~~of ~~Regulatory~~Pennsylvania. ~~Receipts~~The ~~are~~plaintiff ~~being~~claimed ~~deposited~~that ~~into~~Davel aand ~~third-party~~other ~~escrow~~defendants ~~account~~allegedly ~~and~~infringed ~~used~~its ~~to reimburse~~patent involving the ~~Company~~ ~~for~~prevention ~~costs~~of ~~incurred~~fraudulent inlong-distance ~~connection~~telephone ~~with the litigation~~calls. The ~~secured~~ ~~lenders~~plaintiff ~~are~~was ~~not~~seeking ~~required~~monetary torelief ~~fund~~of ~~the~~at ~~escrow~~least ~~account or otherwise reimburse the Company for amounts~~$7, ~~if any~~500,000. Davel did innot ~~excess~~believe ofthat ~~actual~~the ~~Regulatory~~allegations ~~Receipts~~set ~~collected. Any~~forth ~~amount remaining~~ in the ~~escrow~~complaint ~~account~~were atvalid, ~~the~~and accordingly, ~~conclusion~~Davel offiled ~~the~~a ~~litigation is~~Motion tofor beSummary ~~distributed~~Judgment towith the ~~former~~United ~~secured~~States District ~~lenders~~Court. On ~~Subsequent~~October ~~to March 31~~4, ~~2005,~~ 2007 the ~~Company~~United ~~has~~States ~~received~~District ~~significant~~Court granted ~~Regulatory~~Davel’s ~~Receipts,~~Motion ~~which~~for ~~are~~Summary ~~being held~~Judgment inand ~~escrow.~~the ~~These~~Court ~~funds~~entered ~~can~~final bejudgment dismissing ~~used~~Plaintiff toJohn ~~reimburse~~R. ~~the~~Gammino’s ~~Company~~claims for ~~costs,~~patent ~~including~~infringement. On ~~legal~~November ~~fees~~1, ~~incurred~~2007, inPlaintiff ~~defending~~filed orhis ~~settling~~Notice ~~the litigation matter.~~of WeAppeal ~~believe~~commencing ~~that~~an ~~there~~action ~~are sufficient funds~~ in the ~~escrow~~United ~~account~~States toCourt ~~pay~~of ~~both our legal~~Appeal ~~costs~~for inthe ~~defending against this plaintiff's infringement claims and any~~Federal ~~potential~~District. In ~~judgment~~response, ~~that~~Davel ~~could~~filed beits ~~reasonably~~appellate ~~expected~~brief inon ~~our~~February 26, ~~view~~2008. Notwithstanding ~~There is a potential exposure of~~ the ~~Company~~pending toappellate ~~the $7~~proceeding,~~500,000~~ ~~claim~~ in ~~the event that~~July 2008 the ~~Regulatory~~ ~~Receipts~~parties ~~that~~entered ~~are~~into ~~being~~a ~~held~~Settlement inAgreement ~~escrow~~terminating ~~are~~the ~~insufficient to cover~~litigation ~~any potential~~and ~~judgment~~providing ~~against~~a ~~the~~mutual ~~Company~~release ~~should~~of itclaims, bewhich ~~found~~ended ~~liable for~~ the ~~full~~pending litigation ~~monetary~~between ~~amount~~ the ~~plaintiff is seeking~~parties.

2) On April ~~September 10~~17, ~~2004~~2007, ~~CloseCall~~the ~~was~~Supreme ~~served~~Court ~~with~~of athe ~~complaint~~United inStates issued an ~~action~~opinion in the case captioned ~~Verizon~~Global ~~Maryland~~Crossing Telecommunications, Inc., ~~Verizon~~v. ~~New~~Metrophones Telecommunications, ~~Jersey~~ Inc., on Certiorari from the United States Court of Appeals for the Ninth Circuit (the "Ninth Circuit" and ~~Verizon~~the ~~Delaware~~"Metrophones ~~Inc~~Case"), No. 05-705, in which it upheld the Ninth Circuit's ~~Court~~decision ~~for~~that ~~Montgomery~~independent payphone ~~County,~~providers ~~Maryland~~have a private right of action to pursue recovery in federal court from telecommunication carriers who fail to pay dial around compensation. The ~~Verizon~~ruling ~~sued~~in the Metrophones Case impacts litigation that has been pending in federal district court against AT&T, Sprint and Qwest (the "Defendants") for non-payment of dial around compensation (the “inDistrict ~~excess~~Court Litigation”). Davel Communications, Inc. and certain of $1Davel's subsidiaries (collectively,~~000~~ the "Davel Entities") are directly or indirectly plaintiffs in the District Court Litigation. Following the Supreme Court ruling in the Metrophones Case,~~000”~~ ~~based~~AT&T and onSprint ~~alleged~~filed ~~unpaid~~with ~~invoices~~the United States Supreme Court a Petition for ~~services~~a ~~provided~~Writ toof Certiorari ~~CloseCall~~No. ~~Verizon~~07-552 ~~asserted~~seeking ~~that~~review ~~CloseCall~~of ~~underpaid~~ the ~~Federal~~ruling ~~Subscriber~~of ~~Line~~the ~~Charges~~United ~~billed~~States byCourt ~~Verizon,~~of Appeals byfor ~~applying~~the anDistrict ~~uncollectible~~of ~~factor~~Columbia toCircuit that the ~~amounts~~plaintiffs ~~charged~~had bystanding ~~Verizon~~in the District Court Litigation. On InJanuary ~~addition~~4, ~~Verizon~~2008 ~~contended~~the ~~that~~United ~~CloseCall~~States Supreme ~~underpaid~~Court granted the ~~amounts~~Petition ~~owed~~for toa ~~Verizon~~Writ byof ~~misapplying~~Certiorari. The parties filed their respective briefs during the ~~terms~~first calendar quarter of 2008, with the ~~“merger~~United ~~discount”~~States ~~offered~~Supreme toCourt ~~CLECs~~hearing oral arguments on April 21, ~~including~~2008. On ~~CloseCall~~June 23, as2008, the United Stated Supreme Court issued a ~~result~~ruling affirming the decision of the ~~merger~~United ~~between~~States ~~Bell~~Court ~~Atlantic~~of ~~and~~Appeals. The ~~GTE~~recent ruling by the United States Supreme Court has permitted the District Court Litigation to move forward.

~~CloseCall~~Although ~~filed~~the ~~counterclaims~~District ~~against~~Court ~~Verizon.~~Litigation ~~The~~has ~~first~~been ~~claim~~pending ~~stemmed~~since ~~from~~1999, ~~Verizon’s~~the litigation ~~refusal~~remains toin ~~resell~~its ~~certain~~preliminary ~~bundled~~phases. ~~telecommunications~~As ~~services~~a ~~to CloseCall~~result, we cannot predict the likelihood ~~despite~~of ~~repeated~~success ~~requests~~on bythe ~~CloseCall~~merits, ~~and~~the costs associated with the ~~requirements~~pursuit of the claims, ~~Communications~~the ~~Act~~timing of ~~1934,~~any asrecovery ~~amended.~~or Inthe ~~addition~~amount of recovery, ~~CloseCall~~if ~~asserted~~any. ~~damages~~However, the asindustry representing a ~~result~~group of ~~Verizon’s~~independent ~~entry~~payphone ~~into~~providers, ~~secret~~including ~~resale~~the Davel ~~agreements~~Entities, ~~with~~has ~~two~~prevailed ~~CLECs,~~in a similar Federal Communications Commission ~~offering~~administrative ~~those~~proceeding ~~companies~~against ~~deep~~another ~~discounts~~carrier onfor ~~telecommunications~~non-payment ~~services~~of ~~not~~dial-around ~~offered~~compensation using a similar methodology which was accepted and pursuant to which ~~other~~the ~~CLECs,~~Federal ~~including~~Communications ~~CloseCall~~Commission assessed pre-judgment interest (the "Similar Litigation"). ~~CloseCall~~Based ~~also~~upon ~~asserted~~our ~~damages~~methodology in the Similar Litigation, we asestimate that the amount in controversy for the Davel Entities against the aDefendants ~~result~~extends ofwell ~~Verizon’s~~into ~~failure~~the toeight ~~provide~~figures, ~~dialing~~but ~~parity~~any torecovery ~~CloseCall’s~~is conditioned ~~customers.~~on, ~~CloseCall~~among ~~also~~other ~~asserted~~things a(i) ~~claim~~prevailing ~~for~~on ~~tortious~~the ~~interference~~merits ~~with~~at trial; (ii) having the ~~business~~Davel ~~relations~~Entities' asdamages amodel ~~result~~and ofother ~~Verizon’s~~claims ~~policy~~approved ofin ~~blocking~~whole ~~local~~or ~~service~~in large ~~change~~part; ~~orders~~(iii) ~~for~~prevailing on any ~~customer~~appeals that ~~also~~the ~~receives~~Defendants ~~DSL~~may ~~service~~make; ~~from~~and or(iv) ~~through~~the ~~Verizon~~continued solvency of the Defendants. ~~CloseCall~~As ~~made~~evidenced by the more than ten years that this litigation has been in process, the Defendants have shown an interest in stretching the duration of the litigation and have the means to do so. Although the Davel Entities could ultimately benefit (in an absolute sense, although not necessarily on a ~~declaratory~~present value basis) from this delay in the event that pre-and/or post-judgment ~~claim~~interest ~~for~~(awarded ~~inaccurate~~at 11.25% per annum in the Similar Litigation) is assessed against the Defendants and ~~improper~~the potential award ~~billings~~of byattorneys' ~~Verizon~~fees and/or other remedies (in addition to compensatory damages) if the Davel Entities prevail, ~~including~~such ~~carrier~~delay ~~access~~will ~~billing~~result ~~service~~in ~~charges.~~a deferral of the receipt of any cash to the Davel Entities.

383) Under the authority granted by the Management Agreement to USA, CloseCall America filed a complaint in the Circuit Court for Howard County, Maryland, against Skyrocket Communications, Inc. (“Skyrocket”) Case No. 13-C-07-70296 for breach of contract and unjust enrichment (the “Skyrocket Litigation”). CloseCall’s claim arose from an unpaid credit owing to CloseCall in the amount of $23,914 owed under a terminated technical support services agreement. In response thereto, Skyrocket filed a counter-claim alleging breach of contract and asserting damages in the amount of $1.5 million. In January 2008 Skyrocket filed an amended counter-complaint asserting an additional claim for intentional misrepresentation, seeking $5 million in actual damages and $5 million in punitive damages. Based upon our belief that the counter-claim and amended counter-claims are without merit, CloseCall filed a motion for summary judgment. The Court granted CloseCall’s motion on the amended counter-claim and dismissed Skyrocket’s claim for intentional misrepresentation. The Skyrocket Litigation was scheduled for trial on February 9, 2009. During the trial, the court granted CloseCall’s motion for judgment on the claims alleged in the counter-complaint, leaving CloseCall’s breach of contract and unjust enrichment claims to be determined by the jury. After deliberation on the claims against Skyrocket, the jury returned a verdict in favor of CloseCall. Thereafter, Skyrocket filed an appeal of the jury verdict. Notwithstanding the favorable trial court ruling in CloseCall’s favor, in April 2009 the parties entered into a Settlement Agreement terminating the litigation and providing a mutual release of claims, which ended the pending litigation between the parties.

On November 2, 2005, the Circuit Court for Montgomery County (a) dismissed CloseCall's counterclaim relating to Verizon's alleged breach of the parties' resale agreements by refusing to offer for resale bundled telecommunications services that Verizon offered to its own end-user customers and by refusing to offer to CloseCall the same discounts for resold services offered by Verizon to other competitive local exchange carriers, (b) severed CloseCall's counterclaims, other than the claim related to CABS charges, and (c) ordered CloseCall to pursue the severed counterclaims in the first instance before the appropriate federal or state administrative agency.31-

As4) On or about March 15, 2008 we were served with a summons and complaint in the Superior ~~result~~Court of ~~the~~New ~~Circuit~~Jersey ~~Court~~in Bergen County captioned Harborside Investments III LLC vs. Mobilepro Corp. and NeoReach, Inc. The plaintiff alleges claims of breach of agreement and unjust enrichment arising out of an equipment lease agreement for ~~Montgomery~~wireless ~~County's~~equipment ~~November~~and 2seeks damages in the amount of $976,361 (the ~~2005~~“Harborside ~~Order~~Litigation”). On or about April 28, 2008 the ~~CloseCall~~Company filed aits ~~Complaint~~answer, separate defenses and third party complaint against JTA ~~Verizon~~Leasing ~~before~~Co., ~~the~~LLC. Although ~~Public~~discovery ~~Service~~has ~~Commission~~commenced, the ofHarborside ~~Maryland~~Litigation remains in ~~connection~~its ~~with~~initial ~~CloseCall’s~~stages. Although ~~allegations~~we believe ~~that~~Mobilepro ~~(a)~~has ~~Verizon's failure~~meritorious defenses to ~~provide~~the ~~dialing~~alleged ~~parity~~claims and we intend to ~~CloseCall's~~vigorously ~~end-user~~defend ~~customers~~ourselves ~~and~~in ~~(b)~~this matter we cannot predict the likelihood ~~Verizon's~~of ~~refusal~~success toin ~~process~~the ~~local~~Harborside ~~service~~Litigation. ~~change~~The ~~orders~~Company ~~for~~has ~~customers~~recorded ~~also~~the liability ~~subscribing~~for the estimated principal balance relating to ~~Verizon'~~this capital lease obligation and the related accrued interest which is included in current liabilities in the Company’s ~~DSL~~consolidated ~~service~~balance sheets at March 31, 2009 and 2008.

5) On ~~June 9,~~March ~~2006~~4, ~~Verizon~~2008 ~~Maryland~~the ~~Inc.~~Company filed a complaint in the Circuit Court of Madison County, ~~Verizon~~Mississippi ~~New~~against ~~Jersey~~Telava Networks, Inc., ~~and~~d/b/a ~~Verizon~~Telava ~~Delaware~~Wireless/Network, Inc. ~~and~~(“Telava”) ~~CloseCall~~asserting ~~entered~~claims ~~into~~against aTelava ~~Confidential~~for ~~Settlement~~breach of contract and tortuous ~~Release~~breach ~~Agreement,~~of contract in connection with a June 2007 purchase agreement pursuant to which ~~ends~~Telava ~~the~~agreed ~~pending~~to ~~litigation~~purchase ~~between~~Mobilepro’s ~~the~~interests ~~parties~~in ~~relating~~Kite Networks toand the ~~payment~~ rest of our wireless business. The Company seeks ~~Subscriber~~recovery ~~Line~~of ~~Charges~~all byavailable ~~CloseCall~~damages including, but not limited to, actual, consequential general, expectancy and punitive damages. Telava filed a motion to remove the ~~application~~case ofto the ~~terms~~United ofStates District Court for the Southern ~~promotional~~District ~~resale~~of ~~discount~~Mississippi, ~~offered~~Jackson byDivision ~~Verizon~~after towhich ~~CloseCall~~it infiled ~~connection~~an ~~with~~answer denying the ~~2000~~substantive ~~merger~~claims ~~between~~made ~~Bell~~by ~~Atlantic~~Mobilepro ~~Corporation~~ and ~~GTE~~asserting ~~Corporation~~certain affirmative defenses to the claims. On or about September 30, 2008 the parties entered into a joint stipulation of dismissal, without prejudice. The dismissal ~~terms~~agreement ends the existing litigation while preserving the Company’s right to ofre-assert the ~~parties'~~claims ~~settlement~~at ~~are~~a ~~confidential.~~later date if the Company so elects.

36) OnDavel and ~~August~~certain 6,of ~~2006,~~its wewholly ~~were~~owned ~~served~~subsidiaries ~~with~~have abeen ~~summons~~plaintiffs ~~and~~in ~~complaint~~a complaint filed inagainst ~~the~~Qwest ~~Superior~~Corporation ~~Court~~(“Qwest” ofand the ~~State~~“Qwest ofLitigation”) ~~Arizona~~ in ~~Maricopa County in~~ the United ~~matter~~States ~~captioned~~District ~~Michael~~Court V.for ~~Nasco,~~the ~~et.~~Western ~~al.~~District ~~vs.~~of ~~MobilePro~~Washington ~~Corp.,~~alleging various ~~et.~~claims ~~al.~~concerning ~~which~~Qwest’s ~~makes~~billings ~~claims~~to ~~arising~~the ~~out~~plaintiffs offrom ~~the~~1997 ~~acquisition~~to by2003 for ~~the~~certain ~~Company~~communication ofservices ~~Transcordia,~~from ~~LLC~~Qwest. The ~~plaintiff~~proceeding ~~alleges~~had ~~breach~~previously been ofstayed ~~contract,~~through ~~fraud,~~January ~~relief~~2008 ~~rescission,~~to ~~failure~~permit the Federal Communications Commission to ~~pay~~issue ~~wages~~a ~~and~~ruling ~~unjust~~that ~~enrichment~~would ~~and~~provide ~~seeks~~the ~~damages~~court inguidance ~~excess~~concerning ofthe $3billing matters ~~million.~~at Onissue orin ~~about~~the ~~November~~Qwest 7,Litigation. ~~2006,~~Despite wethe ~~filed~~failure aof ~~motion~~the toFederal Communications ~~dismiss~~Commission ~~arguing~~to ~~lack~~timely ofissue ~~standing~~the ~~and~~guidance ~~corporate~~sought ~~existence.~~by ~~The~~the ~~motion~~district court, toon ~~dismiss~~or ~~was~~about ~~subsequently~~September ~~denied~~30, by2008 the ~~Court~~parties ~~and~~entered ~~the~~into ~~matter~~a isSettlement Agreement into resolve the ~~initial~~Qwest ~~stages~~Litigation. The ofproceeds ~~discovery.~~received Weas ~~believe~~a result ~~that~~of wethe ~~have~~Settlement ~~meritorious~~Agreement ~~defenses~~had previously been assigned to the ~~alleged~~former lenders ~~claims~~of ~~and~~Davel ~~intend~~pursuant to ~~vigorously~~the ~~defend~~acquisition ~~ourselves~~and inrelated ~~this~~agreements ~~matter.~~between In the Company ~~event~~and ~~that~~former ~~our~~secured ~~defenses~~lenders ~~were~~of ~~not~~Davel. As ~~successful,~~a weresult ~~believe~~of ~~that~~a modification ~~any~~to ~~potential~~certain ~~exposure~~agreements ~~related~~between tothe Company and the ~~claims~~former ~~alleged~~lenders ~~against~~in December 2007, the Company iswas ~~not~~permitted ~~likely~~ to beretain ~~material~~$718,314 of the settlement proceeds.

47) On January ~~April 17~~7, ~~2007~~2009 the ~~Supreme~~Company ~~Court~~received ofnotice ~~the~~that ~~United~~it ~~States~~and ~~issued~~its ~~an opinion in the case captioned Global Crossing Telecommunications~~subsidiaries, ~~Inc. v. Metrophones Telecommunications, Inc. on Certiorari from the United States Court of Appeals for the Ninth Circuit (the "Ninth Circuit"~~ AFN and ~~the "Metrophones Case")~~CloseCall, ~~No.~~had ~~05-705,~~been inserved ~~which~~with ~~it upheld the Ninth Circuit's decision that independent payphone providers have~~ a ~~private~~summons ~~right~~and ofcomplaint ~~action to pursue recovery~~ in ~~federal court from telecommunication carriers who fail to pay dial around compensation. The ruling in~~ the ~~Metrophones~~York ~~Case~~County Superior ~~permits~~Court ~~litigation to resume that has been pending~~ in ~~federal~~Maine ~~district~~by ~~court~~Nationwide ~~against~~Acquisition ~~AT&T Corporation, Sprint Communications Company, LP and Qwest Communications, Inc~~Corp. (~~the "Defendants"~~“Nationwide”) ~~for~~and ~~non-payment of dial around compensation~~L. William ~~Davel~~Fogg ~~Communications,~~(“Fogg” ~~Inc.~~ and ~~certain of Davel's subsidiaries (collectively,~~ the ~~"Davel Entities"~~“Complaint”) ~~are directly or indirectly plaintiffs in the federal district court cases against the Defendants~~. Fogg ~~Although~~is ~~the federal district court case has been pending since 1999, the litigation remains in its preliminary phases. As~~ a ~~result,~~former ~~the~~executive officer ~~Registrant cannot predict the likelihood~~ of ~~success~~USA onand ~~the~~allegedly ~~merits,~~ the ~~costs~~owner ~~associated with the pursuit~~ of ~~the claims~~Nationwide, the ~~timing~~company ofwhich allegedly ~~any~~now ~~recovery~~owns or the ~~amount~~ISP ofBusiness ~~recovery,~~acquired ifby ~~any.~~USA ~~However,~~from the ~~industry~~Company. ~~representing~~Pursuant to aan ~~group~~agreement ofbetween ~~independent~~USA ~~payphone~~and ~~providers~~Fogg, ~~including~~Fogg ~~the~~allegedly ~~Davel~~acquired Entities, has recently prevailed in a similar Federal Communications Commission administrative proceeding against another carrier for non-payment of dial-around compensation using a similar damages model which was accepted and pursuant to which the ~~Federal~~ISP ~~Communications~~Business, agreed ~~Commission assessed pre-judgment interest (the "Similar Litigation"). The Similar Litigation is being appealed~~ to ~~the~~indemnify ~~U.S.~~USA ~~Court of Appeals~~ for ~~the~~all ~~District~~ of ~~Columbia.~~USA’s ~~Based~~liabilities ~~upon~~under ~~our damages model in~~ the ~~Similar~~USA ~~Litigation,~~Note weand agreed ~~estimate~~to ~~that~~indemnify ~~the~~and ~~amount~~hold inUSA ~~controversy~~harmless ~~for the Davel Entities~~ against ~~the Defendants extends well into the eight figures, but~~ any ~~recovery is conditioned on~~loss, ~~among~~damage ~~other things (i) prevailing on the merits at trial; (ii) having the Davel Entities' damages model and other claims approved in whole~~ or inexpense arising ~~large~~out ~~part;~~of ~~and (iii) prevailing on any appeals that~~ the ~~Defendants~~USA ~~may make~~Note. Nationwide ~~As evidenced by the eight years that this litigation has been in process, the Defendants have shown an interest in stretching the duration of the litigation~~ and ~~have~~its ~~the~~related ~~means~~companies also agreed to doindemnify ~~so.~~USA ~~Although~~for ~~the~~various ~~Davel~~USA ~~Entities~~debts ~~could ultimately benefit (in an absolute sense, although not necessarily on a present value basis) from this delay in the event that pre-and/~~or ~~post-judgment~~liabilities ~~interest~~outstanding ~~(awarded at 11.25% per annum in the Similar Litigation) is assessed against the Defendants and the potential award~~ as of ~~attorneys'~~June ~~fees and/or other remedies (in addition to compensatory damages) if the Davel Entities prevail~~4, ~~such delay will result in a deferral of the receipt of any cash to the Davel Entities~~2008.

39The Complaint is an action for declaratory relief to resolve certain disputes among the Company, CloseCall, AFN, USA, Nationwide and Fogg, including, among other things, the payment of the past due amount under the USA Note. Nationwide and Fogg allege that the Company made certain misrepresentations in connection with the USA Agreement for which USA and/or Fogg are entitled to set-off against the past due amount. The Company believes that the claims alleged in the Complaint are a tactic to further delay payment of the past due amount.

-32-

On February 10, 2009 the Company filed its answer to the declaratory relief complaint, together with cross-claims against USA for (i) the payment default under the terms of the USA Note, (ii) anticipatory repudiation and breach of the USA Agreement, (iii) breach of the USA Management Agreement and a related services agreement, (iii) negligent and intentional misrepresentation in connection with the USA Agreement, (iv) breach of fiduciary duty, (v) indemnification under the USA Agreement, (vi) restitution and unjust enrichment under the USA Management Agreement, (vii) conversion and (viii) securities fraud under the Maine Uniform Securities Act and Section 10 (b) of the Securities Exchange Act. In the same pleading, Mobilepro also brought counterclaims against Nationwide and Fogg for (i) the payment default under the terms of the USA Note, (ii) breach of a non-disclosure agreement executed in connection with the USA Agreement, (iii) breach of fiduciary duty and duty of good faith in connection with the USA Management Agreement, (iv) intentional misrepresentation in connection with the USA Agreement, (v) restitution and unjust enrichment under the USA Management Agreement, (vi) securities fraud under the Maine Uniform Securities Act and Section 10 (b) of the Securities Exchange Act and (vii) injunctive relief.

On June 8, 2009 the parties participated in a mediation of the claims raised in the declaratory relief proceeding and the cross-claims alleged by the Company against USA. As a result of the mediation efforts, the parties agreed to settle their claims. The settlement agreement is subject to further documentation which is expected to be finalized by the parties on or before June 30, 2009.

8) On or about March 24, 2009 we were served with a summons and complaint in the District Court of Arizona the Phoenix Division captioned Commonwealth Capital Corp. vs. City of Tempe, Mobilepro Corp. and NeoReach, Inc. The plaintiff alleges claims of breach of agreement arising out of an equipment lease agreement for wireless equipment and seeks damages in an amount in excess of $904,620 (the “Commonwealth Litigation”). In response thereto, the Company filed counterclaims against the plaintiff for tortious interference with business expectancy and breach of the duty of good faith and fair dealing. The Commonwealth Litigation remains in its initial stages. Although we believe Mobilepro has meritorious defenses to the alleged claims and we intend to vigorously defend ourselves in this matter we cannot predict the likelihood of success in the Commonwealth Litigation. The Company has recorded the liability for the estimated principal balance relating to this capital lease obligation and the related accrued interest which is included in current liabilities in the Company’s consolidated balance sheets at March 31, 2009 and 2008.

9) On or about June 1, 2009 we were served with a summons and complaint in the Circuit Court for Montgomery County, Maryland captioned Thomas E. Mazerski vs. Mobilepro Corp and CloseCall America, Inc. The plaintiff alleges claims of breach of an employment agreement and seeks the payment of certain wages, bonuses and legal fees totaling $270,414.28. The plaintiff further alleges that he is entitled to seek treble damages for his wage claim under the provisions of the Maryland Labor and Employment Section 3-507(b) (1). The Company is currently evaluating the defenses and counterclaims which it intends to assert against the Plaintiff . Although we believe Mobilepro and CloseCall have meritorious defenses to the alleged claims and we intend to vigorously defend ourselves in this matter we cannot predict the likelihood of success in this matter.

10) On or about June 5, 2009 we were served with a summons and complaint in the Circuit Court for Montgomery County, Maryland captioned Richard Ramlall vs. Mobilepro Corp and CloseCall America, Inc. The plaintiff, an employee of a competitor to the Integrated Telecom Business, RCN, alleges that he is owed a bonus in the amount of $48,333. The plaintiff further alleges that he is entitled to seek treble dames for his wage claim under the provisions of the Maryland Labor and Employment Section 3-507(b) (1). The Company is currently evaluating the defenses which it intends to assert against the Plaintiff . Although we believe Mobilepro and CloseCall have meritorious defenses to the alleged claims and we intend to vigorously defend ourselves in this matter we cannot predict the likelihood of success in this matter.

11) Other Ongoing and Threatened Litigation

The Company is involved in other claims and litigation arising in the ordinary course of business, which it does not expect to materially affect its financial position or results of operations. The Company has been threatened by several former employees with litigation; however, to date, no litigation or other action has commenced than described above which is material to the Company. The Company and its subsidiaries are involved from time to time in disputes with industry providers which are typically resolved through negotiations. One such industry provider has asserted certain amounts are owed by AFN. Although AFN has disputed such amounts and does not believe the amount owed to the industry provider is material, if the dispute is not resolved through negotiations and is adversely determined against AFN, such amount could be material.

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

None.

-33-

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “MOBL.” The ~~following~~ following table sets forth the high and low closing prices for the common stock for each calendar quarter since April 1, ~~2004~~2006, as reported by the National ~~Quotation~~ Quotation Bureau.

	Price Per Share	~~Price Per Share~~
	High	~~High~~	Low	~~Low~~
2004
2006
April 1, 2004 - June 30, 2004		$	0.28	$	0.10
April 1, 2006 - June 30, 2006	$0.2600		$0.1710
July 1, 2004 - September 30, 2004		$	0.27	$	0.14
July 1, 2006 - September 30, 2006	$0.1990		$0.1050
October 1, 2004 - December 31, 2004		$	0.24	$	0.15
October 1, 2006 - December 31, 2006	$0.1490		$0.0650
2005
2007
January 1, 2005 - March 31, 2005		$	0.24	$	0.17
January 1, 2007 - March 31, 2007	$0.0760		$0.0302
April 1, 2005 - June 30, 2005		$	0.38	$	0.15
April 1, 2007 - June 30, 2007	$0.0430		$0.0161
July 1, 2005 - September 30, 2005		$	0.36	$	0.24
July 1, 2007 - September 30, 2007	$0.0390		$0.0070
October 1, 2005 - December 31, 2005		$	0.26	$	0.17
October 1, 2007 – December 31, 2007	$0.0089		$0.0019
2006
2008
January 1, 2006 - March 31, 2006		$	0.30	$	0.18
January 1, 2008 - March 31, 2008	$0.0050		$0.0020
April 1, 2006 - June 30, 2006		$	0.24	$	0.18
April 1, 2008 - June 30, 2008	$0.0030		$0.0012
July 1, 2006 - September 30, 2006		$	0.19	$	0.11
July 1, 2008 – September 30, 2008	$0.0024		$0.0004
October 1, 2006 - December 31, 2006		$	0.14	$	0.07
October 1, 2008 – December 31, 2008	$0.0008		$0.0003
2007
2009
January 1, 2007 - March 31, 2007		$	0.07	$	0.03
January 1, 2009 – March 31, 2009	$0.0007		$0.0003
April 1, 2006 - June 5, 2007		$	0.04	$	0.02
April 1, 2009 – June 3, 2009	$0.0004		$0.0002

Stockholders

As of March 31, ~~2007~~2009, there were approximately ~~760~~746 registered holders of record of our common stock. We believe that a substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions. Including such holders, we believe that there ~~are~~may be more than 10,000 holders of our ~~common~~ common stock as of March 31, ~~2007~~2009.

On December 19, 2008, at our Annual Meeting of Stockholders, our stockholders voted to increase the number of authorized shares of capital stock from 1,500,000,000 shares to 3,000,000,000 shares. Our stockholders also voted in favor of amending our certificate of incorporation to permit a reverse stock split by a ratio of not less than one for two and not more than one for ten, with the exact ratio to be set within that range at the discretion of the Company’s Board of Directors. The Board of Directors has not yet authorized the reverse stock split nor the ratio to be used in the event a reverse stock split is executed by the Company.

Dividends

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the ~~development~~ongoing operations and growth of our business and do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. We have previously announced a record date of September 15, 2004 for the dividend of certain shares we own in Solution Technology International, Inc (“STI”). Due to the delays in STI becoming a publicly traded company, we have not yet established a payment date for the dividend.

~~Equity Compensation Plan Information~~-34-

Incorporated by reference to the Company’s 2007 Definitive Proxy Statement on Schedule 14A.

Mobilepro Non-Plan Option and Warrant Grants

Incorporated by reference to the Company’s 2007 Definitive Proxy Statement on Schedule 14A.

Stock Price Performance Graph

42-35-

Recent Sales of Unregistered Securities

OnIn the ~~June 22~~period November 27, 2006 through May 10, we2007, the Company issued ~~200~~a total of 55,~~000~~089,635 unregistered shares of ~~our~~its common stock to ~~Ryan Beck &~~YA ~~Co.~~Global in ~~connection~~satisfaction of ~~with~~its ~~their~~obligation ~~providing~~under ~~investment~~the ~~banking~~Amended ~~services~~Debenture to usmake weekly installment ~~valued~~principal atpayments plus interest in the total amount of $363,~~000~~252,649.

OnIn the ~~June 30,~~period ~~2006~~January 11, we2007 ~~issued~~through anMay ~~amended~~10, ~~secured~~2007, ~~convertible~~the ~~debenture~~Company inissued ~~the~~a ~~amount~~ total of ~~$15~~120,~~149~~689,~~650~~655 tounregistered ~~Cornell~~shares ~~Capital~~of ~~(the~~its ~~“Amended~~common ~~Debenture”),~~stock ~~replacing~~to aYA ~~previously issued~~Global ~~debenture.~~in ~~Cornell~~satisfaction of ~~Capital~~its ~~may~~obligation ~~convert~~under ~~all~~the orSecured ~~any~~Debenture ~~part~~to ofmake ~~the~~weekly ~~unpaid~~installment principal ~~and~~payments ~~accrued~~plus interest ~~owed~~in ~~under~~ the ~~Amended~~total ~~Debenture~~amount ~~into shares~~ of ~~our~~ ~~common stock at a conversion price of~~ $03,595,740.~~275 per share.~~

InOn August ~~connection~~27, ~~with~~2007, the ~~issuance~~Board of Directors approved the ~~Amended~~issuance ~~Debenture~~of up to 19,000,000 shares ~~Cornell~~of ~~Capital~~common ~~was~~stock as follows: a warrant for up to 10,000,000 shares of ~~issued~~common stock to Jay O. Wright, Chairman of the Board and Chief Executive Officer; a warrant to ~~purchase~~each 13of Richard H. Deily,~~750~~ former Chief Accounting Officer, and Tammy L. Martin, Chief Administrative Officer and General Counsel, for 3,000,000 shares of ~~the~~common ~~Company’s~~stock; and 1,000,000 shares of common stock atto each aof ~~purchase~~the independent directors, Donald Sledge, Michael O’Neil and Christopher MacFarland. The exercise price offor each warrant is $0.~~275~~0075 per share.

InOn ~~August 2006~~November 5, ~~we issued 300~~2007,~~996~~ ~~unregistered~~the ~~shares~~Company’s Board of ~~our~~Directors ~~common~~approved ~~stock~~the toaward ~~Alex Kang,~~of warrants, exercisable at a ~~former~~ ~~employee,~~purchase inprice ~~connection~~of ~~with~~$0.0089 ~~his~~per ~~exercise~~share, to purchase 1,000,000 shares of ~~employee~~its common stock to Donald Paliwoda, the Company’s Chief ~~options~~Accounting Officer.

On May ~~August 28~~26, ~~2006~~2008, the ~~Company~~Board ~~entered~~of ~~into~~Directors approved the issuance of up to 36,850,000 shares of common stock as follows: a ~~financing~~warrant ~~agreement~~for ~~with~~up ~~Cornell~~to ~~Capital~~20,000,000 shares of ~~that~~common ~~provided~~stock ~~$7.0~~to ~~million~~Jay inO. ~~funding~~Wright, ~~with~~Chairman of the ~~proceeds~~Board ~~received~~and ~~upon~~Chief ~~the~~Executive ~~issuance~~Officer, a warrant to each of aDouglas ~~series~~Bethell, President of ~~secured~~CloseCall and AFN, and ~~convertible~~Tammy ~~debentures~~L. ~~with~~Martin, aChief ~~total~~Administrative ~~amount~~Officer and General Counsel, for ~~of $7~~4,000,000 shares of common stock, ~~convertible~~a ~~into~~warrant for up to 1,750,000 shares of ~~our~~common stock to Donald Paliwoda, the Company’s Chief Accounting Officer, a warrant for up to 1,500,000 shares of common stock atto aits ~~price~~independent director, Donald Sledge, and warrants totaling 5,600,000 to nine non-executive employees of the Company. The exercise price for each warrant is $0.~~174~~ 0016 per share.

~~Since August~~On 28June 30, ~~2006~~2008, in connection with the issuance of ~~convertible~~the ~~debentures~~Convertible Debenture, the ~~under~~Company granted to YA Global a seven-year warrant to purchase 25,000,000 shares ~~the~~of its common stock at an exercise price of $7.0.04973 ~~million~~per ~~financing~~share ~~agreement~~which expires on June 30, we2015. ~~have~~In ~~issued~~addition, the outstanding warrants previously granted to YA Global to purchase 15,000,000 share of common stock at $0.20 per share and 10,000,000 shares of ~~our~~ common stock toat ~~Cornell~~$0.174 ~~Capital,~~per share were repriced and are now exercisable at a ~~per share~~ price of $0.~~174.~~04973 per share.

On ~~August 28~~January 19, ~~2006~~2009, wethe ~~also~~Company ~~agreed~~and toits ~~reset~~newly ~~the~~formed ~~warrants~~subsidiary, toMWS ~~purchase~~Newco, ~~shares~~Inc., consummated ofthe ~~our~~terms ~~common stock~~of ~~that~~an ~~had~~asset ~~previously~~purchase ~~been~~agreement ~~issued~~with MobileWebSurf to acquire ~~Cornell~~certain ~~Capital.~~mobile ~~The~~email, ~~number~~texting ofand ~~shares subject~~social tonetworking ~~exercise~~software ~~under~~products and ~~the~~related ~~warrants~~intellectual ~~related~~property totechnology (the ~~Debenture~~“Acquired ~~and~~Assets”). ~~the Amended~~As ~~Debenture~~consideration ~~were~~for ~~increased~~the ~~to 15~~Acquired Assets,~~000,000~~ ~~shares~~MobileWebSurf ~~and 13,750,000, respectively,~~received ~~from 6~~5,000,000 ~~and~~shares ~~10,000,000, respectively. The per share exercise prices~~ of the ~~warrants~~ ~~were~~Company’s ~~reduced~~common ~~from~~stock ~~$0.50~~valued ~~and~~at $~~0.275~~2,500 ~~respectively,~~and toa ~~$0.20~~nineteen percent ownership interest in ~~both instances.~~MWS Newco, Inc.

OnIn the ~~January~~twelve 9months ended March 31, ~~2007~~2009, wethe Company issued ~~500~~629,~~000~~042,857 ~~unregistered~~ shares of ~~our~~ its common stock resulting in the reduction of $324,840 in principal owed to YA Global relating to the Convertible Debenture. Subsequent to March 31, 2009, the ~~Paul~~Company ~~Silverman~~issued 290,700,000 aadditional ~~member~~shares of ~~our~~common ~~Board~~stock which resulted in the reduction of ~~Advisors~~$87,710 inof ~~connection~~additional ~~with~~principal ~~his~~owed to YA Global. We believe ~~exercise~~such ofshares aare ~~stock~~tradable ~~warrant~~by atYA aGlobal ~~price~~pursuant to Rule 144 of ~~$10,000~~the Securities Act of 1933.

On ~~January~~ 15April 29, ~~2007~~2009, wethe ~~issued~~Company 9granted warrants to purchase 37,~~079~~000,~~903~~000 ~~unregistered~~ shares of ~~our~~ common ~~stock~~ ~~to Telecommunications,~~stock ~~Inc.~~at asan ~~consideration~~exercise ~~for~~price ~~the~~of ~~acquired~~$0.0003 ~~subscriber~~per ~~contracts and~~share ~~net~~to ~~assets~~certain officers, ~~valued~~directors and atmanagement ~~$675,000~~personnel.

On February 9, 2007, we issued an additional 3,944,214 unregistered shares of our common stock to the formers owners of Kite Broadband and Kite Networks pursuant to working capital purchase price provisions of the acquisition agreements.

In the period November 27, 2006 through May 10, 2007, the Company issued a total of 175,779,290 unregistered shares of its common stock to Cornell Capital in satisfaction of its obligation under the Amended Debenture to make weekly installment principal payments plus interest in the total amount of $3,252,649.

In the period January 11, 2007 through May 10, 2007, the Company issued a total of 120,689,655 unregistered shares of its common stock to Cornell Capital in satisfaction of its obligation under the Amended Debenture to make weekly installment principal payments plus interest in the total amount of $3,595,740.

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

43-36-

Item 6. Selected Financial Data

The following information as of March 31, ~~2007~~2009 and ~~2006~~2008 and for the fiscal years ended March 31, ~~2007~~2009, ~~2006~~2008 and ~~2005~~2007 was taken from the audited financial statements appearing elsewhere in this annual report. The information as of March 31, ~~2005~~2007, ~~2004~~2006 and ~~2003~~2005 and for the fiscal years ended March 31, ~~2004~~ 2006 and ~~2003~~2005 was ~~taken~~derived from the audited financial statements included in annual ~~reports~~ reports previously filed with the SEC . This information should be read in ~~conjunction~~ conjunction with such financial statements and the notes thereto.

	Fiscal Years Ended
	Fiscal Years Ended March 31
	March 31,			March 31,			March 31,			March 31,			March 31,
	2009				2008				2007				2006			2005
	2007			2006			2005			2004			2003
Statement of Operations Data (1)(2):
Statement of Operations Data (1)
Revenues	$	30,857,981			$	45,770,689			$	62,559,174			$	72,356,452		$	32,624,084
Revenues	$	89,089,328		$	99,013,467		$	46,508,144		$	311,355		$	-
Operating Costs and Expenses (3)		32,697,766				51,119,349				71,538,674				72,442,818			35,639,758
Operating Costs and Expenses (2)(4)		132,247,292			106,238,075			50,029,303			2,211,856			9,771,389
Asset Impairment Charges		8,764,065				-				1,573,795				1,818,909			-
Operating Income/(Loss)		(43,157,964	)		(7,224,608	)		(3,521,159	)		(1,783,152	)		(9,771,389	)
Operating Loss		(10,603,850	)			(5,348,660	)			(10,553,295	)			(1,905,275	)		(3,015,674	)
Interest and Other Expense, net		(21,~~330~~657,~~723~~309	)		~~(2,838,394~~	)(1,821,024	)	~~(1,838,563~~	)	(2,474,309	~~(374,692~~)	)		(~~101~~2,~~849~~798,159	)		(1,680,692	)
Loss on Extinguishment of Debt		~~(409,601~~-	)		-	-		-		(409,601	-)			-			-
Minority Interests		-			(113,405	)		-			-			-
Loss on Sale of Assets		-				(2,778,906	)			-				-			-
Net Loss	$	(45,898,288	)	$	(10,176,407	)	$	(5,359,722	)	$	(2,157,844	)	$	(9,771,389	)
Loss from Continuing Operations		(12,261,159	)			(9,948,590	)			(13,437,205	)			(4,703,434	)		(4,696,366	)
Net Loss per Common Share
Income (Loss) from Discontinued Operations (4)		901,138				(8,413,012	)			(32,461,083	)			(5,472,973	)		(663,356	)
Basic	$	(0.0760	)	$	(0.0248	)	$	(0.0185	)	$	(0.0193	)	$	(0.4482	)
Net Loss	$	(11,360,021	)		$	(18,361,602	)		$	(45,898,288	)		$	(10,176,407	)	$	(5,359,722	)
Diluted	$	(0.0760	)	$	(0.0248	)	$	(0.0185	)	$	(0.0193	)	$	(0.4482	)
Net Income (Loss) per Common Share, Basic and Diluted
Continuing Operations	$	(0.0131	)		$	(0.0129	)		$	(0.0222	)		$	(0.0115	)	$	(0.0162	)
Discontinued Operations		0.0010				(0.0109	)			(0.0538	)			(0.0133	)		(0.0023	)
Net Loss per Common Share	$	(0.0121	)		$	(0.0238	)		$	(0.0760	)		$	(0.0248	)	$	(0.0185	)

44-37-

	March 31, 2007			March 31, 2006			March 31, 2005			March 31, 2004		March 31, 2003
	March 31 2009				March 31 2008				March 31 2007			March 31 2006			March 31 2005
Balance Sheet Data
Balance Sheet Data:
Assets
Cash and Cash Equivalents	$	31,~~430~~419,~~844~~130		$	~~5,397,881~~$	2,075,117	$	~~4,669,787~~	$	$3,098,113	~~1,955,607~~	$	64,~~715~~994,248		$	4,435,574
Total Current Assets	$	16,272,723		$	19,631,577		$	20,269,751		$	2,106,143	$	16,233
Other Current Assets		5,287,390				7,246,542				10,915,691			10,915,045			14,228,280
Total Non-Current Assets (3)		53,036,198			74,359,476			52,553,180			1,252,030		-
Assets of Companies Held for Sale (5)		-				-				22,400,956			42,196,164			18,119,943
Total Assets	$	69,308,921		$	93,991,053		$	72,822,931		$	3,358,173	$	52,702
Goodwill, Net of Impairment		11,767,213				20,531,278				20,531,278			20,231,278			18,543,703
Liabilities and Stockholders’ Equity
Other Non-Current Assets		2,168,970				3,538,016				12,362,883			15,654,318			17,495,431
Current Portion of Debentures and Note Payables	$	17,144,675		$	8,464,959		$	25,535,263		$	1,863,633	$	584,500
Total Assets	$	20,642,703			$	33,390,953			$	69,308,921		$	93,991,053		$	72,822,931
Total Current Liabilities	$	41,389,629		$	30,516,184		$	48,869,082		$	2,511,654	$	1,819,380
Liabilities and Stockholders’ Equity (Deficit)
Long-Term Debt, less current portion		5,961,024			10,645,662			999,196			560,200		343,117
Current Portion of Debentures and Other Long-term Debt	$	16,033,615			$	17,159,180			$	15,163,593		$	8,142,786		$	24,558,387
Total Liabilities		47,350,653			41,161,846			49,868,278			3,071,854		2,162,497
Other Current Liabilities		7,579,223				8,153,837				15,594,025			14,786,523			19,157,596
Minority Interests		-			-			600,000			-		-
Liabilities of Companies Held for Sale		-				-				13,355,291			7,691,843			6,050,394
Total Stockholders’ Equity		21,958,268			52,829,207			22,354,653			286,319		(2,109,795	)
Long-term Debt, less current portion		1,257,457				1,380,900				3,237,744			10,540,694			101,901
Total Liabilities and Stockholders’ Equity	$	69,308,921		$	93,991,053		$	72,822,931		$	3,358,173	$	52,702
Total Liabilities		24,870,295				26,693,917				47,350,653			41,161,846			49,868,278
Minority Interests		-				-				-			-			600,000
Total Stockholders’ Equity (Deficit)		(4,227,592	)			6,697,036				21,958,268			52,829,207			22,354,653
Total Liabilities and Stockholders’ Equity (Deficit)	$	20,642,703			$	33,390,953			$	69,308,921		$	93,991,053		$	72,822,931

(1) Includes the results of operations of acquired companies following their respective dates of acquisition (see Note 1 to the accompanying Consolidated ~~Financials~~Financial Statements).

(2) ~~Includes~~Reclassifications ~~asset~~have ~~impairment~~been ~~charges~~made ofto ~~$27,275,987~~prior ~~and~~year ~~$4,446,544~~amounts infor ~~the~~presentation ~~fiscal~~of ~~years~~discontinued ~~ended March 31, 2007 and 2006, respectively~~operations. ~~No such charges were recorded in the fiscal years ended March 31, 2005, 2004 or 2003.~~

(3) Includes ~~goodwill,~~compensation ~~net~~expense related to the adoption of ~~impairment~~FAS ~~charges,~~123R of $2997,~~547~~663,~~074, $47,788,167,~~ $32843,~~579,099~~962 and $1,~~112~~623,~~695~~714 atin the fiscal years ended March 31, ~~2007~~2009, ~~2006,~~2008 ~~2005~~ and ~~2004~~2007, respectively. ~~The balance sheet at March 31, 2004 did not include any goodwill.~~

(4) Includes ~~compensation~~asset ~~expense~~impairment ~~related~~charges tofrom ~~the~~discontinued ~~adoption~~operations of ~~FAS 123R of~~ $125,~~623~~702,~~714~~192 and $2,627,635 in the fiscal ~~year~~years ended March 31, 2007 and 2006, respectively. No additional charges were recorded in the fiscal years ended March 31, 2009, 2008 and 2005.

45(5) Includes goodwill, net of impairment charges, of $9,015,796, $27,556,889, and $14,035,396 at March 31, 2007, 2006 and 2005, respectively.

-38-

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following information should be read in conjunction with the audited consolidated financial statements of Mobilepro Corp. and the notes thereto appearing elsewhere in this filing. Statements in this “Management’s Discussion and Analysis of Results of Operation and Financial Condition” and elsewhere in this report that are not statements of historical or current fact constitute “forward-looking statements.”

The following is a discussion and analysis of 1) our results of operations for the fiscal years ended March 31, ~~2007~~2009, 2008 and ~~2005~~2007, 2) our financial position at March 31, ~~2007~~2009, and 3) the factors that could affect our future financial ~~condition~~ condition and results of operations. Historical results may not be indicative of ~~future~~ future performance.

Current Business Conditions

Our business has historically lost money. Our accumulated deficit at March 31, 2007 was $77,271,245. In the years ended March 31, 2007, 2006 and 2005, we sustained net losses of $45,898,288, $10,176,407 and $5,359,722, respectively. Over this three-year period, most of our acquired businesses experienced declining revenues. Although restructuring measures have controlled other operating expenses, we have been unable to reduce the corresponding costs of services. In addition, we have funded the start-up and operations of the municipal wireless networks and online gaming businesses without these companies achieving expected revenues. As a result, the amount of cash used in operations during the fiscal year ended March 31, 2007 was $6,558,708. Future losses are likely to occur. Accordingly, we will continue to experience liquidity and cash flow problems if we are unable to improve the Company’s operating performance, to raise additional capital as needed and on acceptable terms, or to sell assets for cash.

In December 2006, we engaged an investment banking firm to assist in evaluating strategic alternatives for the wireless networks business conducted by its Kite Networks and Kite Broadband subsidiaries. To date, efforts to secure investment capital for this business or to find a willing buyer have been unsuccessful. Consequently, despite obtaining lease financing for certain equipment purchases and deferring payments to several large vendors, we have had to continue to help fund the operations of these businesses.

In March 2007, we announced that we had signed a definitive agreement for the merger of ProGames, our online gaming subsidiary, with and into Winning Edge International, Inc. Consummation of the transaction was subject to a number of closing conditions including the arrangement of financing that would have sustained the operations of the combined entity. Financing has not been arranged. As a result, the merger agreement was terminated and we continue to fund the operating costs of ProGames.

During the fourth quarter of the current year, we also engaged in extensive negotiations with a company that intended to purchase Davel, the Company’s payphone operator. The negotiations did not result in a transaction. As a result, the losses incurred by Davel continue to adversely affect our consolidated operating results.

To date, Cornell Capital Partners, L.P. (“Cornell Capital”) has been a significant source of capital for us, providing financing in several forms. Most recently, we borrowed funds under a series of convertible debentures. The total amount owed to Cornell Capital under the debentures at March 31, 2007 was $18,149,650. Using shares of our common stock registered on Form S-3 in November 2006, we made principal and interest payments on the debentures that totaled $4,880,489 during the fiscal year ended March 31, 2007, and that totaled $1,967,908 from April 2007 through May 2007. However, the supply of shares registered that related to the convertible debentures has been exhausted. Cornell Capital has agreed to delay additional installment payments until early July 2007 when we will be obligated to make total weekly principal payments of $375,000 plus accrued interest. Unless additional shares are registered by the Company under the Securities Act of 1933 (the “Securities Act”), shares acquired by Cornell Capital are tradable under Rule 144 of the Securities Act, or shares of our common stock are otherwise freely tradable by Cornell Capital without restriction, we will be required to make these payments in cash.

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

We have received letters of interest regarding the acquisition of the CloseCall, AFN and the Internet service provider businesses (the “Wireline Business”), and several of these firms have engaged in due diligence investigation activities. If the expected amount of cash proceeds from the sale of the Wireline Business is received by us, we expect to be in a position to retire the Cornell Capital debentures plus accrued interest in the first half of fiscal year 2008. In May 2007, we borrowed $1,100,000 from Cornell Capital under a promissory note in order to help bridge our cash flow shortfall until a sale of the Wireline Business is completed.

If the Company fails to eliminate the cash requirements represented by the wireless network business, Davel and ProGames, or if a sale of the Wireline Business is not consummated on favorable terms, the Company will not have the ability to continue as a going concern beyond the second quarter of the current fiscal year without a significant restructuring of the Cornell Capital debt. Although the consolidated financial statements have been prepared on a going-concern basis, the Company recorded substantial impairment charges at March 31, 2007 related to the goodwill of the Internet service provider and wireless networks businesses and certain fixed and intangible assets of Davel and Kite Networks.

Overview

WeMobilepro ~~deliver~~Corp., aincorporated ~~comprehensive~~under ~~suite~~the laws of ~~voice~~the ~~and~~State ~~data~~of ~~communications~~Delaware ~~services~~in July 2000, is a ~~including~~holding ~~local~~company ~~exchange,~~with ~~long~~subsidiaries ~~distance,~~in ~~enhanced~~the ~~data~~telecommunications, ~~Internet,~~pay ~~wireless~~ telephone and ~~broadband~~online ~~services~~gaming toindustries ~~our~~and ~~end-user~~an ~~customers.~~affiliate ~~Revenues~~in ~~for~~ the ~~reportable~~software industry. We ~~business~~previously operated in three industry segments ~~for~~prior to the ~~fiscal~~sale ~~years~~of ~~ended~~our broadband ~~March~~wireless ~~31,~~and ~~2007,~~Internet ~~2006~~subsidiaries ~~and~~as ~~2005~~discussed below. Together with ~~were~~ its consolidated subsidiaries, Mobilepro Corp. is hereinafter referred to as “Mobilepro” ~~follows:~~or the “Company”.

Business Segment	2007		2006		2005
Voice Services	$	62,559,069	$	72,356,453	$	32,009,084
Internet Services		15,030,633		16,940,513		13,884,060
Wireless Networks		11,499,521		9,716,501		-
Corporate		105		-		615,000
Total Revenues	$	89,089,328	$	99,013,467	$	46,508,144

The Company’s voice services segment has included the operations of CloseCall America, Inc. (“CloseCall”), a Stevensville, Maryland-based integrated telecommunications carrier , Davel Communications, Inc. (“Davel”), a Cleveland, Ohio-based independent payphone provider, and American Fiber Network, Inc. (“AFN”), an integrated telecommunications carrier and data processor based in Overland Park, Kansas. The Company’s Internet services segment previously included DFW Internet Services, Inc. (“DFW”, doing business as Nationwide Internet), an Irving, Texas-based Internet services provider, its acquired Internet service provider subsidiaries, and InReach Internet, Inc. (“InReach”), an Internet service provider based in Stockton, California. The Company’s municipal wireless networks operations were conducted primarily by a wholly owned subsidiary, NeoReach, Inc. (“NeoReach”), and its subsidiary, Kite Networks, Inc. (“Kite Networks”, formerly known as NeoReach Wireless, Inc.). The wireless networks segment also included the operations of the Company’s subsidiary, Kite Broadband, LLC (“Kite Broadband”), a broadband wireless service provider. Both Kite Networks and Kite Broadband were based in Ridgeland, Mississippi. The corporate segment has included our Internet gaming and mobile content subsidiary, ProGames Network, Inc. (“ProGames”), that we founded in December 2005.

47On June 30, 2007, the Company entered into a Purchase Agreement (the “USA Agreement”) with United Systems Access, Inc. (“USA”), pursuant to which USA agreed to acquire all of the outstanding shares of CloseCall and AFN (the Company’s “Integrated Telecom Business”, which was previously included in the voice services business segment) and all of the outstanding shares of DFW and InReach (together these companies comprised the Company’s Internet services provider business segment, or “ISP Business”). The sale of the ISP Business was completed on July 18, 2007. The sale of the Integrated Telecom Business was subject to the receipt of certain regulatory approvals, which was originally expected to be obtained by the end of calendar year 2007. On January 14, 2008, the Company received notice from USA purporting to terminate the USA Agreement with respect to the sale of the Integrated Telecom Business, but provided that USA remained interested in discussing terms upon which it would purchase the Integrated Telecom Business (see “Sale of the ISP and Integrated Telecom Business” below). USA was unable to complete the purchase on terms acceptable to the Company and, as a result of this default, the Company subsequently terminated the sale of its Integrated Telecom Business to USA.

~~The~~On July ~~revenues~~8, ~~for~~2007, ~~each~~the Company entered into a Purchase Agreement (the “Gobility Agreement”) with Gobility, Inc. (“Gobility”), pursuant to which Gobility acquired all of the outstanding shares of NeoReach and Kite Networks, and all of the outstanding membership interests in Kite Broadband (together these companies have comprised the Company’s wireless networks business segment, ~~expressed~~or as“Wireless Networks aBusiness”). ~~percentage~~As offurther ~~total~~discussed ~~revenues~~below, Gobility is in default with respect to its obligation to obtain funding and to pay amounts due under certain equipment obligations and leases for which the ~~respective~~Company ~~years,~~is ~~were~~a asco-obligor. ~~follows:~~The Company is currently cooperating with Gobility in its efforts to sell the assets of Kite Networks in order to satisfy these obligations (see “Sale of Wireless Networks Business “ below).

Business Segment	2007			2006			2005
Voice Services		70.2	%		73.1	%		68.8	%
Internet Services		16.9			17.1			29.9
Wireless Networks		12.9			9.8			-
Corporate		0.0			-			1.3
Total Revenues		100.0	%		100.0	%		100.0	%

-39-

~~The revenues~~On ~~of the voice services business segment are provided primarily by~~June ~~the operations~~30, of2007, Davel ~~and~~sold ~~CloseCall.~~approximately ~~Both~~730 ofoperating ~~these~~payphones ~~companies~~to ~~were~~an ~~acquired~~unaffiliated inpayphone ~~the third~~operator. ~~quarter~~On ofSeptember ~~fiscal~~7, ~~2005. Fiscal~~ 2007, ~~and~~Davel ~~2006~~sold ~~results~~an ~~include~~additional ~~revenues~~21,405 ~~for these~~payphones ~~companies~~to ~~for~~Sterling ~~the~~Payphones, ~~entire~~LLC ~~years~~(“Sterling”). ~~Davel~~Sterling ~~revenues~~also ~~included~~assumed ~~in our~~certain ~~consolidated~~liabilities ~~results~~of ~~were~~Davel. ~~$30,028,114~~Effective ~~for~~September ~~the year ended March 31~~30, 2007, ~~compared~~ ~~with~~Davel ~~$40,305,697~~sold ~~for~~an ~~the~~additional ~~year~~300 payphones. ~~ended~~Following ~~March~~these 31transactions, ~~2006,~~Davel’s ~~representing~~remaining operations have been ~~approximately~~significantly 48reduced.0% ~~and~~Davel’s ~~33.7%~~remaining ofoperations ~~voice~~are ~~services~~being ~~revenues~~continued and ~~consolidated~~ ~~revenues,~~Davel ~~respectively,~~is ~~for~~pursuing the ~~current~~recovery ~~year.~~of ~~CloseCall~~certain ~~revenues~~claims ~~included in~~including ~~our consolidated results were $24,469,280 for~~ the ~~year~~AT&T Corporation ~~ended March 31~~(“AT&T”), ~~2007, compared~~Sprint ~~with~~Communications ~~$27~~Company,~~029,379~~ ~~for~~LP ~~the~~(“Sprint”) ~~year~~and ~~ended~~Qwest Communications ~~March 31~~Company, ~~2006 representing approximately 39~~Inc.1% ~~and~~(“Qwest”) ~~27.5~~claims %described ofin ~~voice~~Item ~~services revenues and consolidated revenues~~3, ~~respectively, for the current year~~“Legal Proceedings”.

~~Cost of services~~Current ~~is comprised primarily of telecommunications charges, including~~Business data transmission and database access, leased digital capacity charges, circuit installation charges, and activation charges. The costs of database access, circuits, installation charges and activation charges are based on fixed fee and/or measured services contracts with local exchange carriers, inter-exchange carriers and data services providers. Salaries, equipment maintenance, and other costs related to the ongoing operation of our network facilities are included in operating expenses. Depreciation expense on our network equipment is excluded from our cost of services and is included in depreciation and amortization expense in our consolidated statements of operations. Our other operating expenses also include costs related to sales, marketing, administrative and management personnel; outside legal, accounting and consulting services; advertising and occupancy expenses; and other costs of being a publicly traded company, including legal and audit fees, insurance premiums and board of director fees.Conditions

~~Management~~Our ~~Challenges~~acquisition strategy that began five years ago was executed with one primary objective being the establishment of a viable telecommunications company with sufficient credibility to be considered for selection by cities for the deployment, ownership and management of broadband wireless networks. The effectiveness of our business plan execution was initially confirmed by the selection by Tempe, Arizona of Kite Networks (formerly NeoReach Wireless) for its network. Subsequently, we were selected by several other cities for the deployment, ownership, and management of such networks and substantially completed citywide wireless networks deployments in Farmers’ Branch, Texas, and Longmont, Colorado.

~~During~~However, ~~the~~most ~~fourth~~of ~~quarter~~our ofacquired businesses, including the ~~current~~Wireless ~~year~~Networks Business, experienced ~~the~~declining ~~efforts~~revenues. ofAlthough ~~executive~~restructuring ~~management~~measures helped to control other operating expenses, we were unable to reduce the corresponding ~~focused~~costs ~~substantially~~of onservices ~~initiatives~~sufficiently to ~~raise~~maintain ~~cash~~profitability. In addition, sowe ~~that~~funded ~~business~~the start-up and operations ~~could~~ beof ~~sustained.~~the ~~The~~municipal ~~current~~wireless networks ~~status~~and ofonline ~~those~~gaming ~~initiatives~~businesses iswithout ~~described~~these companies achieving expected ~~above~~revenues. In Because the ~~meantime,~~cash werequired ~~also continued~~ to ~~concentrate~~fund on the ~~business~~continuing ~~development~~ operating losses and to ~~network~~complete ~~deployment~~the ~~activities~~build-out of ~~the~~planned municipal wireless ~~network~~networks ~~business,~~exceeded the ~~integration~~Company’s ofavailable capital, the ~~business~~Company ~~acquired~~signed ~~from~~agreements ~~TCS~~to ~~into~~sell ~~CloseCall,~~substantial portions ~~and~~of ~~the consolidation~~its ~~and~~operations ~~integration~~to ofseveral unaffiliated buyers during the ~~Internet~~fiscal ~~services~~year ended ~~businesses.~~March 31, 2008.

The Company has historically lost money. Our accumulated deficit at March ~~acquisition~~31, ~~strategy~~2009 ofwas ~~the~~$106,992,868. ~~last~~In ~~three~~the fiscal years ~~has~~ended ~~been~~March ~~executed~~31, in2009, ~~part~~2008 and 2007, we sustained net losses of $11,360,021, $18,361,602 and $45,898,288, ~~with~~ respectively. In addition, the ~~objective~~amounts of ~~establishing~~cash aused ~~viable~~in ~~telecommunications~~operations during ~~company~~fiscal ~~with sufficient~~years ~~credibility~~ended toMarch be31, ~~considered~~2009, ~~for~~2008 ~~selection~~and by2007 ~~cities~~were ~~for~~$70,223, ~~the~~$3,558,996 ~~deployment~~and $6,558,708, ~~ownership~~respectively. The decline in cash used in operation was largely due to the reduction in corporate expenses and ~~management~~the elimination of ~~broadband~~cash ~~wireless~~used ~~networks~~for discontinued operations. The ~~effectiveness~~ Company also received $810,215 of ~~our~~receipts ~~business~~in ~~plan~~the fiscal ~~execution~~year ~~was~~ended ~~initially~~March ~~confirmed~~31, by2009 ~~the selection~~relating to claims involving over-billings by certain ~~Tempe~~telecommunications carriers of Davel in violation of regulatory rulings (“Regulatory Receipts”), ~~Arizona~~including $718,314 ofreceived ~~Kite~~from ~~Networks~~Qwest in the second fiscal quarter (~~formerly~~see ~~NeoReach~~Item ~~Wireless~~3, “Legal Proceedings”). Although the Company continues ~~for its~~to ~~network.~~operate ~~Subsequently,~~the weIntegrated ~~were~~Telecom ~~selected~~Business bywhich ~~several~~has ~~other~~been ~~cities~~consistently profitable and able to generate significant cash flow for the ~~deployment,~~ ~~ownership~~Company, ~~and~~we ~~management~~are likely ofto ~~such~~continue ~~networks,~~to experience liquidity and wecash ~~have~~flow problems due to the ~~substantially~~Company’s ~~completed~~current ~~city-wide~~debt ~~wireless~~service ~~networks~~requirements, ~~deployments~~including inamounts ~~Farmers’~~due under the ~~Branch,~~remaining ~~Texas,~~equipment obligations and ~~Longmont,~~leases ~~Colorado.~~of the former Wireless Networks Business.

48Historically YA Global Investments, L.P. (“YA Global”, f/k/a Cornell Capital Partners, L.P.) was a significant source of capital for the Company, providing financing in several forms. During fiscal 2007, we borrowed funds under a series of convertible debentures. The total amount owed to YA Global under the debentures at March 31, 2007 was $18,149,650. In May 2007, we borrowed $1,100,000 from YA Global under a promissory note in order to help bridge our cash flow shortfall during the first quarter of fiscal year 2008. This promissory note and accrued interest were repaid in July 2007. Using shares of our common stock registered on Form S-3 in November 2006, we made principal and interest payments on the debentures that totaled $4,880,489 during the fiscal year ended March 31, 2007, and that totaled $1,967,908 from April 2007 through May 2007. However, the supply of registered shares available for the conversion of the debentures was exhausted. We made additional cash payments of principal and interest on the debentures that totaled $4,149,651 during the fiscal year ended March 31, 2008, primarily from the proceeds of the sale of the ISP Business and payphone assets discussed below. However, the Company was unable to make the weekly scheduled principal payments of $375,000 plus interest commencing February 1, 2008 and made partial payments of interest aggregating $200,000 on May 2 and June 4, 2008. Effective June 30, 2008, the Company issued a secured convertible debenture to YA Global (the “Convertible Debenture”) with an aggregate principal balance of $13,391,175, replacing the former convertible debentures. The Convertible Debenture provides for monthly payments of interest at 12% with the remaining principal balance due on May 1, 2009. During the fiscal year ended March 31, 2009, the Company made the monthly interest payments and YA Global converted $324,840 of principal into common stock. We believe such shares are tradable by YA Global pursuant to Rule 144 of the Securities Act of 1933 (the “Securities Act”). The total principal and accrued interest amounts owed to YA Global under the Convertible Debenture at March 31, 2009 was $13,066,355 and $136,260, respectively. The Convertible Debenture continues to be secured by substantially all of the assets of the Company.

~~The ramp~~-up time from selection to the completion of deployment can exceed six months. As a result, we incur significant costs related to each deployment before any significant revenues are expected. Generally, the addition of wireless network subscribers has occurred more slowly than expected. As a result, we have realized that it may take up to 18 months or more for deployed networks to achieve positive cash flows. There can be no assurance that any deployment will achieve positive cash flow. Although this business contributed revenues of $301,043 in the current year (revenues were insignificant in the prior year), operating costs for Kite Networks were approximately $4,782,000 and $1,960,000 in the fiscal years ended March 31, 2007 and 2006, respectively. The capital equipment costs for the completed networks in Tempe, Arizona; Farmers’ Branch, Texas; Longmont, Colorado, and other scheduled deployments have totaled approximately $12,728,000 through March 31, 2007. The transmission equipment being installed by us incorporates certain new technologies that are largely untested in these types of networks. Should functionality prove to be ineffective, we may be required to make additional expenditures to upgrade or replace equipment that has already been installed. To date, the cash needs of this business have been substantially funded through borrowings by Mobilepro Corp. from Cornell Capital under a variety of debt instruments and over $5 million in equipment lease financing. Kite Networks has also been provided extended payment terms by certain significant equipment suppliers. At March 31, 2007, the accounts payable of Kite Networks included an amount (approximately $1,570,000 owed to the supplier of equipment that was deployed in Longmont) that was overdue. However, we do not believe that sufficient funds will be available from these existing sources for Kite Networks to effectively continue the execution of its current business plan. As a result, we commenced the search for capital as described above during the fourth quarter of the current year.40-

The ~~business~~Company ofhas ~~Kite~~not ~~Broadband~~paid isthe ~~experiencing~~outstanding ~~declining~~principal ~~revenues.~~balance ~~Revenues~~relating ~~for~~ to the ~~most~~Convertible ~~recent~~Debenture ~~quarter~~that ~~were~~was ~~approximately~~due $2on May 1,~~533,000~~ ~~representing~~2009 aand ~~25.2%~~has ~~decline~~entered into a ~~over~~forbearance ~~the~~agreement ~~last~~which 18expired ~~months.~~on ~~Costs~~June of1, ~~sales~~2009. We ~~consist~~subsequently obtained ~~substantially~~an extension of ~~payments due Sprint~~the ~~for~~forbearance ~~network~~agreement ~~services~~through June 5, ~~and~~2009. However, ~~they~~we ~~are~~have ~~mostly~~been ~~fixed.~~unsuccessful ~~Although~~in obtaining a ~~substantial portion~~further extension of the maturity ~~management~~date ~~cost~~or ofa ~~this~~modification ~~business~~to isthe ~~now~~payment ~~borne~~terms. As bya ~~Kite Networks~~result, ~~the~~Mobilepro ~~declining~~is ~~revenues~~in ~~and~~default ~~the~~of ~~fixed~~its ~~costs~~obligations ofunder the ~~services~~Convertible ~~provided~~Debenture ~~by Sprint~~owed ~~have~~to ~~adversely~~YA ~~affected~~Global ~~the~~and, ~~cash~~given ~~flows~~current ofmarket ~~this~~conditions ~~business.~~and ~~With Sprint~~Mobilepro’s ~~consent,~~financial ~~Kite~~condition, ~~Broadband~~obtaining ~~has deferred~~ the ~~payment~~required offinancing ~~certain~~to ~~costs~~retire ~~incurred~~the inConvertible ~~the~~Debenture ~~fourth quarter~~is ~~while~~unlikely ~~discussions~~to ~~are~~occur ~~conducted~~in ~~relating~~the toimmediate anfuture. In ~~amendment~~the toevent ~~the~~YA ~~master~~Global ~~services~~declared ~~agreement~~the ~~with~~debt ~~Sprint~~to ~~covering~~be ~~this~~in ~~arrangement.~~default ~~However,~~interest ~~Kite~~would ~~Networks is~~accrue ~~overdue~~at on the ~~payment~~default rate of 24% ~~certain~~per ~~costs~~annum. ~~more~~YA ~~recently~~Global ~~incurred,~~has ~~and~~informed ~~there can be~~the noCompany ~~assurance~~ that anit ~~amendment~~intends ~~will~~to beexercise its ~~negotiated~~rights ~~with~~as ~~Sprint~~the onCompany’s ~~terms that provide~~senior 1)secured ~~sufficient~~creditor. Such ~~cost~~rights include, ~~relief~~but ~~for~~are ~~Kite~~not ~~Broadband~~limited to, ~~continue~~foreclosing ~~operations with improved~~on ~~cash~~the ~~flows~~assets ~~and~~of 2)the aCompany. ~~basis~~In such ~~for~~event itthe toCompany ~~exercise~~will ~~its~~not ~~option~~have the ability to ~~acquire the existing~~continue ~~customers~~as ~~from~~a ~~Sprint~~going concern.

~~Many of the~~Sale ~~other companies that we have acquired are experiencing declining revenues. For example, over 80%~~ of the ~~customers of our Internet services business~~Wireless ~~are subscribers~~Networks toBusiness ~~dial-up service. The revenues of this business segment have declined from a level of approximately $4,535,000 for the three months ended December 31, 2005~~ to approximately $3,349,000 for the three months ended March 31, 2007, a decline of approximately 26.2%. Likewise, the pay telephone business is declining due primarily to the public’s increasing usage of competitive technologies. Revenues for Davel for the quarter ended March 31, 2007 were approximately $6,037,000 compared with revenues of approximately $8,023,000 for the corresponding quarter of the prior year, a decline of 24.8%. Gobility

The cash ~~declining~~needs ~~revenues~~ of ~~these~~Kite ~~businesses,~~Networks ~~without~~had ~~proportional~~been ~~decreases~~substantially in funded through borrowings by the ~~costs~~Company from YA Global under a variety of ~~such~~debt ~~services,~~instruments and ~~the~~over ~~operating~~$5 ~~costs~~million in ofequipment lease financing. Kite Networks ~~discussed~~had also been provided extended ~~above are~~payment ~~the~~terms ~~major~~by ~~causes~~certain ofsignificant ~~our~~equipment ~~operating~~suppliers. However, ~~losses~~we realized ~~and~~that ~~unfavorable~~sufficient ~~cash~~funds ~~flows~~were not available from these existing sources ~~operations.~~for AsKite aNetworks ~~result~~to ~~and~~effectively ascontinue ~~discussed~~the ~~above,~~execution weof ~~are~~its ~~engaged~~business inplan. ~~various~~As ~~stages of~~a ~~negotiation~~result, ~~with~~we ~~parties~~commenced ~~who~~the ~~have~~search ~~expressed~~for ~~interest~~capital inas ~~acquiring~~described ~~certain~~below during the ~~portions~~fourth quarter of ~~our~~the ~~business.~~fiscal year 2007.

In ~~January~~December ~~2007~~2006, we ~~announced~~engaged ~~the~~an ~~acquisition~~investment ofbanking ~~over~~firm ~~7,000~~to ~~cellular~~assist ~~subscriber~~in evaluating ~~contracts~~strategic alternatives for ~~CloseCall~~the ~~that~~wireless ~~provides~~networks anbusiness ~~increase~~conducted toby ~~CloseCall’s~~its ~~cellular~~Kite ~~telephone~~Networks ~~customer base~~ and aKite ~~base~~Broadband ofsubsidiaries. ~~subscribers~~Efforts ~~using~~to ~~the~~secure ~~popular~~investment ~~RIM~~capital ~~Blackberry™~~for ~~products. We expect~~ this ~~transaction~~business or to ~~immediately~~find ~~add~~a ~~over~~willing ~~$5 million~~buyer toresulted in the ~~annual~~sale ~~revenues~~ of ~~CloseCall.~~the Wireless WeNetworks ~~have~~Business ~~integrated~~to ~~this~~Gobility, ~~business into~~Inc. ~~the~~(“Gobility”) ~~operations~~on ofJuly ~~CloseCall~~8, ~~without~~2007. ~~significant~~The purchase ~~increase~~price inwas ~~operating expenses~~$2.0 ~~However~~million, wepaid ~~were~~in ~~required~~the toform ~~provide~~of ~~additional~~a ~~letters~~debenture ofthat ~~credit~~is ~~(secured~~convertible byinto ~~pledged~~shares ~~certificates~~ of ~~deposit)~~Gobility tocommon ~~Verizon~~stock in (the ~~total~~“Gobility ~~amount~~Debenture”) at a rate of $~~700,000~~5.00 ~~Further~~per share, asor ~~the~~such ~~acquired~~lower ~~arrangements are currently structured~~price, ~~the current~~ ~~profit~~if ~~contribution~~Gobility ofissues ~~this~~common ~~subscriber~~stock ~~base~~or securities isconvertible ~~small.~~into Wecommon ~~expect~~stock ~~to benefit~~at ~~from~~a anprice ~~improvement~~that inis ~~the~~less ~~profitability~~than of$5.00 ~~this~~per share. ~~business~~Unless inconverted, the ~~first quarter~~ asGobility weDebenture ~~move~~matures ~~existing~~July ~~subscriber~~8, ~~services~~2009 towith ~~the appropriate carrier~~annual ~~service~~interest ~~plans.~~at 8%.

InUnder the ~~order~~terms of the Gobility Debenture, Gobility was required to raise at least $3.0 million in cash no later than August 15, 2007. Prior to ~~improve~~closing, the ~~profitability~~Company received ofa ~~our~~reliance ~~Internet~~letter ~~and~~from ~~voice~~Wingfield ~~services~~Corporation, ~~businesses~~N.V. (“Wingfield”), a ~~last~~Brussels, Belgium-based merchant bank, stating that such financing was ~~year~~forthcoming. weTo ~~began~~date, aGobility ~~project~~has tonot ~~consolidate~~obtained ~~these~~financing ~~operations~~from ~~that~~Wingfield ~~was~~or ~~substantially~~any ~~completed~~other ~~during~~source ~~fiscal~~and ~~2007.~~is Inin ~~connection~~default with respect to the Gobility Debenture. As a result of this ~~project~~default, wethe ~~recorded~~Company has the right but not the obligation to arepurchase the Wireless Networks Business with the surrender of the Gobility ~~restructuring~~Debenture ~~charge~~and the payment of ~~$825~~nominal additional consideration. In addition to its inability to obtain the required financing,~~703~~ inGobility has been unable to fund its operations including the ~~fiscal~~payment ~~year~~of ~~ended~~amounts ~~March~~due ~~31,~~under ~~2006,~~a series of capital equipment leases and other equipment-related obligations. Because the equipment ~~additional~~leases ~~charges~~and ofother ~~$97~~equipment purchases were co-signed by Mobilepro,~~871~~ inif Kite Networks fails to pay the ~~current~~leases, ~~year~~absent any other defenses it may have, ~~with~~the Company could be obligated to pay the ~~charges~~obligations relating to the equipment ~~employee~~leases ~~terminations,~~and ~~fixed~~equipment ~~asset~~purchases. ~~disposals~~As ~~and~~a ~~leased~~result ~~facilities.~~of ~~If additional~~these ~~employee~~defaults ~~terminations~~by ~~occur~~Gobility, wethe Company ~~may~~has ~~record~~written ~~additional~~off ~~charges~~the $2.0 million Gobility Debenture and has recorded the ~~for restructuring~~capital ~~costs~~leases and equipment-related obligations as liabilities in connection with the ~~future~~sale. ~~These~~The ~~amounts~~Company ~~have~~has ~~not~~also ~~yet~~recorded ~~been~~the certificates of deposits ~~determined~~securing the equipment lease obligations during its fiscal year ended March 31, 2008.

49The Company is currently cooperating with Gobility in its efforts to sell the assets of Kite Networks in order to pay the obligations relating to the equipment leases and other equipment. In September 2007, the Company was required to make lease payments totaling $64,165. On March 10, 2008, Gobility sold the assets of the wireless network in Longmont, Colorado, and the Company received the related proceeds in the form of promissory notes from the purchaser totaling $1,800,000. In addition, the Company entered into a forbearance agreement with the principal equipment vendor and agreed to pay the $1,591,978 equipment obligation, with interest at the prime rate, and a related lease obligation in the principal amount of $149,749. In March 2008, the Company also satisfied the terms of one of the leases relating to the Tempe, Arizona wireless network with an aggregate principal balance of $318,595, plus accrued interest, by paying $93,000 in cash and having the $250,000 certificate of deposit that secured the lease applied thereto. As a result of the sale to Gobility and these transactions, the Company recorded a net loss on the sale of its Wireless Networks Business of $3,433,843 that was reported in the loss on sale of discontinued operations for the fiscal year ended March 31, 2008. Given the lack of progress by Gobility in selling assets over the past six months, we do not currently expect any further asset sales by Gobility.

As described in Note 4 to the Consolidated Financial Statements, we recorded impairment charges totaling $27,275,987 for the year ended March 31, 2007 related to the goodwill of the Internet service provider and wireless networks businesses and certain fixed and intangible assets of Davel. -41-

~~During the~~On ~~three months ended December 31~~August 1, ~~2005~~2008, ~~both~~ the ~~Internet~~Company ~~service~~executed ~~provider segment~~a ~~and~~promissory ~~the~~note ~~voice~~and ~~services~~release ~~segment~~with ~~incurred~~Data ~~operating~~Sales ~~losses that were~~Co., ~~not expected~~Inc. As(“Data aSales”) ~~result,~~in ~~we reviewed~~ the ~~carrying~~principal ~~values~~amount of ~~the assets of these segments and determined that adjustments for goodwill impairment were appropriate~~$330,000. WeThe ~~recorded~~note ~~impairment~~is ~~charges~~in ~~totaling $4,446,544, including~~full ~~$2,627,634~~satisfaction ~~related~~of toa ~~the Internet service provider companies and~~ $1,~~818~~231,~~910 related~~138 tolease ~~Affinity.~~obligation Wefor ~~experienced~~which athe ~~significant~~Company ~~and~~was ~~steady~~a co-borrower ~~loss~~with ofKite ~~Affinity customers,~~Networks and ~~Affinity~~reflects ~~incurred~~the ~~bad~~impact ~~debt~~of ~~losses at~~ a ~~greater~~sale ~~rate than in our other CLEC companies. The negative customer churn~~ of ~~dial-up Internet access~~certain ~~customers~~uninstalled ~~has~~wireless ~~exceeded~~equipment ~~our~~by ~~expectations,~~Data ~~contributing~~Sales to ~~the~~an ~~net~~unaffiliated ~~losses~~third ~~incurred~~party bypurchaser ~~this~~that ~~segment.~~was ~~The~~consummated ~~excessive~~in ~~negative~~July ~~customer churn continued into the current year~~2008. The AsCompany ~~a result, we~~ recorded ~~additional impairment charges related~~a ~~to the~~gain ~~Internet~~of ~~service provider companies totaling~~ $6901,~~474,889~~138 in the second fiscal ~~year ended~~ ~~March~~quarter ~~31,~~of ~~2007. If~~ the ~~negative~~year ~~subscriber~~ended ~~churn~~March ~~continues to occur at rates exceeding our expectations~~31, ~~we will record additional impairment charges~~2009 inas ~~future~~a ~~periods.~~result ~~Future assessments~~ of the ~~fair values of these businesses could identify material impairment losses resulting in substantial additional write-offs of goodwill~~transaction. ~~Such adjustments could have material adverse non-cash effects on our results of operations and our financial position.~~

InThe ~~addition,~~Company ~~due~~continues to ~~our~~cooperate ~~plans~~with toGobility ~~terminate~~in ~~service~~its efforts to sell the remaining assets of Kite Networks; however such efforts have been minimal over the 4past six months. In the event Gobility is unsuccessful in its attempts to sell the remaining assets and satisfy the equipment lease obligations,~~500~~ ~~low-revenue~~the Company, subject to any defenses it might have, could be ~~payphones~~required into make the ~~first~~payments ~~quarter~~on ofthe ~~fiscal~~remaining ~~year~~equipment ~~2008~~leases. At March 31, 2009, wethe amounts recorded anon ~~asset~~the consolidated balance sheet relating to the ~~impairment~~capital ~~charge~~lease ofobligations, accrued interest, and the note payable and equipment obligation were $2,385,736, $447,412 and $1,~~573~~613,~~795~~647, ~~related~~respectively. toThe ~~certain~~Company has ~~payphone~~also ~~fixed~~recorded ~~asset~~the certificates of deposits securing the lease obligations in the aggregate amount of $937,664 at March 31, 2009 and 2008 in the Company’s ~~location~~consolidated ~~contract~~balance ~~costs~~sheets.

~~Finally, despite~~Sale ~~the value suggested by our financial model, we concluded that the carrying value~~ of our municipal wireless business as reflected in our consolidated financial statements was overstated. As a result, we recorded an impairment charge of $13,759,088 at March 31, 2007, thereby writing-off the ~~entire~~ ~~amount~~ISP ~~of the goodwill associated with this business~~ and ~~the carrying~~ ~~value~~Integrated ofTelecom ~~certain deployed wireless network equipment. We also recorded an impairment charge of $5,468,215 related to certain intangible assets of Kite Broadband.~~Businesses

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

We received letters of interest regarding the acquisition of the CloseCall, AFN, DFW and InReach (the “Wireline Businesses”) and several potential purchasers conducted due diligence activities. This process resulted in the execution of an agreement to sell the Wireline Businesses to USA on June 30, 2007 (the “USA Agreement”).

Pursuant to the USA Agreement, we closed the sale of the ISP Business to USA on July 18, 2007, and received cash proceeds of $2,500,000, a promissory note for $2,000,000 (the “USA Note”) and 8,100 shares of preferred stock of USA convertible into 7.5% of the fully diluted shares of USA’s common stock (the “USA Preferred”) initially valued at $5,763,893. Simultaneously, we used $2,000,000 of this cash to pay down principal and accrued interest owed to YA Global under the promissory note and debentures.

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

Upon the close and pursuant to the terms of the USA Agreement, we expected to receive cash proceeds of $19.4 million, including payment of the $2.0 million USA Note. On January 3, 2008, the Company entered into an amendment to the USA Note. USA made payments of $500,000 each on January 4 and January 11, 2008 with the remaining balance of $1,000,000, together with accrued interest at the rate of 7.75%, due on the earlier of the date of the closing of the sale of the Integrated Telecom Business or March 31, 2008. Of the $1,000,000 of payments, the Company received $125,000 and the remaining $875,000 was used to pay principal and interest on the convertible debentures due to YA Global.

-42-

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

USA did not pay the remaining principal balance of $1,000,000 or the accrued interest due on the USA Note on March 31, 2008. In July 2008, the Company revised the payment terms relating to the USA Note and received payments totaling $200,000. The remaining principal balance and accrued interest at 12% per annum was due on December 29, 2008. USA has not paid the balance due on the USA Note and certain other receivables and has advised the Company that USA is being indemnified for the amounts due and owing under the USA Note by its former Chief Executive Officer, L. William Fogg. Mr. Fogg, and his wholly owned company, Nationwide Acquisition Corp. are alleged to be the successors in interest to the ISP Business previously sold to USA. Mr. Fogg has disputed the amount due under the USA Note and alleges the right to certain setoffs against the amounts due and owing the Company. Mr. Fogg and Nationwide Acquisition Corp. have filed a declaratory judgment lawsuit against the Company, AFN, CloseCall and USA relating to various amounts owed to the Company including the USA Note. USA is in default with respect to the USA Note, which provides for interest at a default rate of 18% per annum. During the fiscal year ended March 31, 2009, the Company wrote down the carrying value of the USA Note and other amounts due from USA by $345,534. Subsequent to year end, on June 8, 2009, the Company entered into a settlement agreement with both Fogg and USA with respect to certain matters (see paragraph 7 of Item 3 – “Legal Proceedings”).

The loss incurred in connection with the sale of the ISP Business, after adjustment for the termination of the sale of the Integrated Telecom Business, of $2,424,785 is included in the loss on sale of discontinued operations in the fiscal year ended March 31, 2008 in the Company’s consolidated statements of operations.

Discontinued Operations

In the quarter ended March 31, 2009 the Company reclassified the assets and liabilities of its Integrated Telecom Business, along with the remaining net liabilities of the Wireless Networks Business for which the Company is co-obligor, to continuing operations. Previously those assets and liabilities were classified as “held for sale” at December 31, 2008 and at the end of each prior annual and quarterly reporting period. In addition, the operating results of the Integrated Telecom Business which were previously reported in discontinued operations have been reclassified to continuing operations for all periods presented in this Annual Report on Form 10K. At the time of reclassification, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company recognized $235,157 of additional depreciation and amortization expense that would have been recognized in the fiscal year ended March 31, 2008 if the assets and liabilities had been classified as held and used. The Company also wrote down the carrying value of goodwill in the quarter ended March 31, 2009 which reduced the net assets of the Integrated Telecom Business to its fair value at the date the net assets were reclassified to continuing operations (see Note 5 to the consolidated financial statements).

The Wireless Networks Business and the ISP Business were sold in the fiscal year ended March 31, 2008. The operating results, including the gain or loss on sale of these businesses, are included in discontinued operations in the Company’s consolidated statements of operations for all fiscal years presented in this Annual Report on Form 10K. In addition, at the end of each fiscal year prior to the dates of sale, the assets and liabilities of the Wireless Networks Business and the ISP Business are reported in assets and liabilities of companies held for sale in the Company’s consolidated balance sheets.

-43-

Sales of Payphone Assets

The Company completed a series of transactions to sell a majority of Davel’s payphones in order to provide cash for operating purposes and additional retirements of convertible debenture debt.

In June 2007, we completed the sale of approximately 730 operating payphones to an unaffiliated payphone operator and received over $200,000 in cash proceeds. A gain in the amount of $10,640 was recognized in connection with this transaction.

In September 2007, in three transactions, we completed the sale of approximately 21,700 payphones to unaffiliated purchasers. After the direct payment of certain related liabilities and broker fees in the aggregate amount of approximately $851,000, and the funding of escrow accounts established for the payment of vendor obligations and indemnification claims in the aggregate amount of $1,200,000, proceeds of approximately $1,840,000 were used to retire convertible debenture debt of approximately $1,672,000 and related accrued interest of approximately $168,000. A net loss of $2,800,206 was recorded in connection with these transactions.

Asset Impairment Charges

During the fourth quarter of the fiscal year ended March 31, 2009, there was a decline in the operating performance of the Integrated Telecom Business. In addition, the Company was previously engaged in negotiations to sell the business which did not materialize. As a result, management reviewed the carrying values of the net assets of the Integrated Telecom Business at March 31, 2009 and determined that an adjustment for goodwill impairment was appropriate. The Company estimated the fair value the reporting unit, as determined under Statement of Financial Accounting Standards ("SFAS") No. 142, “Goodwill and Other Intangible Assets”, using a model developed by the Company which incorporates growth rates and other adjustments to base revenues and expenses to estimates future cash flows, and applied a discount rate to those estimated cash flows. The Company recorded an impairment charge in the amount of $8,764,065 at March 31, 2009, to write down goodwill and the net assets of the Integrated Telecom Business to fair value. The asset impairment charge recorded for the fiscal year ended March 31, 2009 was included in operating costs and expenses of continuing operations in the Company’s consolidated statements of operations.

Notwithstanding our efforts to restructure and improve operations, during the fiscal year ended March 31, 2007, the Wireless Networks Business, the ISP Business and Davel did not perform as expected. In addition, as discussed above, the Company was engaged in negotiations for the sale of all of these businesses. As a result, management reviewed the carrying values of the assets of these businesses during fiscal year 2007 and determined that adjustments for goodwill and other asset impairment were appropriate. The Company recorded impairment charges in the total amount of $27,275,987 during the fiscal year ended March 31, 2007, including $17,745,303 representing the entire amount of goodwill and other intangible assets related to Wireless Networks, $6,474,889 relating to the goodwill of the ISP Business, $1,482,000 relating to certain deployed wireless network equipment of Kite Networks, and $1,573,795 relating to certain payphone equipment and location contracts of Davel. Of the total asset impairment charges recorded for the fiscal year ended March 31, 2007, $25,702,192 of this amount was included in the loss from discontinued operations and $1,573,795 was included in operating costs and expenses relating to continuing operations.

Critical Accounting Policies

~~Except~~We ~~for~~consider ~~our~~the accounting ~~treatment~~policies related to the disposal of ~~employee~~long-lived ~~stock~~assets, discontinued ~~options~~operations, the valuation of goodwill and ~~warrants~~other asintangible ~~explained~~assets, ~~below~~transactions related to our debt and equity financing activity, weand ~~believe~~revenue ~~there~~and related ~~have~~cost ~~been~~recognition noto ~~significant~~be ~~changes~~critical into the understanding of our ~~critical~~results of operations. Critical accounting policies ~~during~~include the ~~current~~areas ~~year~~where aswe have ~~compared~~made what we consider to ~~what~~be ~~was~~particularly ~~previously~~subjective or complex judgments in ~~disclosed~~making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions. We prepare our financial statements in ~~Management’s~~conformity ~~Discussion~~with U.S. generally accepted accounting principles. As such, we are required to make certain estimates, judgments, and ~~Analysis~~assumptions ofthat ~~Financial~~we ~~Condition~~believe are reasonable based upon the information available. These estimates, judgments, and ~~Results~~assumptions affect the reported amounts of ~~Operations~~assets ~~included~~and inliabilities ~~our~~at ~~Annual~~the ~~Report~~date onof the ~~Form~~financial ~~10-KSB~~statements ~~for~~and the reported amounts of revenue and expenses during ~~fiscal~~the ~~year~~periods ~~ended~~presented. Actual ~~March~~results ~~31,~~could ~~2006~~be different from these estimates.

WeOur ~~consider~~estimates ~~the~~relating ~~accounting~~to ~~policies~~the ~~related~~valuation toof ~~revenue~~goodwill ~~and~~are ~~related~~particularly ~~cost~~significant due ~~recognition,~~to the ~~valuation~~materiality of goodwill ~~and~~as ~~other~~compared ~~intangible~~to our total assets. ~~and~~In ~~the~~accordance ~~accounting~~with ~~for~~SFAS ~~transactions~~No. 142, ~~related~~“Goodwill toand ~~our~~Other ~~debt~~Intangible ~~and~~Assets,” ~~equity~~the ~~financing~~Company ~~activity~~is required to be ~~critical~~test togoodwill ~~the~~for ~~understanding~~impairment ofat ~~our~~least ~~results~~annually ofor ~~operations.~~on ~~Critical~~an interim ~~accounting~~basis ~~policies~~if ~~include~~an ~~the~~indicator ~~areas~~of ~~where~~impairment weis ~~have~~present. ~~made~~Accordingly, ~~what~~the ~~we consider~~Company toevaluates ~~be particularly~~the ~~subjective~~carrying orvalue ~~complex~~of ~~judgments~~goodwill infor ~~making~~impairment ~~estimates~~annually ~~and~~as ~~where~~of March ~~these estimates~~31st. ~~can~~To ~~significantly~~test ~~impact~~goodwill ~~our~~for ~~financial~~impairment, ~~results~~the ~~under~~Company ~~different~~is required to estimate the ~~assumptions~~value, ~~and~~as ~~conditions~~determined under SFAS No. We142, ~~prepare~~of ~~our~~the ~~financial~~Integrated ~~statements~~Telecom inBusiness, ~~conformity~~its ~~with~~principal Ureporting unit.S. ~~generally~~Since ~~accepted~~quoted ~~accounting~~market ~~principles.~~prices Asin ~~such,~~an weactive market are ~~required~~not ~~to make~~available ~~certain~~for ~~estimates,~~the ~~judgments,~~Integrated ~~and~~Telecom ~~assumptions~~Business, ~~that~~the weCompany ~~believe~~uses ~~are~~other valuation ~~reasonable~~techniques. ~~based~~The ~~upon~~Company ~~the~~has ~~information~~developed ~~available.~~a ~~These~~model ~~estimates,~~to ~~judgments, and assumptions~~compute ~~affect~~an estimate of the value, ~~reported~~as ~~amounts~~determined ofunder ~~assets~~SFAS ~~and~~No. ~~liabilities~~142, atby ~~the date~~incorporating ofa discounted cash flow ~~the~~valuation ~~financial~~technique. ~~statement~~This ~~and~~model incorporates the ~~reported~~Company’s ~~amounts~~estimates of ~~revenue and expenses~~future ~~during the~~cash ~~periods~~flows ~~presented.~~and ~~Actual~~discounts ~~results~~those ~~could~~estimated befuture ~~different~~cash ~~from these estimates~~flows.

During the prior year, because the $100 million SEDA with Cornell Capital was providing equity financing to us, we began to amortize deferred financing costs related to the SEDA to additional paid-in44-~~capital and we began to charge this account for the additional fees paid to Cornell Capital and other financial advisors in connection with making draws under the SEDA.~~

50At March 31, 2008, the Company tested goodwill for impairment by comparing the carrying value of the Integrated Telecom Business to the estimated fair value using the model developed by the Company. The model incorporates growth rates and other adjustments to the most recent year’s revenues and expenses of the Integrated Telecom Business as a basis for estimating the future cash flows of the reporting unit. In estimating future cash flows, we assumed the revenues and the related cost of services (excluding depreciation and amortization) of the Integrated Telecom Business would increase at an annual rate of 5% per year based on the increase in revenues in fiscal year 2008. We also assumed that base year operating expenses, excluding non-cash and nonrecurring items, would increase at a lower rate of 2% per year due to expected cost containment efforts. We then reduced the results of the projected operating income (before interest, depreciation and amortization) by estimated capital expenditures of $100,000 per year to arrive at the estimated future cash flows of the Integrated Telecom Business for each of the next five years. We also estimated the terminal value of the Integrated Telecom Business at the end of year five using a multiple of year five estimated future cash flows. The Company discounted the estimated annual future cash flows and the terminal value of the reporting unit at the end of year five using a discount rate of 10% to arrive at the fair value of the reporting unit. The discount rate was determined based on the Company’s estimated cost of capital and market conditions at that time. Finally, we compared the estimated fair value of the reporting unit to the carrying value, including goodwill. Since the estimated fair value exceeded the carrying value, no adjustment to goodwill was required at March 31, 2008.

~~New~~At March ~~Accounting~~31, ~~Pronouncements~~2009, the Company tested goodwill for impairment using the same methodology that was used at March 31, 2008. The Company used fiscal year 2009 revenues and expenses, excluding non-cash and nonrecurring items, as a basis for estimating future annual cash flows. In estimating such cash flows, we assumed that revenues and the related cost of services (excluding depreciation and amortization) would increase by 2% in year one of the projection period and decrease by 2% per year thereafter due to the decline in revenues in fiscal 2009 and the Company’s expectations regarding an economic recovery. We also assumed that operating expenses will decline by 5% in year one and by 2% per year thereafter based on the Company’s plans to reduce expenses. Since capital expenditures were nominal in fiscal 2009, we reduced projected capital expenditures to $25,000 per year to arrive at the estimated future cash flows of the Integrated Telecom Business. At March 31, 2009, we used a discount rate of 15%, based on changes in market conditions and the increase in our cost of capital, to arrive at the estimated fair value of the Integrated Telecom Business based on the present value of estimated future cash flows. When we compared the estimated fair value of the Integrated Telecom Business to the carrying value of this reporting unit, including goodwill, an impairment of goodwill was indicated. As a result, we allocated the fair value of the reporting unit to the assets and liabilities of the reporting unit, other than goodwill, based on their relative fair values and allocated the excess amount to goodwill to determine the implied fair value of goodwill. The implied fair value of goodwill exceeded the recorded amount by $8,764,065. Therefore, the Company wrote down the carrying value of goodwill and recorded a goodwill impairment expense equal to this amount at March 31, 2009.

InAs ~~December~~discussed ~~2004~~above, the ~~Financial~~valuation ~~Accounting~~of ~~Standards~~goodwill ~~Board~~and ~~revised~~the ~~its~~recognition of impairment ~~pronouncements~~expense ~~covering~~associated with goodwill are dependent upon our estimates of the ~~accounting~~future discounted cash flows for ~~share-based~~the ~~compensation arrangements~~Integrated Telecom Business. ~~The~~Such ~~revision,~~estimates ~~referred~~are based toon asour ~~SFAS~~judgment ~~123R,~~regarding ~~was~~the ~~entitled~~appropriate ~~“Share-Based~~discount rate and the ~~Payment.”~~assumptions ~~This~~used ~~revised~~to ~~pronouncement~~estimate ~~replaced~~future ~~SFAS~~cash Noflows. ~~123~~Accordingly, ~~“Accounting~~the ~~for~~fair value of ~~Certain~~goodwill ~~Transactions~~and ~~Involving~~the ~~Stock~~amount ~~Compensation,~~of asthe ~~amended~~goodwill ~~(“SFAS~~impairment ~~123”)~~expense ~~and~~would vary if ~~superseded~~different ~~APB~~assumptions Nowere used. ~~25,~~An ~~“Accounting~~increase ~~for~~or ~~Stock~~decrease ~~Issued~~of to$100,000 ~~Employees.”~~in ~~The~~the estimated ~~scope~~annual ~~of SFAS~~future ~~123R~~cash ~~encompasses~~flows would result in a ~~wide~~change ~~range~~in ofthe ~~share-based~~amount ~~compensation~~of ~~arrangements~~the ~~including~~asset ~~share~~impairment ~~options,~~expense ~~restricted~~of ~~share~~approximately ~~plans~~$681,000. ~~performance-based awards~~Similarly, a 1% change in ~~share appreciation~~the ~~rights~~discount ~~and~~rate ~~employee~~would ~~share~~result ~~purchase~~in ~~plans~~a change in the amount of the asset impairment expense of approximately $500,000.

~~SFAS~~During ~~123R requires that~~ the compensation cost relating to share-based payment transactions be recorded in financial statements. For each transaction, compensation cost is to be measured based on the fair value of the equity or liability instrument issued. The pro forma disclosures previously permitted under SFAS 123 in prior years no longer will be an alternative to financial statement recognition of compensation expense. We have adopted SFAS 123R in the current year and recorded compensation expense in the amount of $1,623,714 that is included in the consolidated statement of operations for the fiscal year ended March 31, ~~2007. If~~ we2009, ~~had~~2008 ~~recorded~~and ~~stock compensation expense in prior years determined under the fair value method provided in FAS 123~~2009, ~~such~~there ~~charges would~~ have been ~~approximately~~ ~~$5,467,000~~no ~~and~~significant changes ~~$1,652,000~~in ~~for~~our ~~the~~critical ~~fiscal~~accounting ~~years ended March 31, 2006 and 2005, respectively~~policies.

Impact of Recent Accounting Standards

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

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements”. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB No. 108 states that registrants should use both a balance sheet approach and income statement approach when quantifying and evaluating the materiality of a misstatement. SAB 108 also provides guidance on correcting errors under the dual approach as well as transition guidance for correcting previously immaterial errors that are now considered material. The provisions of SAB 108 were applicable to financial statements for the Company’s fiscal year ended March 31, 2007. This guidance has not had any material impact on the consolidated financial condition or results of operations.

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

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

-45-

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

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

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

Results of Operations and Financial Condition

WeThe ~~realize~~results ~~that effective analysis~~ of ~~our~~continuing operations ~~with~~include anthe ~~approach~~operating results of ~~comparing~~Mobilepro, ~~results~~AFN, ~~for~~CloseCall, aDavel ~~current~~and ~~period~~ProGames. ~~with~~Due to the ~~results~~sale of a ~~corresponding~~majority ~~prior~~of ~~period~~Davel’s ~~may~~payphones bein ~~difficult~~September ~~due~~2007, to the ~~number~~operating ofresults ~~acquisitions~~for ~~that~~the wefiscal ~~have~~years ~~completed~~ended March 31, 2009 and 2008 are not comparable. The amounts applicable to ~~the~~substantially ~~significant~~all ~~number~~revenue ofand ~~shares~~expense catagories declined as a result of ~~our~~the significant ~~common~~curtailment ~~stock~~in ~~that~~operations wefollowing ~~have~~the ~~issued~~sale in fiscal to2008. Results of discontinued operations include the operating ~~Cornell~~results ~~Capital~~of the ISP Business and ~~the~~Wireless ~~former~~Networks ~~owners~~Business. The operating results of ~~acquired~~the ~~companies.~~current Inand ~~order~~prior ~~to analyze ourselves,~~fiscal weyear ~~focus~~are not ~~only~~comparable ondue ~~achieving~~to ~~increasing~~the ~~amounts~~ sale of ~~net~~the ~~income~~ ISP Business and ~~EBITDA,~~ ~~but~~Wireless ~~emphasize~~Networks Business in the ~~change~~second quarter of ~~net~~the fiscal ~~income~~year ~~(loss)~~ending ~~per~~March ~~share~~31, 2008.

~~The~~We ~~Fiscal~~realize ~~Years~~that ~~Ended~~effective ~~March~~analysis 31of our operations with an approach of comparing results for a current period with the results of a corresponding prior period may not be helpful in understanding our financial condition and results of operation in light of the recent sale of certain of our subsidiaries. In order to analyze ourselves, ~~2007~~we focus not only on achieving increases or decreases in the amounts of net income/(loss) and ~~2006~~EBITDA, but emphasize the change of net income/(loss) per share.

~~Total~~The ~~Revenues~~Fiscal Years Ended March 31, 2009 and 2008

~~Our~~Consolidated ~~consolidated~~ revenues ~~decreased~~of ~~from~~continuing ~~$99,013,467~~operations infor the fiscal year ended March 31, 2009 were ~~2006~~$30,857,981 tocompared with revenues of $8945,~~089~~770,~~328~~689 in the ~~fiscal~~prior year, ~~ended~~a ~~March~~decrease of 31$14, ~~2007~~912,708, aor ~~decrease of 10~~32.06%. ~~Since~~This ~~April~~was 1,primarily ~~2004,~~due weto ~~have~~a ~~completed~~$9,281,094 20decrease ~~acquisition transactions~~in ~~that together~~Davel’s ~~have~~revenues ~~provided~~and ~~significant~~a ~~revenues~~$5,760,833 todecrease us in ~~all~~the ~~three~~revenues ~~operating~~of the Integrated ~~segments~~Telecom Business. ~~The~~As ~~most~~discussed ~~significant~~above, ~~portions~~during ofthe ~~our~~prior ~~revenues~~fiscal ~~are~~year ~~provided~~we bysold ~~our~~most ~~CloseCall~~of ~~and~~ Davel’s remaining ~~subsidiaries~~operational ~~that~~payphones ~~were acquired~~ in ~~October~~a ~~2004~~series ~~and~~of ~~November 2004~~transactions, that ~~respectively.~~included ~~Revenues~~the ~~for~~sale ~~these~~of ~~companies~~approximately ~~were~~21,700 ~~included~~payphones in ~~our~~September 2007. The ~~consolidated~~operating results related to the assets sold are reflected in the consolidated statement of operations ~~from~~for the ~~acquisition~~fiscal ~~dates.~~year ~~The~~ended ~~revenues of CloseCall~~March ~~were~~31, ~~increased~~2008 ~~with~~through the sale ~~acquisition~~dates. ofFor ~~subscriber~~the ~~contracts~~year ~~from TCS in~~ended ~~January~~March ~~2007;~~31, 2009, Davel’s revenues ~~related~~included $810,215 toof ~~this~~Regulatory ~~new~~Receipts ~~business~~compared ~~were~~to ~~approximately~~ $2250,~~232,~~000 inof ~~the~~Regulatory ~~current~~Receipts last year. The ~~Major~~decline ~~acquisitions~~ in ~~the~~revenues ~~prior~~relating ~~year~~to ~~included~~the Integrated Telecom ~~AFN,~~Business ~~acquired~~was ondue ~~June~~to ~~30,~~a ~~2005,~~reduction in the number of business lines and ~~InReach~~residential customers and, ~~acquired~~to ona ~~November~~lesser 1extent, ~~2005. We obtained~~to areductions ~~51%~~applicable ~~ownership~~to ~~interest~~the inbundling ~~Kite~~of services ~~Broadband~~billed into ~~June~~customers. ~~2005;~~These ~~this~~declines ~~entity commenced~~were ~~operations~~also onaffected ~~July~~by 1,competition from ~~2005.~~incumbent Inlocal ~~January~~exchange ~~2006~~carriers we(“ILECs”) ~~subsequently~~and ~~acquired~~ the ~~remaining~~current ~~49%~~economic recession, ofparticularly ~~Kite~~as ~~Broadband~~it ~~and~~relates ~~100%~~to ~~interest~~revenues infrom ~~Kite~~the ~~Networks~~temporary housing market. The decline in revenues of ~~these~~the ~~entities~~Integrated ~~were~~Telecom ~~included~~Business inwas ~~our~~offset ~~consolidated~~in part ~~results~~by ~~of operations~~an ~~from~~increase ~~those~~in ~~dates.~~software sales.

Company	2007		2006		Change
Davel	$	30,028,114	$	40,305,697	$	(10,277,583	)
CloseCall (includes TCS contracts and Affinity)		24,469,280		27,029,378		(2,560,098	)
Kite Broadband		11,198,478		9,687,560		1,510,918
DFW (Nationwide)		10,424,855		14,660,523		(4,235,668	)
AFN (includes US1)		8,061,675		5,021,378		3,040,297
InReach		4,605,778		2,279,990		2,325,788
Kite Networks		301,043		28,941		272,102
ProGames Network		105		-		105
Total Revenues	$	89,089,328	$	99,013,467	$	(9,924,139	)

-46-

51The cost of services (excluding depreciation and amortization) for the fiscal year ended March 31, 2009 of $20,356,273, expressed as a percentage of corresponding revenues, was 66.0% compared with $29,220,570, or 63.8% of revenues in the prior fiscal year. The dollar decrease in cost of services was principally due to the decline in revenues discussed above, including the effects of the sale of Davel’s payphones. The higher cost of services expressed as a percentage of revenues was primarily due to the decline in Davel’s revenues which have a lower percentage cost of services than the Integrated Telecom Business.

~~Revenues~~Payroll, professional fees and related expenses (exclusive of stock compensation) declined by ~~Segment~~$7,274,507 from $14,108,986 in the fiscal year ended March 31, 2008 to $6,834,479 in the current year. Excluding Davel, these expenses declined by $2,474,922, or 28.3%. Professional fees (other than Davel’s) decreased by $1,479,044 as a result of a decrease in legal fees due to cost reduction efforts as well as reductions in audit and consulting fees applicable to compliance with the Sarbanes-Oxley Act of 2002. The decrease in professional fees was also due to $587,097 of fees incurred in fiscal 2008 relating to the USA Management Agreement with no corresponding amounts incurred in fiscal 2009. Payroll expense (other than Davel’s) also decreased by $767,244 as a result of reductions in personnel made during fiscal 2008 and 2009.

~~Voice~~Office ~~Services. We deliver~~rent ~~voice communications services to end users on a retail basis principally though this business segment which consists of Davel, CloseCall~~ and ~~AFN. This group~~expenses ~~derives~~were ~~most of its operating revenues from recurring monthly charges~~$1, ~~usage fees~~580,047 ~~coin~~in ~~revenue~~fiscal ~~and~~2009 ~~“dial-around”~~compared ~~revenues (intercarrier compensation paid~~ to us by the providers of 800 and other toll-free numbers at the rate of 49.4 cents per call) that are generated by our communications services. Revenues from this business for the year ended March 31, 2007 were $622,~~559~~304,~~069,~~462 in ~~representing~~fiscal ~~approximately~~2008, ~~70.2%~~a ofdecrease ~~consolidated revenues. The revenues~~ of ~~this segment~~ ~~were~~ $72724,~~356~~415,~~453~~ ~~last~~or ~~year, representing approximately 73~~31.14% ~~of consolidated revenues~~. The ~~revenues~~decrease ~~declined~~consists ~~despite the addition~~ primarily of ~~revenues provided~~a by$272,345 ~~the~~decrease ~~acquired~~In ~~TCS~~Davel’s ~~subscriber~~expenses ~~contracts~~ and ~~the~~decreases ~~inclusion~~in ofoffice ~~AFN~~supplies, ~~revenues for an entire year~~telephone, ~~primarily~~customer ~~due~~billing toand ~~the~~other ~~significant~~office ~~drop in Davel revenues between years~~expenses.

~~The~~Other ~~proliferation~~general ofand ~~cell~~administrative ~~phone~~expenses ~~use~~were by$1,759,802 ~~consumers has caused a continuous reduction~~ in ~~the~~fiscal ~~use~~2009 ofcompared ~~payphones. As a result, the revenues of Davel continue~~ to ~~decline.~~ ~~As presented above~~$3,258,742 ~~the~~in ~~revenues~~fiscal ~~for Davel for the year ended March 31~~2008, ~~2007 were~~a ~~$30,028,114~~decrease ~~compared with revenues~~ of ~~approximately~~ $401,~~305~~498,~~697 for the prior year~~940, aor ~~decline of approximately 25~~46.50% ~~between years~~. This decrease Inincludes ~~addition~~$508, ~~the location~~611 ofapplicable ~~a significant number of payphones in areas of the country that are subject~~ to ~~severe~~Davel ~~winter~~and ~~weather~~other ~~contributes~~decreases ~~to the seasonality~~ of ~~this~~$990,329 ~~business.~~relating ~~In attempts~~ to ~~sustain profitability, we have reduced~~ the ~~number of payphones~~Company’s bycost ~~removing~~reduction ~~those~~efforts. ~~phones~~The ~~receiving~~Company ~~minimal~~has ~~use and thereby eliminating~~re-evaluated the ~~costs~~effectiveness ~~to support and to maintain those phones. For example, Davel had an average~~ of ~~31,049~~advertising ~~payphones~~strategy inrelating ~~operation~~to ~~during~~contracts ~~the year ended March 31, 2007, compared~~ with ~~an average of 36,403 payphones in operation during the year~~local ~~ended March~~professional ~~31,~~sports ~~2006,~~teams aand ~~decline~~has ofdiscontinued ~~approximately~~those 14programs.~~7%.~~ ~~Despite~~As ~~these~~a ~~efforts, the average~~result ~~monthly revenues per average payphone for~~ the ~~fiscal years ended~~ ~~March 31,~~Company ~~2007~~was ~~and~~able ~~2006~~to ~~were~~reduce ~~$80.59~~its ~~and~~advertising ~~$92.27,~~expense ~~respectively, representing a decline of 12.7% between years. The following chart presents the revenues of Davel~~ by ~~quarter~~ ~~for the current and prior fiscal years~~$533,228 ~~and the decrease~~ in ~~revenues~~fiscal ~~for each quarterly period between years~~2009.

52Depreciation and amortization expenses were $723,968 and $1,382,627 in the fiscal years ended March 31, 2009 and 2008, respectively, representing the reductions in depreciation of the costs of deployed payphones and the amortization of payphone location contracts resulting from the payphone sales in fiscal 2008. This decrease was offset in part by $235,157 of additional depreciation and amortization recorded in fiscal 2009 that would have been recognized if the assets of the Integrated Telecom Business had been classified as held and used in continuing operations in fiscal 2008.

Fiscal Quarter	2007		2006		Decrease
First	$	8,197,498	$	11,138,906	$	(2,941,408	)
Second		8,564,757		11,059,855		(2,495,098	)
Third		7,228,699		10,084,268		(2,855,569	)
Fourth		6,037,160		8,022,668		(1,985,508	)
Total Davel Revenues	$	30,028,114	$	40,305,697	$	(10,277,583	)

Stock compensation expense decreased by $746,299, from $843,962 to $97,663 in the fiscal year ended March 31, 2009, due to the vesting of options and warrants granted in prior years and a reduction in the fair value of current year grants.

~~The~~In the ~~declining~~year ~~revenues~~ended March 31, 2009, the Company recorded an asset impairment charge of $8,764,065 to write down the carrying value of goodwill and ~~deteriorating~~the ~~gross~~related ~~margins~~carrying value of the ~~Davel~~Integrated ~~business~~Telecom Business. The Company estimated the fair value ~~caused~~of the reporting unit, as determined under SFAS No. 142, using a model developed ~~its~~by ~~EBITDA~~the ~~contribution~~Company to ~~turn~~estimate future cash flows and applied a discount rate to those estimated cash flows. During the fourth quarter of the fiscal year ended March 31, 2009, there was a ~~loss~~decline in the ~~current~~operating ~~year~~performance ~~despite~~of the ~~placement~~Integrated ofTelecom ~~this~~Business. ~~business~~In ~~under~~addition, the ~~direction~~Company ofwas previously engaged in negotiations to sell the ~~AFN~~business ~~management~~which ~~team~~did not materialize. As a result, management revised its prior estimates of future cash flows and increased the ~~our~~discount ~~leveraging~~rate to reflect the Company’s increase in its cost of capital and the decline ~~finance,~~in ~~accounting~~general economic conditions. Although the Company believes its estimates are reasonable, ~~legal~~there ~~and~~may ~~administrative~~be ~~resources~~additional write downs in goodwill if the atIntegrated Telecom Business does not perform as expected or there is a further ~~Davel~~decline ~~with~~in ~~corporate~~the ~~responsibilities~~economy. The ~~calculation~~Company ofwas ~~Davel’s~~not ~~negative~~required to record an asset ~~EBITDA~~impairment ~~for~~charge in the ~~current~~2008 fiscal year. Please issee ~~presented~~“Critical Accounting ~~below~~Policies” for more detail on this issue.

	For the Year Ended March 31, 2007
Net Loss (before inter-company fees)	$	(6,206,156	)
Inter-company management fees, net		921,000
Add non-EBITDA items included in net results:
Depreciation and amortization		3,116,956
Interest income, net		(83,157	)
Asset impairment charges		1,573,795
Adjusted EBITDA loss for Davel	$	(677,562	)

As discussed above the Company has significantly reduced its total operating costs and expenses of continuing operations for the fiscal year ended March 31, 2009. However these reductions were offset by $1,345,534 of expense relating to the write down in carrying value of notes receivable and an asset impairment charge of $8,764,065 to write down the carrying value of goodwill applicable to the Integrated Telecom Business to fair value. There were no comparable charges to expense in the prior fiscal year. The operating costs and expenses, excluding depreciation and amortization, included $169,838 and $510,704 for ProGames for the fiscal years ended March 31, 2009 and 2008, respectively. Corporate operating expenses, excluding stock compensation and the write down in notes receivable, were $1,138,371 in the current year compared to $2,124,252 in the prior fiscal year, reflecting the Company’s continuing efforts to reduce expenses.

~~The~~Interest ~~local~~ and ~~long~~other ~~distance~~expense, ~~service~~net, ~~revenues~~was of$1,562,740 ~~CloseCall~~for ~~are~~the ~~being~~year ~~negatively~~ended ~~affected~~March 31, 2009 ~~by a~~compared ~~continued~~with ~~decline~~$1,728,057 in ~~rates~~the ~~and~~prior ~~competitive~~fiscal ~~pressures~~year. toDuring ~~bundle~~the ~~services~~current fiscal ~~together~~year, ~~and~~we issued a new 12% convertible debenture to ~~provide~~YA ~~long~~Global ~~distance~~in ~~minutes~~the principal amount of ~~use~~$13,391,175, ~~within~~replacing ~~local~~the ~~service~~7.75% convertible debentures that were ~~product~~previously ~~offerings~~outstanding, and paid $186,024 in financing fees. ~~Our~~We ~~existing~~also ~~base~~made principal payments of ~~business~~$392,980 ofon ~~long~~our ~~distance~~other ~~minutes~~debt and retired $324,840 of ~~is also~~principal ~~subject~~on the debenture to ~~increasing~~YA ~~competition~~Global ~~from~~using ~~both~~the ~~VoIP~~Company’s ~~and~~common ~~competing~~stock. ~~wireless~~During ~~service~~the ~~offerings.~~fiscal Asyear aended ~~result~~March 31, ~~the~~2008, ~~business~~we ofretired ~~CloseCall~~principal ~~declined~~owed inunder the YA ~~year, experiencing~~Global adebentures ~~reduction~~ in ~~revenues~~the amount of approximately ~~17.7%~~$4,801,000 ~~compared~~and ~~with~~ the ~~prior~~ ~~year~~YA ~~before~~Global promissory ~~considering~~note in the ~~favorable~~amount ~~impact~~ of ~~the~~$1,100,000 ~~new~~that ~~revenues~~we ~~provided by~~issued ~~the~~in ~~business~~May ~~acquired~~2007. ~~from~~We ~~TCS.~~also retained In$3,830,168 ~~order~~of tocapital ~~reduce~~leases ~~the~~and ~~amount~~$1,591,978 of ~~net~~equipment ~~negative~~obligations ~~customer~~for ~~churn,~~which wethe ~~are~~Company ~~increasing~~was co-obligor following the ~~promotion~~sale of ~~our~~the ~~brand~~Wireless ~~and~~Networks Business ~~our~~in ~~bundled service~~July ~~offerings~~2007. InThe ~~addition,~~major wecomponents ~~plan~~of tonet ~~reduce~~interest ~~the~~and ~~net~~other ~~negative churn~~expense ~~in customers~~for bythe ~~better~~fiscal ~~focusing~~years ~~our~~ended ~~advertising~~March ~~and~~31, ~~promotional~~2009 ~~activities~~ and ~~by continuing~~ to2008 ~~emphasize~~are ~~superior~~presented ~~customer~~in ~~service.~~the following schedule:

In January 2007, we announced the acquisition of over 7,000 cellular subscriber contracts for CloseCall that provided an increase to CloseCall’s cellular telephone customer base and a base of subscribers using the popular RIM Blackberry™ products. We expected this transaction to add over $5 million to the annual revenues of CloseCall. The actual results in the fourth quarter exceeded our expectations as revenues were approximately $2,232,000, providing a consecutive quarter increase in the revenues of CloseCall of approximately $2,046,000, or 38.5%. -47-

The business of AFN has grown between years by approximately 20.5% on an annualized basis. Revenues (excluding inter-company sales of approximately $2,579,000 and 1,970,494, respectively) were $8,061,675 for the current year, or 9.0% of consolidated revenues, compared with revenues for the prior-year year (9 months) of $5,021,378, or 5.1% of consolidated revenues. The increase in revenues is attributable primarily to increased volumes with its business customers.

Type of Debt	2009			2008

Convertible debentures (at stated rates)	$	1,464,400		$	1,142,273
Convertible debentures (debt discount and financing cost amortization)		206,981			412,660
Capital lease and equipment obligations		321,547			396,092
Note payable to YA Global		-			25,315
Notes receivable – Microlog Corporation		(225,000	)		(53,630	)
Other notes receivable		(198,617	)		(30,136	)
Accretion of discount – USA Preferred Stock		-			(244,198	)
Interest and Other (Income) Expense, net		(6,571	)		79,681
	$	1,562,740		$	1,728,057

~~Internet Services. We deliver~~The ~~Internet access to end users on a retail basis principally though~~loss ~~this business segment. Revenues~~ from ~~Internet~~continuing ~~services~~operations for the ~~current~~ year ended March 31, ~~2007~~2009 ~~were~~was $1512,~~030~~261,~~633~~159, ~~representing approximately 16.9% of~~or ~~consolidated revenues~~$0.0131 Weper ~~reported~~share, ~~Internet~~compared ~~service~~to ~~revenues~~a loss of $169,~~940~~948,~~513 for the prior year~~590, ~~which~~or ~~represented approximately 17~~$0.1%0129 ofper ~~consolidated~~share ~~revenues.~~in ~~The~~fiscal ~~loss~~year of2008. ~~customers~~As bydiscussed ~~this business~~above, ~~that~~the ~~includes~~current ~~mostly~~year ~~dial-up~~loss ~~Internet access~~included ~~subscribers~~a $1,345,534 ~~has~~write ~~exceeded~~down ~~our~~of ~~expectations,~~notes ~~contributing~~receivable toand ~~the~~an ~~goodwill~~ asset impairment ~~losses~~charge ~~recorded~~of $8,764,065. inThe ~~the~~ current ~~and~~fiscal ~~prior~~year ~~years.~~loss Infrom ~~order~~continuing tooperations ~~attempt~~also toincluded ~~slow~~our equity in the net loss of ~~revenues,~~Microlog weCorporation ~~have~~of ~~focused~~$94,569. onThe prior ~~the~~year ~~retention~~loss ofincluded ~~existing subscribers~~a ~~through~~$2,778,906 ~~improvements~~loss inon ~~the~~sale ~~quality~~of ~~and~~assets ~~reliability~~relating ofto the ~~Internet~~ ~~service~~Davel ~~offerings~~payphones and ~~customer~~certain ~~support.~~related Weliabilities ~~have~~and ~~also~~our ~~consolidated~~equity in the ~~management~~net loss of ~~this~~Microlog ~~entire~~Corporation ~~business~~since ~~under~~ the ~~direction~~date of ~~the~~acquisition ~~former management team~~ of ~~InReach~~ ~~Internet~~$92, ~~providing this business with effective leadership~~967.

53The income from discontinued operations for the fiscal year ended March 31, 2009 was $901,138, or $0.0010 per share, compared to a loss of $8,413,012, or $0.0109 in fiscal 2008. The current year income consists of a $901,138 gain on the sale of discontinued operations applicable to the settlement of one of the Kite Networks’ equipment leases. The prior year loss from discontinued operations includes a loss from operations through the dates of sale of the Wireless Networks Business and the ISP Business of $2,554,384. It also includes a $3,433,843 loss on the sale of the Wireless Networks Business, after a $1,602,447 reduction in the loss relating to the sale of the Longmont, CO wireless network in the fourth quarter of fiscal 2008, and a $2,424,785 loss on the sale of the ISP Businesses.

~~Wireless~~We ~~Networks. The revenues~~reported ofa ~~this~~net ~~operating~~loss ~~segment~~of ~~principally relate to Kite Broadband. As presented above, its revenues for the current year were~~ $11,~~198~~360,~~478, representing~~021 ~~12.6% of consolidated revenues compared with revenues of $9,687,560~~ for the ~~prior~~ year (9ended ~~months).~~March On31, ~~an annualized basis~~2009, ~~this~~or ~~business has declined by approximately 13~~$0.~~3% between fiscal years as subscribers switch~~0121 ~~to alternative~~per ~~Internet~~share, ~~access~~compared ~~services.~~with ~~Revenues~~a ofnet ~~the~~loss ~~municipal wireless network business~~ of ~~Kite Networks were~~ $~~301~~18,~~043~~361,602 for the fiscal year ended March 31, ~~2007 as~~ ~~the municipal wireless networks deployed in Tempe~~2008, ~~Farmers’~~or ~~Branch and Longmont were activated in the current year~~$0.0238 ~~The~~per ~~revenues earned by Kite Networks in the prior year were insignificant~~share.

~~Corporate.~~The ~~From time to~~Fiscal ~~time,~~Years ~~the~~Ended ~~corporate~~March ~~segment~~31, ~~generates~~2008 ~~miscellaneous~~and ~~revenues. No such revenues were generated by this segment in the current year.~~2007

~~Operating~~Consolidated ~~Costs~~revenues of continuing operations for the fiscal year ended March 31, 2008 were $45,770,689 compared with revenues of $62,559,174 in the prior year, a decrease of $16,788,485, or 26.8%. This was primarily due to a $19,496,477 decrease in Davel’s revenues offset by a $2,677,260 increase in the revenues of the Integrated Telecom Business. As discussed above, during the fiscal year ended March 31, 2008 we sold most of Davel’s remaining operational payphones in a series of transactions, including the sale of approximately 21,700 payphones in September 2007. The operating results related to the assets sold are reflected in the consolidated statement of operations for approximately five months in fiscal 2008 through the sale dates. The increase in revenues relating to the Integrated Telecom Business was principally due to the acquisition of cellular telephone service contracts representing over 7,000 subscribers and ~~Expenses~~certain related assets from TeleCommunication Systems, Inc. (“TCS”) effective in January 1, 2007. Following the date of acquisition, there were approximately three months of such revenues included in operating results in the fiscal year ended March 31, 2007 compared to twelve months of revenues in fiscal 2008. The increase in revenues relating to TCS was partially offset by a reduction in revenues relating to residential customers.

~~Total~~The cost ~~operating~~of ~~costs~~services (excluding depreciation and ~~expenses~~amortization) for the fiscal ~~years~~year ended March 31, ~~2007~~2008 ~~and 2006, were~~of $~~132~~29,~~247~~220,~~292 and $106~~570,~~238,075,~~ ~~respectively.~~expressed ~~Excluding~~as ~~cost~~a percentage of ~~services,~~corresponding ~~such costs were $80~~revenues,~~399,233~~ ~~and~~was ~~$57,155,831, respectively~~63.8% ~~Further,~~compared ~~excluding depreciation,~~with ~~amortization, stock compensation, litigation costs and charges relating to goodwill impairment and restructuring, such operating expenses were~~ $4536,~~239~~820,~~298 and $46~~779,~~495,842,~~ ~~respectively,~~or ~~representing approximately 50~~58.89% ~~and 47.0%~~ of ~~consolidated~~ revenues ~~for~~in the ~~respective~~prior fiscal ~~periods~~year. ~~However,~~The ~~the~~dollar ~~expenses for~~decrease ~~the~~in ~~current~~cost ~~year~~of ~~include~~services awas ~~full~~principally ~~year’s~~due ~~amount~~to ~~of costs for companies~~the ~~acquired~~decline in ~~the~~revenues ~~prior~~discussed ~~year. In fact~~above, ~~these~~including ~~operating~~the ~~expenses~~effects ~~have~~of ~~been~~the ~~reduced~~sale of ~~due~~Davel’s ~~primarily~~payphones. The tohigher ~~our~~cost ~~restructuring~~of ~~activities~~services ~~that~~expressed ~~have~~as ~~reduced compensation,~~a ~~occupancy~~percentage ~~costs~~of ~~and~~revenues ~~other~~was ~~related~~primarily ~~general~~due ~~and~~to ~~administrative~~the ~~costs.~~decline ~~Such expenses were approximately $10,782,000~~ in ~~the~~Davel’s ~~fourth quarter of the current~~revenues ~~fiscal~~which ~~year~~have ~~compared~~a ~~with~~lower ~~total~~percentage ~~expenses~~cost of ~~approximately~~services ~~$12,322,000~~than in the ~~corresponding~~ ~~period~~Integrated ofTelecom Business. ~~the~~There ~~prior~~were ~~year,~~also aincreases ~~reduction~~in ofsoftware ~~12.5%.~~sales ~~Such~~and ~~expenses totaled~~other ~~approximately~~products ~~$10,954,000~~of ~~for~~ the Integrated ~~quarter~~Telecom ~~ended~~Business ~~December~~that ~~31,~~have ~~2006. The current~~a ~~year~~higher ~~operating~~percentage ~~expenses~~cost ~~include~~of ~~the~~service ~~operating costs being incurred~~than ~~to start-up~~local ~~the municipal wireless network business~~ and tolong-distance ~~support~~line ~~the~~service ~~deployed networks.~~as ~~Total~~well ~~expenses~~as ~~for~~lower ~~the~~margins ~~current~~resulting ~~year~~from ~~included approximately $4,792,000~~the inbundling ~~such~~of ~~operating~~services ~~expenses~~billed ~~for~~to ~~Kite Networks compared with approximately $2,368,000 in the prior year~~customers.

Depreciation and amortization expenses were $5,976,395 and $4,310,742 for the fiscal years ended March 31, 2007 and 2006, respectively. The increase between years is due primarily to current year depreciation on municipal wireless network equipment in the amount of $1,095,977; such depreciation was insignificant in the prior year.-48-

~~Costs~~Payroll, professional fees and related expenses (exclusive of stock compensation) ~~services~~declined ~~were~~by $518,~~848~~230,~~059~~262 ~~and~~from $4922,~~082~~339,~~244,~~248 ~~respectively,~~in ~~for~~ the fiscal ~~years~~ year ended March 31, 2007 to ~~and~~$14,108,986 ~~2006~~in fiscal 2008. Excluding Davel, anthese ~~increase~~expenses ofdeclined ~~approximately~~by $234,409, 5or 2.6% ~~between fiscal years~~. ~~These~~This ~~costs,~~decrease ~~expressed~~consisted asof a ~~percentage~~$669,405 ofdecrease ~~revenues~~in ~~for~~payroll ~~the corresponding~~and ~~periods~~related expenses offset by a $434,996 ~~were~~increase 58in professional fees.2% The decrease in payroll and ~~49.6%,~~related ~~respectively,~~expenses ~~for~~(other ~~the~~than ~~current~~Davel’s) ~~and~~was ~~prior~~a ~~years,~~result of ~~representing~~reductions ain ~~17.3%~~personnel ~~unfavorable~~made ~~increase~~during infiscal ~~the~~2008 ~~percentage~~and 2007. ~~This~~The ~~deterioration~~increase in ~~occurred~~professional ~~across~~fees ~~all~~(other ~~lines~~than ofDavel’s) ~~our~~was ~~business.~~due Ato ~~substantial~~audit ~~portion~~and ofconsulting ~~these~~fees ~~costs are~~applicable ~~incurred~~to ~~pursuant~~compliance towith ~~carrier~~the ~~term~~Sarbanes-~~contracts~~Oxley ~~with~~Act ~~fixed~~of or2002 ~~minimum~~and ~~monthly~~$587,097 of fees. Werelating ~~have~~to ~~been~~the ~~unable~~USA toManagement ~~reduce~~Agreement ~~these~~incurred ~~costs~~in tofiscal ~~keep~~2008 ~~pace~~ with ~~the declining~~no ~~revenues~~corresponding amounts incurred in fiscal 2007. These increases were offset in part by reductions in other professional fees.

AsOffice ~~discussed~~rent ~~above, included in current year operating costs~~ and expenses were ~~FAS 123R~~ ~~stock compensation costs of~~ $12,~~623~~304,~~714,~~462 ~~and~~in ~~charges~~fiscal ~~related~~2008 compared to ~~asset impairment~~$2,561,851 ~~and restructuring~~ in fiscal ~~the~~2007, ~~amounts~~a decrease of $27257,~~275~~389,~~987~~ ~~and~~or ~~$283,839, respectively~~10.0%. ~~Such~~The ~~charges~~decrease ~~were~~consists ~~$4,446,544~~primarily of ~~and~~a $~~825~~370,~~703~~427 decrease in ~~the~~Davel’s ~~prior~~expenses ~~year,~~offset by increases in customer ~~respectively~~billing and other office expenses.

~~Interest~~Other general and ~~Other~~administrative ~~Expense~~expenses were $3,258,742 in fiscal 2008 compared to $4,609,274 in fiscal 2007, a decrease of $1,350,352, or 29.3%. Davel’s expenses increased by $92,659 in fiscal 2008 due to a $330,178 federal excise tax refund applicable to prior year amounts paid on long distance services that were received in fiscal 2007. Excluding Davel, other general and administrative expenses decreased by $1,443.011. This decrease is primarily due to a $1,490,738 decrease in advertising and related expenses of the Integrated Telecom Business. In fiscal 2007 and 2008 the Company began to phase out a number of the Company’s advertising programs and promotional activities resulting in a significant reduction in expense.

~~Interest~~Depreciation and ~~other~~amortization ~~expense,~~expenses ~~net,~~were ~~was~~ $21,~~330~~382,~~723~~627 ~~for~~and ~~the year ended March 31, 2007 compared with~~ $23,~~838~~397,~~394~~840 in the ~~prior~~fiscal ~~year. Current year interest expense~~years ~~relates~~ended ~~primarily~~March to31, ~~the~~2008 ~~series~~and ~~of convertible debentures issued to Cornell Capital including interest accrued at the stated rates~~2007, ~~the amortization of debt discount amounts recorded at the dates of issuance~~respectively, ~~and~~representing the ~~value~~reductions ~~of discounts provided to Cornell Capital~~ in ~~connection with our payment of debenture~~ ~~principal~~depreciation ~~and interest with shares~~ of ~~our~~the ~~common~~costs ~~stock. The convertible debentures bear interest at an annual stated rate~~ of ~~7.75%.~~deployed ~~The~~payphones ~~balance~~and ~~of notes payable to Cornell Capital at March 31, 2006 was $3,600,000; this amount was retired in~~ the ~~first~~amortization ~~quarter~~ of ~~the current year. The notes payable to Cornell~~payphone ~~Capital~~location ~~bore~~contracts ~~interest~~resulting ~~at annual rates ranging~~ from ~~8% to 12%. In addition,~~ the ~~SEDA~~ ~~arrangement~~payphone ~~expired~~sales in ~~the first quarter of the current~~ fiscal ~~year without renewal~~2008. ~~The~~This decrease ~~current year amount~~ also ~~includes~~included a $~~300~~235,~~000~~157 ~~gain~~reduction ~~provided upon the sale of certain wireless antenna technology~~ in ~~the~~depreciation ~~fourth~~and ~~quarter.~~amortization ~~The prior~~in ~~year~~fiscal ~~amount~~2008 ~~includes~~that ~~interest~~would ~~expense~~have ~~related~~been torecognized ~~the~~if ~~retired Airlie bridge loan in~~ the ~~amount~~assets of ~~$381,225.~~the ~~The~~Integrated Telecom ~~major~~Business ~~components~~had ofbeen ~~net~~classified ~~interest~~as ~~and~~held ~~other expense for fiscal years 2007~~ and ~~2006~~used ~~are presented~~ in ~~the~~continuing ~~following~~operations ~~schedule~~during fiscal 2008.

54Stock compensation expense decreased by $779,752, from $1,623,714 to $843,962 in the fiscal year ended March 31, 2008, due to the vesting of options and warrants granted in prior years and a reduction in the fair value of the fiscal year 2008 grants.

Type of Debt	2007			2006
Convertible debentures (at stated rates)	$	1,332,439			1,045,295
Convertible debentures (debt discount amortization)		893,322			348,443
Convertible debentures (stock issuance discounts)		367,443			-
SEDA draw discounts		137,795			410,016
Notes payable to Cornell Capital		25,074			705,396
Other, net		(425,350	)		329,244
Interest and Other Expense, net	$	2,330,723		$	2,838,394

The Company has significantly reduced its total operating costs and expenses of continuing operations in the fiscal year ended March 31, 2008. The fiscal year 2007 amounts also included asset impairment charges of $1,573,795 relating to Davel’s payphone equipment and location contracts, and restructuring charges of $185,968 relating to reductions in personnel. There were no comparable charges in the 2008 fiscal year. Total operating costs and expenses, excluding depreciation and amortization, included $510,704 and $428,435 for ProGames in the fiscal years ended March 31, 2008 and 2007, respectively. Corporate operating expenses, excluding stock compensation and restructuring charges, were $2,124,252 in fiscal 2008 compared to $2,606,757 in fiscal 2007, reflecting the Company’s continuing efforts to reduce expenses.

~~Net~~Interest ~~Loss~~and other expense, net, was $1,728,057 for the year ended March 31, 2008 compared with $2,474,309 in the prior fiscal year. During the fiscal year ended March 31, 2008, we retired principal owed under the YA Global debentures in the amount of approximately $4,801,000 and the YA Global promissory note in the amount of $1,100,000 that we issued in May 2007. We also retained $3,830,168 of capital leases and $1,591,978 of equipment obligations for which the Company was co-obligor following the sale of the Wireless Networks Business in July 2007. During the 2007 fiscal year, we issued new debentures to YA Global in the principal amount of $7,000,000, less $505,000 in financing fees. We also completed the retirement of notes payable to YA Global in the aggregate amount of $3,600,000 and retired $4,000,000 of principal on the debentures to YA Global using the Company’s common stock. The major components of net interest and other expense for the fiscal years ended March 31, 2008 and 2007 are presented in the following schedule:

We reported a net loss of $45,898,288 for the year ended March 31, 2007, or $0.0760 per share, compared with a net loss of $10,176,407, or $0.0248 per share, for the prior year. The charges for asset impairment, restructuring costs and stock compensation required by FAS 123R that were recorded in the current year totaled $29,183,540, or $0.0483 per share. Comparable costs in the prior year totaled $6,349,247, or $0.0154 per share. The voice services business segment reported a net loss of $5,453,269 for the current year, including an asset impairment charge of $1,573,795. Despite the inclusion of charges for goodwill impairment charge in the amount of $1,818,910 and the settlement of various claims in the amount of $1,077,000, the voice services segment reported net income of $612,820 for the prior year. Due substantially to goodwill impairment charges related to the Internet services segment and the restructuring charge (totaling $6,572,760), the Internet services segment incurred a net loss for the current year of $7,387,551. The net loss of this segment in the current year before these charges was $814,791; the net income of this segment in the prior year before these charges was $246,006. Due primarily to the operating expenses incurred by the municipal wireless network business, the wireless networks segment incurred net losses for the current and prior years of $5,846,226 (before the asset impairment charges of $19,227,303) and $2,265,645, respectively. Corporate expenses were $7,984,044 and $5,316,250 in fiscal years 2007 and 2006, respectively. The $2,667,794 increase between years was due primarily to the FAS 123R stock compensation expense in the amount of $1,623,714, the inclusion of operating expenses related to ProGames Network in the amount of $428,438 and an increase in interest expense incurred by Mobilepro Corp.-49-

Adjusted EBITDA Presentation

Type of Debt	2008			2007

Convertible debentures (at stated rates)	$	1,142,273		$	1,332,439
Convertible debentures (debt discount amortization)		264,110			893,322
Convertible debentures (stock issuance discounts)		148,550			367,443
SEDA Draw Discounts		-			137,795
Capital lease and equipment obligations		396,092			-
Note payable to YA Global		25,315			25,074
Notes receivable – Microlog Corporation		(53,630	)		-
Other notes receivable		(30,136	)		-
Accretion of discount – USA Preferred Stock		(244,198	)		-
Interest and Other (Income) Expense, net		79,681			(281,764	)
	$	1,728,057		$	2,474,309

~~EBITDA~~The loss ~~represents~~from ~~net~~continuing ~~income~~operations ~~(loss)~~for ~~before~~the ~~interest,~~year ~~taxes~~ended March 31, ~~depreciation~~2008 ~~and~~was $9,948,590, or ~~amortization~~$0.0129 per share, ~~and~~compared into ~~the~~a ~~case~~loss of ~~Adjusted EBITDA~~$13,437,205, ~~before~~or ~~goodwill~~$0.0222 ~~impairment, litigation~~per ~~settlement~~share ~~and~~in fiscal ~~restructuring~~year ~~charges~~2007. ~~Adjusted~~ The ~~EBITDA~~fiscal isyear ~~not~~2008 loss included a $2,778,906 ~~measurement~~loss on sale of ~~financial~~assets ~~performance~~relating ~~under~~to ~~GAAP.~~the ~~However,~~Davel wepayphones ~~have~~and ~~included~~certain related ~~data with~~liabilities ~~respect~~and toour ~~adjusted~~equity ~~EBITDA~~in ~~because~~the wenet ~~evaluate~~loss ~~and~~of ~~project~~Microlog ~~the~~Corporation ~~performance~~since the date of ~~our~~acquisition ~~business~~of ~~using several measures~~$92,967. The ~~including~~fiscal ~~adjusted~~year ~~EBITDA.~~2007 ~~The~~loss included ~~computations~~$1,573,795 of ~~adjusted EBITDA~~asset ~~for~~impairment ~~the~~charges, ~~years~~$185,968 ~~ended~~of ~~March~~restructuring ~~31,~~charges ~~2007~~ and ~~2006~~a ~~were~~$409,601 asloss ~~follows~~on extinguishment of debt relating to the refinancing of the $15 million debenture.

55The loss from discontinued operations for the fiscal year ended March 31, 2008 was $8,413,012, or $0.0109 per share, compared to $32,461,083, or $0.0538 per share in fiscal 2007. The fiscal year 2008 loss includes a $3,433,843 loss on the sale of the Wireless Networks Business, after a $1,602,447 reduction in the loss relating to the sale of the Longmont, CO wireless network in the fourth quarter of fiscal 2008, and a $2,424,785 loss on the sale of the ISP Businesses. The fiscal year 2007 loss from discontinued operations included asset impairment charges of $25,702,192, including $19,227,303 relating to the Wireless Networks Business and $6,474,889 relating to the ISP Business.

	2007			2006
Net loss	$	(45,898,288	)	$	(10,176,407	)
Add non-EBITDA items included in net results:
Depreciation and amortization		5,976,395			4,310,742
Interest and other expense, net		2,330,723			2,838,394
Loss on extinguishment of debt		409,601			-
Stock compensation		1,623,714			-
Asset impairment, litigation settlement and restructuring charges		27,559,826			6,349,247
Adjusted EBITDA (loss)	$	(7,998,029	)	$	3,321,976

We reported a net loss of $18,361,602 for the year ended March 31, 2008, or $0.0238 per share, compared with a net loss of $45,898,288 for the fiscal year ended March 31, 2007, or $0.0760 per share.

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

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

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

The Fiscal Years Ended March 31, 2006 and 2005

Total Revenues

We achieved consolidated revenues of $99,013,467 in the year ended March 31, 2006 compared with revenues of $46,508,144 in the prior fiscal year. The most significant portions of our revenues were provided by our CloseCall and Davel subsidiaries that were acquired in October 2004 and November 2004, respectively. Revenues for these companies were included in our consolidated results of operations from the acquisition dates. In addition, major acquisitions in the fiscal year ended March 31, 2006 included AFN, acquired on June 30, 2005, and InReach, acquired on November 1, 2005. We obtained a 51% ownership interest in Kite Broadband in June 2005; this entity commenced operations on July 1, 2005. In January 2006 we subsequently acquired the remaining 49% of Kite Broadband and 100% interest in Kite Networks. The revenues of these entities were included in our consolidated results of operations from those dates. Accordingly, the amounts of revenues included in our consolidated revenues for the years ended March 31, 2006 and 2005 were as follows for Davel, CloseCall, Kite Broadband, AFN, and InReach.

Acquired Company	2006		2005		Increase
Davel	$	40,305,697	$	17,461,532	$	22,844,165
CloseCall (includes Affinity)		27,029,379		14,547,552		12,481,827
Kite Broadband		9,669,091		-		9,669,091
AFN		6,229,981		-		6,229,981
InReach		2,279,990		-		2,279,990
Total Revenues	$	85,514,138	$	32,009,084	$	53,505,054

Revenues by Segment

Voice Services. Revenues from our voice services for the year ended March 31, 2006 were $72,356,453, representing approximately 73.1% of consolidated revenues. The revenues of this segment were $32,009,084 in the prior year, representing approximately 68.8% of consolidated revenues. The fiscal year 2006 revenues were attributable primarily to CloseCall, Davel, and AFN, all of which were acquired subsequent to the prior year’s second quarter.

The proliferation of cell phone use by consumers caused a continuous reduction in the use of payphones. As a result, the revenues of Davel continued to decline. As stated above, the revenues for Davel for the year ended March 31, 2006 were $40,305,697 compared with revenues of approximately $55,091,000 for the prior year (including that portion before our acquisition), a decline of approximately 26.8% between years. We reduced the number of payphones by removing those phones receiving minimal use and thereby eliminating the costs to support and maintain those phones. Davel had an average of 36,403 payphones in operation during the year ended March 31, 2006, compared with an average of 41,202 payphones in operation during the year ended March 31, 2005, a decline of approximately 11.6%. However, the average monthly revenues per average payphone for the fiscal years ended March 31, 2006 and 2005 were $92.27 and $111.47, respectively, representing a decline of 17.2% between years. The following chart presents the revenues of Davel by quarter for fiscal years 2006 and 2005, and the decrease in revenues for each quarterly period between years.

Fiscal Quarter	2006		2005		Decrease
First	$	11,138,906	$	14,137,713	$	(2,998,807	)
Second		11,059,855		14,586,122		(3,526,267	)
Third		10,084,268		15,283,842		(5,199,574	)
Fourth		8,022,668		11,083,788		(3,061,120	)
Total Davel Revenues	$	40,305,697	$	55,091,465	$	(14,785,768	)

Nonetheless, Davel made a positive EBITDA contribution to the consolidated results of operations, computed as follows for fiscal 2006, and generated cash averaging approximately $300,000 per quarter during fiscal 2006.

	For the Year Ended March 31, 2006
Net income (before inter-company fees)	$	860,502
Add non-EBITDA items included in net results:
Depreciation and amortization		2,830,662
Interest expense, net		-
Goodwill impairment and restructuring costs		-
Adjusted EBITDA for Davel	$	3,891,164

Our local and long distance service revenues were negatively affected by a continued decline in rates and competitive pressures to bundle services together and long distance minutes of use within local service product offerings. Our existing base of business of long distance minutes was also subject to increasing competition from both VoIP and competing wireless service offerings. As a result, the business of CloseCall declined during fiscal 2006, experiencing a reduction in monthly revenues of approximately 8%. The operations of CloseCall were profitable for the year, and its adjusted EBITDA contribution was approximately 7% of revenues.

Internet Services. Revenues from Internet services for the fiscal year ended March 31, 2006 were $16,940,513, representing approximately 17% of consolidated revenues and including $2,279,990 in revenues attributable to InReach. We reported Internet service revenues of $13,884,060 for the prior year. The fiscal year 2006 results included a full quarter of operating results for each of the eight data services companies acquired during the fiscal year ended March 31, 2005. As stated above, the loss of customers by this business, that includes mostly dial-up Internet access subscribers, exceeded our expectations, contributing to the goodwill impairment losses recorded in the fiscal year 2006.

Wireless Networks. The revenues of this operating segment principally related to Kite Broadband. As indicated above, its revenues for fiscal year 2006 were $9,669,091, representing 9.8% of consolidated revenues. This revenue relates to nine months of operations as Kite Broadband commenced its business on July 1, 2005. To date, the revenues earned by Kite Networks were insignificant. This segment did not generate any revenues for the fiscal year ended March 31, 2005.

Corporate. From time to time, the corporate segment generates miscellaneous revenues. No such revenues were generated by this segment in fiscal year 2006. Corporate revenues for the year ended March 31, 2005 included $450,000 in management consulting revenues. Consideration for the services was received in the form of common stock of two companies as discussed below.

In June 2004, we entered into a Business Development Agreement with Solution Technology International, Inc. (“STI”), a Frederick, Maryland-based software company, whereby we provided financial to STI in exchange for a non-affiliate equity interest in STI. We believed that a strategic relationship with STI would be valuable to us since STI had contacts with insurance companies that could be potential purchasers of our various services. We valued this ownership at $150,000 and recorded revenues of this amount in the prior year.

In August 2004, we signed a Business Development Agreement with Texas Prototypes, Inc. (“Texas Prototypes”), an electronic prototype manufacturing company, to jointly pursue a working relationship covering a number of potential technology projects and business development initiatives. We saw a potential fit between their chip prototype business and our ZigBee chip development project. We received a non-affiliate equity interest in Texas Prototypes as consideration for services under the agreement. We valued this ownership at $300,000 and recorded revenues of this amount in the prior year.

Operating Costs and Expenses

Total operating costs and expenses for the year ended March 31, 2006, including depreciation and amortization, were $106,238,075, including charges for goodwill impairment, the settlement of various legal claims and restructuring costs of $4,446,544, $1,077,000 and $825,703, respectively. Excluding these charges, total operating costs and expenses represented approximately 101% of consolidated revenues for the year ended March 31, 2006. Operating costs and expenses for the year ended March 31, 2005 were $50,029,303, or 108% of consolidated revenues. Operating costs and expenses increased significantly between years, but decreased as a percentage of consolidated revenues, as we acquired companies, increasing the size of our business and leveraging the corporate-level functions, and began to combine operations.

The cost of services (excluding depreciation and amortization) was $49,082,244 in the year ended March 31, 2006, or 49.6% of revenues, compared with $22,551,240, or 48.5% of revenues, in the prior year due primarily to the reduction in high gross margin business from our payphone and dial-up ISP business and the addition of lower gross margin (but positive EBIDTA margin) business from AFN. The overall increase in this percentage between years was related to Davel as explained above. On the other hand, the cost of CloseCall’s service offerings, expressed as a percentage of revenues, declined between years to approximately 49% in the current year from approximately 52% in the prior year. The cost of Internet access services, expressed as a percentage of corresponding revenues, remained constant between the years, approximately 49%.

Compensation expenses, professional fees paid to attorneys, accountants and other advisors, and other general and administrative expenses comprise a major portion of operating costs and expenses. The total amount of such expenses increased by $16,094,160, from $22,248,626 in the prior year to $38,342,786 in fiscal year 2006. However, such expenses, expressed as a percentage of corresponding consolidated revenues, declined from 47.8% in the prior year to 38.7% in fiscal year 2006. The percentage decline between years was due primarily to a significant reduction in professional fees and corporate bonuses. Primarily due to the full year effect of the acquisitions, advertising and marketing expenses; office rent and expenses; and depreciation and amortization expenses increased in fiscal year 2006 by 91%, 228% and 109% from the prior year amounts. The fiscal year 2006 depreciation and amortization expense of $4,310,742 included approximately $497,000 in amortization of the intangible asset recorded in the accounts of Kite Broadband in connection with the Sprint agreement (see Note 6 to the Consolidated Financial Statements).

The operating expenses for the fiscal year ended March 31, 2006 included the operating costs being incurred to start-up the municipal wireless network business and to support the deployment of the Tempe and other networks. Total operating costs for fiscal year 2006 included $1,960,256 in operating expenses of Kite Networks. There were no such costs in the corresponding prior year. Spending by Kite Networks was accelerated in fiscal year 2006 as we saw increased interest in municipal wireless projects, as indicated by the number of municipalities issuing requests for proposals. This activity and our own success in being selected for such projects convinced us to increase the pace of our investment in this business. In order to respond to the growing number of opportunities, we increased staff in this group and expanded our business development activities resulting in increased compensation costs, tradeshow attendance costs, and other travel expenses.

As discussed above, included in fiscal year 2006 operating costs and expenses were charges related to goodwill impairment and restructuring in the amounts of $4,446,544 and $825,703, respectively. No such charges were recorded in the prior year.

Subsequent to March 31, 2006, we settled several claims against us, including a lawsuit attempting to recover in excess of $1.0 million filed by Verizon. Consequently, we recorded the aggregate loss represented by these settlements in the amount of $1,077,000 in the period ended March 31, 2006.

Operating expenses for fiscal year 2006 were higher than we had planned at the beginning of the fiscal year, with the unfavorable variance occurring substantially in the voice services segment. In retrospect, our assumptions regarding cost reductions at Davel, in light of anticipated revenue declines, were too aggressive. Of course, additional operating expenses were incurred by the companies added during fiscal year 2006, particularly AFN, InReach, and Kite Broadband. Operating expenses for fiscal year 2006 (before the effects of these acquisitions) for corporate, the Internet services segment and wireless networks were close to plan. The cost of services for fiscal year 2006 (before depreciation and amortization), expressed as a percentage of consolidated revenues, were within expectations.

Interest and Other Expense

Interest and other expense, net, was $2,838,394 for the year ended March 31, 2006 compared with $1,838,563 in the prior year. During the prior year, we closed two significant acquisitions resulting in a significant increase in borrowings from Cornell Capital and Airlie. Most significantly, the purchase consideration for the acquisition of Davel in November 2004 included $14 million cash. These funds were provided by the proceeds of the acquisition bridge loan from Airlie. We used funds borrowed from Cornell Capital to provide the $8 million cash portion of the CloseCall purchase consideration, to fund other acquisitions and to provide working capital. Since then, a significant amount of Cornell Capital borrowings have been retired. The balance of notes payable to Cornell Capital at March 31, 2006 was $3,600,000; this amount was retired subsequent to March 31, 2006. The proceeds provided by this debenture allowed us to retire the Airlie bridge loan in May 2005. The Airlie bridge loan bore interest at an annual rate of 23%. The convertible debenture bears interest at an annual stated rate of 7.75%. The notes payable to Cornell Capital bore interest at annual rates ranging from 8% to 12%. The major components of net interest and other expense for fiscal years 2006 and 2005 are presented in the following schedule.

Type of Debt	2006			2005
Notes payable to Cornell Capital	$	705,396		$	310,060
SEDA draw discounts		410,016			375,150
Convertible debenture (including discount amortization of $348,443)		1,393,738			—
Airlie bridge loan		381,225			1,144,186
Other, net		(51,981	)		9,167
Interest and Other Expense, net	$	2,838,394		$	1,838,563

Net Loss

We reported a net loss of $10,176,407 for the year ended March 31, 2006, or $0.0248 per share, compared with a net loss of $5,359,722, or $0.0185 per share, for the prior year. The charges for asset impairment, the settlement of claims and restructuring costs that were recorded in the fiscal year 2006 totaled $6,349,247, or $0.0154 per share. Due to the portion of the impairment charge related to the Internet services segment and the restructuring charge (totaling $3,453,338), the Internet services segment incurred a net loss for fiscal year 2006 of $3,207,332. The net income of this segment in fiscal year 2006 before these charges was $246,006; net income in the prior year was $349,135. Despite the inclusion of charges for goodwill impairment charge in the amount of $1,818,910 and the settlement of various claims in the amount of $1,077,000, the voice services segment reported net income of $612,820 for fiscal year 2006. This segment incurred a net loss of $1,521,830 in the prior year. Due primarily to the operating expenses incurred by the municipal wireless network business, the wireless networks segment incurred a net loss for fiscal year 2006 of $2,265,645. Corporate expenses were $5,316,250 and $3,174,536 in fiscal years 2006 and 2005, respectively. The increase between years was due primarily to the increased interest expense in fiscal year 2006 and the increased compensation expense related to additional personnel hired at Corporate including the general counsel, the corporate controller, and an executive vice president. Corporate expenses in the prior year included amortization expense of approximately $733,333 related to SEDA deferred financing fees. We have charged current year amortization to additional paid-in capital.

Adjusted EBITDA Presentation

The computations of adjusted EBITDA for the years ended March 31, 2006 and 2005 were as follows.

	2006			2005
Net loss	$	(10,176,407	)	$	(5,359,722	)
Add non-EBITDA items included in net results:
Depreciation and amortization		4,310,742			2,067,213
Interest expense, net		2,838,394			1,838,563
Goodwill impairment, litigation settlement and restructuring charges		6,349,247			—
Adjusted EBITDA	$	3,321,976		$	(1,453,946	)

Regulatory Impact on Revenues

See the “Government Regulation” section of Item 1, Description of Business, for a discussion of the regulations to which our businesses are subject. These regulations could have a material impact on our revenues and costs of operations.

Liquidity and Capital Resources

During the fiscal year ended March 31, ~~2007~~2009, ~~our~~the balance of unrestricted cash and cash equivalents decreased by $1652,~~967,037~~987 to $31,~~430~~419,~~844~~130.

~~Net~~Although ~~cash used~~the inCompany ~~operations~~had a net loss of $11,360,021 during the fiscal year ended March 31, ~~2007 was $6,558,708,~~ ~~reflecting~~2009, ~~the~~net ~~funding~~cash ofused ~~operating~~in ~~losses~~operations ~~incurred by the Company during the current year. This amount~~ was ~~net of a~~ $270,~~932,582~~223. ~~reduction~~The innet ~~the~~loss ~~balance~~included significant ~~of accounts~~non-cash ~~receivable~~expenses ~~during the current year~~ that ~~was~~reduced ~~primarily~~actual ~~due~~cash toused ~~a reduction~~ in ~~revenues~~operations. ~~Nonetheless,~~Non-cash ~~based~~expenses consisted onof ~~revenues~~asset ~~for~~impairment ~~the~~charges ~~respective preceding~~of ~~quarters~~$8,764,065 werelating ~~reduced days sales in receivables~~ to ~~36.9~~the ~~days~~goodwill atof ~~March 31,~~the ~~2007~~Integrated ~~from~~Telecom ~~39.8~~Business, ~~days~~a ~~at March 31~~$1,345,534 ~~2006.~~write ~~The~~down ~~amount~~in ofthe ~~restricted~~carrying ~~cash~~value ~~used~~of ~~to secure~~notes ~~letters~~receivable, $723,968 of ~~credit~~depreciation ~~issued~~and ~~primarily~~amortization, toand ~~carriers~~other non-cash ~~increased~~expenses bytotaling $~~758~~630,~~035~~177. ~~The changes~~ inThere ~~the~~was ~~other~~also ~~working~~a ~~capital~~non-cash ~~accounts~~gain ~~provided~~on ~~net~~sale ~~cash~~of discontinued operations of $~~128~~901,~~523. Non-cash~~138 ~~charges~~applicable ~~for~~to the ~~fiscal~~settlement ~~year~~of ~~ended~~one ~~March~~the ~~31,~~Kite Networks ~~2007~~equipment ~~totaled~~leases. ~~$37,036,510, including~~Net ~~asset~~cash ~~impairment~~used ~~charges~~in ofoperating activities included $27727,~~275,987,~~192 ~~depreciation~~of ~~and~~cash ~~amortization of~~provided ~~$5,976,395,~~from ~~stock~~changes ~~compensation~~in ofworking $1capital,~~623,714,~~ ~~non-cash~~principally ~~interest~~due ~~expense~~a of $1909,~~398,556,~~508 ~~the~~reduction ~~loss~~in onrestricted ~~debt~~cash ~~extinguishment~~resulting offrom ~~$409,601~~the ~~and~~release ~~restructuring charges~~ of ~~$283,839.~~cash collateral ~~Net~~from ~~cash~~letters ~~used~~of incredit ~~operations~~that ~~during~~we ~~the~~were ~~fiscal~~not ~~year ended March~~required ~~31,~~to ~~2006~~renew ~~was~~and ~~$2,858,889;~~a ~~non-~~cash distribution ~~charges~~received ~~for~~from the ~~fiscal~~escrow ~~year~~account ~~ended~~established in connection with the ~~March 31,~~sale ~~2006~~of ~~totaled~~Davel’s ~~$10,480,978~~payphones.

~~We used net~~The net cash ofused ~~$4,369,694~~ in ~~connection~~operations ~~with~~included ~~investing~~cash ~~activities~~generated ~~during~~by the Integrated Telecom ~~current~~Business ~~year.~~which ~~Cash~~was used ~~for~~primarily ~~capital~~to ~~expenditures~~help ~~during~~fund the ~~current year totaled~~ $61,~~514~~431,~~360~~577 ~~including~~of ~~approximately~~interest ~~$5,700,000 related to the deployment of~~paid ~~municipal~~in ~~wireless~~fiscal ~~networks. These expenditures were financed~~2009, inincluding ~~part,~~amounts ~~with cash~~paid ~~proceeds~~to ~~provided~~YA ~~from~~Global. The ~~the~~net ~~sale of certain wireless network equipment~~cash ~~in Tempe~~used ~~and Farmers’ Branch~~ in ~~the~~operations ~~amount~~also ofincluded $3810,~~206,666~~215 ~~(see additional discussion~~ of ~~these~~Regulatory ~~sale/leaseback~~Receipts ~~transactions~~relating ~~below). We also used cash~~ to ~~purchase~~ ~~restricted~~claims ~~certificates~~by ofDavel ~~deposit~~against incertain ~~the~~telecommunication ~~total~~carriers ~~amount~~which ofwas ~~$1,062,000~~used ~~that~~to ~~were pledged~~help tofund ~~secure~~the ~~certain~~Company’s ~~equipment~~corporate ~~leases~~expenses.

Our financing activities during the current year provided net cash of $8,961,365. Cash provided to us from the sale of common stock, primarily sales to Cornell Capital pursuant to the SEDA, totaled $6,666,917. Net cash proceeds received from the issuance of convertible debentures were $6,495,000. During the current year, we used cash to make payments reducing the balance of notes payable and other debt amounts. The net reduction was $4,200,552 including the payment of the balance of notes payable to Cornell Capital in the amount of $3,600,000 and the payment of principal due under capital network equipment leases of $607,150.-50-

WeThe ~~expect that~~amount ~~our~~of ~~future~~ cash ~~flows~~used ~~from~~in ~~operations~~investing ~~will~~activities ~~not~~relating ~~be adequate~~ to ~~meet our anticipated cash needs in the foreseeable future. Most important, we estimate that aggregate~~ capital expenditures ~~of approximately $42 million will be~~was ~~required~~nominal in ~~order to complete~~ the municipal wireless network deployments contemplated by our current business plan, including approximately $8-$10 million related to full-scale deployments awarded to us to date. In order to support the municipal wireless network business operations and to complete the deployment of these wireless networks, we will need to incur additional debt or issue additional equity. Our expectation for the Company’s revenue-producing businesses has been that they achieve at least an aggregate breakeven cash flow from operations and cover corporate expenses. Notwithstanding our expectation, that did not occur in the fiscal year ended March 31, ~~2007~~2009. The ACompany ~~further~~does ~~decline~~not ~~in our~~expect ~~revenue-generating~~capital ~~businesses~~expenditures ~~will~~to ~~increase~~be ~~our~~significant ~~need~~in ~~for~~the ~~cash~~future.

OnOur ~~May 19,~~financing ~~2006,~~activities for the ~~SEDA~~fiscal ~~expired~~year ~~without~~ended ~~renewal.~~March ~~The~~31, ~~SEDA~~2009 ~~was~~used ~~important~~net tocash ~~the growth~~ of $579,004. ~~our~~Cash ~~Company.~~used ~~However,~~in wefinancing ~~came~~activities toincluded ~~believe~~$392,980 ~~that~~in ~~the~~cash ~~potential~~to ~~additional~~pay ~~issuances~~principal ofon ~~common~~debt ~~stock~~obligations, ~~pursuant~~including to the ~~SEDA~~notes ~~resulted~~payable inand anequipment ~~overhang that~~and ~~was depressive~~capital tolease ~~the~~obligations ~~trading~~relating ~~price~~to ofthe ~~our~~Wireless ~~common~~Networks ~~stock~~Business. AtCash ~~the time, we believed~~used ~~that~~in ~~less expensive~~ financing ~~alternatives~~activities ~~would~~also beincludes ~~available to us. However~~$186, ~~the~~024 ~~successful pursuit~~ of ~~alternative~~financing ~~sources~~costs ofincurred ~~capital has been very~~in ~~difficult.~~connection ~~Our~~with ~~group~~the ofrefinancing ~~businesses, our history~~ of ~~net losses, our lack of a corporate credit history with significant suppliers and~~ the ~~uncertain~~YA ~~payback associated~~Global ~~with~~debt ~~investments~~on inJune ~~municipal~~30, ~~wireless~~2008 ~~networks have proven to~~as ~~be significant~~described ~~obstacles to overcome in our search for capital~~below.

~~Despite~~Our ~~the~~history ~~expiration~~of net losses, our lack of a sufficient corporate credit history with significant suppliers and the ~~SEDA,~~uncertain ~~Cornell~~payback ~~Capital~~associated with investments in municipal wireless networks has ~~continued~~proved to ~~support~~be ~~the~~significant obstacles to overcome in our search for capital. Nevertheless, YA Global has been a significant source of capital for the Company. On June 30, 2006, we issued an amended 7.75% secured ~~convertible~~ convertible debenture in the amount of $15,149,650 to ~~Cornell~~YA ~~Capital~~Global, replacing ~~the~~a convertible debenture with an outstanding principal amount of $15,000,000 (and accrued interest ~~payable at June 30, 2006~~ of approximately $149,650) that was issued to ~~Cornell~~YA ~~Capital~~Global in May 2005. With the issuance of the Amended Debenture, we deferred a cash requirement of $4,500,000 (the amount of the originally scheduled principal payments in the twelve month period ending March 31, 2007) relating to fiscal year 2007.

61On August 28, 2006, the Company entered into a financing agreement with YA Global that provided $7.0 million in funding with the proceeds received upon the issuance of a series of secured, convertible debentures. At each closing, the Company issued YA Global a 7.75% secured convertible debenture in the principal amount for that closing, convertible into common stock at $0.174 per share and paid a transaction fee equal to 7% of the proceeds.

OnUsing ~~August 28,~~shares ~~2006,~~of ~~the~~our ~~Company~~common ~~entered~~stock ~~into~~registered aon ~~financing~~Form ~~agreement~~S-3 ~~with~~in ~~Cornell~~November ~~Capital~~2006 and as ~~that~~permitted ~~provided~~by ~~$7.0~~the ~~million~~terms inof ~~funding~~the ~~with~~debentures, the ~~proceeds~~Company ~~received~~made ~~upon~~principal ~~the~~and ~~issuance~~interest ofpayments aon ~~series~~the ofdebentures ~~secured,~~issued ~~convertible~~to ~~debentures.~~YA AtGlobal ~~each~~that ~~closing~~totaled $4,880,489 during the ~~Company~~ ~~issued~~fiscal ~~Cornell~~year ~~Capital~~ended aMarch ~~7.75%~~31, ~~secured~~2007, ~~convertible~~and ~~debenture~~that intotaled ~~the~~$1,967,908 from ~~principal~~April ~~amount~~2007 ~~for~~through ~~that~~May ~~closing~~2007. However, ~~convertible~~the ~~into~~supply ~~common~~of ~~stock~~registered ~~at $0.174~~shares ~~per share~~available ~~and~~for ~~paid~~the aconversion ~~transaction~~of ~~fee~~the ~~equal~~debentures towas 7%exhausted. We made additional cash payments of ~~the~~principal ~~proceeds.~~and Oninterest ~~August~~on ~~30,~~the debentures that totaled ~~2006~~$4,149,651 during the ~~first~~fiscal ~~closing~~year ~~provided~~ended ~~gross~~March ~~cash~~31, 2008, primarily from the proceeds of ~~$2,300,000~~the sale of the ISP Business and payphone assets. ~~During~~ However, the ~~quarter~~Company ~~ended~~was ~~December~~unable ~~31,~~to ~~2006,~~make ~~additional~~the ~~gross~~weekly ~~cash~~scheduled ~~proceeds~~principal payments of $3375,~~525,~~000 ~~were~~plus ~~received~~interest commencing February 1, 2008. ~~Pursuant~~The toCompany ~~the~~made ~~final~~a ~~closing~~partial ~~under~~payment ~~this~~of interest ~~agreement~~of $114,530 weon ~~received gross~~February ~~proceeds~~1, 2008 and made additional payments of interest aggregating $1200,~~175,~~000 on ~~February~~May 12 and June 4, ~~2007~~2008.

~~Using~~Effective ~~shares~~June of30, ~~our common stock registered on Form S-3 in November 2006 and as permitted by the terms of the debentures~~2008, the Company ~~made~~issued ~~principal~~a ~~and interest~~secured ~~payments~~convertible ondebenture ~~the debentures issued~~ to ~~Cornell~~YA ~~Capital that totaled~~Global ~~$4,880,481 during~~ (the ~~fiscal~~“Convertible ~~year~~Debenture’) ~~ended~~with ~~March~~an ~~31,~~aggregate ~~2007,~~principal ~~and~~balance ~~that totaled~~of $113,~~967~~391,~~908 from April 2007 through May 2007. However~~175, ~~the~~replacing ~~supply of shares registered and related to~~ the former convertible debentures. ~~has~~The ~~been exhausted.~~Convertible ~~Cornell Capital~~Debenture ~~has~~provides ~~agreed~~for tomonthly ~~delay~~payments ~~additional~~of ~~installment~~interest ~~payments~~at ~~until~~12% ~~early~~with ~~July~~the remaining ~~2007~~principal ~~when~~balance ~~the~~due ~~Company~~on ~~will~~May be1, ~~obligated~~2009. toYA ~~make~~Global ~~total~~may ~~weekly~~convert ~~principal~~any ~~payments~~ portion of ~~$375,000~~the unpaid ~~plus~~principal ~~accrued~~and interest. ~~Unless~~into ~~additional~~ shares ~~are~~representing ~~registered by the~~up ~~Company~~to ~~under~~4.99% ~~the Securities Act~~ of ~~1933 (~~the ~~“Securities Act”), shares~~ ~~acquired~~Company’s bycommon ~~Cornell~~stock ~~Capital~~at ~~are~~the ~~tradable~~lesser ~~under~~of ~~Rule~~$0.04973 ~~144~~per ofshare ~~the Securities Act,~~ or ~~shares~~the average of the two ~~Company’s~~lowest ~~common~~volume ~~stock~~weighted ~~are~~average ~~otherwise~~prices ~~freely~~during ~~tradable~~the byfive ~~Cornell~~trading days ~~Capital~~immediately ~~without~~preceding ~~restriction,~~ the ~~Company~~conversion ~~will be required to make these payments in cash~~date.

~~Under~~During the ~~$7.0~~ ~~million~~fiscal ~~financing~~year ~~agreement~~ended ~~with~~March ~~Cornell~~31, ~~Capital~~2009, the ~~issuance~~Company ~~of each debenture to Cornell Capital is accompanied by the issuance of a stock warrant. To date, we have~~ issued ~~warrants to purchase 10~~629,~~000~~042,~~000~~857 shares of ~~our common~~ common stock atin ~~$0.174~~satisfaction ~~per~~of ~~share. In addition~~$324,840 ~~the~~in ~~warrants~~principal ~~that~~relating ~~were issued~~ to ~~Cornell Capital~~ ~~in connection with~~ the ~~Debenture and the Amended Debenture were amended~~ toConvertible ~~increase the number of shares and decrease the per share exercise prices~~Debenture. ~~The number~~ ofSubsequent ~~shares subject~~ to ~~exercise~~March ~~under~~31, ~~the~~2009, ~~warrants~~YA ~~related~~Global toconverted ~~the Debenture~~an ~~and~~additional ~~the~~$87,710 ~~Amended~~of ~~Debenture~~principal ~~were~~into ~~increased to 15~~290,~~000~~700,000 shares ~~and~~of ~~13,750,000,~~common stock. Such ~~respectively,~~shares ~~from~~are ~~6,000,000~~tradable ~~and~~by ~~10,000,000,~~YA ~~respectively.~~Global ~~The~~pursuant ~~per~~to ~~share exercise~~Rule ~~prices~~144 of the ~~warrants~~Securities ~~were~~Act ~~reduced from $0.50 and $0.275,~~of ~~respectively,~~1933 to(the ~~$0.20~~“Securities ~~in both instances.~~ Act”)

~~During~~The ~~the~~Company ~~current~~did ~~year,~~not wepay ~~have~~the ~~been~~remaining ~~successful~~principal inbalance ~~obtaining~~of ~~lease financing covering certain municipal wireless network equipment. On June 28~~$13, ~~2006~~029,175 ~~the~~that ~~Company~~was ~~executed a master equipment lease agreement intended~~due ~~to provide~~on ~~financing~~May ~~for~~1, ~~the acquisition of qualifying municipal wireless network equipment~~2009. On ~~June~~May 305, ~~2006~~2009, the Company ~~received~~executed ~~$2,000,000~~an ~~in gross cash~~agreement ~~proceeds~~with ~~from~~YA ~~the sale of certain municipal wireless network equipment that is deployed in Tempe~~Global, ~~Arizona,~~pursuant ~~and~~to iswhich ~~leasing~~YA ~~back~~Global ~~the~~has ~~equipment~~agreed ~~pursuant~~ to ~~the master~~ ~~lease~~forbear ~~agreement.~~from ~~The~~enforcing ~~leaseback~~its ~~period~~rights ~~is 36 months~~ and ~~the~~remedies ~~terms~~against ~~include a fair-market-value purchase option at~~ the ~~end~~Company ofunder the ~~lease~~Convertible ~~term.~~Debenture ~~However,~~and related inagreements ~~order~~through toJune ~~satisfy concerns about our credit worthiness~~1, we2009. ~~were~~Although ~~required~~a tofurther ~~purchase~~forbearance ~~certificates of deposit~~through ~~totaling~~June ~~$700~~5,~~000~~ ~~that~~2009 ~~serve~~was asexecuted ~~collateral~~by ~~for~~YA ~~the benefit of the lessor. On December 26~~Global, ~~2006,~~it wehas ~~completed~~verbally advised the ~~receipt~~Company ~~of approximately $1,207,000 in~~that ~~gross cash~~it ~~proceeds~~does ~~from~~not ~~the~~intend ~~sale~~to ofprovide ~~certain~~additional ~~wireless~~forbearance ~~network equipment deployed in Farmers’ Branch, Texas,~~ and ~~commenced~~that ait ~~leaseback~~intends ~~of the equipment under the~~to ~~master~~enforce ~~lease~~its ~~agreement.~~rights ~~As above, the leaseback period is thirty-six months~~ and ~~the~~ ~~terms~~remedies ~~include~~as asenior ~~fair-market-value~~secured ~~purchase~~creditor ~~option~~against at the ~~end of the lease~~ ~~term. The~~ Company ~~was required to purchase certificates of deposit totaling approximately $362,000 in order to collateralize this transaction~~.

OnAs ~~October~~described 10above, ~~2006,~~certain ~~the~~equipment ~~Company~~leases ~~signed~~and aother ~~master~~ equipment ~~lease~~purchases ~~agreement~~of ~~with~~Kite ~~a different~~Networks ~~lease~~were ~~financing~~co-signed ~~firm~~by ~~that~~Mobilepro ~~may~~Corp. ~~provide~~The upCompany, subject to $3any ~~million~~defenses it inmay ~~lease financing~~have, ~~capital~~could ~~for~~be ~~future~~required ~~wireless~~to ~~network~~make ~~equipment~~the ~~purchases.~~payments ~~The commitment~~due ison ~~available~~these ~~only~~equipment leases ~~for~~and other equipment-related ~~manufactured~~obligations bythat ~~Cisco~~were ~~Systems.~~transferred to Gobility ~~Fifty percent~~in ofconnection with the ~~commitment~~sale isof ~~designated~~the ~~for~~Wireless ~~core~~Networks ~~network infrastructure equipment~~Business. ~~The~~To ~~remainder~~date ofGobility has ~~the~~not ~~commitment~~made isany ~~available~~lease ~~for~~payments ~~transmission equipment~~and ~~purchases~~has ~~and~~not ~~can~~raised beat ~~used~~least to$3.0 ~~finance~~million upin tocash as ~~50%~~required ofunder the ~~cost~~terms of ~~such purchases~~the Gobility Debenture. As ~~The~~a ~~lease~~result, the ~~term~~Company ~~for~~has ~~each~~the ~~equipment~~right ~~purchase~~but isnot 24the ~~months.~~obligation ~~Pursuant~~ to ~~this~~ ~~arrangement~~repurchase ~~and~~the ~~since~~Wireless Networks ~~December~~Business ~~2006,~~with the ~~Company~~surrender ~~has~~of ~~recorded~~the ~~capital lease transactions~~Gobility ~~covering~~Debenture ~~equipment~~and ~~with~~the apayment of ~~total~~nominal ~~cost~~additional ~~of approximately $1,950,000~~consideration.

62-51-

~~We expect to~~On ~~negotiate future municipal wireless equipment lease financing arrangements~~March ~~with~~10, ~~longer~~2008, ~~terms~~Gobility ~~and/or~~sold ~~reduced collateral requirements. We continue to pursue~~ the ~~addition~~assets of ~~new lease financing to cover~~ the ~~costs~~wireless ofnetwork ~~the access point equipment deployed~~ in Longmont, Colorado, and the ~~future~~Company ~~costs~~received of the ~~wireless networks~~proceeds ~~planned~~in ~~for Yuma, Gilbert and Chandler. In~~ the ~~meantime,~~form ~~obtaining flexible~~of ~~payment~~promissory ~~terms from suppliers is important to our ability to complete~~notes ~~deployments~~totaling $1,800,000. ~~For~~In ~~example~~addition, ~~suppliers~~the ~~granted~~Company ~~extended~~entered ~~payment~~into ~~terms~~a ~~to Kite~~forbearance ~~Networks~~agreement ~~in connection~~ with the ~~deployments~~principal ~~of the~~ equipment invendor ~~Tempe~~ and ~~Longmont.~~ ~~Negotiations~~agreed ~~are underway in an attempt~~ to ~~obtain~~pay ~~extended~~the ~~payment~~$1,591,978 ~~terms~~equipment ~~from~~obligation, ~~the~~with ~~likely~~interest ~~suppliers~~at ofthe ~~equipment~~prime ~~for~~rate, ~~the~~and ~~Gilbert~~a ~~and~~related ~~Chandler~~lease ~~deployments.~~obligation ~~However,~~in the ~~fact~~principal ~~that~~amount ~~substantially all~~ of ~~the~~$149,749. In ~~balance~~March ~~due for~~2008, the ~~Longmont~~Company ~~equipment~~also ~~(approximately~~paid ~~$1,569,000)~~one isof ~~overdue is adversely affecting~~ the ~~negotiations.~~leases ~~The~~with ~~equipment~~an ~~supplier’s~~aggregate ~~position~~principal isbalance ~~that payment~~ of ~~this~~ ~~amount~~$318,595, ~~must~~plus ~~occur~~accrued ~~before discussions continue. However~~interest, we ~~have~~by ~~identified~~paying ~~a source of lease financing for this equipment~~$93,000 ~~and we are currently engaged~~ in ~~negotiations~~cash inand anapplying ~~attempt~~the $250,000 tocertificate ~~structure~~of adeposit ~~transaction~~ that is ~~acceptable~~secured ~~to all of~~ the ~~affected~~lease ~~parties.~~relating ~~Payment of this overdue amount prior~~ to ~~our~~the ~~arranging lease financing or securing~~Tempe, ~~funding~~Arizona ~~from~~wireless ~~some other source would reduce our unrestricted cash balance significantly~~network.

InOn August ~~December~~1, ~~2006~~2008, the Company ~~engaged~~executed ana ~~investment~~promissory ~~banking~~note ~~firm,~~and ~~BB&T~~release ~~Capital~~with Data Sales in ~~Markets~~the principal amount of $330,000. toThe ~~assist~~note is in ~~evaluating~~full ~~strategic~~satisfaction ~~alternatives~~of ~~for~~$1,231,138 of the ~~wireless networks~~equipment ~~business~~lease ~~conducted~~obligations byof ~~its~~ Kite Networks and ~~Kite~~reflects ~~Broadband~~the impact of a ~~subsidiaries.~~sale Asof ~~discussed~~certain ~~above,~~uninstalled ~~growing~~wireless ~~this~~equipment ~~business~~by toData aSales ~~size~~to ~~that~~an isunaffiliated ~~profitable~~third ~~and~~party ~~cash-flow~~purchaser ~~positive~~that ~~will~~was ~~require~~consummated ain ~~substantial~~July ~~amount~~2008. The ofnote, ~~capital.~~as Weamended, dorequires ~~not~~seven ~~have~~monthly ~~the~~payments ~~ability~~of to$10,000 ~~continue~~through toMarch ~~fund~~1, ~~the~~2009 ~~cash~~and sixteen ~~needs~~monthly payments of ~~this business. However~~$7,000 tothereafter ~~date,~~and ~~efforts~~accrues tointerest ~~secure~~at ~~investment~~the ~~capital~~rate of ~~for~~twelve ~~this~~percent. ~~business or~~The ~~to find~~unpaid aprincipal ~~willing~~balance ~~buyer~~and ~~have~~accrued ~~been~~interest ~~unsuccessful.~~is ~~Consequently,~~due ~~despite obtaining~~and ~~lease~~payable ~~financing~~on ~~during~~July ~~the~~31, ~~current~~2010. ~~year~~The ~~and~~Company ~~deferring~~recorded ~~payments~~a togain ~~several large vendors~~of $901,138 in the ~~Company~~second fiscal ~~has~~quarter ~~not~~of ~~been~~the ~~relieved~~year ofended ~~the~~March ~~need~~31, to2009 ~~help~~as ~~fund~~a ~~the operations~~result of ~~this business~~the transaction.

InThe ~~March 2007,~~Company ~~the~~is ~~Company~~currently ~~announced~~cooperating ~~that~~with itGobility ~~had~~in ~~signed~~its aefforts ~~definitive~~to ~~agreement~~sell ~~for~~ the ~~merger~~remaining assets of ~~ProGames~~Kite ~~Network,~~Networks ~~Inc.~~in ~~(“ProGames”),~~order ~~its~~to ~~online~~pay ~~gaming~~off ~~subsidiary,~~the obligations relating ~~with~~to the leases and ~~into~~other ~~Winning~~equipment. In ~~Edge~~the ~~International,~~event ~~Inc.~~Gobility ~~Consummation~~is unsuccessful ofin its attempts to sell the ~~transaction~~remaining assets and satisfy the lease ~~was~~obligations, ~~subject~~the Company could be required to amake ~~number~~the payments on the remaining leases. Given the passage of ~~closing~~nearly ~~conditions~~two ~~including~~years since the ~~arrangement~~sale of ~~financing~~ ~~that~~the ~~would~~Wireless Networks ~~have~~Business ~~sustained~~and the ~~operations~~failure of one of the ~~combined~~leasing ~~entity.~~companies, Commonwealth ~~Financing~~Capital ~~has~~Corporation, ~~not~~to ~~been~~cooperate ~~arranged~~with prior sale efforts, we believe it is unlikely that Gobility will succeed in selling any additional portions of the Wireless Networks Business. AsAt aMarch ~~result~~31, 2009, the ~~merger~~aggregate ~~agreement~~amount ~~was~~recorded on ~~terminated~~the consolidated balance sheets relating to the capital lease obligations, accrued interest, and the note payable and equipment obligation was $4,446,784. The Company ~~continues~~has toalso ~~fund~~recorded the ~~operating~~certificates ~~costs~~of deposits securing the lease obligations of ~~ProGames~~$937,664.

~~During~~Our major ~~the~~challenge ~~fourth~~is ~~quarter~~to ofsustain the ~~current~~funding ~~year,~~of ~~the~~current ~~Company~~operations ~~was~~and ~~also~~to ~~engaged~~meet inour debt ~~extensive~~service ~~negotiations~~obligations. ~~with~~Following athe ~~company~~termination ~~that~~of ~~intended~~the toUSA ~~purchase~~Agreement ~~Davel,~~relating ~~the~~to ~~Company’s~~the ~~payphone~~sale ~~operator.~~of ~~The~~the ~~negotiations~~Integrated ~~did~~Telecom ~~not~~Business ~~result~~and inthe aUSA ~~transaction. As~~Management aAgreement ~~result,~~ in the ~~losses~~fourth ~~incurred~~quarter byof ~~Davel~~fiscal ~~continue~~year to2008, ~~adversely~~the ~~affect~~Company ~~the~~ re-assumed operating ~~results~~ control of the ~~consolidated~~Integrated ~~Company~~Telecom Business. The ~~During~~Integrated ~~the~~Telecom ~~fourth quarter~~Business ofcontinues ~~the current~~to ~~year,~~generate ~~Davel~~cash ~~commenced~~in ~~negotiations~~amounts ~~with~~that ~~its~~has ~~largest~~been ~~contractor~~sufficient to ~~amend the~~ ~~terms~~fund the cost of ~~its~~debt service ~~agreement~~relating to ~~reduce~~the ~~certain~~Convertible ~~minimum~~Debenture. However, ~~requirements~~we ~~contained~~continue into fund the ~~agreement.~~operations ~~Davel~~of ~~expects~~ProGames ~~that~~which ~~the~~has ~~anticipated~~not ~~amendment~~yet generated ~~will reduce~~sufficient ~~its~~revenues ~~service~~to ~~and~~be ~~maintenance~~profitable. ~~costs~~We ~~for~~also ~~those~~have ~~phones~~corporate ~~serviced~~expenses byand the ~~contractor;~~equipment ~~however,~~lease toobligations ~~date,~~associated with the ~~parties~~Wireless ~~have~~Networks ~~not~~Business ~~yet reduced their agreement~~that, subject to ~~writing.~~certain ~~As such~~defenses, ~~Davel~~the ~~cannot~~Company ~~predict~~may ~~the~~be ~~likelihood~~required ~~that~~to ~~its~~fund. ~~efforts~~Our existing ~~to reduce~~cash ~~service~~balance and ~~maintenance~~the ~~costs~~expected ~~will~~cash beflow ~~successful. Davel is currently~~generated inby the ~~process~~Company’s ofoperations will ~~removing~~not ~~low-revenue~~be ~~payphones~~sufficient ~~from~~to ~~the~~meet ~~field in order~~our tofuture ~~improve~~cash ~~its~~needs ~~operating~~if ~~results.~~the ~~However,~~payments ~~there~~required under ~~can~~the beConvertible noDebenture ~~assurance~~and other debt are not ~~that the~~restructured. To ~~cost~~date, ~~savings~~YA ~~will~~Global behas ~~sufficient~~indicated ~~for~~that ~~Davel~~it is unwilling to ~~achieve~~restructure ~~positive~~the ~~cash flow~~Convertible Debenture.

InThe ~~April 2007,~~Company’s ~~the~~financial ~~Company~~statements ~~announced~~have ~~that~~been ~~its~~prepared ~~Board~~on a going concern basis, which contemplates the realization of ~~Directors~~assets ~~had~~and ~~decided~~settlement toof ~~explore~~liabilities and ~~potential~~commitments ~~strategic~~based ~~alternatives~~on recorded amounts for the ~~entire~~foreseeable ~~Company,~~future. ~~and~~To ~~that~~date, ~~it had~~the ~~received~~Company ~~inquiries~~has ~~from~~been ~~potential~~unable ~~buyers~~to ~~regarding~~permanently eliminate the ~~purchase~~cash ofrequirements ~~potions~~to fund certain remaining liabilities of the Wireless Networks Business for which the ~~its~~Company ~~business~~is co-obligor Although YA Global initially extended the forbearance period through June 5, 2009. ~~This~~YA ~~initiative~~Global has ~~been~~not ~~undertaken~~agreed ~~with~~to further extend the forbearance ~~goals~~period or restructure the payment terms of ~~maximizing~~the obligations owing under the ~~value~~Convertible Debenture. As a result, Mobilepro is in default of its obligations under the ~~Company~~Convertible Debenture owed to YA Global and, given current market conditions and Mobilepro’s ~~assets~~financial condition, ~~returning~~obtaining ~~value~~the required financing to retire the Convertible Debenture is unlikely to occur in the immediate future. YA Global has informed the Company’s ~~stockholders~~that it ~~and~~intends ~~eliminating~~to exercise its rights as the Company’s ~~debt~~senior secured creditor. Such rights include, ~~particularly~~but ~~the~~are ~~amounts~~not ~~payable~~limited to, ~~Cornell~~foreclosing on ~~Capital~~the ~~under~~assets of the ~~convertible~~Company. ~~debentures~~In such event the Company will not have the ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has received letters of interest regarding the acquisition of the CloseCall, AFN and the Internet service provider businesses (the “Wireline Business”), and several of these firms have engaged in due diligence investigation activities. If the expected amount of cash proceeds is received by the Company from the sale of the Wireline Business, the Company expects to retire the Cornell Capital debentures, plus accrued interest in the first half of fiscal year 2008. In May 2007, the Company borrowed $1,100,000 from Cornell Capital under a promissory note in order to help bridge the Company’s cash flow shortfall until a sale of the Wireline Business is completed. -52-

Inflation

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk for changes in interest rates relates primarily to our purchase of certificates of deposit to secure letters of credit and capital leases. In addition, we own ~~common~~an ~~stock~~investment ~~issued~~in bythe ~~two~~common ~~companies,~~stock ~~one~~ of Microlog which ishad a ~~publicly-traded~~market ~~security. The carrying~~ value of ~~these investments approximated~~ $~~450~~373,~~000~~333 at March 31, ~~2007~~2009. Microlog’s ~~The~~common stock ~~difference~~is ~~between~~traded on the ~~total carrying~~“Pink ~~value~~Sheets” ofunder ~~these investments and~~ the ~~current~~symbol ~~market~~“MLOG” ~~value~~and ofis ~~the~~subject ~~publicly~~to ~~traded~~variations ~~securities~~in ~~was~~price ~~not~~based ~~material.~~on ~~Further,~~trading wevolume doas ~~not~~well ~~use~~as ~~derivative~~general ~~financial~~market ~~instruments in our investments~~conditions. Our ~~Accordingly,~~investment weis doaccounted ~~not~~for ~~believe~~under ~~that~~the ~~there is~~equity ~~any~~method ~~material~~of ~~market~~accounting ~~risk~~and, ~~exposure~~along with ~~respect~~the tonotes ~~derivative~~and or other ~~financial~~receivables due from Microlog, ~~instruments~~had ~~that~~a ~~would~~carrying ~~require~~value ~~disclosure~~of in$491,447 ~~this~~at ~~item~~March 31, 2009.

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

Item 8. Financial Statements

SEE THE INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS ON PAGE ~~76.~~79

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Attached as exhibits to this Form 10-K are certifications of Mobilepro Corp.’s Chief Executive Officer ~~(“CEO”)~~ and Chief Accounting Officer ~~(“CAO”)~~, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes ~~information~~ information concerning the controls and controls evaluation referred to in the certifications. Part II, Item 8, of this Form 10-K sets forth the report of Bagell, Josephs, Levine & Company, L.L.C., our independent registered public accounting firm, regarding its audit of Mobilepro Corp.Management’s ~~internal control over financial reporting and of management’s~~ assessment of internal control over ~~financial~~ financial reporting is set forth below in this section. This section should be read in conjunction with the certifications and the report of Bagell, Josephs, Levine & Company, L.L.C. for a more complete understanding of the topics presented.

Evaluation of Disclosure Controls and Procedures

WeUnder the ~~conducted~~supervision anand ~~evaluation~~with of the ~~effectiveness~~participation of ~~the~~our ~~design~~management, including our Chief Executive Officer (“CEO”) and ~~operation~~Chief Accounting Officer (“CAO”), we conducted an evaluation of our “ disclosure controls and procedures” (~~“Disclosure~~as ~~Controls”~~defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of of the period covered by this Annual Report on Form 10-K. Based ~~The~~upon that ~~controls~~ evaluation, ~~was~~our ~~conducted under~~CEO ~~the supervision~~ and ~~with~~our ~~the~~Principal ~~participation~~Accounting ofOfficer ~~management,~~have ~~including~~concluded ~~our CEO~~that the design and ~~CAO.~~operation ~~Disclosure~~of ~~Controls~~our ~~are~~disclosure controls and procedures ~~designed~~were effective to ~~reasonably~~ ~~assure~~ensure that information required to be disclosed inby ~~our~~us in reports ~~filed under~~that ~~the~~we ~~Exchange~~file ~~Act,~~or ~~such~~submit asunder ~~this~~the ~~Form~~Exchange ~~10-K,~~Act is recorded, processed, ~~summarized,~~ summarized and reported within the time periods specified in the ~~SEC’s~~ rules and forms. ~~Disclosure~~of ~~Controls~~the Securities ~~are~~and ~~also~~Exchange ~~designed~~Commission and that information required to ~~reasonably~~be ~~assure~~disclosed in the reports that ~~such information~~ we file or submit under the Exchange Act is accumulated and communicated to ~~our~~ management, including ~~the~~ ~~CEO and~~our ~~CAO,~~principal asexecutive ~~appropriate~~and financial officers, to allow timely decisions regarding required disclosure. Our quarterly evaluation of ~~Disclosure~~disclosure ~~Controls~~controls includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis for purposes of providing the management report, which is set forth below.

64-53-

The evaluation of our Disclosure Controls included a review of the control’s objectives and design, the company’s implementation of the controls, and their effect on the information generated for the use in this Form 10-K. In the course of the controls evaluation, we reviewed identified data errors, control problems, or acts of fraud, and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. The overall goals of the evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Based on the controls evaluation, our CEO and CAO have concluded that, as of the end of the period covered by this Form 10-K, our Disclosure Controls, were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the SEC, and the material information related to Mobilepro Corp. and its consolidated subsidiaries is made known to management, including the CEO and CAO, particularly during the period when our periodic reports are being prepared.

Management Report on Internal Control over Financial Reporting

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

Management assessed our internal control over financial reporting as of March 31, ~~2007~~2009, the end of the fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by ~~both~~ our ~~outsourced internal auditing firm and certain of our~~ own finance and accounting personnel.

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

Our independent registered public accounting firm, Bagell, Josephs, Levine & Company L.L.C., audited management’s assessment and independently assessed the effectiveness of the company’s internal control over financial reporting and has issued an attestation report concurring with management’s assessment, which is included in Part II, Item 8, of this Form 10-K.

Material Weaknesses in Internal Controls

Bagell, Josephs, Levine & Company, L.L.C. (“Bagell”) our independent registered public accounting firm, has provided us with an unqualified report on our consolidated financial statements for the fiscal year ended March 31, ~~2007~~ 2009. However, during the conduct of our assessment of internal control over financial reporting, we identified material weaknesses in the design of certain general controls governing computer processing activities and have advised the ~~audit~~Audit Committee ~~committee~~ that the following material weaknesses existed at March 31, ~~2007~~ 2009. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 2 5, a material weakness is a ~~significant control~~ deficiency or a combination of ~~significant~~ deficiencies ~~that~~in internal ~~results~~control inover ~~there~~financial ~~being~~reporting ~~more than~~such that there is a reasonable ~~remote~~possibility ~~likelihood~~ that a material misstatement of the annual or interim ~~financial~~ financial statements will not be prevented or detected. on a timely basis.

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

While these material weaknesses did not have an effect on our reported results or result in the restatement of any previously issued financial statements or any other related disclosure, they nevertheless constituted deficiencies in our controls. In light of these material weaknesses and the requirements enacted by the Sarbanes-Oxley act of 2002, and the related rules and regulations adopted by the SEC, our Chief Executive Officer and Chief Accounting Officer concluded that, as of March 31, 2007, our controls and procedures needed improvement and were not effective at a reasonable assurance level. Despite those deficiencies in our internal controls, management believes that there were no material inaccuracies or omissions of material fact in this annual report.54-

~~Since~~While ~~the discovery~~these ~~of the~~ material weaknesses indid ~~I/T~~not ~~internal~~have ~~controls~~an ~~described above, management~~effect ison ~~strengthening~~our ~~the~~reported ~~Company's~~results ~~oversight~~or result ~~over~~in the ~~I/T~~restatement ~~functions and its~~of ~~attendant~~any ~~controls,~~previously ~~procedures,~~issued ~~documentation~~financial ~~and~~statements ~~security~~or ~~beyond~~any ~~what~~other ~~has existed~~related indisclosure, ~~prior~~they ~~years~~nevertheless constituted deficiencies in our controls. ~~Specifically,~~In welight ~~have~~of ~~taken,~~these material weaknesses and ~~plan~~the torequirements ~~take,~~enacted by ~~whatever additional~~the ~~steps~~Sarbanes-Oxley ~~necessary~~act toof ~~improve~~2002, ~~our~~and ~~I/T~~the ~~controls~~related ~~and~~rules ~~procedures~~ and ~~eliminate~~ regulations adopted by the ~~identified~~SEC, ~~material~~our ~~weaknesses.~~CEO ~~Management~~and ~~has~~CAO ~~prepared for publication~~concluded ~~within~~that, ~~the~~as ~~Company~~of aMarch ~~set~~31, of2009, ~~information~~our ~~security~~controls ~~program~~and ~~standards that~~procedures ~~shall~~needed ~~provide~~improvement ~~requirements~~and towere ~~the~~not ~~I/T~~effective ~~staff~~at ~~members~~a ~~throughout~~reasonable ~~the~~assurance ~~Company~~ level. Despite those deficiencies in aour ~~wide~~internal ~~range~~controls, ofmanagement ~~I/T~~believes that ~~areas~~there ~~including~~were ITno ~~governance,~~material ~~computer~~inaccuracies ~~operations, system~~or ~~changes~~omissions ~~and~~of ~~information~~material ~~security.~~fact in this annual report.

~~The~~Management ~~elimination~~has ofplans to strengthen the ~~material~~Company's ~~weaknesses~~oversight ~~identified~~over ~~above~~the isI/T ~~among~~functions ~~our~~and its ~~highest~~attendant controls, procedures, documentation and security beyond what has ~~priorities.~~existed Wein ~~have~~prior ~~discussed~~years. ~~our~~Specifically, ~~corrective~~we ~~actions~~have ~~and~~converted ~~future~~to ~~plans with~~a ~~our audit~~new ~~committee~~general ledger system and ~~Bagell~~plan asto ofreplace the ~~date~~customer ofinformation ~~this~~database ~~annual~~system ~~report,~~utilized ~~and~~by ~~believe~~ the ~~planned~~ ~~actions~~customer ~~should~~care ~~serve~~and tocustomer ~~correct~~billing ~~the~~functions ~~above~~that ~~listed~~is ~~material~~presently ~~weaknesses~~maintained ~~to our~~offsite ~~internal~~by ~~controls~~a subcontrator. ~~However,~~During the next fiscal year we ~~cannot~~plan ~~provide~~to ~~assurance~~convert ~~that~~to ~~neither~~a wenew ~~nor our~~billing ~~independent~~system ~~auditors~~that ~~will~~is incurrently ~~the~~being ~~future~~maintained ~~identify~~and ~~further~~used ~~material~~by one of our ~~weaknesses or~~other ~~significant~~subsidiaries ~~deficiencies~~which inwe ~~our~~believe ~~internal~~will ~~control~~provide proper controls over ~~financial~~access ~~reporting~~to ~~that~~the wedata ~~have~~and ~~not~~changes ~~discovered~~to the system. We also plan to ~~date~~take whatever additional steps are necessary to improve our I/T controls and procedures and eliminate the identified material weaknesses.

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

Inherent Limitations on Effectiveness of Controls

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

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

~~The~~Our ~~information~~directors ~~under the headings “Compliance under Section 16(a) of the Securities Exchange Act of 1934,” “Composition of the Board of Directors,” “Board of Directors Meetings~~ and ~~Committees,”~~officers ~~“Director Nomination Process,” “Communication with the Board,” “Advisory Board”~~ and ~~information~~their ~~under~~ages ~~the principal~~as ~~heading “Election~~ of ~~Directors”~~June in30, ~~the~~2009 ~~Company’s~~are ~~2007 Proxy Statement~~as ~~is incorporated herein by reference.~~follows:

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Name	Age	Position
Jay O. Wright	39	Director, Chief Executive Officer and Chairman of the Board
Donald Sledge	69	Director
Donald Paliwoda	56	Chief Accounting Officer and Treasurer
Douglas Bethell	59	President of American Fiber Network, Inc. and CloseCall America, Inc.
Tammy L. Martin	44	Chief Administrative Officer, General Counsel and Secretary

The following is a brief description of the background of our directors and executive officers.

Background Information

Jay O. Wright. Jay Wright has served as our Chief Executive Officer since December 2003 and as a Director since August 2004. From December 2003 to February 2006, he also held the title of President. From October 2001 to December 2003, Mr. Wright served as President of Bayberry Capital, Inc., a Maryland based financial consulting firm. During that time, he also served from August 2002 to May 2003 as Chief Financial Officer for Technical and Management Services Corporation where he negotiated the sale of that company to Engineered Support Systems, Inc. Between December 1999 and September 2001 Mr. Wright served as Chief Financial Officer of Speedcom Wireless Corporation, a wireless software technology company, where he helped take that company public via a “reverse merger” and subsequently obtain a NASDAQ SmallCap listing. From January 1999 to November 1999, Mr. Wright served as Senior Vice President of FinanceMatrix.com, a Hamilton, Bermuda, based company focused on developing a proprietary financial software architecture to provide tax-efficient financing to sub-investment grade companies. Between May 1997 and January 1999, Mr. Wright served as an investment banker with Merrill Lynch. Prior to that he was a mergers and acquisitions attorney with Skadden, Arps, Slate, Meagher and Flom, LLP in New York and Foley & Lardner in Chicago. Mr. Wright received his Bachelor’s degree in Business from Georgetown University (summa cum laude) and a JD degree from the University of Chicago Law School.

Donald Sledge Don Sledge has served as a Director of the Company since January 2005. Mr. Sledge serves as the chairman of the Company’s Compensation, Audit and Nominating and Governance Committees and also serves as the Lead Director. Over the past 10 years, Mr. Sledge has focused on finance and investments. From September 1999 to March 2007 Mr. Sledge served as a member of the Board of Directors and as chairman of the Compensation Committee of Merriman, Curhan, & Ford (“MCF”), a NASDAQ listed broker/dealer. Mr. Sledge has also served as Chief Executive Officer of MCF between September 1999 and October 2000 and as Chairman of the Board from September 1999 until May 2001. Mr. Sledge also served as a General Partner of Fremont Communications from October 2000 until September 2003. In addition Mr. Sledge sits on the Boards of Directors of two privately held companies. Mr. Sledge received both a bachelor’s degree and an M.B.A. from Texas Tech University. He also served in the United States Air Force.

Donald Paliwoda Donald Paliwoda joined us in November 2004 as the Chief Financial Officer of our subsidiary, Davel and was promoted in November 2007 as our Chief Accounting Officer. Prior to the acquisition of Davel in November 2004, Mr. Paliwoda served as Corporate Controller from July 2002 to October 2003, at which time he was appointed as Chief Financial Officer of Davel. Mr. Paliwoda is a Certified Public Accountant and previously was employed by Deloitte & Touche for eleven years. Mr. Paliwoda received a Bachelors of Business Administration degree in Accounting and an MBA from Cleveland State University.

Douglas Bethell Douglas Bethell joined us in June 2005 as the President of our subsidiary AFN. Mr. Bethell has also served as the President of our subsidiary, CloseCall since February 2008. From February 2006 to July 2007 he served as Executive Vice President of the Company. Prior to the acquisition of AFN in June 2005, Mr. Bethell served as the President of AFN during which time he was the sole owner.

Tammy L. Martin Tammy Martin joined us in November 2004 as the General Counsel of Davel and was promoted to Chief Executive Officer of Davel in May 2005. In April 2006 Ms. Martin was promoted to Chief Administrative Officer and Senior Vice President of the Company. In November 2006 Ms. Martin was promoted to General Counsel of the Company. Prior to the acquisition of Davel in November 2004, Ms. Martin served in various positions, including General Counsel and Chief Administrative Officer. Ms. Martin received a Bachelors of Business Administration degree from Baldwin Wallace College and a JD degree from Cleveland State University.

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Composition of Board of Directors

Our Board of Directors may consist of up to seven directors. Our two current directors currently plan to stand for re-election at the Company’s next Annual Meeting. The Board of Directors has elected not to amend our bylaws to reduce the size of our Board and may fill any existing vacancies by Board resolution.

Board of Directors Meetings and Committees

During fiscal 2009, the Board of Directors met six times, including telephone conference meetings, and acted by unanimous written consent on one occasions. No director attended fewer than 75% of the total number of meetings of the Board and the total number of meetings held by all committees of the Board on which the director served during fiscal 2009.

The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee. The functions of each of these committees and their members are specified below. All committees operate under charters approved by the Board, which are available on our website at www.mobileprocorp.com.

The Board has determined that each director who serves on these committees is “independent” as defined in Nasdaq Rule 4200(a)(15).

The members of the committees are identified in the following table.

Director	Audit Committee	Compensation Committee	Nominating and Governance Committee
Donald H. Sledge	Chair	Chair	Chair

Audit Committee. The Audit Committee is currently comprised of Mr. Sledge, who meets the independence and other requirements for audit committee members under the rules of the Nasdaq Stock Market. The Audit Committee previously was comprised of three independent members, including Mr. Sledge. During fiscal 2009, the Audit Committee met four times, including telephone conference meetings. The Board of Directors has determined that Mr. Sledge is an “audit committee financial expert” as defined by SEC regulations. The Audit Committee assists the Board in its oversight of our financial accounting, reporting and controls by meeting with members of management and our independent auditors. The committee has the responsibility to review our annual audited financial statements, and meets with management and the independent auditors at the end of each quarter to review the quarterly financial results. In addition, the committee considers and approves the employment of, and approves the fee arrangements with, independent auditors for audit and other functions. The Audit Committee reviews our accounting policies and internal controls. The Audit Committee has a written charter which was adopted on June 16, 2005. A copy of the Audit Committee charter is available on our website at www.mobileprocorp.com.

Compensation Committee. The Compensation Committee is currently comprised of Mr. Sledge. The Compensation Committee previously was comprised of three independent members, including Mr. Sledge. The Compensation Committee recommends cash-based and stock compensation for executive officers of Mobilepro, administers the Company’s equity performance plan and makes recommendations to the Board regarding such matters. The Compensation Committee has a written charter which was adopted on June 16, 2005. A copy of the Compensation Committee charter is available on our website at www.mobileprocorp.com. During fiscal 2009, the Compensation Committee did not meet. However, Mr. Sledge has reviewed and approved the adjustments to cash and stock based compensation of executive officers and the amendment to the executive employment agreement of the Company’s Chief Executive Officer during the current fiscal year.

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Nominating and Governance Committee. The Nominating and Governance Committee is currently comprised of Mr. Sledge. The Nominating and Governance Committee was previously comprised of three independent members, including Mr. Sledge. During fiscal 2009, the Nominating and Governance Committee did not meet. The Nominating and Governance Committee is entrusted with responsibility for consideration and review of corporate governance matters in addition to its responsibilities for nominating candidates for membership to the Board. The Nominating and Governance Committee has a written charter which was adopted on April 26, 2005. A copy of the Nominating and Governance Committee charter is available on our website at www.mobileprocorp.com.

Independent Directors

Mr. Sledge qualifies as “independent” in accordance with the rules of The Nasdaq Stock Market. The Nasdaq independence definition includes a series of objective tests, such as that the director is not an employee of the Company and has not engaged in various types of business dealings with the Company. In addition, as further required by the Nasdaq rules, the Board has made a subjective determination as to each independent director that no relationships exist which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Director Nomination Process

The Nominating and Governance Committee is responsible for identifying and recommending to the Board of Directors candidates for directorships. The Nominating and Governance Committee considers candidates for Board membership who are recommended by members of the Nominating and Governance Committee, other Board members, members of management and Stockholders. Once the Nominating and Governance Committee has identified prospective nominees for director, the chairman of the committee, after discussions with the Chairman of the Board, may extend an invitation to join the Board of Directors. Additionally, nominees may be appointed to the Board of Directors by a majority vote of the independent directors on the Board of Directors. There is no formal procedure by which stockholders may recommend a candidate for the Board of Directors; however a stockholder can submit recommendations to Jay Wright, Chairman of the Board, at jwright22@closecall.com.

As set forth in the Nominating and Governance Committee Charter, the Board of Directors seeks to identify as candidates for director persons of the highest ethical standards and integrity who are willing to act on and be accountable for Board of Director decisions. The Board of Directors also seeks individuals who have an ability to provide wise, informed, and thoughtful counsel to top management on a range of issues, a history of achievement that reflects superior standards for themselves and others, a loyalty and commitment to driving the success of the Company, and an ability to take tough positions while at the same time working as a team player. In addition, the Board of Directors seeks candidates with a background that provides a combination of experience and knowledge commensurate with the Company’s needs and activities.

Compliance under Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Exchange Act and related regulations require the Company’s directors, certain officers, and any persons holding more than 10% of the Company’s Common Stock (“reporting persons”) to report their initial ownership of the Company’s Common Stock and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific due dates have been established, and the Company is required to disclose in this Item 10 any failure to file by these dates during fiscal 2009. We are not aware of any persons that have held more than 10% of the Company’s Common Stock during fiscal year 2009, or since the end of the Company’ fiscal year.

In making this disclosure, the Company has relied on written representations of reporting persons and filings made with the Commission.

Code of Ethics

The Company has adopted its Code of Ethics and Standards of Business Conduct that applies to all of the officers, directors and employees of the Company, including the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Company will provide to any person, upon request and at no charge, a copy of the code of ethics. Any person desiring a copy should make such request in writing to 401 Professional Drive, Suite 128, Gaithersburg, Maryland 20879, Attn: Chief Financial Officer.

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Item 11. Executive Compensation

~~The information under the headings “Summary of Employment and Consulting Arrangements,” “Mobilepro Non-Plan Option and Warrant Grants,” “~~Compensation ~~Committee~~Discussion ~~Interlocks~~ and Insider Participation,” “Report of the Compensation Committee on Executive Compensation,” “Compensation of Directors” and information under the principal heading “Performance Graph” in the Company’s 2007 Proxy Statement is incorporated herein by reference.Analysis

~~Item~~The 12Company’s compensation philosophy is to pay for performance. When ~~Security~~the Company ~~Ownership~~establishes ofindividual ~~Certain~~compensation ~~Beneficial~~awards ~~Owners~~it ~~and~~bases ~~Management~~them on financial and ~~Related~~operational objectives that are consistent with its business strategy, ~~Stockholder~~competitive ~~Matters~~parameters and creation of long-term stockholder value.

~~The~~Role ~~information~~of ~~under the principal heading “Principal Stockholders” in the~~ Company’s ~~2007 Proxy Statement is incorporated herein by reference.~~Management

The members of the Compensation Committee recommend the compensation of the CEO to the independent directors of the Board for approval. The CEO makes recommendations to the Compensation Committee concerning the compensation of the Named Executive Officers. The CEO is also involved in establishing performance goals for the annual and long-term incentive plans, subject to Compensation Committee approval.

Performance Review

The Company reviews on an annual basis the performance of all executives, including the Named Executive Officers, to assess individual performance over the course of the previous year against preset financial and operational targets. This review is intended to ensure that each executive’s compensation is tied to the Company’s financial and operational performance, which includes, but is not limited to, earnings, revenue growth, cash flow and earnings per share. In reviewing compensation recommendations, the Compensation Committee evaluates performance results and market data to ensure that awards are aligned with the contributions made by the executives to the Company and with compensation paid at similarly situated companies, both within and outside of its industry.

Components of Compensation

Base Salary-Base salaries are established to reward an executive’s sustained performance and to reflect an executive’s current position and work experience. A Named Executive Officer’s Base Salary is determined by the Compensation Committee’s assessment of that person’s continued performance compared to that person’s responsibilities, including the impact of that performance on the company’s business results, and the market pay for that person’s role, experience and potential for advancement.

Annual Incentives-Annual incentive awards, such as bonuses, are designed to reward the Named Executive Officers for achieving short-tem financial and operational goals to reward individual performance. Annual incentive awards for individual Named Executive Officers are a percentage of that executive’s base salary, typically ranging from 20% to 100%.

Long-Term Incentives-Long-term incentives are designed to align the Named Executive Officers’ interest with those of the Company’s shareholders. The Company uses stock options and warrants to reward the Named Executive Officers for creation of long-term shareholder value. The Company believes that by granting stock options to purchase the Company’s common stock to its executives which vest over a certain number of years, executives will be encouraged to remain with the Company. Stock options are priced at the fair market value of our common stock as the grant effective date. Long-term incentives also are intended to reward individual performance. The size of a stock option grant or warrant is determined primarily by the Compensation Committee’s assessment of the Named Executive Officer’s performance compared to our financial results. The value to our Named Executive Officers of the long-term awards is based upon our stock price that directly ties them to the creation of shareholder value.

Compensation Committee Report

The Compensation Committee of Mobilepro Corp. has reviewed and discussed with management the Compensation Discussion and Analysis in this Form 10-K as required under Item 402(b) of Regulation S-K. Based on this review and discussions with management, the Compensation Committee recommended to the Company’s full Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and the Proxy Statement.

Respectfully submitted

Donald H. Sledge, Chairman

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Summary Compensation

The following table sets forth information regarding compensation earned in fiscal 2009 by our Chief Executive Officer, our principal financial officer, and our three other most highly compensated executive officers who were serving as executive officers as of March 31, 2009, also known as our “Named Executive Officers”. At March 31, 2009, the Company had only four executive officers as set forth below.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option (2) Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other (3) Compensation ($)	Total ($)
Jay Wright, Chief Executive Officer	2009 2008	251,000 262,500	50,000(1) 50,000(4)	- -	9,600 239,158	- -	- -	- -	310,600 551,658
	2007	247,500	29,700	-	286,718	-	-	-	563,918


Tammy Martin, General Counsel and Chief Administrative Officer	2009 2008	197,125 190,000	50,000(1) 39,900(4)	- -	5,222 39,620	- -	- -	8,400 8,400	260,747 277,920
	2007	190,000	45,000	-	41,200	-	-	8,400	284,600


Donald Paliwoda, Chief Accounting Officer	2009	145,250	50,000(1)	-	3,078	-	-	-	198,328
	2008	131,650	29,400 (4)	-	14,678	-	-	-	175,728


Douglas Bethell, President, CCA and AFN	2009 2008 2007	76,000 76,000 60,000	50,000(1) 75,000 75,000	- - -	53,526 124,100 84,567	- - -	- - -	114,000 114,000 90,000	293,526 389,100 309,567

(1)	The bonus amounts represent estimates of the highest amounts that the Named Executive Officers might be awarded by the Compensation Committee. As of the date hereof none of the potential bonus has been paid

(2)

The amounts reflected in this column represent the compensation cost recorded in our financial statements during fiscal 2009, 2008 and 2007 under FAS 123R for stock warrants awarded in fiscal 2009 and prior fiscal years. With respect to stock warrants, the compensation cost amounts recorded under FAS 123R have been calculated using the Black-Scholes option pricing model based on the following assumptions for grants made in the years indicated:

	2009			2008			2007
Dividend yield		-	%		-	%		-	%
Expected volatility		70	%		60	%		60	%
Risk-free interest rate		3.00	%		4.00	%		4.00	%
Expected term (in years)		10.00			10.00			10.00

(3)	Reflects payments made to Mr. Bethell under the terms of a consulting agreement with DNK Enterprises II, Inc. Reflects automobile allowance payments made to Ms. Martin.

(4)	Approximately 10% of the bonus amount has been paid in cash subsequent to the end of fiscal year 2008 and 90% has been deferred until such time as the Company has sufficient cash to pay the bonuses.

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Summary of Employment and Consulting Arrangements

Jay O. Wright: Jay O. Wright joined us in December 2003 as Chief Executive Officer. Mr. Wright was paid a base salary of $180,000 in calendar year 2004 and was eligible to receive a bonus equal to 1% of the revenues for the most recent 12 month period of each acquisition made by the Company during his employment period. Mr. Wright also received warrants to purchase 15,182,500 shares of our Common Stock at an exercise price of $0.018 per share upon the execution of his initial employment agreement. Subsequent to year-end March 31, 2005, Mr. Wright’s employment agreement was amended to, among other things, extend his employment period to December 31, 2007. Mr. Wright’s base salary was increased to $210,000 for calendar year 2005, $240,000 for calendar year 2006 and $270,000 for calendar year 2007. The terms of the new employment agreement eliminated the payment of bonuses as a result of the closing of an acquisition. Mr. Wright’s bonus amounts are now based upon the successful completion of management by objective milestones that are mutually established by Mr. Wright and the Compensation Committee. In connection with the execution of the new employment agreement, Mr. Wright also received additional warrants to purchase 5,000,000 shares of our Common Stock at an exercise price of $0.22 per share, which warrants vest ratably from April 1, 2005 to December 31, 2007. On June 25, 2008, the Company entered into a Third Amended and Restated Executive Employment Agreement with Mr. Wright commencing July 1, 2008. The Agreement is for an initial term of one-year with a one-year renewal period. Under the terms of the Agreement, Mr. Wright is entitled to an annual base salary of $252,000 in calendar year 2008, $260,000 in calendar year 2009 and $270,000 in calendar year 2010. Mr. Wright is also eligible for certain cash bonuses of up to $340,000 during the term of the Agreement based on the achievement of certain objectives and financial goals mutually established by Mr. Wright and the Compensation Committee. In connection with the Third Amended and Restated Executive Employment agreement, Mr. Wright was granted a warrant to purchase 20,000,000 shares of common stock at an exercise price of $0.0016, which vest one-half each on June 30, 2009 and June 30, 2010. On May 26, 2008, the Company also canceled warrants to purchase 5,000,000 shares of common stock at an exercise price of $0.22 per share previously granted to Mr. Wright. In consideration for his continued employment with the Company, on April 29, 2009 Mr. Wright was granted a warrant to purchase 10,000,000 shares of common stock at an exercise price of $0.0003, which vest on June 30, 2010.

Donald Paliwoda: Mr. Donald Paliwoda joined us in November 2004 as the Chief Financial Officer of our subsidiary, Davel Communications, Inc. and was promoted in November 2007 as our Chief Accounting Officer. Mr. Paliwoda serves as the Company’s principal financial officer and principal accounting officer. While working as the Chief Financial Officer of our subsidiary, Mr. Paliwoda was granted incentive stock options in November 2005 to purchase 236,000 shares of common stock at an exercise price of $0.22 per share. Under the terms of his current employment arrangement, Mr. Paliwoda receives a salary of $147,000 and is eligible to participate in the Company’s bonus program. In accordance with Mr. Paliwoda assuming his new position as Chief Accounting Officer, he was awarded warrants to purchase 1,000,000 shares of Mobilepro’s common stock on November 5, 2007 at a price of $0.0089 per share, vesting on June 30, 2008. On May 26, 2008 the Board of Directors also granted Mr. Paliwoda a warrant to purchase 1,750,000 shares of Mobilepro common stock at an exercise price of $0.0016, which vest on June 30, 2009. In consideration for his continued employment with the Company, on April 29, 2009 Mr. Paliwoda was granted a warrant to purchase 3,000,000 shares of common stock at an exercise price of $0.0003, which vest on June 30, 2010.

Douglas Bethell. Mr. Douglas Bethell joined us in June 2005 as President of our subsidiary, American Fiber Network, Inc. (“AFN”). Pursuant to the terms of his employment agreement, Mr. Bethell was paid a base salary of $60,000 per year and was entitled to receive an annual bonus based on the operating profits of AFN; provided, however, that in no event shall his annual bonus be less than $25,000. At the same time, the Company also executed a consulting agreement with DNK Enterprises II, Inc. (“DNK”), a company controlled by Mr. Bethell, pursuant to which DNK was paid $90,000 annually for services rendered to the Company by Mr. Bethell. The term of the employment and consulting agreements were for a period of two years commencing June 1, 2005. Under the current employment arrangement with Mr. Bethell, he is paid an annual salary of $76,000 and DNK is paid a consulting fee of $114,000 per year. Mr. Bethell was also paid a cash bonus in the amount of $75,000 for the 2008 fiscal year. In February 2006 Mr. Bethell was promoted to Executive Vice President of the Company. In connection with his promotion Mr. Bethell was granted warrants to purchase 1,000,000 shares of Mobilepro common stock at an exercise price of $0.233 which vested ratably over a twenty four month period commencing April 1, 2006. On March 20, 2007 the Board of Directors granted Mr. Bethell warrant to purchase 4,000,000 shares of Mobilepro common stock at an exercise price of $0.036. The warrant vests in two equal installments on March 31, 2008 and March 31, 2009. On May 26, 2008 the Board of Directors also granted Mr. Bethell a warrant to purchase 4,000,000 shares of Mobilepro common stock at an exercise price of $0.0016, which vest on June 30, 2009. In consideration for his continued employment with the Company, on April 29, 2009 Mr. Bethell was granted a warrant to purchase 7,500,000 shares of common stock at an exercise price of $0.0003, which vest on June 30, 2010.

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Tammy Martin: Ms. Tammy Martin joined us in November 2004 as General Counsel of our subsidiary, Davel Communications, Inc. Pursuant to the terms of her employment arrangement, Ms. Martin was paid a base salary of $186,295 per year and receives an annual car allowance of $8,400. In May 2005, Ms. Martin was promoted to Chief Executive Officer of Davel Communications, Inc. At that time Ms. Martin received warrants to purchase 1,500,000 shares of our Common Stock at an exercise price of $0.15 per share that vested ratably from April 20, 2005 to March 31, 2006. In February 2006, Ms. Martin was named the Company's Senior Vice President, Chief Administrative Officer, and Treasurer, effective April 1, 2006 and was promoted to General Counsel of the Company in September 2006. Her base salary was increased to $190,000 for the fiscal year ending March 31, 2007. Ms. Martin’s annual bonus plan was also revised. Effective April 1, 2006, she was eligible for an annual bonus of up to 50% of her annual base salary, with payment based on the achievement of certain individual and Company objectives. She was also granted an additional warrant to purchase 500,000 shares of our Common Stock at an exercise price of $0.233 per share that vested ratably over 24 months commencing April 1, 2006. On August 27, 2007, the Board of Directors granted Ms. Martin a warrant to purchase 3,000,000 shares of MobilePro Common Stock at an exercise price of $0.0075, which vested on June 30, 2008. On May 26, 2008 the Board of Directors also granted Mr. Martin a warrant to purchase 4,000,000 shares of Mobilepro Common Stock at an exercise price of $0.0016, which vest on June 30, 2009. Effective July 1, 2008 Ms. Martin’s salary was increased by five percent (5%) to $199,500. In consideration for her continued employment with the Company, on April 29, 2009 Ms. Martin was granted a warrant to purchase 4,000,000 shares of common stock at an exercise price of $0.0003, which vest on June 30, 2010.

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