|UNITED STATES                                                                            
|-----------------------------------------------------------------------------------------
|SECURITIES AND EXCHANGE COMMISSION                                                       
|Washington, DC 20549                                                                     
|                                                                                         
|FORM 10-K                                                                                
|þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934     
|                                                                                         
|For the fiscal year ended December 31, 2010                                              
|                                                                                         
|oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                         
|For the transition period from ________ to ___________                                   
|                                                                                         
|Commission file number 001-33842                                                         
|                                                                                         
|KEYON COMMUNICATIONS HOLDINGS, INC.                                                      
|(Exact name of registrant as specified in its charter)                                   



Delaware
      74-3130469State or other jurisdiction of
      (I.R.S. Employerincorporation or organization
      Identification No.)




11742 Stonegate CircleOmaha, Nebraska
      68164(Address of principal executive offices)
      (Zip Code)




(402) 998-4000(Telephone Number, Including Area Code)Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share


Indicate by check mark if the registrant is a well-known seasoned issued, as defined in Rule 405 of the Securities Act.

YESo
      NO þ


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

YESo
      NO þ


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ     NOo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) YesoNo þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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.x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filero
      Accelerated fileroNon-accelerated filero
      Smaller reporting company þ


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YESoNO þ

As of June 30, 2010 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $10,649,888.  For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed an admission that such officers, directors and 10% beneficial owners are, in fact, affiliates of the registrant.

As of March 28, 2011, the Company has 23,768,211 shares of its common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

---



KEYON COMMUNICATIONS HOLDINGS, INC.

Table of Contents

|             |                                                                                                                  |   
|------------ | ---------------------------------------------------------------------------------------------------------------- | --
|             |                                                                                                                  |   
|PART
    I  
|Item 1.      | Business                                                                                                         | 1 
|Item 1A.     | Risk Factors                                                                                                     | 11
|Item 1B.     | Unresolved Staff Comments                                                                                        | 22
|Item 2.      | Properties                                                                                                       | 22
|Item 3.      | Legal Proceedings                                                                                                | 23
|Item 4.      | (Removed and Reserved)                                                                                           | 23
|             |                                                                                                                  |   
|PART
    II 
|Item 5.      | Market for Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 23
|Item 6.      | Selected Financial Data                                                                                          | 25
|Item 7.      | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                        | 25
|Item 7A.     | Quantitative and Qualitative
    Disclosures About Market Risk                                                   | 31
|Item 8.      | Financial Statements and
    Supplementary Data                                                                  | 31
|Item 9.      | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                         | 31
|Item 9A.     | Controls and Procedures                                                                                          | 31
|Item 9B.     | Other Information                                                                                                | 32
|             |                                                                                                                  |   
|PART
    III
|Item 10.     | Directors, Executive Officers, and
    Corporate Governance                                                      | 32
|Item 11.     | Executive Compensation                                                                                           | 35
|Item 12.     | Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder Matters               | 37
|Item 13.     | Certain Relationships and Related
    Transactions, and Director Independence                                    | 39
|Item 14.     | Principal Accountant Fees and Services                                                                           | 39
|             |                                                                                                                  |   
|PART
    IV 
|Item 15.     | Exhibits and Financial Statements Schedules                                                                      | 41



---



PART I

Forward-Looking Statements

Certain statements in this
Annual Report on Form 10-K, including certain statements contained in
Business and Managements Discussion and Analysis of Financial Condition and
Results of Operations, constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act) and represent our beliefs, projections and predictions
about future events. Words or phrases such as anticipate, assume,
believe, estimate, expect, goal, intend, plan, project,
seek, and target and variations of such words and similar expressions are intended
to identify such forward-looking statements. Such forward-looking statements
are necessarily subjective and involve known and unknown risks, uncertainties
and other important factors that could cause our actual results, performance or
achievements, or industry results, to differ materially from any future
results, performance or achievement described in or implied by such statements.
Actual results may differ materially from the expected results described in our
forward-looking statements, including with respect to the correct measurement
and identification of factors affecting our business or the extent of their
likely impact, the accuracy and completeness of publicly available information
relating to the factors upon which our business strategy is based, or the
success of our business. You should review carefully the section entitled Risk
Factors for a discussion of these and other risks that relate to our business.
Our actual results could differ materially from those anticipated by such
forward-looking statements due to a number of factors, some of which are beyond
our control. All such forward-looking statements are current only as of the
date on which such statements were made. We do not undertake any obligation to
publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.

Except as otherwise noted,
references to we, us, or our  or the Company refer to KeyOn Communications Holdings, Inc.
and its subsidiaries.

Item 1. Business

Overview

KeyOn
Communications Holdings, Inc.  is one of
the largest rural wireless broadband providers in the United States. Currently,
we have approximately 20,000 subscribers and operate networks covering over
62,000 square miles in 11 states across the Midwestern and Western United
States. We have grown through the consolidation of similar companies throughout
our target markets as well as organic growth. We primarily focus on providing
fixed wireless broadband to rural and other areas of the country that we
believe are currently underserved by traditional phone and cable companies. Our
current network footprint covers an addressable market of approximately
2.7million people, as well as small to mid-sized businesses.

Since
launching our wireless broadband service in 2003, we have successfully
increased our subscriber count and, based on both subscribers and revenue, we
believe that we are the third largest wireless broadband company in the United
States.1 To date, we have completed and successfully integrated
thirteen acquisitions, and are in active discussions with other candidates
located in markets adjacent to the Companys existing network footprint. Our
acquisition strategy allows us to rapidly grow our subscriber base while
expanding our earnings through operating expense reductions and other synergies
achieved in integration.

---

1Broadband Wireless Exchange Magazine Website
(www.bbwexchange.com/wireless_isp/)


1

---



As
a complement to our organic growth strategy, we received an award under the
American Recovery and Reinvestment Act of 2009 (ARRA), specifically, Round
Two of the Broadband Initiatives Program (BIP) administered
by the Rural Utilities Service (RUS). This federal program allocated $2.5
billion for broadband infrastructure in rural markets and created a new
opportunity for us to access federal grants and loans for the build-out of
next-generation wireless networks in eligible markets. On September 13, 2010, we
were announced as a $10.2 million award winner to build and operate networks
throughout rural Nevada to nearly 100,000 rural residents.

We
offer residential and business subscribers a simple, reliable and affordable
broadband service that compares favorably to traditional broadband technologies
such as cable modem, Digital Subscriber Line (DSL) or satellite. We leverage
our wireless broadband technology which we believe allows our service to cover
a geographic market for a fraction of the cost of other competing broadband
technologies. In addition to our broadband services, we also sell voice over
Internet protocol (VoIP) and video services through our national reseller
agreement with DISH Network Corporation. We plan to actively explore either an acquisition
or partnership to further our VoIP strategy.

We
are able to deliver broadband services at competitive prices to communities
that we believe are ignored or underserved by traditional phone and cable
companies. Generally, our markets are rural locations with populations of less
than 50,000 that often lack the communications infrastructure to supply
broadband access. In rural markets, broadband penetration is only 50% compared
to 70% of households in urban and suburban markets, respectively.2
We believe that the lower broadband penetration rate in rural areas compared to
urban and suburban areas is driven primarily by the technical limitations and
the increased cost of providing broadband over traditional terrestrial networks
in less densely populated areas. As a result, we believe there is a significant
addressable market that is not currently being targeted by competing broadband
service providers.

We
believe our use of a sophisticated Operations Support Software (OSS) provides
us with a scalable operating platform used in the overall management and in all
customer functions of our networks. By centralizing operations in our Network
Operations Center (NOC), including our OSS, and by decentralizing management
around market clusters, we believe we are able to achieve operating costs that
are significantly below our competitors. Further, by expanding into adjacent
markets, new markets or introducing new services, we are able to leverage our
existing network investments to improve economic returns. We believe we can
significantly improve our growth opportunities while achieving positive net
earnings through:

| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | strategic
 acquisitions of wireless broadband companies that complement our market
 footprint;                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                   
| |  | Greenfield
 network builds in new, strategic markets, including participation in the
 American Recovery and Reinvestment Act of 2009;                                                                                                           
| |   |                                                                                                                                                                                                                                                   
| |  | contiguous
 market deployments combined with organic growth within our existing
 footprint;                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                   
| |  | offering
 our subscribers bundled and additional services, such as satellite video and
 VoIP, to further increase our average revenue per user (ARPU); and                                                                                      
| |   |                                                                                                                                                                                                                                                   
| |  | the
 strategic introduction of next generation networks, including fourth
 generation (4G) Worldwide Interoperability for Microwave Access (WiMAX),
 that also provide advanced services (4G WiMAX) such as nomadic or mobile
 data and video.

We
achieved numerous milestones during 2010 including revenue and subscriber
growth, strategic acquisitions, commercial deployment of 4G WiMAX networks, and
consolidation of internal systems which helped create greater efficiencies in
both operations and accounting.

---

2Pew Internet & American Life Project,
Home Broadband, August 2010


2

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In
     February 2010, we raised $15 million through the issuance of a secured
     convertible promissory note which was the Companys largest single financing
     in its history. This financing provided us with
     sufficient capital to pursue growth and other strategic initiatives in 2010
     and allowed for the repayment of a $4 million loan.                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | On
 September 13, 2010, we were announced as a recipient of a $10.2 million
 federal stimulus award to build 4G WiMAX networks throughout rural Nevada.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | We
 completed six acquisitions in 2010 under our Rural UniFi acquisition program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | We
 launched commercial 4G WiMAX deployments in Pahrump, Nevada and constructed 8
 additional 4G WiMAX markets in Nebraska that became commercially operational
 in the first quarter of 2011. In Pahrump, based upon only seven full months
 of offering 4G WiMAX, we achieved penetration rates in excess of 5% of the
 total households. Furthermore, prior to launching 4G WiMAX, the average
 revenue per user (ARPU) for the market was approximately $32.17 per month.
 As of the end of February 2011, the ARPU for 4G WiMAX subscribers increased
 to $38.61 per month, an increase of approximately 20%.

Subscriber Growth Through Acquisitions

We
believe we can take advantage of growing subscribers and operations scale by
continuing to acquire wireless broadband subscriber bases together with their
network assets, thus creating a highly profitable and valuable communications
company. The wireless broadband industry is highly fragmented, comprised of
thousands of potential acquisition targets in and around our market areas.
These targets represent an opportunity to grow revenues and expand our
operating margins and resulted in our launch of the Rural UniFi Program, a
comprehensive acquisition initiative focused on rural wireless broadband companies
operating in and around our current and future markets.

We
have completed thirteen acquisitions, including nine from December 2009 through
today under Rural UniFi. Included among these acquisitions  is the purchase of
substantially all of the assets of the wireless Internet service provider
business of Dynamic Broadband Corporation. In consideration for the purchase of
these assets, we issued 2,037,574 shares of common stock with a value of
$1,528,182 on the date of closing and assumed liabilities of approximately
$381,000, for a total purchase price of $1,909,181. We believe we have access
to proprietary deal flow and have developed an efficient process of negotiating
and structuring purchases, managing due diligence and integrating the operations
of acquired companies. Upon the completion of acquisitions, we anticipate
deriving higher margins than previous ownership through the elimination of
duplicative overhead costs and infusing the necessary capital to grow the
customer base. We are able to realize these synergies in the integration of
acquisition targets through:

| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Centralizing
 operations and customer support at our NOC which enables remote monitoring
 and diagnostics;                                                                
| |   |                                                                                                                                                                           
| |  | Generating
 scale economies in purchasing termination/access loops and capital equipment;                                                                                 
| |   |                                                                                                                                                                           
| |  | Rationalizing
 expenses in areas of management, network and customer support and general and
 administrative; and                                                         
| |   |                                                                                                                                                                           
| |  | Leveraging
 our marketing initiatives, such as our network of resellers and targeted
 direct marketing, to attempt to increase the rate of subscriber and revenue
 growth.

Broadband Stimulus Opportunities under the American Recovery
and Reinvestment Act of 2009

The
ARRA allocated $7.2 billion for the deployment of broadband infrastructure.
Under ARRA, the RUS was charged with providing $2.5 billion in grants and loans
through its Broadband Initiatives Program (BIP), so long as 75% of the area to
be served is a rural area without sufficient access to broadband. The Company
viewed the passage
of ARRA and the broadband funding components as further evidence of the market
opportunity that the Company seeks to address.

3

---



We
believed that our existing base of operations, business strategy and ability to
deploy networks quickly made us an ideal candidate for participation in the
funding. In addition, the Company had submitted comments to the relevant
federal agencies on November 30, 2009 based upon a Request for Information
published by the Federal Communications Commission (FCC), to help shape the
rules for the second and final Notice of Funds Available (NOFA) (issued on
January 15, 2010).

On
September 13, 2010, we were announced as a $10.2 million Round Two BIP award
winner to deliver 4G WiMAX throughout rural Nevada. We expect to contribute
approximately $2 million in matching funds during the projects construction.
The RUS award makes it possible for us to provide 4G WiMAX broadband services
where it is otherwise not economically feasible to do so based on the high cost
to deploy communications facilities in sparsely populated rural markets. The
government funding allows us to build 4G WiMAX networks in almost 40
communities throughout rural Nevada. Pursuant to the projects design, we will
make 4G WiMAX, last-mile wireless broadband access and VoIP services available
to approximately 93,000 people, 5,522 businesses and 849 critical community
facilities in qualified rural communities throughout Nevada under Round Two of
the BIP. We anticipate commencing our project in the second quarter of 2011 and
will be substantially complete within two years. Although we are currently
working with our third-party contractors and applicable RUS personnel to begin
requisitioning funds pursuant to the award, we cannot provide any assurances as
to the timing of the funding of the award or whether we will ultimately receive
it. By accepting the loan and grant funds, KeyOn also agreed to certain
long-term conditions. The RUS will have a continued interest (in the form of a
retained security interest) in the assets over their economic life, which is
expected to be up to 12 years. In the event of default of the award documents,
the government could exercise the rights under its retained security interest
to gain control and ownership of these assets. In addition, in the event of a
proposed change in control of KeyOn, the acquiring party would need to receive
approval from the RUS prior to effectuating the proposed transaction, for which
pre-approval will not be unreasonably withheld.

Current Markets Served and Organic Growth

We
operate primarily in markets with populations of generally less than 50,000. We
currently offer our broadband services to residential and business subscribers
in a market footprint covering over 62,000 square miles in the following 11
Midwestern and Western states: Idaho, Illinois, Indiana, Iowa, Kansas,
Minnesota, Nebraska, Nevada, Ohio, South Dakota and Texas. We estimate that our
existing footprint covers approximately 2.7 million people, as well as small to
mid-sized businesses in these areas.

We
believe that marketing efforts at the local level create a competitive
advantage by creating awareness of our brand while strengthening the connection
to our communities. Our multi-pronged sales and marketing approach leverages
our local presence and focuses on establishing strong distribution channels in
each market. Direct marketing efforts include print and door hangers in
addition to working with businesses and community groups at the local level to
promote brand and service awareness. Additionally, we work with distribution
partners, such as satellite television providers, to offer bundled services
within our markets.

Since
the beginning of 2006, we have experienced an average annualized subscriber
growth rate of approximately 32% with that growth coming from both organic
marketing activities and acquisitions. Additionally, we have achieved a low
average monthly churn of approximately 1.7% in 2010, which we believe is a
combined result of our subscribers satisfaction with our service combined with
the limited competition in certain of our markets.

4

---



Rural Market Opportunity

Within
  the United States, rural areas have an overall lower Internet penetration rate,
  and substantially less access to broadband, than the more densely populated
  urban and suburban areas. Although broadband adoption has experienced growth in
  the past, broadband penetration rates in rural markets are still below those of
  urban and suburban markets. While urban and suburban markets have reached
  broadband penetration rates of 70%, rural market
  penetration totals only 50%.3 Importantly, since 2006 rural market
  penetration grew at a compound annual growth rate of 20% while non-rural
  compound annual growth rates grew at only 12%.4 We believe that the
  growth of rural broadband penetration can be attributed to an increasing number
  of small, wireless broadband companies that serve the needs of their
  communities.

One
of the primary reasons for the lagging penetration rate in rural areas is the
lack of infrastructure or access to broadband, rather than lack of demand for a
broadband connection.5 We believe that this substantially lower
penetration rate of broadband in rural markets, or what has been termed the
Digital Divide, demonstrates that many rural households with Internet access
still utilize analog dial-up connections for Internet access. As a result, we
believe there is a significant market opportunity that is not currently being
met by traditional phone and cable providers.

We
believe that the lower broadband penetration rate in rural versus urban and
suburban areas is driven primarily by the technical limitations and high cost
of providing broadband over terrestrial-based networks in less densely
populated areas. DSL service suffers from distance limitations in less
populated areas, and DSL equipment and cable plant upgrades both involve
significant upfront capital to deploy their service that is rarely justified in
less densely populated rural markets. As a result, there may still be areas
that will not be served by cable or DSL at any time in the near future.6
These limitations have generally discouraged broadband deployments and have
caused incumbent phone and cable companies to maintain high prices for
broadband in the small and rural markets where they offer these services. Where
broadband has been deployed, rural areas have experienced rapid growth in home
broadband uptake, and in the past three years the gap between rural and
non-rural in-home broadband adoption, though still substantial, has narrowed.

In
February 2011, President Obama released the Presidents Wireless Innovation and
Infrastructure Initiative, including the goal of delivering 4G wireless
technology to at least 98% of all Americans within five years. The Presidents
initiative supports a one-time investment of $5 billion and the reform of the
Universal Service Fund managed by the FCC to ensure that rural Americans not
only have access to 4G technologies, but also access to applications supported
by advanced wireless services to catalyze economic growth. Although this
initiative is in its infancy, it is another example of the market opportunity
to deliver 4G wireless services to rural markets.

Service Offerings

Broadband

We
provide broadband to homes and businesses for a flat monthly rate under service
agreements for either annual or two-year contracts. These services are
generally billed monthly, quarterly or annually in advance.

DISH Network

We
began offering video services as a reseller of DISH Network Corporation in
November 2007. By selling and installing DISH Network video services directly
(as opposed to through our indirect dealer network) to its subscribers, We
receive marketing dollars, installation and activation fees and a nominal
monthly recurring revenue fee, provided the end-user remains a DISH customer
for over one year. We do not collect any revenue directly from its end-users
under the terms of this agreement.

---

3Pew Internet & American Life Project,
Home Broadband, August 2010 4Pew Internet & American Life Project,
Home Broadband Adoption, June 2009 5United States Government Accountability
Office, Telecommunications, May 2006 and Pew Internet & American Life
Project, Home Broadband Adoption 2006 6Frost & Sullivan, Satellite and its Place
Amongst Competing Broadband Technologies 2005


5

---



WiMAX Deployments

Our
  wireless broadband service today is provided to subscribers primarily over
  unlicensed spectrum in the 2.4 GHz band. However, beginning in 2010 we
  introduced 4G WiMAX networks in certain markets in Nevada and Nebraska. WiMAX
  is an international network technology standard that provides efficient use of
  spectrum, interoperability of manufacturers equipment, high-bandwidth
  throughput and self-installation by end users. With more than 600 deployments,
  and over 213 devices and 61 base stations certified, the worldwide WiMAX
  industry accounted for over 13 million subscribers at the end of 2010.
  Additionally, research firm Maravedis predicts that broadband wireless access/WiMAX
  subscriber base to reach 18.5 million by the end of 2011.7

In
November of 2007, we were awarded a non-exclusive license to operate in the
3.65GHz spectrum band. In 2008 we launched a 4G WiMAX pilot in our Pahrump,
Nevada market to confirm the viability of fixed and nomadic broadband wireless
services using 4G WiMAX technology in the 3.65 GHz band. Having successfully
completed the pilot, we completed commercial deployment in July 2010 to provide
increased data rates to our customers.

Since
August 2010, we achieved penetration rates in excess of 5% of the total
households. Furthermore, prior to launching 4G WiMAX, the ARPU for the market
was approximately $32.17 per month. As of the end of February 2011, the ARPU
for 4G WiMAX subscribers increased to $38.61 per month, an increase of
approximately 20%. We believe this revenue growth evidences the robust demand
from our subscriber base for advanced wireless services and faster data
rate plans at a premium price. As a result of our
success in Pahrump, Nevada, in December 2010, we began deploying eight
additional WiMAX sites in certain rural Nebraska markets. Although we only
recently launched commercial services, we believe that we can anticipate
similar results in terms of penetration and ARPU growth.

By
using WiMAX-based equipment in conjunction with our existing fixed-wireless
networks, we expect to create a superior service offering, including nomadic or
portable data services. The advantages of deploying WiMAX technology based on a
global standard, include higher data speeds, greater spectral efficiency,
advanced nomadic services with self-installation features, global economies of
scale and forward compatibility with the mobile WiMAX (802.16 (e)) standard. In
addition, with the certification of network standards and profiles to
standards, network equipment costs should continue to decrease. The resulting
interoperability of hardware will not only accelerate downward pricing, but
will also afford service providers greater vendor selection and potential
roaming revenues.

Additional
spectrum allocation for unlicensed applications has recently been made
available. In 2007, the FCC released 50 MHz of spectrum in the 3.65 GHz band to
facilitate rapid expansion of broadband services in Americas rural
heartland. The FCC requires the approved licensees to register their base
stations in a common database and to deploy FCC certified equipment that
incorporates specific protocols. There are several benefits of using 3.65 GHz
spectrum:

| |   |                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The spectrum band is relatively unused;                                                                                                                                                                                                                                                                                                    
|
| |  | Requiring operators to register locations with the FCC creates an
 orderly process to manage interference, should multiple operators want to
 access the spectrum. Additionally, when utilizing the upper portion of the
 3.65 GHz, spectrum, operators networks are required to talk with each other
 to eliminate any interference; and,
|
| |  | 3.5 GHz band is already being used in other countries and requires
 relatively little customization for deployment in the United States; and                                                                                                                                                                                               
|
| |  | Current federal regulations afford operators the ability to use an
 internationally-deployed, standards-based technology protocol such as WiMAX.                                                                                                                                                                                           

---

7 Maravedis, press release dated March
14, 2011


6

---



Competition

In the United States, the broadband
access market has evolved as a duopoly between cable and telephone companies.
We believe that rural markets have much less competition than urban markets,
given the relatively high cost to deploy traditional networks in less densely
populated areas. However, we are not the only provider of broadband services in
our markets. We face competition from cable operators that offer broadband over
cable networks, incumbent local exchange carriers, or ILECs, that offer DSL, satellite
operators, wireless broadband service providers and mobile cellular operators.
We compete with these companies on the basis of availability, price, speed and
portability of the services. Specifically, our competitors include the
following:

Incumbent Local Exchange Carrier and Cable
Companies

We face competition from ILECs in our
small markets in the Midwestern and Western United States. In particular, we
generally face competition from companies such as Qwest Communications
International Inc., AT&T Inc. (AT&T) and smaller regional or local
phone companies. If the market has a significant population density (35,000 -
50,000+), the larger ILECs have typically deployed DSL in at least one central
office (CO) in the market. DSL deployments by smaller regional and local
phone companies vary; however, we believe that all providers of DSL are
restricted by DSLs physical distance limitations.

Cable operators typically deploy a hybrid
fiber-COAX, a combination of fiber optic and coaxial cable, in order to offer
broadband through a cable modem service. In markets with a population of
35,000-50,000 or more, cable modem service is often available to most
households, with somewhat less availability to businesses. In these markets, we
compete against large cable providers such as Cox Communications, Inc. and
smaller, regional cable providers, such as Cable ONE, Inc. and Mediacom
Communications Corporation.

Wireless Broadband Service Providers

We also face competition from other
wireless broadband providers that use unlicensed or licensed spectrum. For
example, there may be a locally owned mom and pop wireless broadband operators
present in the market offering local services. We believe that most of these
operators lack the operating scale and thus are burdened with significant costs
or inefficient operations.

Wireless broadband competition may also
come from local governments, universities, and municipalities that provide
WiFi networks over unlicensed spectrum. These services are occasionally
characterized as public-private partnerships and may be partially subsidized.
In some cases, they are offered to subscribers at no cost at all. Additionally,
Cablevision Systems Corporation and Time Warner Cable, Inc. (Time Warner)
began offering WiFi to their existing cable-modem broadband customers
throughout parts of their cable network footprint.

In addition, Clearwire Corporation
(Clearwire) offers wireless high speed Internet access utilizing 4G WiMAX
technology to approximately 110 million people in major metropolitan markets
including Chicago, New York, Baltimore, Atlanta, Philadelphia, Las Vegas, and
Houston, among others. In terms of both domestic deployments and subscribers,
Clearwire is the largest company providing 4G WiMAX data services. Clearwire is
focused primarily on larger population centers, underscoring the significant
market opportunity available to the Company in serving underserved rural
markets. Clearwire has wholesale partners including mobile carrier Sprint
Nextel Corporation and Multiple System Operators (MSOs) Comcast Corporation,
Time Warner and BrightHouse Networks, all of whom resell 4G WiMax services over
the Clearwire network.

Satellite

Satellite providers such as WildBlue
Communications, LLC (a subsidiary of ViaSat, Inc.) and Hughes Network Systems,
LLC also offer broadband data services in rural and underserved markets.
Although satellite has the capability to serve a large geographic area, the
service levels can be impaired by the distance the signal travels to and from
the satellite. Communication delays, or latency, can significantly inhibit
satellite providers ability to offer advanced services, such as voice over
Internet Protocol (VoIP) and online gaming. We believe that satellite broadband
remains a broadband access service of last resort, due to its inherent latency
and high price for equipment and service. We believe that our services can be
provided to our target customers more efficiently and at more competitive prices than satellite broadband services and as a result,
satellite broadband services do not compete effectively with our fixed wireless
broadband services.

7

---



In 2010, LightSquared Subsidiary, LLC
(LightSquared) formally announced its business plan to create a Greenfield,
nationwide 4G wireless broadband network integrated with satellite coverage
utilizing approximately 59GHz of nationwide ancillary terrestrial component
(ATC) spectrum. LightSquared is attempting to be a wholesale-only integrated
wireless broadband and satellite network. Although LightSquared has no
terrestrial 4G networks in commercial operation and only recently announced any
of its distribution partners, we believe that LightSquared could be
complementary to our rural market focus. As a result of LightSquareds
wholesale-only model, we do not believe it represents a competitive threat,
but rather a partnership opportunity. LightSquared plans to launch commercial
services in the third quarter of 2011.

Long-Term Evolution, Cellular and PCS
Services

Many of the major mobile wireless
carriers offer higher data rate access plans, but these plans are either
restricted to larger urban and suburban markets or the actual data transfer
rate can be significantly less than our fixed broadband services. However, wireless
carriers continue to expand their network coverage, allowing advanced data
services to be offered to a broader subscriber base. Also, wireless carriers
have continued to leverage data services by offering personal computer data
card devices and providing customers with wireless access to the Internet.
Emerging technologies, such as long-term evolution (LTE), will also play a role
in the evolving broadband services market. The LTE standard has emerged as the
preferred choice for most existing cellular operators and should serve as the
dominant technology platform for mobile broadband services.

In the United States, MetroPCS
Communications, Inc. (MetroPCS) was the first mobile provider to offer 4G LTE
services with its initial launch in September of 2010. MetroPCS has since
expanded to markets such as Boston, Philadelphia, San Francisco and New York.
MetroPCS specializes in offering flat-rate, no annual contract services to
customers in some of the United States largest metropolitan markets. AT&T
began LTE trials in 2010, and has stated that its initial commercial
deployments will occur in mid-2011. The largest LTE deployment in the United
States to date is from Verizon Wireless. Verizon Wireless commercially launched
its LTE network on December 5, 2010. The network has been launched in 38 cities
covering approximately 110 million people. Major cities include San Francisco,
Boston, Chicago and Miami with nationwide coverage planned by 2011, and a full 3G
to 4G upgrade by the end of 2013. Finally, Verizon Wireless has partnered with
a few rural wireless providers to deliver 4G LTE over 700 MHz spectrum that it
owns. Despite the announcement of these partnerships, there have been no rural
4G LTE deployments to date. As the LTE standard continues to develop and the
ecosystem grows, we believe that these nationwide players will continue to
focus their deployments on larger metropolitan markets, and 4G LTE from these
nationwide providers in rural markets will remain in the future.

Corporate History

We were organized in the State of
Delaware on September 9, 2004 under the name Grant Enterprises, Inc., and
became a public shell company, as defined by the Securities and Exchange
Commission (the SEC). On August 9, 2007, our wholly-owned subsidiary merged
with and into a private company, KeyOn Communications, Inc., with KeyOn
Communications, Inc. being the surviving company. Upon closing of the merger,
we discontinued our former business and succeeded to the business of KeyOn
Communications Inc. as our sole line of business. At the same time, we also
changed our name from Grant Enterprises, Inc. to KeyOn Communications Holdings,
Inc.

Regulatory Matters

Wireless broadband services are subject
to regulation by the FCC. At the federal level, the FCC has jurisdiction over
wireless transmissions over the electromagnetic spectrum, all interstate and
foreign telecommunications services, and many aspects of intrastate
telecommunications. State regulatory commissions have jurisdiction over many
aspects of intrastate telecommunications. Municipalities may regulate limited
aspects of our business by, for example, imposing zoning requirements and
requiring installation permits.

8

---



Telecommunications Regulation

Our wireless broadband networks can be
  used to provide Internet access service, interconnected VoIP service and
  virtual private networks (VPNs).

The FCC has classified Internet access
service as an interstate information service that is subject to regulation
under Title I of the Communications Act of 1934, as amended, (the
Communications Act). Accordingly, most regulations that apply to telephone
companies and other common carriers under Title II of the Communications Act do
not apply to our wireless broadband Internet access service. For example, we are
not required to file tariffs with the FCC, setting forth the rates, terms, and
conditions of our Internet access service.

The FCC has been conducting proceedings
to address all types of Internet protocol-enabled services, including Internet
access service and interconnected VoIP service, and to consider what
regulations, if any, should be applied to such services, as use of broadband
services becomes more widespread. A number of regulations have been imposed on
both broadband Internet access and interconnected VoIP service providers. Some
of the more significant regulations are discussed below.

In June 2005, the FCC adopted the first
set of regulations in a comprehensive Internet protocol-enabled proceeding,
imposing enhanced 911-related requirements on interconnected VoIP service
providers as a condition of offering VoIP service to consumers. The FCC defined
interconnected VoIP service as voice 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 on and terminate to the
 public switched telephone network.

Effective November 28, 2005, all
interconnected VoIP providers are required to transmit, through the wireline
network, all 911 calls, as well as a call-back number and the callers
registered location for each call, to the appropriate public safety answering
point that is capable of receiving and processing that information. In
addition, all interconnected VoIP providers must have a process to obtain a
subscribers registered location prior to activating service, and must allow
their subscribers to update their registered location immediately if the
subscriber moves the service to a different location. Interconnected VoIP
providers are also required to prominently and in plain English advise
subscribers of the manner in which dialing 911 using VoIP service is different from
dialing 911 service using traditional telephone service, and to provide warning
labels with VoIP equipment. Rulemaking proceedings are pending before the FCC
considering whether to impose additional 911-related obligations on
interconnected VoIP providers.

Interconnected VoIP providers are also
required to transmit toll free 711 calls to appropriate telecommunications
relay service providers for the deaf, and to ensure that their services are
accessible to individuals with disabilities, to the extent readily achievable.

On August 5, 2005, the FCC adopted an
Order finding that both facilities-based broadband Internet access providers
and interconnected VoIP providers are subject to the Communications Assistance
for Law Enforcement Act (CALEA), which requires service providers covered by
that statute to build certain law enforcement surveillance assistance
capabilities into their communications networks. The FCC required
facilities-based broadband Internet access providers and interconnected VoIP
providers to comply with CALEA requirements by May 14, 2007. On May 3, 2006,
the FCC adopted an additional Order addressing CALEA compliance obligations of
these providers, that concluded, among other things, that interconnected VoIP
providers may use certain third parties to satisfy CALEA obligations.

9

---



On June 27, 2006, the FCC released an
Order addressing USF contribution obligations of interconnected VoIP service
providers. The FCC amended the USF rules to require providers of interconnected
VoIP service to contribute to the USF under the existing contribution methodology. Interconnected
VoIP providers must contribute a fee to the USF that is based on interstate and
international end-user telecommunications revenues. The proposed USF fee rate for
the first quarter of 2011 is 15.5% of gross revenues derived from providing
interstate and international telecommunications or interconnected VoIP to end
users. Service providers are exempt from USF contributions if their total
annual contributions would be de minimis (i.e. less than $10,000). VoIP
providers that cannot otherwise determine what percentage of their revenues are
from interstate and international service may use a safe harbor of 64.9%.
Beginning in late 2007, similar fees used to support interstate
telecommunications relay service providers and the administration of numbering
resources, number portability, and the costs of FCC regulation also apply to
interconnected VoIP providers.

All interconnected VoIP providers must
file a FCC Form 499-A with the FCC for registration purposes even if they
qualify for the de minimis exemption for USF contribution purposes.
Interconnected VoIP service also may be subject to state and local taxation.
Providers of Internet access are not currently required to contribute to
universal service.

In an April 2, 2007 decision, the FCC
determined that interconnected VoIP providers should be subject to its rules
implementing Section 222(c) of the Communications Act, which governs
telecommunications carriers use of customer proprietary network information,
(CPNI). CPNI is customer-specific information derived from providing
telecommunications service, including call detail and caller location
information. FCC rules permit carriers and interconnected VoIP providers to use
CPNI to market the services they already provide to customers, and for limited
service-related and fraud prevention purposes, without prior customer approval.
Service providers, either themselves or through agents, may use CPNI to market other
communications-related services through opt-out consent such that the service
provider may use CPNI unless the customer affirmatively instructs the service
provider otherwise. All other uses or third party disclosures of CPNI,
including any use of location information, requires opt-in approval whereby a
service provider may not use or disclose CPNI without the customers express
affirmative permission. The FCC rules also require that carriers and
interconnected VoIP providers implement personnel, network and related
safeguards to protect CPNI from unauthorized third party disclosure, notify law
enforcement and customers of breaches of these safeguards, and certify their
compliance to the FCC annually. Providers of Internet access are not currently subject
to CPNI rules, but the FCC is considering whether to impose such requirements
in a pending rulemaking proceeding.

In 2008, the FCC amended its rules to
require that interconnected VoIP providers provide prior notification to
customers of service discontinuances, and to notify the FCC and apply for
approval to discontinue service. As a general rule, interconnected VoIP
providers may discontinue service on the 31st day after filing the
application with the FCC, unless the FCC notifies the provider otherwise.

In December 2010, the FCC adopted
so-called net neutrality or open Internet rules that require Internet
Service Providers (ISPs) to publicly disclose accurate information regarding
their network management practices, performance, and commercial terms of their
broadband Internet access services sufficient for consumers to make informed
choices regarding use of such services and for content, application, service,
and device providers to develop, market, and maintain Internet offerings. In
addition, ISPs providing a fixed service may not block consumers from accessing
lawful content, applications, or services, or from attaching non-harmful
devices. However, this ban is subject to an ISPs reasonable network management.
In addition, a fixed ISP may not unreasonably discriminate in transmitting
lawful network traffic over a consumers broadband Internet access service,
again subject to an ISPs reasonable network management. The FCC has declared
that it likely would not be reasonable network management for an ISP to charge
application or service providers for premium or fast lane access to
consumers (as distinct from specialized or managed services, which are
permitted). These rules are expected to become effective in June or July 2011,
at the earliest. However, litigation is pending before the U.S. Court of
Appeals for the District of Columbia Circuit challenging the FCCs authority to
adopt these rules and legislation is pending before the U.S. House of
Representatives and the Senate to overturn the rules pursuant to the
Congressional Review Act. We cannot predict whether the rules will go into
effect as adopted, or whether changes will be required pursuant to the
litigation, other Congressional action, or FCC reconsideration.

Internet access providers are also
currently subject to generally applicable state consumer protection laws and
generally applicable Federal Trade Commission consumer protection rules.

10

---



Broadband Internet-related and Internet
protocol-services regulatory policies are continuing to develop, and it is
possible that our broadband Internet access and VoIP services could be subject
to additional regulations in the future. For example, as part of the National
Broadband Plan to ensure that every American has access to broadband
capability, the FCC initiated a proceeding on February 9, 2011, in which it
seeks comment on, inter alia, whether to adopt rules whereby universal service
fund contributions would support broadband service. The extent of the regulations
that will ultimately be applicable to these services and the impact of such
regulations on the ability of providers to compete are currently unknown.

Spectrum Regulation

The FCC routinely reviews its spectrum
policies and may change its position on spectrum allocations from time to time.
On June 7, 2007, the FCC issued a Memorandum Opinion and Order regarding rules
for the 3.650-3.700 GHz spectrum band. Currently, this band is allocated for
use to an unlimited number of operators pursuant to a link registration
process. Similarly, the FCC has modified regulation in the 2.5 GHz Broadband
Radio Service/Educational Broadband Service (BRS/EBS) spectrum band and, from
time to time, can modify or change spectrum allocations pursuant to rulemaking
proceedings. We believe that the FCC and the current administration is
committed to allocating spectrum to support wireless broadband deployment
throughout the United States and will continue to modify its regulations to
foster such deployment, which will help us implement our existing and future
business plans.

The National Broadband Plan includes
recommendations designed to make more spectrum available for broadband, 500 MHz
within 10 years from federal and non-federal sources, including 300 MHz by
2015. The availability of new spectrum could increase competition. We cannot
predict whether Congress or the FCC will adopt or implement any of the Plans
recommendations or how any such actions might affect our business.

Internet Taxation

The Internet Tax Freedom Act of 1998
imposed a temporary moratorium on taxes on Internet access and multiple,
discriminatory taxes on electronic commerce. Congress has twice extended the
Internet Tax Freedom Act moratorium, which is currently effective until
November 1, 2014. States that taxed Internet access prior to October 1998 may
continue to do so. Certain states have enacted various taxes on Internet access
or electronic commerce, and selected states taxes are being contested on a
variety of bases. However, state tax laws may not be successfully contested and
future state and federal laws imposing taxes or other regulations on Internet
access and electronic commerce may arise, any of which could increase the cost
of providing Internet services, which could, in turn, materially adversely
affect our business.

Employees

As of March 18, 2011, we had 86 total
employees. All of these employees are full-time employees and approximately, 17
serve in customer service and support positions, 53 serve as network engineers
and field technicians, 10 serve in accounting, administrative and executive
positions and 6 serve in sales and marketing positions. None of our employees
is subject to a collective bargaining agreement.

Item 1A. Risk
Factors

Risks Relating to our Business

We
may be unable to successfully execute on either our acquisition strategy or
organic growth strategy, both of which we depend upon to drive the growth of
our subscriber base.

In order to successfully execute on both
our acquisition strategy and organic growth strategy, we will need to continue
to build our infrastructure and operational capabilities. Our ability to do any
of these successfully could be affected by any one or more of the following
factors:

11

---



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to successfully negotiate with potential acquisition
 targets, including the targets willingness to accept consideration such as
 cash, debt, our common stock or a combination thereof;
| |   |                                                                                                                                                                                                      
| |  | our ability to acquire companies or their assets at purchase prices
 that are consistent with our targeted returns;                                                                                  
| |   |                                                                                                                                                                                                      
| |  | our ability to successfully integrate the companies we acquire, which
 could result in increased costs, additional subscriber churn or damage to an
 existing or acquired brand;                     
| |   |                                                                                                                                                                                                      
| |  | the ability of our equipment, equipment suppliers or third-party
 service providers to perform as we expect;                                                                                         
| |   |                                                                                                                                                                                                      
| |  | our ability to further penetrate our existing markets and contribute
 to the organic growth of our subscriber base;                                                                                  
| |   |                                                                                                                                                                                                      
| |  | our ability to differentiate our services from those offered by our
 competitors in the markets we serve;                                                                                            
| |   |                                                                                                                                                                                                      
| |  | our ability to obtain both network and customer premise equipment,
 which we currently receive from third parties;                                                                                   
| |   |                                                                                                                                                                                                      
| |  | our ability to attract and retain qualified personnel;                                                                                                                                               
| |   |                                                                                                                                                                                                      
| |  | equipment failure or interruption of service, which could adversely
 affect our reputation and our relations with customers;                                                                         
| |   |                                                                                                                                                                                                      
| |  | our ability to accurately predict and respond to the rapid
 technological changes in our industry and the evolving demands of the markets
 we serve.                                                 

Our failure to adequately address any one
or more of the above factors could have a significant adverse impact on our
ability to implement our business plan with respect to our acquisition strategy
and organic growth plans, as well as our ability to pursue other opportunities
that arise.

Any
of our acquisitions could result in integration difficulties that could lead to
substantial costs, delays or other operational or financial difficulties.

We seek to expand by acquiring businesses,
including those in our current or new geographic markets. We cannot accurately
predict the timing, size and success of our acquisition efforts and the
associated capital commitments that might be required. We expect to face
competition for acquisitions, which may limit the number of acquisition
opportunities available and may lead to higher acquisition prices. We may not
be able to identify, acquire or profitably manage additional businesses or
successfully integrate acquired businesses, if any, without substantial costs,
delays or other operational or financial difficulties. In addition, such
acquisitions involve a number of other risks, including:

| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | failure of
 the acquired businesses to achieve expected results;         
| |   |                                                                          
| |  | diversion of
 managements attention and resources to acquisitions;      
| |   |                                                                          
| |  | inability to
 timely and cost-effectively integrate acquired operations; 
| |   |                                                                          
| |  | failure to
 retain key customers or personnel of the acquired businesses;

12

---



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | disappointing
 quality or functionality of acquired equipment, networks and personnel; and
| |   |                                                                                           
| |  | risks
 associated with unanticipated events, liabilities or contingencies.                

Subscriber dissatisfaction with, or
performance problems of, a single acquired business could negatively affect our
reputation. The inability to acquire businesses on reasonable terms or
successfully integrate and manage acquired companies, or the occurrence of
performance problems at acquired companies, could result in dilution,
unfavorable accounting treatment or one-time charges and difficulties in
successfully managing the business.

We
have a history of operating losses and expect to continue suffering losses in
the foreseeable future.

We have incurred losses since we launched
in 2002. Moreover, in each of 2010 and 2009, we recorded operating losses of
$7,098,103 and $4,669,206 respectively. We cannot anticipate when, if ever, our
operations will become profitable. We may incur net losses as we integrate
acquisitions, introduce new network equipment, increase our marketing for
organic subscriber growth and pursue other aspects of its business strategy.

We
may experience difficulties in maintaining our existing network, as well as in
constructing, upgrading and introducing new technologies, such as WiMAX, into
networks, which could adversely affect customer satisfaction, increase
subscriber churn and reduce our revenues.

Our success depends on providing
affordable and reliable broadband access, as well as related services. If the
number of subscribers using our network and the complexity of our services
increase, we will require more infrastructure, network and customer service
resources to maintain the quality of our services. Consequently, we may be
required to make substantial investments to construct and improve our
facilities and equipment and to upgrade our technology and network
infrastructure. This is particularly true in connection with the WiMAX networks
we intend to deploy. If we do not implement these developments and network
upgrades successfully, or if we experience inefficiencies, operational
failures, or unforeseen costs during implementation, the quality of our
services could decline.

We may experience quality deficiencies,
cost overruns and delays in implementing our network improvements and
expansion, in maintenance and upgrade projects, including slower than
anticipated technology migrations. In addition, we typically are required to
obtain rights from land, building or tower owners to install its antennae and
other equipment to provide services to our subscribers. We may not be able to
obtain, on terms that are acceptable, or at all, the rights necessary to
construct our network and expand our services.

We also face challenges in managing and
operating our networks. These challenges include operating, maintaining and
upgrading network and customer premises equipment to accommodate increased
traffic or technological advances, and managing the sales, advertising,
customer support, billing and collection functions of our business, while
providing reliable network service at expected speeds and quality. Our failure
in any of these areas could adversely affect customer satisfaction, increase
subscriber churn, increase our costs and decrease our revenues.

We
utilize primarily unlicensed spectrum, which is subject to intense competition,
low barriers of entry and potential interference from multiple competing users.

We presently utilize primarily unlicensed
spectrum in connection with our broadband service offerings. While unlicensed
spectrum is regulated by the FCC, it is available to multiple simultaneous
users and may be subject to interference, which may reduce the quality of the
service provided to our subscribers. The availability of unlicensed spectrum is
limited and others do not need to obtain permits or licenses to utilize the
same unlicensed spectrum that we currently or may in the future utilize,
threatening our ability to reliably deliver services. We also hold a nationwide
license in the lightly-licensed 3.65GHz band. This band affords greater
protection than some of the unlicensed bands that we utilize, but is still
available to multiple simultaneous users.

13

---



Unlicensed
spectrum becomes impractical to use in certain markets and the we are required
to obtain and maintain rights to use licensed spectrum in those markets which
could negatively impact our ability to execute our business strategy. To the
extent we secure licensed spectrum, we face increased operational costs and
greater regulatory scrutiny.

In certain markets, we intend to provide
mobile or nomadic service by using technologies such as WiMAX and licensed
spectrum. If unlicensed spectrum bands, are insufficient to use for the
deployment of such services, we may need to secure and maintain sufficient
rights to use licensed spectrum by obtaining licenses or long-term leases in
those markets. Obtaining licensed spectrum can be a long and difficult process
that can be costly and require a disproportionate amount of management
resources, and may require us to incur significant indebtedness or secure
additional capital. We may not be successful in our efforts to secure spectrum
acquisition financing or be able to acquire, lease or maintain, either from
third parties or through a licensed spectrum auction, the spectrum necessary to
execute our strategy.

Licensed spectrum, whether owned or
leased, poses additional risks, including:

| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | adverse
 changes to regulations governing spectrum rights;                                                                                                                        
| |   |                                                                                                                                                                                   
| |  | the risk
 that spectrum acquired or leased will not be commercially usable or free of
 damaging interference from licensed or unlicensed operators in the same or
 adjacent bands;
| |   |                                                                                                                                                                                   
| |  | failure of
 the FCC or other regulators to renew spectrum licenses as they expire;                                                                                                
| |   |                                                                                                                                                                                   
| |  | inability to
 satisfy build-out or service deployment requirements upon which spectrum
 licenses or leases are, or may be, conditioned;                                           
| |   |                                                                                                                                                                                   
| |  | increases in
 spectrum acquisition costs;                                                                                                                                         
| |   |                                                                                                                                                                                   
| |  | uncertainty
 in obtaining the equipment required to use the licensed spectrum;                                                                                                    
| |   |                                                                                                                                                                                   
| |  | increases in
 capital expenses associated with equipment required to utilize the licensed
 spectrum;                                                                              
| |   |                                                                                                                                                                                   
| |  | contractual
 disputes with, or the bankruptcy or other reorganization of license holders,
 which could adversely affect control over the spectrum subject to such
 licenses.      

Depending
upon the geographic market, some of our competitors are better established and
have significantly greater engineering, sales and marketing resources, which
may make it difficult to attract and retain subscribers.

As a general matter, the market for
broadband and related services is highly competitive, and we may compete with
other companies in our markets. Some of these competitors are well established
with larger and better-developed networks and support systems, longer-standing
relationships with customers, greater name recognition and greater financial,
technical and marketing resources than we have. As a result, our competitors
may reduce the prices of their services significantly or may offer broadband
connectivity packaged with other services. We may not be able to reduce our
prices or otherwise combine our services with other services, which may make it
more difficult to attract and retain subscribers.

Our competitors include:

| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | cable
 operators offering broadband Internet connectivity services and voice
 communications;

14

---



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | incumbent and competitive local exchange carriers providing DSL
 services;                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                           
| |  | wireless Internet service providers using licensed or unlicensed
 spectrum;                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                           
| |  | fourth generation, or 4G, cellular, personal communications service,
 or PCS, and other wireless providers offering wireless broadband services and
 capabilities, including developments in existing cellular and PCS technology
 that may increase network speeds or have other advantages over the Companys
 services;
| |   |                                                                                                                                                                                                                                                                                                                           
| |  | Internet service providers offering dial-up Internet connectivity;                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                           
| |  | providers of VoIP telephone services;                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                           
| |  | satellite providers offering or
 developing broadband connectivity; and                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                           
| |  | electric utilities and other providers offering or planning to offer
 broadband Internet connectivity over power lines.                                                                                                                                                                                                   

Additionally,
as a result of the broadband funding initiatives of ARRA, as well as potential
changes resulting from the National Broadband Plan such as Universal Service
Reform, existing and prospective competitors who receive an award or are
positively impacted by other government initiatives could have greater
financial resources and adopt technologies or business plans similar to ours,
or seek other means to develop services competitive with ours, particularly if
ours services prove to be attractive in our target markets. This competition
may make it difficult for us to attract and retain subscribers.

We
rely on third party sales representatives to assist in selling our services,
and the failure of these representatives to perform as expected could reduce
our future sales.

We sell our
services to some of our customers through third party sales representatives.
However, our relationships with some of these third party sales representatives
are relatively new and we are unable to predict the extent to which our third
party sales representatives will be successful in marketing and selling our
services. Moreover, many of our third party sales representatives also market
and sell competing products. Our third party sales representatives may
terminate their relationships with us at any time, or with short notice and may
give greater attention to the products sold by our competitors. Our future
performance will also depend, in part, on our ability to attract additional
third party sales representatives that will be able to market our services
effectively, especially in markets in which we have not previously distributed
services. If we cannot retain our current third party sales representatives and
recruit additional or replacement third party sales representatives, our
revenues and operating results could be harmed.

We
rely on a limited number of third party suppliers that produce our network and
customer premise equipment, and occasionally install or service our network
sites. We are also currently using one or more third-party providers to supply
us with certain aspects of our video and VoIP services. If these companies fail
to perform or experience delays, shortages or increased demand for their
services, we may face a shortage of components, increased costs, and may be
required to suspend our network deployments and our product and service
introductions.

In addition
to the personnel we have on staff, we also depend on a limited number of third
party suppliers to produce and deliver services required for our networks. We
do not maintain any long-term supply contracts with our equipment manufacturers
and distributors. In addition, we rely on providers of Internet bandwidth in order
to transport data traffic on our networks onto the public Internet. If a
manufacturer or other provider does not satisfy our requirements, or if we lose
a manufacturer or any other significant provider, we may have insufficient
network equipment for delivery to subscribers and for installation or
maintenance of our infrastructure, and we may be forced to suspend the
deployment of our networks and growth of new subscribers, thus impairing future
growth. We also currently contract with third-party providers for certain video
and VoIP services and rely on those services to be compliant with all relevant regulatory requirements. To the extent
these third-party providers are unable to meet either our or the regulatory
requirements, we may be forced to suspend the deployment of these services,
thus impairing future revenue growth.

15

---



Our
inability to use shares of our common stock to finance future acquisitions
could impair the growth and expansion of our business.

The extent
to which we will be able or willing to use shares of our common stock to
consummate acquisitions will depend on:

| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | the market
 value of our securities, which will vary;                                                                     
| |   |                                                                                                                           
| |  | the
 willingness of potential sellers to accept shares of our common stock as full
 or partial payment for their business.

Using
shares of our common stock for this purpose may also result in significant
dilution to our then existing stockholders. To the extent that we are unable to
use our common stock to make future acquisitions, our ability to grow through
acquisitions may be limited to the extent that we will have to utilize existing
capital.

We
depend on the continued availability of leases for the deployment of our
communications equipment.

We have either
constructed or acquired networks in each of the markets we serve. Networks are
typically built by installing antennae on rooftops, cellular towers and other
elevated structures pursuant to lease agreements that allow us to collocate our
equipment. In the markets where we build networks ourselves, we typically seek
five-year initial terms for our leases with multiple three to five year renewal
options. Such renewal options are generally exercisable at our discretion
before the expiration of each term. If the leases we enter into or assume by
way of acquisition are terminated or if the owners of these structures are
unwilling to continue to enter into leases with us in the future, we would be
forced to seek alternative arrangements with other providers. If we are unable
to continue to obtain or renew such leases on satisfactory terms, our business
would be harmed.

Our
business depends on our service brands, and if we do not maintain and enhance
our brands, our ability to attract and retain subscribers may be impaired and
our business and operating results may be harmed.

We believe
that our brands are a critical part of our business. Maintaining and enhancing
our brands may require substantial investments with no assurance that these investments
will be successful. We currently market under the KeyOn, SpeedNet and
SIRIS brands, and if we incur significant expenses in promoting and
maintaining these brands, our business, prospects, operating results and
financial condition may be harmed. We anticipate that maintaining and enhancing
our brands may become increasingly competitive, difficult and expensive.

Excessive
customer churn may adversely affect our financial performance by slowing
customer growth, increasing costs and reducing revenue.

The
successful implementation of our business plan depends upon controlling
customer churn. Customer churn is a measure of customers who stop using our
services. Customer churn could increase as a result of:

| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | personal economic
 conditions;                                                  
| |   |                                                                                 
| |  | customers
 moving out of our geographic coverage area;                          
| |   |                                                                                 
| |  | interruptions
 to the delivery of services to customers over our network;       
| |   |                                                                                 
| |  | billing
 errors and/or general reduction in the quality of our customer service;

16

---



| |   |                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | competitors offering additional, desired service offerings that we do
 not offer; and                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                      
| |  | the availability of competing technology, such as cable modems, DSL,
 fourth-generation cellular, satellite, wireless Internet service and other
 emerging technologies, some of which may, from time to time, be less
 expensive or technologically superior to those offered by us.

An increase
in customer churn can lead to slower customer growth, increased costs and a
reduction in revenue.

Interruption
or failure of our networks, which in certain rural markets are often subject to
severe weather such as storms or tornados, could impair our ability to provide
our services, which could damage our reputation and harm operating results.

Our
services depend on the continuing operation of our networks. We have
experienced service interruptions in the past and may experience service
interruptions or system failures in the future. Any unscheduled service
interruption, as a result of severe weather or otherwise, adversely affects our
ability to operate our business and could result in an immediate loss of
revenues. If we experience frequent or persistent system or network failures,
regardless of the reason, our reputation could be permanently harmed. We may
need to make significant capital expenditures to increase the reliability of
our systems, but these capital expenditures may not achieve the results we
expect.

The
success of our business depends on the continuing contributions of our key
personnel and our ability to attract, train and retain highly qualified
personnel.

We are
highly dependent on the continued services of our chief executive officer and
president, Jonathan Snyder and our chief operating officer, A. Robert Handell.
Loss of the services of any of these individuals could adversely impact our
operations. While we maintain a key man insurance policy for Jonathan Snyder,
neither Jonathan Snyder nor A. Robert Handell is currently bound by employment
agreements. As a result, we cannot guarantee that either of these persons will
stay with us for any definite period.

In
addition, to successfully introduce our services in new markets and grow our
business in existing markets, we must be able to attract, train, motivate and
retain highly skilled and experienced employees. In particular, qualified
technical employees periodically are in great demand and may be unavailable in
the time frame required to satisfy customer requirements. We may not be able to
attract and retain sufficient numbers of highly skilled technical employees in
the future. The loss of skilled personnel or our inability to hire or retain
sufficient skilled personnel at competitive rates of compensation could impair
our ability to successfully grow our business and retain our existing customer
base.

We
may not be able to effectively control and manage our growth, which would
negatively impact our operations.

We may face
challenges in managing expanding service offerings and in integrating acquired
businesses. Such eventualities will increase demands on our existing
management, workforce and facilities. Failure to satisfy increased demands
could interrupt or adversely affect our operations and cause administrative
inefficiencies.

If
unauthorized persons gain access to our network, subscribers may perceive our
network and services as not secure, which may adversely affect our ability to
attract and retain subscribers and expose us to liability.

Although we
take certain measures to guard against unauthorized access to our network, we
may be unable to anticipate or implement adequate preventive measures against
unauthorized access. Unauthorized parties may overcome our encryption and
security systems and obtain access to data on our network, including on a
device connected to our network. In addition, because we operate and control
our network and our subscribers Internet connectivity, unauthorized access of
our network could result in damage to our network and to the computers or other
devices used by our subscribers. An actual or perceived breach of network
security, regardless of whether the breach is our fault, could harm public perception of the effectiveness
of our security measures, adversely affect the ability to attract and retain
subscribers, expose us to significant liability and adversely affect our
business prospects.

17

---



Risks Relating to Our Industry

The
licensing of additional spectrum in our markets by the FCC could introduce additional
competition.

The FCC
regulates the spectrum bands in which we and our competitors operate. The FCC
can make additional spectrum available for use or change the way existing
spectrum is regulated, which may hamper our ability to offer our services or
result in additional competitors entering our markets and providing services
that may directly compete with our offerings. There are several spectrum bands
that the FCC has recently licensed under rules that may make them suitable for
offering data, voice and video services, but which largely have yet to be
deployed in our markets. In addition, the FCC is presently considering the
licensing of additional spectrum that may be suitable for offering services
that will compete with ours. Section 6001(k) of the ARRA required the creation
of the National Broadband Plan by the FCC, which was announced on March 17,
2010. One of the many specific goals of the plan was to make approximately 500
MHz of wireless spectrum available over the next ten years, 300MHz of which is
intended to be made available by 2015 through additional auctions or other
means. There are no assurances that we will be successful in acquiring any
additional spectrum or that we will be adequately capitalized to do so. The
future availability of this and other spectrum may result in additional
competition into our markets.

Additionally,
we have received the FCCs approval to operate in the 3.65 GHz band on a
nationwide, non-exclusive basis. This band, which recently became available for
commercial use, may bring additional competition to our markets as more
companies are awarded approval to operate on a non-exclusive basis.

The
industry in which we operate is continually evolving. Our services may become
obsolete, and we may not be able to develop competitive services on a timely
basis or at all.

The
broadband and wireless services industries are characterized by rapid
technological change, competitive pricing, frequent new service introductions,
evolving industry standards and regulatory requirements. We believe that our
success depends on our ability to anticipate and adapt to these challenges and
to offer competitive services on a timely basis. We face a number of
difficulties and uncertainties associated with our reliance on technological
development, such as:

| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | competition from service providers using more traditional and
 commercially proven means to deliver similar or alternative services to the
 our targeted markets;                   
| |   |                                                                                                                                                                                     
| |  | competition from better capitalized service providers using more
 efficient, less expensive technologies, including services not yet invented
 or developed to our targeted markets;
| |   |                                                                                                                                                                                     
| |  | our inability to develop a spectrum portfolio and offer advanced data
 services in a timely and cost efficient manner;                                                              
| |   |                                                                                                                                                                                     
| |  | responding successfully to advances in competing technologies in a
 timely and cost-effective manner; and                                                                           
| |   |                                                                                                                                                                                     
| |  | uncertainty of timing with respect to a migration toward
 standards-based technology, requiring substantial capital expenditures.                                                   

As the
services offered by us and our competitors develop, residential and business
customers may not accept our services as a commercially viable alternative to
other means of delivering broadband or wireless broadband services. As a
result, our services may become obsolete, and we may be unable to develop
competitive services on a timely basis, or at all.

18

---



We
are subject to extensive regulation that could limit or restrict our
activities. If we fail to comply with these regulations, we may be subject to
penalties, including fines and suspensions, and past due fees and interest,
which may adversely affect our financial condition and results of operations.

Our
business, including the acquisition, lease, maintenance, and use of spectrum
licenses, is extensively regulated by federal, state and local governmental
authorities. A number of federal, state and local privacy, security and
consumer laws also apply to our business. These regulations and their
application are subject to continual change as new legislation, regulations or
amendments to existing regulations are adopted from time to time by
governmental or regulatory authorities, including as a result of judicial
interpretations of such laws and regulations. Current regulations directly
affect the breadth of services we are able to offer and may impact the rates,
terms and conditions of our services. Regulation of companies that offer
competing services, such as cable and DSL providers and telecommunications
carriers, also affects our business.

We believe
that we are not required to register with the Universal Service Administrative
Company, or the USAC, as a seller of telecommunications, nor are we required to
collect universal service fund, or USF, fees from its customers or to pay USF
fees directly. It is possible, however, that the FCC may assert that we are a
seller of telecommunications and that we are required to register and pay USF
fees on some or all of our gross revenues. Although we would contest any such
assertion, we could become obligated to pay USF fees, interest and penalties to
USAC with respect to our gross revenues, past and/or future, from providing
telecommunications and we may be unable to retroactively bill our customers for
past USF fees.

In
addition, the FCC or other regulatory authorities may in the future restrict
our ability to manage subscribers use of our network, thereby limiting our
ability to prevent or address subscribers excessive bandwidth demands. To
maintain the quality of our network and user experience, we may manage the
bandwidth used by our subscribers applications, in part by restricting the
types of applications that may be used over our network. If the FCC or other
regulatory authorities were to adopt regulations that constrain our ability to
employ bandwidth management practices, excessive use of bandwidth-intensive
applications would likely reduce the quality of our services for all
subscribers. Such decline in the quality of our services could harm our
business.

The breach
of a license or applicable law, even if inadvertent, can result in the
revocation, suspension, cancellation or reduction in the term of a license or
the imposition of fines. In addition, regulatory authorities may grant new
licenses to third parties, resulting in greater competition in territories
where we already have rights to licensed spectrum. In order to promote
competition, licenses may also require that third parties be granted access to  our
bandwidth, frequency capacity, facilities or services. We may not be able to
obtain or retain any required license, and we may not be able to renew a
license on favorable terms, or at all.

Wireless
broadband services may become subject to greater state or federal regulation in
the future. The scope of the regulations that may apply to similar companies
and the impact of such regulations on our competitive position are presently
unknown and could be detrimental to our business and prospects.

In
providing our services, we could infringe on the intellectual property rights
of others, which may cause us to engage in costly litigation and, if the we do
not prevail, could also cause us to pay substantial damages and prohibit us
from selling our services.

Third
parties may assert infringement or other intellectual property claims against
us. We may have to pay substantial damages including damages for past
infringement if it is ultimately determined that our services infringe a third partys
proprietary rights. Further, we may be prohibited from selling or providing
some of our services before we obtain additional licenses, which, if available
at all, may require us to pay substantial royalties or licensing fees and
divert much needed financial resources. Even if claims are without merit,
defending a lawsuit takes significant time, may be expensive and may divert
managements attention from other business concerns. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our business to be harmed and our stock price to
decline.

19

---



Risks Relating to Our Common Stock

We
  became public by means of a reverse merger, and as a result we are subject to
  the risks associated with the prior activities of the public shell company.

Additional
risks may exist because we became public through a reverse merger with a public
shell company that did not have significant operations or assets prior to the
time of the transaction. The public shell company was a development stage
company from the time of its inception until the time of the merger on August
9, 2007. For approximately 3 years prior to the merger, the public shell
company had no significant business operations and generated nominal revenues.
We may require the cooperation or assistance of persons or organizations, such
as auditors, previously associated with the public shell company in connection
with future matters that could be costly or difficult to secure. Although we
performed a due diligence review of the public shell company, we may still be
exposed to undisclosed liabilities resulting from its prior operations and we
could incur losses, damages or other costs as a result.

We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on your investment may be limited to the value of our common
stock.

We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our common stock will
depend on the Companys earnings, financial condition and other business and
economic factors as the board of directors may consider relevant, as well as
the inherent prohibitions on such dividends contained within the rights of the
outstanding Series A Preferred Stock. If we do not pay dividends, our common
stock may be less valuable because a return on your investment will only occur
if our stock price appreciates.

Our
common stock may be affected by limited trading volume and price fluctuations,
each of which could adversely impact the value of our common stock.

Our common
stock has experienced, and is likely to experience in the future, significant
price and volume fluctuations, which could adversely affect the market price of
the common stock without regard to the our operating performance. In addition,
we believe that factors such as quarterly fluctuations in our financial results
and changes in the overall economy or the condition of the financial markets
could cause the price of our common stock to fluctuate substantially. These
fluctuations may also cause short sellers to enter the market from time to time
in the belief that we will have poor results in the future. We cannot predict
the actions of market participants and, therefore, can offer no assurances that
the market for our stock will be stable or appreciate over time.

Our
common stock has been thinly traded and an active trading market for our common
stock may not develop.

The trading
volume of our common stock has historically been low, partially because we are
not listed on an exchange and our common stock is only traded on the
over-the-counter bulletin board, or the OTC Bulletin Board. A more active
trading market for our common stock may not develop, or if developed, may not
continue, and a stockholder may find it difficult to dispose of, or to obtain
accurate quotations as to the market value of, our common stock.

Risks Relating to Our Organization

Our executive
officers and directors own a substantial amount of our common stock and,
therefore, exercise significant control over our corporate governance and
affairs, which may result in their taking actions with which you do not agree.

Our
executive officers and directors, and entities affiliated with them, control
approximately 14% of our outstanding common stock, including exercisable stock
options held by them. These stockholders, if they act together, may be able to
exercise substantial influence over the outcome of all corporate actions
requiring approval of our stockholders, including the election of a minority of
directors and approval of significant corporate transactions, which may result
in corporate action with which you do not agree.

20

---



Our
common stock may be affected by decisions made by Series A Preferred
Stockholders

On December
3, 2010, we entered into an agreement (the Conversion Agreement) with the California Capital Limited Partnership (CalCap),
pursuant to which CalCap agreed to convert all of the outstanding principal and
accrued but unpaid interest under the Note into shares of Series A Preferred
Stock ( the Preferred Stock) at a conversion price of $1.00 per share
(the Conversion). On March 11, 2011, pursuant to the Conversion Agreement, we issued 16,315,068 shares of Preferred Stock in addition to 10,300,000 exercisable warrants to purchase
Preferred Stock.
The Preferred Stock has super-majority voting preferences compared to the
common stock. Each share of Preferred Stock is entitled to three votes per
share compared to common stock, which has one vote per share. As a result, the
Preferred Stock controls over 77% of the voting rights afforded to
stockholders. The Preferred Stock also has the ability to name the majority of
the members of our Board of Directors, among other rights and preferences that
do not belong to common stockholders. These rights and preferences, including
the ability to name the majority of our members of the Board of Directors and
therefore exercise significant control over our corporate governance and
affairs, may result in us taking actions with which you do not agree.

We
are subject to financial reporting and other requirements for which our accounting,
internal audit and other management systems and resources may not be adequately
prepared.

On August
9, 2007, we became subject to reporting and other obligations under the
Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley
Act. Under Section 404, we are required to conduct an annual management
assessment of the effectiveness of our internal control over financial
reporting. The requirements of these rules and regulations will increase our
legal and financial compliance costs, make some activities more difficult,
time-consuming or costly and will place significant demands on management,
administrative, operational, internal audit and accounting systems and
resources. In connection with these requirements, we anticipate that we will
need to:

| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | upgrade our
 systems;                                                                      
| |   |                                                                                            
| |  | implement
 additional financial and management controls, reporting systems and
 procedures;
| |   |                                                                                            
| |  | implement an
 internal audit function; and                                                 
| |   |                                                                                            
| |  | hire
 additional accounting, internal audit and finance staff.                             

If we are
unable to accomplish these objectives in a timely and effective fashion, our
ability to comply with our financial reporting requirements and other rules
that apply to reporting companies could be impaired. Any failure to maintain
effective internal controls could have a negative impact on our ability to
manage our business and on our stock price.

As of
December 31, 2010, we carried out an assessment of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, our
management concluded that our internal control over financial reporting was not
effective as of December 31, 2010. As we continue our efforts to remediate our material
weakness, we may incur additional expenses such as personnel, systems or
reliance on outside consultants. For example, during the year ended December
31, 2010, we relocated our accounting functions as well as hired additional
accounting personnel to support us in our compliance process. We intend to
continue making necessary changes until our material weaknesses are remediated.

If
securities or industry analysts do not publish research or publish inaccurate
or unfavorable research about our business, our stock price and trading volume
could decline.

21

---



The trading market for our common stock will depend in part on the
research and reports that securities or industry analysts publish about us or
our business. We do not currently have research coverage by securities and industry
analysts. If we obtain securities or industry analyst coverage and if one or
more of the analysts that cover us downgrades our stock or publishes inaccurate
or unfavorable research about our business, our stock price would likely
decline. If one or more of these analysts ceases coverage of us or fails to
publish reports on us regularly, demand for our stock could decrease, which
could cause our stock price and trading volume to decline.

Item 1B.
Unresolved Staff Comments

Not applicable.

Item 2.
Properties

We lease
approximately 10,000 square feet of office space in Omaha, Nebraska for $8,222
per month, plus applicable taxes, subject to adjustments in accordance with
consumer price index fluctuations. The current lease term expires on April 1,
2012, at which time we have the option to extend the lease for an additional
five-year period. This facility serves as our operations center.

We lease
approximately 3,200 square feet of office space for a field office in Las
Vegas, Nevada for approximately $2,000 per month. The current lease term
expires on April 30, 2011 at which time we will be relocating. We have entered
into a new lease for approximately 6,500 square feet of office space for $6,825
per month. This facility will serve as our headquarters and accommodate our
growth. This lease commences on May 1, 2011 and expires on April 30, 2016.

We lease
approximately 2,400 square feet of office space for a field office in
Centerville, Iowa for approximately $800 per month on a month to month basis.

We lease
approximately 1,200 square feet of office space for a field office in Wolfforth,
Texas for $525 per month on a month-to-month basis.

We lease
approximately 460 square feet of office space for a field office in Azle, Texas
for $585 per month. The current lease term expires on November 30, 2012.

We
lease approximately 450 square feet of office space for a field office in
Jackson, Minnesota for $400 per month on a month to month basis.

We
lease approximately 500 square feet of office space for a field office in
Champaign, Illinois for $933.75 per month on a month to month basis.

We
lease approximately 680 square feet of office space for a field office in
Waterloo, Iowa for $285 per month on a month to month basis.

We
lease approximately 660 square feet of office space for a field office in Cedar
Rapids, Iowa for $610 per month. The current lease expires on December 31,
2011.

We
lease approximately 237 square feet of office space for a field office in
Rochester, Minnesota for $303 per month on a month to month basis.

We
lease approximately 2,800 square feet of office space for a field office in
Blanco, Texas for $2,200 per month on a month to month basis.

We lease
approximately 1,000 square feet of office space for a field office in Granbury,
Texas for $1,500 per month on a month to month basis.

22

---



We lease
approximately 2,500 square feet of office space for a field office in Marble
Falls, Texas for $1,450 per month on a month to month basis.

We believe
that our current facilities are adequate for our immediate and near-term needs.
Additional space may be required as we expand our activities. We do not
currently foresee any significant difficulties in obtaining any required
additional facilities. In the opinion of the management, each of our properties
is adequately covered by insurance.

Item 3. Legal
Proceedings

To our knowledge, no material legal proceedings are currently pending
against us or involve us that, in the opinion of our management, could
reasonably be expected to have a material adverse effect on our business and
financial condition.

Item 4. (Removed
and Reserved).

PART II

Item 5. Market
for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Since
November 2, 2007, KeyOns common stock has been quoted on the OTC Bulletin Board
under the symbol KEYO.OB. The following table sets forth the high and low bid
prices for KeyOns common stock for the periods indicated, as reported by
the OTC Bulletin Board. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.

|                    |  |      |      |     |   |      | 
|------------------- |  | ---- | ---- | --- | - | ---- | 
|Quarter
 Ended      |  | High |      | Low |  
|                    |  |      |      |     |  
|March 31,
 2010     |  | $    | 3.00 |     | $ | 0.58 | 
|June 30,
 2010      |  | $    | 0.97 |     | $ | 0.50 | 
|September
 30, 2010 |  | $    | 0.74 |     | $ | 0.32 | 
|December 31,
 2010  |  | $    | 0.45 |     | $ | 0.20 | 

|                    |  |      |      |     |   |      | 
|------------------- |  | ---- | ---- | --- | - | ---- | 
|Quarter
 Ended      |  | High |      | Low |  
|                    |  |      |      |     |  
|March 31,
 2009     |  | $    | 0.17 |     | $ | 0.04 | 
|June 30,
 2009      |  | $    | 1.50 |     | $ | 0.04 | 
|September
 30, 2009 |  | $    | 2.47 |     | $ | 0.60 | 
|December 31,
 2009  |  | $    | 2.56 |     | $ | 1.30 | 

The last
reported sales price of KeyOns common stock on the OTC Bulletin Board on March
28 2011, was $0.40 per share. As of March 28, 2011 there were approximately 115
registered holders of record of the Companys common stock.

23

---



We have
neither paid nor declared dividends on our common stock since our inception and
do not plan to pay dividends on our common stock in the foreseeable future. We
expect that any earnings that  we may realize will be retained to finance our
growth. There can be no assurance that we will ever pay dividends on our common
stock. Our dividend policy is within the discretion of the Board of Directors
and our future dividend policy will depend on numerous factors, including our
earnings, financial requirements and general business conditions.
Notwithstanding the foregoing, pursuant to the Preferred Stock issued to
CalCap on March 11, 2011, we are prohibited
from declaring or paying any dividends or making any distributions other than
dividends on our Preferred Stock.

Equity Compensation Plan Information

The
following table provides information as of March 28, 2011 about compensation
plans under which shares of the our common stock may be issued to employees,
consultants or members of our Board of Directors upon exercise of options,
warrants or rights under all of our existing equity compensation plans. Our
existing equity compensation plans consist of our 2007 Incentive Stock and
Awards Plan and our 2010 Incentive Stock and Awards Plan in which all of our
employees and directors.

|                                                        |  |                                                                                                      |           |                                                                                    |   |                                                                                                                                                        |  |  |           | 
|------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- | --------- | ---------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | --------- | 
|Plan Category                                           |  | (a)
 Number of Securities
 to be Issued Upon
 Exercise of
 Outstanding Options,
 Warrants and Rights |           | (b)
 Weighted-Average Exercise
 Price of Outstanding
 Options, Warrants and Rights |   | (c)
 Number of Securities
 Remaining Available
 for Future Issuance
 Under Equity
 Compensation Plans
 (Excluding Securities
 Reflected in Column
 (a) | 
|                                                        |  |                                                                                                      |           |                                                                                    |   |                                                                                                                                                        |  |  |           | 
|Equity compensation plans approved by
 stockholders     |  |                                                                                                      | 7,440,000 |                                                                                    | $ | 0.84                                                                                                                                                   |  |  | 4,855,656 | 
|Equity compensation plans not approved by
 stockholders |  |                                                                                                      |          |                                                                                    |   |                                                                                                                                                       |  |  |          | 
|Total                                                   |  |                                                                                                      | 7,444,000 |                                                                                    | $ | 0.84                                                                                                                                                   |  |  | 4,855,656 | 

2007 Incentive Stock and Awards Plan

On
August 9, 2007, our Board of Directors and stockholders adopted the 2007
Incentive Stock and Awards Plan. The purpose of the 2007 Incentive Stock and
Awards Plan is to provide an incentive to attract and retain directors,
officers, consultants, advisors and employees whose services are considered
valuable, to encourage a sense of proprietorship and to stimulate an active
interest of such persons in our development and financial success. Under the
2007 Incentive Stock and Awards Plan, we are authorized to issue incentive
stock options intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the Code), non-qualified stock options, stock
appreciation rights, performance shares, restricted stock and long term
incentive awards. The 2007 Incentive Stock and Awards Plan is administered by
our Board of Directors.

2010 Incentive Stock and Awards Plan

On
July 24, 2010, our Board of Directors and stockholders adopted the 2010
Incentive Stock and Awards Plan (the 2010 Plan) at our annual meeting. Under
the 2010 Plan, we are authorized to issue incentive stock options intended to
qualify under Section 422 of the Code, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock and long term
incentive awards. The 2010 Plan is administered by our Board of Directors.

Recent Sales of Unregistered Securities

Set forth
below is certain information concerning issuances of common stock that were not
registered under the Securities Act that occurred in the fiscal year of 2010.

| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On January 4, 2010, we issued 27,778 shares of common stock to a
 consultant in exchange for $41,667 of consulting services at an effective
 price of $1.50 per share.

24

---



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2010, we issued 98,774 restricted shares of our common
 stock to the holders of a series of warrants (the 2007 Warrants) at a price
 per share of $1.75, for an aggregate exercise price of $172,854.50.
| |   |                                                                                                                                                                                                                      
| |  | Also in January 2010, we issued 130,000 restricted shares of our
 common stock to warrant holders who exercised warrants at a price per share
 of $0.75, for an aggregate exercise price of $97,500.                 
| |   |                                                                                                                                                                                                                      
| |  | On February 4, 2010, we issued 27,778 shares of common stock to a
 consultant in exchange for $41,667 of consulting services for an effective
 price of $1.50 per share.                                             

The
issuances referenced above were completed under Section 4(2) of the Securities
Act and Regulation D promulgated thereunder on the basis that such transactions
did not involve a public offering and the offerees were accredited investors.
The recipients of these securities represented their intention to acquire the
securities for investment or in connection with services rendered and not with
a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions.

Item 6. Selected
Financial Data

Not Applicable.

Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations

Overview

We provide
wireless broadband services primarily to rural and other underserved markets
under the KeyOn, SpeedNet, and SIRIS brands. We offer our broadband
services along with VoIP and DISH Network video services to both residential and
business subscribers. We currently offer our broadband services to residential
and business subscribers in a market footprint covering over 62,000 square
miles in the following 11 Western and Midwestern states: Idaho, Illinois,
Indiana, Iowa, Kansas, Minnesota, Nebraska, Nevada, Ohio, South Dakota and
Texas. We estimate our existing footprint covers approximately 2.7 million
people, as well as small to mid-sized businesses in these areas. We have
principally grown our business through the acquisition of wireless broadband
companies operating in areas adjacent to our existing network operations as
well as through the organic growth of our subscriber base. From 2007 through
the end of 2010, we have acquired the assets of nine companies, which has
increased our subscriber base and expanded our network footprint.

We achieved
a critical financing milestone in February 2010 through the issuance of a $15
million secured convertible promissory note (the Cal Cap Note). We believe
that this financing provided us with sufficient capital to invest in our growth
strategies in 2010, including strategic acquisitions, 4G WiMAX deployments and
incremental sales and marketing efforts. This focus on growth and the available
capital resources served as a contrast to 2009 during which we experienced an
overall contraction of our business, primarily due to limited available
capital.

Our present
strategy is to achieve positive cash flow from operations by increasing our
revenues through acquisitions, value-added services that increase our ARPU and
growth in our subscriber base. In order to achieve this goal, we attempt to
keep the rate of growth in normalized operating expenses less than the growth
in revenues. Since receiving the proceeds from the Cal Cap Note, we believe we
have executed our principal growth strategies which consist of: Rural UniFi,
overall organic subscriber growth and strategic initiatives, including the
participation in government broadband programs such as the BIP and the
deployment of 4G WiMAX networks.

25

---



Rural
Unifi

In
September of 2009, we launched Rural UniFi, which formalized our strategic
acquisition of wireless broadband companies and Rural UniFi continues to be one
of our core growth strategies. We integrate each acquired business into our
existing infrastructure and achieve economies of scale through common
management, customer service, sales and marketing and billing functions. We are
engaged in ongoing discussions with numerous potential acquisition candidates
and believe we are well positioned to continue to make additional acquisitions
and grow our revenue and cash flow.

We
successfully completed 6 acquisitions in the year ended December 31, 2010,
that contributed towards a 9% revenue growth rate for the year ended December 31, 2010 as
compared to the year ended December 31, 2009. Additionally, based upon our
revenues for the quarter ended December 31, 2010, we experienced approximately
23% growth on an annualized basis.

Organic
Subscriber Growth

We
concentrated our marketing efforts during the year ended December 31, 2010,
increasing marketing expenses by 353% compared to the same period in 2009.
During the second half of 2010, we increased
marketing expenses approximately 98% compared to the marketing expenses incurred in the first half of 2010. As a result, 68% of our
total gross subscriber additions in 2010 occurred during the second half of 2010.
Additionally, the Company achieved a low average monthly churn of approximately
1.7% in 2010.

ARRA
Stimulus Award

At the end
of March 2010, we submitted applications for government stimulus funding under
the BIP. On September 13, 2010, we were announced as a $10.2 million award
recipient under the BIP to deliver 4G wireless broadband services to almost 40
communities throughout rural Nevada.

Pursuant to
the projects design, we will make 4G, last-mile wireless broadband access and
VoIP services available to approximately 93,000 people, 5,522 businesses and
849 critical community facilities in qualified rural communities throughout
Nevada under Round Two of the BIP. We plan to offer broadband service at speeds
up to 8 megabits per second (Mbps). We anticipate commencing our project in the
second quarter of 2011 and will be substantially complete within two years. We
are currently working with our third-party contractors and applicable RUS
personnel to begin requisitioning funds pursuant to the award, however, we
cannot provide any assurances as to the timing of the funding of the award or
whether we will ultimately receive it.

4G
Wireless Network Deployment

We also
implemented a next-generation, 4G wireless network with the launch of our WiMAX
network in Pahrump, Nevada. We believe that the introduction of 4G networks
will help increase both subscriber growth and ARPU.

Based upon
only seven full months of offering 4G WiMAX, we achieved penetration rates in
excess of 5% of the total households. Furthermore, prior to launching 4G WiMAX,
the ARPU for the market was approximately $32.17 per month. As of the end of
February 2011, the ARPU for 4G WiMAX subscribers increased to $38.61 per month,
an increase of greater than 20%. We believe this revenue growth evidences the
robust demand from our subscriber base for advanced wireless services and
faster data rate plans at a premium price. As a result
of our success in Pahrump, Nevada, in December 2010, we began deploying eight
additional WiMAX sites in certain rural Nebraska markets. Although we only recently launched commercial services, we believe that we can anticipate similar
results in terms of penetration and ARPU growth.

26

---



Characteristics of Our Revenues and Operating
Costs and Expenses

We offer
our services under annual, two-year or month-to-month service agreements. These
services are generally billed monthly, quarterly, semi-annually or annually in
advance. Payments received in advance for subscriptions are deferred and
recognized as the services are provided. Service initiation fees are recognized
at the time of installation.

Operating
costs and expenses consist of payroll and related expenses, network operating
costs, marketing and advertising, professional fees, installation expense and
general and administrative expenses. Payroll expenses consist of personnel
costs, including salaries, benefits, employer taxes, bonuses and stock
compensation expenses across our functional areas: executive, customer support,
engineering, accounting and billing, marketing, and local market operational
staff.

Network
operating costs are comprised of costs directly associated with providing our
services including tower rent, circuits to transport data to the Internet
termination point and Internet termination bandwidth.

Marketing
and advertising expenses primarily consist of direct marketing and advertising
costs. Professional fees relate to legal, accounting and consulting and
recruiting resources that we utilize periodically in the normal course of doing
business. General and administrative expenses primarily consist of the support
costs of our operations, such as costs related to office real estate leases,
company insurance, travel and entertainment, banking and credit card fees,
taxes and vehicle leases.

Results of Operations

Year Ended December 31, 2010 Compared to the
Year Ended December 31, 2009

Revenues.During the year ended December 31, 2010, we recognized revenues of $7,523,678, compared to revenues of $6,898,232 during the year ended December 31, 2009, representing an increase of approximately $625,446 or 9%.  Additionally, based upon our revenues for the quarter ended December 31, 2010,
we experienced an increase of revenues of 23% on an annualized basis.  Our increased revenue was a result of the completion of six acquisitions during the year ended December 31, 2010 and increased gross subscriber additions towards the end of 2010 resulting from an expansion of our marketing efforts as compared to the general contraction in our business and reduction in our subscriber base that
occurred throughout the year ended December 31, 2009. The acquisitions and subscriber growth that we
accomplished in the year ended December 31, 2010 served to reverse the decline we experienced in the year ended December 31, 2009. As a result of the increase in both the gross and net subscriber additions in the second half of 2010, we expect to receive the full financial benefit of this growth throughout 2011.

Operating Loss. Operating costs and expenses, which
consist of payroll, bonuses and taxes, depreciation and amortization, other
general and administrative expenses, network operating costs, marketing and
advertising, installation expense and professional fees totaled $14,621,781 for
the year ended December 31, 2010, as compared to $11,567,438 for the year ended
December 31, 2009, representing an increase of approximately $3.05 million or
26%. The majority of the increase relates to increases in professional fees and
payroll expenses, the combined increase in these two categories represent an
increase of $2.7 million or 88% of the total increase. The professional fees
increase is almost entirely due to expenses incurred in connection with our
Round Two ARRA applications during the year ended December 31, 2010. Increases
in payroll and benefits is primarily due to additional headcount in support of
our expanded operations resulting from our Rural UniFi initiatives, including
temporary staff associated with integrating those acquisitions, in furtherance
of our organic growth efforts, non-cash stock based compensation, payroll
expenses associated with the duplication and relocation of the accounting staff
from Omaha, Nebraska to Las Vegas, Nevada and enhancing the Companys financial
reporting processes and systems. The remaining increase in operating expenses
was due to increases in marketing expenses, installation expenses and certain
general and administrative costs of approximately $500,000 or 16% of the
total increase when compared to the year ended December 31, 2009. Marketing
expenses and installation expenses increased with our continued efforts to grow
our subscriber base during the year ended December 31, 2010 and resulted in 83%
growth in gross subscriber additions in 2010 as compared to 2009. Certain general and
administrative costs increased due mostly to transitional operations produced
by

27

---



the consolidation of the businesses acquired in 2010 and increase in
travel expenses related to the moving of the accounting department from Omaha
to Las Vegas. Our operating loss margin increased by 52% to a total operating
loss of $7,098,103 for the year ended December 31, 2010 as compared to an
operating loss of $4,669,206 for the year ended December 31, 2009. After
removing approximately $2.3 million of one-time costs associated with
professional fees incurred in connection with our Round Two ARRA applications,
temporary staff, non-cash stock based compensation, payroll expenses from the
duplication and relocation of our accounting staff and the travel expenses
related to the moving of the accounting departments, our normalized operating
loss for 2010 equaled  $4,727,574 and our operating loss margin decreased
approximately five percentage points from 68% for the year ended December
31, 2009 to 63% for the year ended December 31, 2010.

Payroll,
Bonuses and Taxes. Payroll bonuses and taxes, which
includes stock compensation expense, totaled $5,129,802 for the year ended
December 31, 2010, as compared to $3,505,812 for the year ended December 31,
2009, representing an increase of approximately $1.6 million or 46%. A majority
of the increase was due to additional headcount in support of our expanded
operations resulting from our Rural UniFi initiative and in furtherance of our
organic growth efforts. During the year, our employee headcount increased from
56 employees as of December 31, 2009 to 74 employees as of December 31, 2010.
In addition, we incurred non-recurring expenses of approximately $290,000
relating to the duplication of staff expense during the transition period of
relocating our accounting functions from Omaha to Las Vegas. Also, we incurred
an increase in our of non-cash stock based compensation of approximately
$385,527 or 57%. By removing the non-recurring expenses and non-cash expenses
incurred during the years ended December 31, 2010 and 2009, normalized payroll,
bonuses and taxes would be approximately $3,770,000 and $2,824,000,
respectively, for an increase of approximately $948,000 or 34%.

Depreciation
and Amortization. Depreciation and amortization
expenses totaled $2,080,303 for the year ended December 31, 2010, as compared
to $2,423,657 for the year ended December 31, 2009, representing a decrease of
approximately 14%. This decrease is primarily due to the assets obtained from
SpeedNet Services, Inc., (SpeedNet) acquired on February 1, 2007, which became
fully depreciated as of January 31, 2010.

Network
Operating Costs, which consist of tower rent, Internet
transport costs and Internet termination expenses, totaled $3,342,913 for the
year ended December 31, 2010, as compared to $2,804,905 for the year ended
December 31, 2009, representing an increase of $538,008 or 19%. The increase
was primarily due to an increase in network costs resulting from acquisitions.
In addition, during the year ended December 31, 2009, we received a credit in
the amount of approximately $43,000 from a vendor for invoices previously
recorded to network operating expense. By removing this non-recurring credit,
the normalized network operating cost for the year ended December 31, 2010 increased by 17% from the year ended
December 31, 2009.

Other
General and Administrative Expenses. Other general and
administrative expenses totaled $1,509,843 for year ended December 31, 2010, as
compared to $1,256,141 for the year ended December 31, 2009, representing an
increase of $253,705 or 20%. The majority of the increase was for higher postage
charges related to organic sales and marketing initiatives, accounting for
approximately $170,000 or 63% of the total increase. Other contributing
factors included increased office rents, office utilities in support of our Rural
UniFi initiative, travel related to acquisitions and moving costs related to
the relocation of our accounting functions to Las Vegas equaling
approximately $94,000 or 35% of the increase.

Installation
Expense. Installation expense,
which consists primarily of expenses associated with installation supplies,
third party installation costs and transportation expenses relating to the
installations, totaled $267,427 for the year ended December 31, 2010, as
compared to $168,761 for the year ended December 31, 2009, representing an
increase of $98,666 or 58%. This is a direct result of the 83% increase in
gross subscriber additions referred to during the year ended December 31, 2010.

Professional Fees. Professional fees, which consist of legal,
accounting, and other related expenses, totaled $1,901,117 for the year ended
December 31, 2010, as compared to $1,022,631 for the year ended December 31,
2009, representing an increase of approximately $878,486 or 86%. The
majority of this increase was due to expenses incurred in connection with our
Round Two ARRA applications, the proposed acquisition of certain assets of a hosted VoIP, expenses incurred in
connection with the Cal Cap Note and legal and professional fees incurred with
our Rural UniFi initiative for a total of $854,000 or 97% of the total
increase.

28

---



Marketing
  and Advertising Expenses. Marketing
  and advertising expenses totaled $390,376 for the year ended December 31, 2010,
  as compared to $86,209 for the year ended December 31, 2009, representing an
  increase of $304,167 or 353%. Due to our ongoing efforts to organically grow
  our subscriber base, we continued to increase marketing initiatives for the
  year ended December 31, 2010. During 2010, we experienced approximately 83%
growth in gross subscriber additions as compared to 2009.

Other
Income and Expense. We incurred other income of
$9,306,458 for the year ended December 31, 2010, as compared to an expense of
$1,926,496 for the year ended December 31, 2009, representing an increase of
$11,232,954 or 583%. The primary reason for the increase was the derivative accounting of
the Cal Cap Note, which included the following non-cash items: a $29,792,150
fair value charge for the difference between the issuance date of a derivative
liability and the $15,000,000 of proceeds received from the investor in the
note transaction; a $42,401,635 increase in the fair value change of the
derivative liability and a $1,958,451 increase in interest expense for the note
accretion expense. During the year ended December 31, 2009, we incurred a loss
on a note repaid in common stock of $1,188,042.

Goodwill
Asset Impairment. We performed annual goodwill impairment
test on our designated testing dates of December 31, 2009 and 2010 using both
the income approach and market approach with assumptions that our management
believes are appropriate in the circumstances. We recorded no goodwill asset
impairment for the year ended December 31, 2010 as compared to $299,322 for the
year ended December 31, 2009. In the fourth quarter of fiscal 2010, we
conducted an impairment test of our goodwill and intangible assets which
resulted in no impairment charges to the goodwill balances of the subscriber
bases obtained in our acquisitions. As of December 31, 2010, we had
$1,815,095 of goodwill and $881,434 of net intangible assets, which includes
subscriber base assets resulting from our acquisitions and the Companys trademarks,
remaining on our balance sheet, which we currently believe to be realizable
based on the estimated fair value.

Net
Income/Loss. We had net income of $2,042,884 for the
year ended December 31, 2010, as compared to a net loss of $6,595,702 for the
year ended December 31, 2009, representing an increase of $8,638,586 or approximately
131%. The major contributing factor of the improved net income was income
recognized totaling $12,609,485 for the net change in fair value of the
derivative instrument referred to above.

Liquidity and Capital Resources

General

We had net
income of $2,042,884 and an operating loss of $7,098,103 for the year ended
December 31, 2010. At December 31, 2010, our accumulated deficit amounted to
$26,261,840. During the year ended December 31, 2010, net cash used in
operating activities amounted to $3,785,653. At December 31, 2010, The
Companys working capital amounted to a deficit of $1,194,516, which includes a
liability for the fair value of a derivative financial instrument which, if
exercised, would have resulted in a net share settlement of 20,000,000 shares.

We received
an award under ARRA, specifically, Round Two of the BIP administered by the
RUS. This federal program allocated $2.5 billion for broadband infrastructure
in rural markets and created a new opportunity for us to access federal grants
and loans for the build-out of next-generation wireless networks in eligible
markets. On September 13, 2010, we were announced as a $10.2 million award
winner to build and operate networks throughout rural Nevada to nearly 100,000
rural residents. We expect to contribute approximately $2 million in matching
funds during the projects construction. The RUS award makes it possible for us
to provide 4G WiMAX broadband services where it is otherwise not economically
feasible to do so, based on the high cost to deploy communications facilities
in sparsely populated rural markets. We anticipate commencing its project in
the second quarter of 2011 and will be substantially complete within two years.
We are currently working with our third-party contractors and applicable RUS
personnel to begin requisitioning funds pursuant to the award, however, we
cannot provide any assurances as to the timing of the funding of the award or
whether we will ultimately receive it.

29

---



On February
5, 2010, we issued the Cal Cap Note in exchange for gross proceeds of $15
million. On December 3, 2010, we entered into an agreement (the Conversion
Agreement) with Cal Cap, pursuant to which CalCap agreed to convert all of the
outstanding principal and accrued but unpaid interest under the Cal Cap Note
into shares of Series A Preferred Stock (Preferred Stock) at a
conversion price of $1.00 per share (the Conversion). The Cal Cap Note is
convertible into shares of Series Cal Cap Preferred Stock and shares of common
stock. On March 11, 2011, pursuant to the Conversion Agreement, the
Company issued 16,315,068 shares of  Preferred Stock, in addition to
10,300,000 exercisable warrants to obtain Preferred Stock.

We believe
that this financing provided us with sufficient capital to execute our business
plan, which consists of: Rural UniFi, overall organic subscriber growth and
other strategic initiatives, including the participation in government
broadband programs. Specifically, in 2010, we completed six acquisitions, and
subsequent to December 31, 2010, we completed the purchase of two additional
businesses, increasing our subscriber base by approximately 3,500 wireless
broadband subscribers and bringing our total subscriber count to approximately
20,200. As a result of the additional subscribers and the elimination of certain expenses upon integrating these businesses, we will consume less cash for operations.

We
currently anticipate that our cash and cash equivalents will be sufficient to
meet our working capital requirements to continue our sales and marketing and
research and development through at least January 1, 2012. However, in order to
execute our long-term strategy and penetrate new and existing markets, we may
need to raise additional funds, through public or private equity offerings,
debt financings, corporate collaborations or other means. Management believes
that we may be able to access capital through public or private equity
offerings, debt financings, corporate collaborations or other means; however,
other than the $10.2 million award noted above we have not secured any
commitment for new financing at this time, nor can we provide any assurance
that new financing will be available on commercially acceptable terms, if
needed. If we are unable to secure additional capital, we may be required to
curtail our business development initiatives and take additional measures to
reduce costs in order to conserve our cash needs.

Working Capital

As of
December 31, 2010, we had negative working capital of $1,194,517 that included
a derivative liability balance of $2,390,515, compared to a negative working
capital of $2,642,607 as of December 31, 2009, representing an improvement of
$1,448,090.

Our net
cash outflows from operating activities amounted to $3,785,653 for the year
ended December 31, 2010. These net cash outflows included approximately $1
million of non-recurring professional fees incurred in connection with
submitting our applications for rural broadband expansion projects under Round
Two of the ARRA. In addition, those net cash outflows included approximately
$256,900 for other one-time expenses associated with relocating our accounting
function from Omaha to Las Vegas, as well as temporary duplicative headcount
while the transition occurred. The majority of our expenses are either fixed or
discretionary and tend not to fluctuate significantly based on our revenues or
any seasonal trends. Accordingly, normalized cash burn rate for the year ended
December 31, 2010, after giving effect to these non-recurring charges, is
approximately $2.5 million. On a quarterly basis, cash used in operating
activities amounted to approximately $1.2 million during each of the quarters
ended March 31, 2010 and June 30, 2010, approximately $700,000 during the
quarter ended September 30, 2010 and $ 650,000 during the quarter ended
December 31, 2010, before any non-recurring charges. Non-recurring charges in
each of these quarters amount to approximately $780,000, $230,000, $0 and
$260,000, respectively.

We believe
that the amount of cash used in operations, net of the non-recurring expenses
during the most recent quarterly period reflects the amount of cash that the
Company expects to burn under normal operating circumstances for the quarterly
periods ending on March 31, 2011, June 30, 2011, September 30, 2011 and
December 31, 2011. Additionally, as a result of certain acquisitions and
divestures completed in 2011, the amount of cash used in operations is expected
to further decrease for the quarterly periods ending on March 31, 2011, June
30, 2011, September 30, 2011 and December 31, 2011. If necessary, we can also
make discretionary reductions in certain capital expenditures and curtail
certain costs to reduce cash outflows. We further believe that the excess of
capital resources over of our projected cash outflows is sufficient to address
any non-discretionary expenses that might arise as a result of unforeseen
circumstances and that as a result, our capital will enable us to sustain operations
through at least January 1, 2012.

30

---



Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial
Statements.

See the Companys financial statements beginning on page F-1.

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

Not applicable.

Item 9A.
Controls and Procedures.

Evaluation of
Disclosure Controls and Procedures

The
Companys management is responsible for establishing and maintaining a system
of disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Exchange Act) that is designed to ensure that information
required to be disclosed by the Company in the reports that the Company files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuers management, including its
principal executive officer or officers and principal financial officer or
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.

In
accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was
completed under the supervision and with the participation of the Companys
management, including the Companys principal executive officer and principal
financial officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of the end of the period
covered by this annual report. Based on that evaluation, the Companys
management including the principal executive officer and principal financial
officer, concluded that the Companys disclosure controls and procedures were
not effective in providing reasonable assurance that information required to be
disclosed in the Companys reports filed or submitted under the Exchange Act
was recorded, processed, summarized, and reported within the time periods
specified in the SECs rules and forms.

Evaluation of
Internal Controls and Procedures

Our management is also responsible for establishing and maintaining
adequate internal control over financial reporting. The Companys internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.

Our internal control over financial reporting includes those policies
and procedures that:

| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to the maintenance of records that, in reasonable detail,
 accurately and fairly reflect the transactions and dispositions of the assets
 of the Company;                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                    
| |  | Provide reasonable assurance that transactions are recorded as
 necessary to permit preparation of financial statements in accordance with
 generally accepted accounting principles, and that our receipts and
 expenditures are being made only in accordance with authorizations of the
 Companys management and directors; and
| |   |                                                                                                                                                                                                                                                                                                                                    
| |  | Provide reasonable assurance regarding prevention or timely detection
 of unauthorized acquisition, use or disposition of our assets that could have
 a material effect on the financial statements.                                                                                                                               

31

---



As of
December 31, 2010, we carried out an assessment of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, our
management concluded that our internal control over financial reporting was not
effective as of December 31, 2010.

Management
of our Company had reported at previous dates of assessment that we identified
various deficiencies in our accounting processes and procedures that constitute
a material weakness in internal control over financial reporting and disclosure
controls. We took certain steps during the year ended December 31, 2010 to
correct previously reported material weaknesses that include, among other things,
consolidating all legacy systems into a single unified accounting system and
undertaking the process of documenting our controls; however, we still need to
make substantial progress in these areas before we can definitively conclude
that we have remediated our material weaknesses.

Management
has specifically observed that our accounting systems and current staffing
resources in our finance department are currently insufficient to support the
complexity of our financial reporting requirements. We have in the past, and
are continuing to experience difficulty in (i) generating data in a form
and format that facilitates the timely analysis of information needed to
produce financial reports and (ii) applying complex accounting and financial
reporting disclosure rules as required under various aspects of GAAP and SEC
reporting regulations such as those relating to accounting for business
combinations, stockholders equity transactions, derivatives and income taxes.
We also have limited segregation of duties and it is becoming increasingly
necessary for us to divide certain custodial, recordkeeping and authorization
functions between our Chief Financial Officer, Controller, and supporting staff
to mitigate the risk of material misstatements.

We have
instituted certain procedures to mitigate our internal control risks. Our Chief
Executive Officer, Chief Financial Officer and Controller review and approve
substantially all of our major transactions to ensure the completeness and fair
presentation of our financial statements and we have, when needed, hired
outside experts to assist us with implementing complex accounting principles.
We believe that our weaknesses in internal control over financial reporting and
our disclosure controls relate in part to the fact that we are an emerging
business with limited personnel. Management and the Board of Directors believe
that the Company must allocate additional human and financial resources to
address these matters. Accordingly, during the year ended December 31, 2010, the
Company relocated its accounting functions and hired additional accounting
personnel to support the Company in its compliance process. The Company intends
to continue making necessary changes until its material weaknesses are
remediated.

This annual
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by the Companys registered
public accounting firm pursuant to the exemption provided to issuers that are
neither large accelerated filers nor accelerated filers under the
Dodd-Frank Wall Street Reform and Consumer Protection Act.

Changes in Internal Control over Financial
Reporting

There were
no changes in our internal control over financial reporting during our last
fiscal quarter that materially affected or are reasonably likely to materially
affect our internal control over financial reporting.

Item 9B. Other
Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers, and
Corporate Governance

The
following table sets forth information regarding the members of the Companys
board of directors and the Companys executive officers. All directors hold
office for one-year terms until the election and qualification of their
successors. Officers are elected annually by the board of directors and serve
at the discretion of the board.

32

---



|                  |  |     |  |                                                                                 
|----------------- |  | --- |  | --------------------------------------------------------------------------------
|Name              |  | Age |  | Position                                                                        
|                  |  |     |  |                                                                                 
|Jonathan
Snyder   |  | 39  |  | Chief
Executive Officer, President and Director, Interim Chief Financial
Officer
|                  |  |     |  |                                                                                 
|A. Robert
Handell |  | 64  |  | Executive
Vice President, Chief Operating Officer, Secretary and Director       
|                  |  |     |  |                                                                                 
|Jason Lazar       |  | 37  |  | Vice
President, Corporate Development and General Counsel                       
|                  |  |     |  |                                                                                 
|Rick
Thompson     |  | 53  |  | Vice
President of Sales and Marketing                                           
|                  |  |     |  |                                                                                 
|Diego
Horenstein  |  | 39  |  | Controller                                                                      
|                  |  |     |  |                                                                                 
|Rhett
Holechek    |  | 31  |  | Director of
Engineering                                                         

Jonathan Snyder, President, Chief Executive Officer,
Interim Chief Financial Officer and Director. Mr. Snyder has served
as the Companys President, Chief Executive Officer and as a director since
August 2007. Mr. Snyder has served as our Interim Chief Financial Officer since December 4, 2010. Mr. Snyder has been the President, Chief Executive Officer and a
director of the Company since February 2002. From May 2001
through June 2005, Mr. Snyder served as chairman of Transistor 8 LLC, a Santa
Monica, California-based IT services firm. From 1996 through 1999, Mr. Snyder
was a member of Pacific Capital Group, Inc. From 1994 through 1996, Mr. Snyder
was an investment banker at Bear, Stearns & Co. Inc. While at Pacific
Capital Group, Inc., Mr. Snyder was a founding shareholder of and former
management executive at Global Crossing Limited (Global Crossing). Mr. Snyder is a graduate of
the Wharton School of Business at the University of Pennsylvania and earned his
MBA from the Anderson School at UCLA.

Mr. Snyder
has had experience financing several large-scale telecommunications companies
as a private equity investor and an investment banker. As a
telecommunications banker at Bear Stearns, he participated in many financings
for emerging growth telecommunications companies and helped to advise on
several mergers and acquisitions transactions. Mr. Snyder joined Pacific
Capital Group, a merchant bank, where he participated in the structuring and
financing of Global Crossing and become a founding shareholder. He later held
positions in the senior management team in sales and finance. Mr. Snyders
knowledge of financial markets and acumen in structuring and negotiating
transactions in the telecommunications industry as well as his previous
management experience at a global telecommunications company and his present experience at
KeyOn provides him with the breadth and uniqueness of skill-sets to serve on
the Board of Directors of the Company.

A. Robert Handell, Executive Vice President, Chief
Operating Officer, Secretary and Director. Mr. Handell has served as
the Companys Executive Vice President, Chief Operating Officer, Secretary and
as a director since August 2007. Mr. Handell has served as a director of KeyOn
Communications, Inc. since December 2004 and as Chief Operating Officer since
January 2007. From July 2002 through December 2006, Mr. Handell served as
President and as a director of CalNevAr Ventures, Inc., an entity formed to
provide operational consulting services to KeyOn Communications, Inc. From May
2000 through July 2003, Mr. Handell served as Chief Executive Officer and
President of BroadLink Communications Inc., a high-speed wireless data network
operator headquartered in Santa Rosa, California. From April 1997 through April
2000, Mr. Handell served as President of Edison Source, an Edison International
company. From January 1996 through June 1997, Mr. Handell served as President
and Chief Executive Officer of AccessLine Technologies Inc., a provider of
personal number software and systems to telecommunications carriers. From July
1991 through December 1995, Mr. Handell served as Executive Vice President and
Chief Operating Officer of BellSouth MobileComm and from April 1987 through
June 1991, Mr. Handell served as Vice President of Sales, Marketing and
Customer Service at Bell Atlantic Mobile Systems.

33

---



Mr. Handell
has had over 40 years experience in leading the operations of several large
organizations, including senior management roles at BellSouth MobileComm, Bell
Atlantic, Edison Source (a division of Edison International) and Xerox. Mr.
Handell has in-depth experience in the operations of telecommunications
companies across a broad range of areas, including executive leadership
experience, which provides him with a strong understanding of the general
industry, its fundamentals and value drivers. For example, while at BellSouth
MobileComm, after BellSouth, the parent company, purchased a nationwide paging
license, Mr. Handell, as Chief Operating Officer, managed the build-out of the
paging network overseeing a staff of over 1,250 people. Under Mr. Handells
operations leadership, BellSouth MobileComm achieved over 2 million subscribers
and was sold for over $1 billion. In addition, Mr. Handell was a Vice President
for Bell Atlantic Mobile Systems (predecessor to Verizon) where he ran
marketing, sales and customer service for the northeast region. Prior to
serving as our Chief Operating Officer, Mr. Handell was Chief Executive Officer
of one the first wireless broadband companies in the country.

Jason
Lazar, Vice President of Corporate Development and General Counsel.
Mr. Lazar has served as our Vice President of Corporate Development and General
Counsel since August 2007. Mr. Lazar has also served as the Vice President of
Corporate Development and General Counsel of KeyOn Communications, Inc. since
June 2006. Mr. Lazar previously served as the Director of Corporate Development
of KeyOn Communications, Inc. from March 2002 to June 2006. From May 2000
through March 2002, Mr. Lazar served as a director of ITU Ventures, a leading
early-stage venture capital firm with more than $75,000,000 under management.
Mr. Lazar holds a bachelors degree from Lehigh University and a JD from the
Benjamin N. Cardozo School of Law at Yeshiva University.

Rick
Thompson, Vice President of Sales and Marketing. Mr.
Thompson has served as our Vice President of Sales and Marketing since January
2011. Mr. Thompson is an accomplished sales, marketing and customer service
professional with a progressive career in wireless telecommunications, sales,
marketing, communications and business development. Prior to January 2011, Mr.
Thompson previously served as General Manager of our Iowa properties since
December 2010. Prior to joining KeyOn, Rick spent over 20 years in various
sales and marketing with Southwestern Bell, McCaw Cellular Communications, Bell
South, AT&T, Brighthouse Networks, US Cellular and Cricket Communications.

Diego
Horenstein, Controller. Mr. Horenstein has been with
us since August 2010 and has served as our Controller since November 2010. Mr.
Horenstein has an extensive experience in finance and accounting management
positions, including serving as the International Finance Manager for Bally
Technologies, a leading slot manufacturer from May 2009 to May 2010. Prior to
Bally Technologies, Mr. Horenstein served as the Controller for Dow Industries,
an underground construction company from May 2006 to May 2009. Prior to joining
Dow Industries, Mr. Horenstein served as the Corporate Controller for Corrigan
Management, a business management company from August 2000 to April 2006. Mr.
Horenstein holds a bachelors degree in Accounting from the University of Mar
del Plata, Argentina.

Rhett
Holechek, Director of Engineering. Mr. Holechek has
served as our Director of Engineering since April 2008. As the Director of
Engineering, he oversees all aspects of our broadband networks, systems, and
radio frequency (RF) elements. Prior to joining us, Mr. Holechek previously
served as the Sr. Network Engineer and Sr. RF Engineer for SpeedNet Services,
Inc. (SpeedNet) beginning in June 2006. He retained this position when we
acquired SpeedNets assets in January 2007. Mr. Holechek was the Director of
Network Operations at Diode Communications from July 2001 until June 2006,
where he also managed the networking, systems, and RF functions of the
organization.

Section
16(a) Beneficial Ownership Reporting Compliance

Section
16(a) of the Exchange Act requires our directors, executive officers, and any
persons who own more than 10% of a registered class of our equity securities,
to file statements of beneficial ownership and changes in beneficial ownership
of our common stock with the SEC, and to furnish us with copies of these
statements. Based solely on our review of such statements furnished or
available to us, we believe that our directors, executive officers and 10%
shareholders complied with all of these requirements during 2010.

34

---



Board Committees

The Audit,
Compensation and Nominating and Corporate Governance committees were dissolved
on May 11, 2009. These committees have not been re-instituted, however, we
anticipate doing so in accordance with Nasdaq Marketplace Rule 4200 in the
future. Our entire Board of Directors performs the principal functions of an
Audit Committee.

Code of Ethics

We have
adopted a written code of ethics and business conduct that applies to our
directors, executive officers and all employees, including our principal
executive officer, principal financial officer, principal accounting officer
and controller. We intend to disclose any amendments to, or waivers from, our
code of ethics and business conduct that are required to be publicly disclosed
pursuant to rules of the SEC by filing such amendment or waiver with the SEC.
This code of ethics and business conduct can be found in the corporate
governance section of our website, www.keyon.com. We will provide to any person
without charge a copy of our code of ethics, upon written request to the
following address: KeyOn Communications Holdings, Inc., 11742 Stonegate Circle,
Omaha, Nebraska 68164, Attention: General Counsel.

Item 11.
Executive Compensation.

Summary Compensation Table

The
following table summarizes the annual and long-term compensation paid to
Jonathan Snyder, our Chief Executive Officer and interim Chief Financial Officer,
A. Robert Handell, our Executive Vice President, Chief Operating Officer and
Secretary and Annette Eggert, who served as our Chief Financial Officer until
December 4, 2010, whom are jointly refers to as our named executive
officers.

|                                                                    |  |      |  |           |  |          |  |                     |  |                           |  |         
|------------------------------------------------------------------- |  | ---- |  | --------- |  | -------- |  | ------------------- |  | ------------------------- |  | --------
|Name and Principal
Position                                         |  | Year |  | Salary($) |  | Bonus($) |  | Option
Awards(1)($) |  | All
Other
Compensation($) |  | Total($)
|                                                                    |  |      |  |           |  |          |  |                     |  |                           |  |         
|Jonathan Snyder                                                     |  | 2010 |  | 150,000   |  |         |  | 188,816             |  |                          |  | 338,816 
|President and Chief Executive Officer (principal executive officer) |  | 2009 |  | 127,083   |  |         |  | 110,025             |  |                          |  | 237,108 
|Annette Eggert                                                      |  | 2010 |  | 114,000   |  |         |  | 288,682             |  |                          |  | 402,682 
|Chief Financial Officer (2)                                         |  | 2009 |  | 125,159   |  |         |  | 114,347             |  |                          |  | 239,506 
|A. Robert Handell                                                   |  | 2010 |  | 125,000   |  |         |  | 194,330             |  |                          |  | 319,330 
|Executive Vice President and Chief Operating Officer                |  | 2009 |  | 127,088   |  |         |  | 113,359             |  |                          |  | 240,447 
|Jason Lazar                                                         |  | 2010 |  | 122,394   |  |         |  | 194,330             |  |                          |  | 316,724 
|Vice President of Corporate development and General Counsel         |  | 2009 |  | 100,000   |  |         |  | 113,359             |  |                          |  | 213,359 

|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based upon
the aggregate grant date fair value calculated in accordance with the
Financial Accounting Standards Board Accounting Standards Codification
(ASC) 718, Compensation  Stock Compensation (ASC 718). For
information regarding our valuation of option awards, see Note 2  Liquidity
and financial Condition  Stock-Based Compensation.
|    |                                                                                                                                                                                                                                                                                                                                                           

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Annette
      Eggert served as our Chief Financial Officer until December 4, 2010. Upon her
      departure, the vesting of Ms. Eggerts options was accelerated by the Board
      of Directors, such that both of the option awards granted to her under the
      2007 Incentive Stock and Awards Plan are fully vested. Jonathan Snyder is
      currently serving as our interim Chief Financial Officer and Treasurer
      effective as of December 4, 2010.

35

---



Option
Awards

Our Board
of Directors approved awards of stock options pursuant to the 2007 Incentive
Stock and Awards Plan in 2009 and 2010. On June 1, 2009, our Board of Directors
approved stock option awards for Ms. Eggert and Messrs. Snyder, Handell and
Lazar equal to 80,650 stock options, 330,000 stock options, 340,000 stock options and 340,000
stock options, respectively. These stock option awards vested one-fourth upon
the first anniversary of the date of grant and in equal installments equal to
one thirty-sixth of the remaining options, each month thereafter.

Outstanding Equity Awards at Fiscal Year-End

The
following table summarizes the outstanding equity awards to the Companys named
executive officers as of December 31, 2010:

|                  |  |                                                                     |  |                                                                       |  |                           |  |                       
|----------------- |  | ------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | ------------------------- |  | ----------------------
|                  |  | Option Awards                                                      
|Name              |  | Number of
Securities
Underlying
Unexercised
Options Exercisable
(#) |  | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) |  | Option Exercise
Price
($) |  | Option
Expiration
Date
|                  |  |                                                                     |  |                                                                       |  |                           |  |                       
|Jonathan
Snyder   |  | 75,000                                                              |  |                                                                      |  | 4.00                      |  | 08/08/2017            
|                  |  | 130,625                                                             |  | 199,375                                                               |  | 0.25                      |  | 06/01/2019            
|                  |  |                                                                     |  |                                                                       |  |                           |  |                       
|Annette
Eggert    |  | 120,886                                                             |  |                                                                      |  | 2.48                      |  | 06/01/2017            
|                  |  | 80,650                                                              |  |                                                                      |  | 0.25                      |  | 06/01/2019            
|                  |  |                                                                     |  |                                                                       |  |                           |  |                       
|A. Robert
Handell |  | 37,500                                                              |  |                                                                      |  | 4.00                      |  | 08/08/2017            
|                  |  | 134,583                                                             |  | 205,417                                                               |  | 0.25                      |  | 06/01/2019            
|                  |  |                                                                     |  |                                                                       |  |                           |  |                       
|Jason Lazar       |  | 37,500                                                              |  |                                                                      |  | 4.00                      |  | 08/08/2017            
|                  |  | 134,583                                                             |  | 205,417                                                               |  | 0.25                      |  | 06/01/2019            

2007 Incentive Stock and Awards Plan

On August
9, 2007, our Board of Directors and stockholders adopted the 2007 Incentive
Stock and Awards Plan. The purpose of the 2007 Incentive Stock and Awards Plan
is to provide an incentive to attract and retain directors, officers,
consultants, advisors and employees whose services are considered valuable, to
encourage a sense of proprietorship and to stimulate an active interest of such
persons in our development and financial success. Under the 2007 Incentive
Stock and Awards Plan, we are authorized to issue incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the Code), non-qualified stock options, stock appreciation rights,
performance shares, restricted stock and long term incentive awards. The 2007
Incentive Stock and Awards Plan is administered by our Board of Directors.
Generally, each of the awards granted under the 2007 Incentive Stock and Awards
Plan, including those listed in the above table, vest one-fourth (or 25%) upon
the first anniversary of the date of the grant and in equal installments, each
month thereafter, for a period of thirty-six months, provided that the awardee
remains continually employed by us.

36

---



2010 Incentive Stock and Awards Plan

On July 24, 2010, our Board of Directors
and stockholders adopted the 2010 Incentive Stock and Awards Plan (the 2010
Plan) at our annual meeting. Under the 2010 Plan, we are authorized to issue
incentive stock options intended to qualify under Section 422 of the Code,
non-qualified stock options, stock appreciation rights, performance shares,
restricted stock and long term incentive awards. The 2010 Plan is administered
by our Board of Directors.

Director Compensation

Our Board of Directors consists solely of
executive officers. The current members of the Board of Directors consisting of
Jonathan Snyder and A. Robert Handell do not receive compensation for serving
that capacity.

Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

The following table sets forth
information with respect to the beneficial ownership of the Companys common
stock as of March 28, 2011 by (i) each person known by us to beneficially own
more than 5% of our common stock, (ii) each of our directors, (iii) each of our
named executive officers, and (iv) all of our directors and executive officers
as a group.

The percentages of common stock
beneficially owned are reported under the regulations of the SEC governing the determination of
beneficial ownership of securities. Under the rules of the SEC, a person is
deemed to be a beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or to direct the voting of the
security, or investment power, which includes the power to dispose of or to
direct the disposition of the security. Except as otherwise indicated in the
footnotes to this table, each beneficial owner named in the table below has
sole voting and investment power with respect to the shares listed and each
persons address is c/o KeyOn Communications Holdings, Inc., 11742 Stonegate
Circle, Omaha, Nebraska 68164. As of March 28, 2011, the Company had 23,768,211
shares outstanding.

|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|------------------------------------------------------------ |  | --------------------------------------------------- | ---------- | ----------------------------------- |  | -------------------------------------------------------------- | - | ----------------------------------- | ---------- |  |  | ---- | 
|Name of Beneficial Owner                                     |  | Number
 of
 Common
 Shares
 Beneficially
 Owned (1) |            | Percentage
 Beneficially
 Owned (1) |  | Number
 of Series
 A Preferred
 Shares Beneficially
 Owned (1) |   | Percentage
 Beneficially
 Owned (1) |           
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |           
|The California Capital
 Limited Partnership                  |  |                                                     | 26,615,068 | (2)                                 |  | 52.8                                                           | % |                                     | 26,615,068 |  |  | 100% | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Jonathan Snyder                                              |  |                                                     | 2,245,912  | (3)                                 |  | 9.2                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Jerome Snyder                                                |  |                                                     | 2,196,365  | (4)                                 |  | 9.0                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Dynamic Broadband
 Corporation                               |  |                                                     | 2,037,574  | (5)                                 |  | 8.6                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Liviakis Financial
 Communications, Inc.                     |  |                                                     | 2,000,000  | (6)                                 |  | 8.4                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Robert B. Prag                                               |  |                                                     | 1,363,650  | (7)                                 |  | 5.7                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Jason Lazar                                                  |  |                                                     | 750,375    | (8)                                 |  | 3.1                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|A. Robert Handell                                            |  |                                                     | 726,563    | (9)                                 |  | 3.0                                                            | % |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|Annette Eggert                                               |  |                                                     | 201,536    | (10)                                |  | *                                                              |   |                                     |           |  |  | *    | 
|                                                             |  |                                                     |            |                                     |  |                                                                |   |                                     |            |  |  |      | 
|All directors and executive
 officers as a group (4 persons) |  |                                                     | 3,722,850  |                                     |  | 14.3                                                           | % |                                     |           |  |  | *    | 

37

---



* Less than 1%.

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  | Shares of common
 stock beneficially owned and the respective percentages of beneficial
 ownership of common stock assumes the exercise of all options, warrants and
 other securities convertible into common stock beneficially owned by such
 person or entity currently exercisable or exercisable within 60 days of March
 23, 2011. Any shares of common stock not outstanding which are subject to
 such options, warrants, rights or conversion privileges are deemed
 outstanding and held by the holder of such options, warrants rights or
 conversion privileges for computing the percentage of outstanding common
 stock beneficially owned by such person, but are not deemed outstanding for
 computing the percentage of outstanding common stock beneficially owned by
 any other person.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2)  | Represents
 16,315,068 shares of common stock issuable upon the conversion of 16,315,068
 shares of Series A Preferred Stock that are currently outstanding and
 10,300,000 shares of common stock issuable upon the exercise of Series A
 Preferred Warrants. However, each share of Series A Preferred Stock or Series
 A Preferred Warrant exercisable into shares of Series A Preferred Stock shall
 have the right to three (3) votes for each share of Common Stock into which
 such share of Series A Preferred Stock could then be converted. As a result,
 the total voting power of the outstanding shares held or exercisable by The
 California Capital Limited Partnership is equal to 77.06%.                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(3)  | Includes
 405,000 shares of common stock issuable upon the exercise of options and 346,875
 shares of common stock issuable upon the exercise of warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(4)  | Includes
 96,072 shares of common stock issuable upon the exercise of options and
 646,875 shares of common stock issuable upon the exercise of warrants. The
 address of Jerome Snyder is 8628 Scarsdale Drive, Las Vegas, Nevada 89117.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(5)  | The address
 of Dynamic Broadband Corporation is c/o Corridor Management, 101 First
 Avenue, SE PO Box 607, Cedar Rapids, IA 52406, Attn: Dennis Wangeman.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(6)  | Common stock
 issued for professional services rendered May 2009 through April 2010. The
 address of Liviakis Financial Communications, Inc. is 655 Redwood Highway,
 Suite #395, Mill Valley, California 94941.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(7)  | The address
 of Robert B. Prag is 2455 El Amigo Road, Del Mar, California, 92014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(8)  | Includes
 377,500 shares of common stock issuable upon the exercise of options and
 61,816 shares of common stock that are held by Lauren Lazar, Jason Lazars
 spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(9)  | Includes
 377,500 shares of common stock issuable upon the exercise of options and
 74,345 shares of common stock that are held jointly by A. Robert Handell and
 Dani Jo Handell, A. Robert Handells spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(10) | Includes
 201,536 shares of common stock issuable upon the exercise of options. Annette
 Eggert served as our Chief Financial Officer until December 4, 2010. Upon her
 departure, Jonathan Snyder began serving as our interim Chief Financial
 Officer and Treasurer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

38

---



Item 13. Certain
  Relationships and Related Transactions, and Director Independence.

We entered into a loan agreement with Sun
West Bank on February 8, 2008, totaling $4.5 million (the Loan). A
shareholder of ours, who formerly served on our Board of Directors, is also a
minority shareholder and director of Sun West Bank. As a member of Sun West
Banks Board of Directors and Loan Committee, the shareholder abstained from
voting on this transaction as required under the applicable banking
regulations. On June 18, 2009, we entered into a Change in Terms Agreement with
Sun West Bank, whereby we made a principal reduction payment of $450,000.
Pursuant to the Change in Terms Agreement, the payment reduced the Loan to
$4.05 million, modified the interest rate so that interest accrued interest at the rate of 7.25% per annum and extended the
maturity date until June 4, 2015. We satisfied the indebtedness and other
obligations to Sun West Bank arising under the Loan, the Change of Terms
Agreement, and the other loan and security documents on February 5, 2010 as a
result of our payment of $4,112,348 to Sun West Bank. We also repaid a
revolving line of credit with Sun West Bank on February 5, 2010, thereby
extinguishing all current and future liability to Sun West Bank.

Director Independence

By unanimous written consent of the Board
of Directors, our independent directors resigned, effective May 11, 2009. The
current member of our Board of Directors is not independent using the
definition of independence under Nasdaq Marketplace Rule 4200 (a)(15).

Item 14.
Principal Accountant Fees and Services.

Marcum LLP has served as our independent
registered public accounting firm since June 11, 2010.

L.L. Bradford & Company, LLC
previously served as independent registered public accounting firm from August
2007 until June 11, 2010. L.L. Bradford & Company, LLC was also our
independent registered public accounting firm for periods prior to August 2007,
when we were privately held.

Fees paid to Marcum LLP and L.L. Bradford
& Company, LLC

The following table shows the aggregate
fees we paid for professional services provided to us by Marcum LLP and L.L.
Bradford & Company, LLC for 2010 and 2009:

|                             |  |      |         |      |   |        | 
|---------------------------- |  | ---- | ------- | ---- | - | ------ | 
|                             |  | 2010 |         | 2009 |  
|                             |  |      |         |      |  
|Marcum LLP                   |  |      |         |      |   |        | 
|Audit Fees                   |  | $    | 92,700  |      | $ |       | 
|Audit-Related
 Fees          |  |      | 11,200  |      |   |       | 
|Tax Fees                     |  |      | 18,500  |      |   |       | 
|All Other
 Fees              |  |      | 0       |      |   |       | 
|                             |  |      |         |      |   |        | 
|L.L. Bradford & Company, LLC |  |      |         |      |   |        | 
|Audit Fees                   |  |      | 12,500  |      |   | 87,500 | 
|Audit-Related
 Fees          |  |      | 7,700   |      |   | 850    | 
|Tax Fees                     |  |      | 3,300   |      |   | 10,000 | 
|All Other
 Fees              |  |      | 0       |      |   | 0      | 
|                             |  |      |         |      |   |        | 
|Total                        |  | $    | 145,900 |      | $ | 98,350 | 
|                             |  |      |         |      |   |        | 

Audit Fees

Marcum LLP billed us audit fees in the
aggregate amount of $92,700 for the year ended December 31, 2010. These fees
relate to the audit of our annual financial statements and the review of our
interim quarterly financial statements.

L.L. Bradford & Company, LLC billed
us audit fees in the aggregate amount of $12,500 for the year ended December
31, 2010 and $87,500 for the year ended December 31, 2009. These fees relate to
the review of our interim quarterly financial statements.

39

---



Audit-Related Fees

Marcum LLP billed us audit-related fees
in the aggregate amount of $11,200 for the year ended December 31, 2010. These
fees relate primarily to the review of our registration statements and related
consents, audit of acquired companies or assets and audit related consulting.

L.L. Bradford & Company, LLC billed
us audit-related fees in the aggregate amount of $7,700 for the year ended
December 31, 2010 and $850 for the year ended December 31, 2009. These fees
relate primarily to the review of our registration statements and related
consents and audit related consulting.

Tax Fees

Marcum LLP billed us tax fees in the
aggregate amount of $18,500 for the year ended December 31, 2010.

L.L. Bradford & Company, LLC billed
us tax fees in the aggregate amount of $3,300 for the year ended December 31,
2010 and $10,000 for the year ended December 31, 2009.

All Other Fees

No fees of this sort were billed by
Marcum LLP or L.L. Bradford & Company, LLC during 2010 or 2009.

40

---



PART IV

Item 15. Exhibits and Financial
Statements Schedules

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.1         |  | Asset Purchase Agreement,
 dated as of December 21, 2009, by and between KeyOn Communications Holdings,
 Inc. and Affinity Wireless Solutions, LLC (incorporated by reference to
 Exhibit 2.1 to the Current Report on Form 8-K of KeyOn Communications
 Holdings, Inc. filed with the Securities and Exchange Commission on December
 22, 2009).                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.2         |  | Asset Purchase Agreement,
 dated as of December 21, 2009, by and between KeyOn Communications Holdings,
 Inc. and RidgeviewTel, LLC (incorporated by reference to Exhibit 2.2 to the
 Current Report on Form 8-K of KeyOn Communications Holdings, Inc. filed with
 the Securities and Exchange Commission on December 22, 2009).                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.3         |  | First Amendment to Asset
 Purchase and Sale Agreement, dated as of December 21, 2009, by and between
 KeyOn Communications Holdings, Inc. and RidgeviewTel, LLC (incorporated by
 reference to Exhibit 10.1 to the Current Report on Form 8-K of KeyOn Communications
 Holdings, Inc. filed with the Securities and Exchange Commission on April 6,
 2010).                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.4         |  | Asset Purchase Agreement,
 dated as of April 30, 2010, by and between KeyOn Communications Holdings,
 Inc. and Dynamic Broadband Corporation (incorporated by reference to Exhibit
 2.1 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on May 4, 2010).                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.5         |  | Asset Purchase Agreement,
 dated as of July 2, 2010, by and between KeyOn Communications Holdings, Inc.
 and Technology Specialists Group, Inc. (incorporated by reference to Exhibit
 2.1 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on July 7, 2010).                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.6         |  | Amendment No. 1 to the
 Asset Purchase Agreement, dated as of July 2, 2010, by and between KeyOn
 Communications Holdings, Inc. and Technology Specialists Group, Inc.
 (incorporated by referenced to Exhibit 10.1 to the Current Report on Form 8-K
 of KeyOn Communications Holdings, Inc., filed with the Securities and
 Exchange Commission on February 22, 2011).                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.7         |  | Asset Purchase Agreement,
 dated as of August 2, 2010, by and between KeyOn Communications Holdings,
 Inc. and Southwest Wireless Net, Inc. (incorporated by reference to Exhibit
 2.1 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on August 5, 2010).                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.8         |  | Asset Purchase Agreement,
 dated September 23, 2010, by and between KeyOn Communications, Inc.,
 CommPartners, LLC, CommPartners Network Services, LLC, CommPartners Holding
 Corporation and CommPartners Carrier Services Corp. (incorporated by
 reference to Exhibit 2.1 to the Current Report on Form 8-K of KeyOn
 Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on September 24, 2010).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.9         |  | Asset Purchase Agreement,
 dated as of October 23, 2010, by and between KeyOn Communications Holdings,
 Inc. and On a Wave Wireless, Inc. (incorporated by reference to Exhibit 2.1
 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on October 25, 2010).                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  

41

---



|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.10  |  | Asset Purchase Agreement,
 dated as of December 9, 2010, by and between KeyOn Communications Holdings,
 Inc. and Wells Rural Electric Company (incorporated by reference to Exhibit
 2.1 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on December 13, 2010).                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|2.11  |  | Asset Purchase Agreement,
 dated as of February 1, 2011, by and between KeyOn Communications Holdings,
 Inc. and Skybeam, Inc. (filed herewith).                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|2.12  |  | Asset Purchase Agreement,
 dated as of February 10, 2011, by and between KeyOn Communications Holdings,
 Inc. and ERF Wireless, Inc. (incorporated by reference to Exhibit 2.1 to the
 Current Report on Form 8-K of Key-On Communications Holdings, Inc. filed with
 the Securities and Exchange Commission on February 11, 2011).                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|3.1   |  | Second Amended and Restated
 Certificate of Incorporation of KeyOn Communications Holdings, Inc.
 (incorporated by reference to Exhibit A to the Schedule 14A of KeyOn
 Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on February 4, 2011).                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|3.2   |  | Amended and Restated Bylaws
 of KeyOn Communications Holdings, Inc. (incorporated by reference to Exhibit
 3.2 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on August 10, 2007).                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|3.3   |  | First Amendment to the
 Amended and Restated By-laws of KeyOn Communications Holdings, Inc.
 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K
 of KeyOn Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on December 9, 2010).                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.1   |  | Form of Warrant, dated
 February 19, 2010 (incorporated by reference to Exhibit 10.1 to the Current
 Report on Form 8-K of Key-On Communications Holdings, Inc., filed with the
 Securities and Exchange Commission on February 19, 2010).                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.2   |  | Form of Warrant, dated
 February 19, 2010 (incorporated by reference to Exhibit 10.2 to the Current
 Report on Form 8-K of Key-On Communications Holdings, Inc., filed with the
 Securities and Exchange Commission on February 19, 2010).                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.3   |  | Form of Warrant, dated
 February 19, 2010 (incorporated by reference to Exhibit 10.3 to the Current
 Report on Form 8-K of Key-On Communications Holdings, Inc., filed with the
 Securities and Exchange Commission on February 19, 2010).                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.4   |  | Form of Warrant issued to
 Guarantors of Business Loan Agreement with Sun West Bank (incorporated by
 reference to Exhibit 10.7 to the Current Report on Form 8-K of KeyOn
 Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on February 14, 2008).                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.5   |  | Registration Rights
 Agreement, dated February 1, 2010, by and between KeyOn Communications
 Holdings, Inc. and The California Capital Limited Partnership, LP
 (incorporated by reference to Exhibit 10.13 to the Amendment No. 1 to the
 Annual Report on Form 10-K of KeyOn Communications Holdings, Inc. filed with
 the Securities and Exchange Commission on April 16, 2010).
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.6   |  | Amendment to Warrant, dated
 February 23, 2011 (incorporated by reference to Exhibit 10.1 to the Current
 Report on Form 8-K of KeyOn Communications Holdings, Inc., filed with the
 Securities and Exchange Commission on February 28, 2011).                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|10.1* |  | KeyOn Communications
 Holdings, Inc. 2007 Stock and Awards Plan (incorporated by reference to
 Exhibit 10.1 to the Current Report on Form 8-K of KeyOn Communications
 Holdings, Inc. filed with the Securities and Exchange Commission on August
 10, 2007).                                                                                                                      

42

---



|      |  |                                                                                                                                                                                                                                                                                                                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2* |  | First Amendment to KeyOn
 Communications Holdings, Inc. 2007 Stock and Awards Plan (incorporated by
 reference to Exhibit 4.2 to the Registration Statement on Form S-8 of KeyOn
 Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on October 29, 2010).                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                            
|10.3* |  | Form of Stock Option Award
 Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on
 Form 8-K of KeyOn Communications Holdings, Inc. filed with the Securities and
 Exchange Commission on August 10, 2007).                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                            
|10.4* |  | Form of Restricted Stock
 Award Agreement (incorporated by reference to Exhibit 10.3 to the Current
 Report on Form 8-K of KeyOn Communications Holdings, Inc. filed with the
 Securities and Exchange Commission on August 10, 2007).                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                            
|10.5* |  | KeyOn Communications
 Holdings, Inc. 2010 Incentive Stock and Awards Plan (incorporated by
 reference to Exhibit 4.5 to the Registration Statement on Form S-8 of KeyOn
 Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on October 29, 2010).                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                            
|10.6  |  | Conversion Agreement, dated
 December 3, 2010, by and between KeyOn Communications, Inc. and The
 California Capital Limited Partnership, LP (incorporated by reference to
 Exhibit 10.1 to the Current Report on Form 8-K of KeyOn Communications
 Holdings, Inc. filed with the Securities and Exchange Commission on December
 9, 2010).
|      |  |                                                                                                                                                                                                                                                                                                                                            
|10.7  |  | Amendment No. 1 to
 Agreement and Waiver under Secured Convertible Promissory Note, dated January
 31, 2011, entered into by and between KeyOn Communications Holdings, Inc. and
 The California Capital Limited Partnership, LP (filed herewith).                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                            
|10.8  |  | Security Agreement and
 Promissory Note, by and between KeyOn Communications Holdings, Inc. and Zion
 Credit Corporation (incorporated by reference to Exhibit 2.1 to the Current
 Report on Form 8-K of KeyOn Communications Holdings, Inc. filed with the
 Securities and Exchange Commission on November 24, 2010).                     
|      |  |                                                                                                                                                                                                                                                                                                                                            
|16.1  |  | Letter from L.L. Bradford
 & Company, LLC, dated June 16, 2010 (incorporated by reference to Exhibit
 16.1 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on June 16, 2010).                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                            
|21.1  |  | Subsidiaries of Registrant
 (incorporated by reference to Exhibit 21.1 to the Current Report on Form 8-K
 of KeyOn Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on August 10, 2007).                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                            
|23.1  |  | Consent of Marcum LLP
 (filed herewith).                                                                                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                            
|23.2  |  | Consent of L.L. Bradford & Company, LLC (filed herewith)                                                                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                            
|31.1  |  | Certification by the Chief
 Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                            
|31.2  |  | Certification by the Chief
 Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                            
|32.1  |  | Certification by the Chief
 Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                            
|32.2  |  | Certification by the Chief
 Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                         

* Management contract or
compensatory plan arrangement.

43

---



SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                     |                                      |                                       
|-------------------- | ------------------------------------ | --------------------------------------
|                     | KEYON
 COMMUNICATIONS HOLDINGS, INC.
|                     |                                     
|Date: March 30, 2011 | By:                                  | /s/ Jonathan Snyder                   
|                     |                                      |                                       
|                     |                                      | Jonathan Snyder                       
|                     |                                      | President and Chief
 Executive Officer

In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and the
dates indicated.

|                      |                                                  |               
|--------------------- | ------------------------------------------------ | --------------
|Signature             | Title                                            | Date          
|                      |                                                  |               
|                      |                                                  |               
|/s/ Jonathan Snyder   | President,
 Chief Executive Officer and Director | March 30, 2011
|                      | (Principal Executive Officer)                    |               
|Jonathan Snyder       |                                                  |               
|                      |                                                  |               
|/s/ Jonathan Snyder   | Chief
 Financial Officer (Principal Financial    | March 30, 2011
|                      | Officer and Principal Accounting Officer)        |               
|Jonathan Snyder       |                                                  |               
|                      |                                                  |               
|/s/ A. Robert Handell | Director                                         | March 30, 2011
|                      |                                                  |               
|A. Robert Handell     |                                                  |               

44

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Audit
Committee of the
Board of Directors and Stockholders
KeyOn Communications Holdings, Inc.

We have audited the accompanying
consolidated balance sheet of KeyOn Communications Holdings, Inc. and
Subsidiary (the Company) as of December 31, 2010, and the
related consolidated statements of operations, changes in stockholders equity
(deficit) and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of KeyOn Communications Holdings, Inc. and Subsidiary, as
of December 31, 2010 and the consolidated results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ Marcum, LLP
New York, NY
March 30, 2011

45

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and 
Stockholders of KeyOn Communications Holdings, Inc.

We have audited
the accompanying consolidated balance sheets of KeyOn Communications Holdings,
Inc. and Subsidiaries as of December 31, 2009 and the related
consolidated statements of operations, stockholders deficit, and cash flows
for the year then ended. KeyOn
Communications Holdings, Inc.s management are responsible for these financial
statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provides a reasonable basis for our opinion.

In our opinion,
the financial statements referred to above present fairly, in all material
respects, the financial position of KeyOn Communications Holdings, Inc. and
Subsidiaries as of December 31, 2009, and the results of its
operations and cash flows for the year then ended in conformity with accounting principles generally accepted
in the United States of America.

/s/ L.L. Bradford & Company, LLC
L.L. Bradford & Company, LLC
 April 9, 2010
Las Vegas, Nevada

46

---



KEYON COMMUNICATIONS HOLDINGS, INC AND
SUBSIDIARY

CONSOLIDATED BALANCE SHEET

|                                                                                                                                                                         |  |             |             |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                         |  | December 31 |            
|                                                                                                                                                                         |  |             |            
|                                                                                                                                                                         |  | 2010        |             | 2009 |  
|                                                                                                                                                                         |  |             |             |      |  
|ASSETS                                                                                                                                                                   |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|CURRENT ASSETS:                                                                                                                                                          |  |             |             |      |   |             |  
|Cash and cash equivalents                                                                                                                                                |  | $           | 766,264     |      | $ | 125,083     |  
|Accounts receivable, net of allowance for doubtful accounts                                                                                                              |  |             | 282,951     |      |   | 155,228     |  
|Marketable securities                                                                                                                                                    |  |             | 5,746,612   |      |   |            |  
|Prepaid expenses and other current assets                                                                                                                                |  |             | 278,671     |      |   | 228,446     |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|Total current assets                                                                                                                                                     |  |             | 7,074,498   |      |   | 508,757     |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|PROPERTY AND EQUIPMENT -
      Net                                                                                                                                       |  |             | 3,406,340   |      |   | 1,614,454   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|OTHER ASSETS                                                                                                                                                             |  |             |             |      |   |             |  
|Goodwill                                                                                                                                                                 |  |             | 1,815,095   |      |   | 1,341,816   |  
|Subscriber base - net                                                                                                                                                    |  |             | 864,867     |      |   | 182,669     |  
|Trademarks                                                                                                                                                               |  |             | 16,567      |      |   | 16,667      |  
|Deposits                                                                                                                                                                 |  |             | 85,386      |      |   | 70,416      |  
|Debt issuance costs - net                                                                                                                                                |  |             | 278,880     |      |   | 117,548     |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|Total other assets                                                                                                                                                       |  |             | 3,060,795   |      |   | 1,729,116   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|TOTAL ASSETS                                                                                                                                                             |  | $           | 13,541,633  |      | $ | 3,852,327   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|LIABILITIES
      AND STOCKHOLDERS (DEFICIT)                                                                                                                            |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                     |  |             |             |      |   |             |  
|Accounts payable                                                                                                                                                         |  | $           | 2,017,896   |      | $ | 1,727,188   |  
|Accrued expenses                                                                                                                                                         |  |             | 186,482     |      |   | 145,557     |  
|Accrued interest expenses                                                                                                                                                |  |             | 1,096,787   |      |   | 82,512      |  
|Revolving line ine of credit                                                                                                                                             |  |             | 1,215,938   |      |   | 100,000     |  
|Term loan payable - related party                                                                                                                                        |  |             |            |      |   | 147,016     |  
|Current portion of notes payable                                                                                                                                         |  |             | 396,847     |      |   | 28,713      |  
|Current portion of capital lease obligations                                                                                                                             |  |             | 644,119     |      |   | 643,039     |  
|Deferred Rent                                                                                                                                                            |  |             | 66,835      |      |   | 63,665      |  
|Deferred revenue                                                                                                                                                         |  |             | 253,596     |      |   | 213,674     |  
|Derivative liability                                                                                                                                                     |  |             | 2,390,515   |      |   |            |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|Total current Liabilities                                                                                                                                                |  |             | 8,269,014   |      |   | 3,151,364   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|LONG-TERM LIABILITIES:                                                                                                                                                   |  |             |             |      |   |             |  
|Term loan payable - related party                                                                                                                                        |  |             |            |      |   | 3,902,984   |  
|Convertible note (net of a $13,041,549 discount)                                                                                                                         |  |             | 1,958,451   |      |   |            |  
|Notes payable, less current maturities                                                                                                                                   |  |             | 505,312     |      |   | 7,842       |  
|Capital lease obligations, less current portion                                                                                                                          |  |             | 145,605     |      |   | 503,477     |  
|Deferred rent liability, less current portion                                                                                                                            |  |             | 16,147      |      |   | 80,094      |  
|Deferred tax liability                                                                                                                                                   |  |             | 165,471     |      |   |            |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|Total long term liabilites                                                                                                                                               |  |             | 2,790,986   |      |   | 4,494,397   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|TOTAL LIABILITIES                                                                                                                                                        |  |             | 11,060,000  |      |   | 7,645,761   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|COMMITMENTS AND
      CONTINGENCIES                                                                                                                                      |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|STOCKHOLDERS (DEFICIT):                                                                                                                                                 |  |             |             |      |   |             |  
|Preferred Stock - 60,000,000 shares authorized with 60,000,000 shares
      designated in the
      following classes:                                                   |  |             |             |      |   |             |  
|Series Cal Cap perferred stock, 30,000,000 shares authorized; 0
      shares issued                                                                                      |  |             |            |      |   |            |  
|Series KIP perferred stock, 0.0001 par value; 30,000,000 shares
      authorized:; 0 shares issued                                                                       |  |             |            |      |   |            |  
|Common stock,
$0.001 par value; 115,000,000 shares authorized; 23,668,211 and 20,686,056 shares issued and outstanding at December 31, 2010
      and 2009, respectively |  |             | 23,668      |      |   | 20,686      |  
|Additional paid-in capital                                                                                                                                               |  |             | 28,718,581  |      |   | 24,490,604  |  
|Accumulated deficit                                                                                                                                                      |  |             | (26,261,840 | )    |   | (28,304,724 | )
|Accumulated other comprehensive income                                                                                                                                   |  |             | 1,224       |      |   |            |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|Total stockholders equity (deficit)                                                                                                                                     |  |             | 2,481,633   |      |   | (3,793,434  | )
|                                                                                                                                                                         |  |             |             |      |   |             |  
|                                                                                                                                                                         |  |             |             |      |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)                                                                                                                     |  | $           | 13,541,633  |      | $ | 3,852,327   |  
|                                                                                                                                                                         |  |             |             |      |   |             |  

See notes to
consolidated financial statements

47

---



KEYON COMMUNICATIONS HOLDINGS, INC. AND
SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS

|                                                    |  |                                 |             |      |   |            |  
|--------------------------------------------------- |  | ------------------------------- | ----------- | ---- | - | ---------- | -
|                                                    |  | For the Year Ended December 31, |            
|                                                    |  |                                 |            
|                                                    |  | 2010                            |             | 2009 |  
|                                                    |  |                                 |             |      |  
|REVENUES:                                           |  |                                 |             |      |   |            |  
|Service and installation revenue                    |  | $                               | 7,415,493   |      | $ | 6,724,710  |  
|Support and other revenue                           |  |                                 | 108,185     |      |   | 173,522    |  
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|Total revenues                                      |  |                                 | 7,523,678   |      |   | 6,898,232  |  
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|OPERATING COSTS AND EXPENSES:                       |  |                                 |             |      |   |            |  
|Payroll, bonuses and taxes                          |  |                                 | 5,129,802   |      |   | 3,505,812  |  
|Network operating                                   |  |                                 | 3,342,913   |      |   | 2,804,905  |  
|Professional fees                                   |  |                                 | 1,901,117   |      |   | 1,022,631  |  
|Depreciation and amortization                       |  |                                 | 2,080,303   |      |   | 2,423,657  |  
|General and administrative                          |  |                                 | 1,509,843   |      |   | 1,256,141  |  
|Installation                                        |  |                                 | 267,427     |      |   | 168,761    |  
|Marketing and advertising                           |  |                                 | 390,376     |      |   | 86,209     |  
|Goodwill  impairment                                |  |                                 |            |      |   | 299,322    |  
|                                                    |  |                                 |             |      |   |            |  
|Total operating costs and expenses                  |  |                                 | 14,621,781  |      |   | 11,567,438 |  
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|LOSS FROM OPERATIONS                                |  |                                 | (7,098,103  | )    |   | (4,669,206 | )
|                                                    |  |                                 |             |      |   |            |  
|OTHER INCOME (EXPENSE):                             |  |                                 |             |      |   |            |  
|Gain on acquisition                                 |  |                                 |            |      |   | 21,686     |  
|Other income                                        |  |                                 | 145,804     |      |   | 1,495,928  |  
|Interest income                                     |  |                                 | 6,114       |      |   | 3          |  
|Interest expense                                    |  |                                 | (3,454,945  | )    |   | (2,256,071 | )
|Loss on note repaid in common stock                 |  |                                 |             |      |   | (1,188,042 | )
|Fair value of derivative in excess of debt proceeds |  |                                 | (29,792,150 | )    |   |            |  
|Change in fair value of derivative                  |  |                                 | 42,401,635  |      |   |           |  
|                                                    |  |                                 |             |      |   |            |  
|Total other income (expense)                        |  |                                 | 9,306,458   |      |   | (1,926,496 | )
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|NET INCOME (LOSS) BEFORE TAXES                      |  | $                               | 2,208,355   |      | $ | (6,595,702 | )
|Income taxes                                        |  |                                 | (165,471    | )    |   |           |  
|                                                    |  |                                 |             |      |   |            |  
|NET INCOME (LOSS)                                   |  | $                               | 2,042,884   |      | $ | (6,595,702 | )
|                                                    |  |                                 |             |      |   |            |  
|OTHER COMPREHENSIVE INCOME (LOSS)                   |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|Net decrease (loss)                                 |  |                                 | 2,042,884   |      |   | (6,595,702 | )
|Unrealized gain on investments                      |  |                                 | 1,224       |      |   |           |  
|                                                    |  |                                 |             |      |   |            |  
|Total comprehensive income (loss)                   |  | $                               | 2,044,108   |      | $ | (6,595,702 | )
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|Net income (loss) per common share, basic           |  | $                               | 0.09        |      | $ | (0.49      | )
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|Net income (loss) per common share, diluted         |  | $                               | (0.17       | )    | $ | (0.49      | )
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|Weighted average common shares outstanding, basic   |  |                                 | 22,647,487  |      |   | 13,496,761 |  
|                                                    |  |                                 |             |      |   |            |  
|                                                    |  |                                 |             |      |   |            |  
|Weighted average common shares outstanding, diluted |  |                                 | 42,110,070  |      |   | 13,496,761 |  
|                                                    |  |                                 |             |      |   |            |  

See notes to
consolidated financial statements

48

---



KEYON COMMUNICATIONS HOLDINGS, INC. AND
SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)

|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | --------------------------------- | - | ------------------------- |  | -------------------------------------------------------- | ---------- | ------------------------------------------------------ | - | ----------- | - | - | ----- |  | - | ---------- | -
|                                                                                                                |  | Common Stock |            | Additional Paid-
      In Capital |   | Accumulated
      Deficit |  | Accumulated
      Other
      Comprehensive
      Income |            | Total
      Stockholders
      Equity
      (Deficit) |  
|                                                                                                                |  |              |            |                                   |   |                           | 
|                                                                                                                |  | Shares       |            | Amount                            |   |                           |  |                                                          |           
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|BALANCE, January 1, 2009 (Note 1)                                                                               |  |              | 8,771,350  |                                   | $ | 8,771                     |  | $                                                        | 17,372,803 |                                                        | $ | (21,709,022 | ) | $ |       |  | $ | (4,327,448 | )
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Stock issued for stock options exercised in
      December 2008                                                 |  |              | 57,487     |                                   |   | 57                        |  |                                                          | (57        | )                                                      |   |            |   |   |       |  |   |           |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Amortization of stock issued for
      professional fees                                                        |  |              |            |                                   |   |                           |  |                                                          | 66,249     |                                                        |   |             |   |   |       |  |   | 66,249     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common stock issued in exchange for
      settlement of secured subordinated note $1,188,042 loss on settlement |  |              | 2,376,090  |                                   |   | 2,376                     |  |                                                          | 2,373,708  |                                                        |   |            |   |   |       |  |   | 2,376,084  |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Stock issued upon contractual conversion of
      subordinated notes                                            |  |              | 1,316,979  |                                   |   | 1,317                     |  |                                                          | 327,927    |                                                        |   |            |   |   |       |  |   | 329,244    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common stock issued for professional
      services, May 11, 2009                                               |  |              | 2,120,000  |                                   |   | 2,120                     |  |                                                          | (2,120     | )                                                      |   |            |   |   |       |  |   |           |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sale,
      May 2009                                                         |  |              | 731,317    |                                   |   | 731                       |  |                                                          | 138,219    |                                                        |   |            |   |   |       |  |   | 138,950    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Stock Based Compensation, 2009                                                                                  |  |              |           |                                   |   |                          |  |                                                          | 532,243    |                                                        |   |            |   |   |       |  |   | 532,243    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Warrant issued with short term loan, June
      30, 2009                                                        |  |              |           |                                   |   |                          |  |                                                          | 91,245     |                                                        |   |            |   |   |       |  |   | 91,245     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sale,
      June 2009                                                        |  |              | 1,250,000  |                                   |   | 1,250                     |  |                                                          | 473,750    |                                                        |   |            |   |   |       |  |   | 475,000    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sale,
      July 2009                                                        |  |              | 1,400,000  |                                   |   | 1,400                     |  |                                                          | 698,600    |                                                        |   |            |   |   |       |  |   | 700,000    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Warrants Issued with Convertible Notes,
    June 30, 2009                                                       |  |              |            |                                   |   |                           |  |                                                          | 14,753     |                                                        |   |            |   |   |       |  |   | 14,753     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Exchanged for Professional
      Services July 31, 2009                                            |  |              | 50,000     |                                   |   | 50                        |  |                                                          | 47,450     |                                                        |   |            |   |   |       |  |   | 47,500     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Warrant issued with short term loan, July
      31, 2009                                                        |  |              |           |                                   |   |                          |  |                                                          | 27,640     |                                                        |   |            |   |   |       |  |   | 27,640     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sale,
      August, 2009                                                     |  |              | 1,670,000  |                                   |   | 1,670                     |  |                                                          | 833,330    |                                                        |   |            |   |   |       |  |   | 835,000    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Warrant Expense for Professional Services,
      August 31, 2009 (commissions)                                  |  |              |           |                                   |   |                          |  |                                                          | 53,764     |                                                        |   |            |   |   |       |  |   | 53,764     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Warrant Expense for Professional Services,
      September 30, 2009                                             |  |              |           |                                   |   |                          |  |                                                          | 71,162     |                                                        |   |            |   |   |       |  |   | 71,162     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sale,
      October 1, 2009                                                  |  |              | 66,667     |                                   |   | 67                        |  |                                                          | 99,933     |                                                        |   |            |   |   |       |  |   | 100,000    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sales during
      October 31, 2009                                          |  |              | 626,667    |                                   |   | 627                       |  |                                                          | 734,934    |                                                        |   |            |   |   |       |  |   | 735,561    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Exchanged for Professional
      Services, October 31, 2009                                        |  |              | 75,000     |                                   |   | 75                        |  |                                                          | 112,425    |                                                        |   |            |   |   |       |  |   | 112,500    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued - Subscription sale,
      November 30, 2009                                                |  |              | 33,333     |                                   |   | 33                        |  |                                                          | 49,967     |                                                        |   |            |   |   |       |  |   | 50,000     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Exchanged for Professional
      Services, December 31, 2009                                       |  |              | 27,778     |                                   |   | 28                        |  |                                                          | 61,917     |                                                        |   |            |   |   |       |  |   | 61,945     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Acquisition of SkyWi, December 31, 2009                                                                         |  |              | 33,388     |                                   |   | 34                        |  |                                                          | 66,409     |                                                        |   |            |   |   |       |  |   | 66,443     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common stock issued pursuant to a restriced
      stock agreement                                               |  |              | 80,000     |                                   |   | 80                        |  |                                                          | (80        | )                                                      |   |            |   |   |       |  |   |           |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Stock Based Compensation awards issued
      prior to January 1, 2009                                           |  |              |           |                                   |   |                          |  |                                                          | 150,000    |                                                        |   |            |   |   |       |  |   | 150,000    |  
|                                                                                                               
|Proceeds from exercise of warrants for 2,865 shares issued in
      January 2010                                |  |              |            |                                   |   |                          |  |                                                          | 1,433      |                                                        |   |            |   |   |       |  |   | 1,433      |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Investor depostis received on December 31,
      2009 for 66,667 shares issued in January 2010                  |  |              |           |                                   |   |                          |  |                                                          | 100,000    |                                                        |   |            |   |   |       |  |   | 100,000    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Commissions on sale of common stock                                                                             |  |              |           |                                   |   |                          |  |                                                          | (7,000     | )                                                      |   |            |   |   |       |  |   | (7,000     | )
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Net loss for the year ended December 31,
      2009                                                             |  |              |           |                                   |   |                          |  |                                                          |           |                                                        |   | (6,595,702  | ) |   |       |  |   | (6,595,702 | )
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Balance, January 1, 2010                                                                                        |  |              | 20,686,056 |                                   |   | 20,686                    |  |                                                          | 24,490,604 |                                                        |   | (28,304,724 | ) |   |      |  |   | (3,793,434 | )
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Subscription
      sale in December 31, 2009, Stock issued in January 2010                                      |  |              | 66,667     |                                   |   | 67                        |  |                                                          | (67        | )                                                      |   |             |   |   |       |  |   |           |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Exercise of Warrants December 2009, stock
      issued in January 2010                                          |  |              | 2,865      |                                   |   | 3                         |  |                                                          | (3         | )                                                      |   |             |   |   |       |  |   |           |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock Issued for Exercised Warrants,
      January 2010                                                  |  |              | 228,774    |                                   |   | 229                       |  |                                                          | 268,379    |                                                        |   |             |   |   |       |  |   | 268,608    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common Stock issued for Professional
      Services, January through February 2010                              |  |              | 55,556     |                                   |   | 56                        |  |                                                          | 123,834    |                                                        |   |             |   |   |       |  |   | 123,890    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Purchase of Affinity Wireless for Stock
      February 3, 2010                                                  |  |              | 141,521    |                                   |   | 141                       |  |                                                          | 410,269    |                                                        |   |             |   |   |       |  |   | 410,410    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Common stock issued - exercise of warrants
      April 2010                                                     |  |              | 250,000    |                                   |   | 250                       |  |                                                          | 187,250    |                                                        |   |             |   |   |       |  |   | 187,500    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Purchase of RidgeviewTel, LLC for Stock
      April 1, 2010                                                     |  |              | 168,733    |                                   |   | 169                       |  |                                                          | 151,691    |                                                        |   |             |   |   |       |  |   | 151,860    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Purchase of Dynamic Broadband Corporation
      for stock May 28, 2010                                          |  |              | 2,037,574  |                                   |   | 2,037                     |  |                                                          | 1,526,145  |                                                        |   |             |   |   |       |  |   | 1,528,182  |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Purchase of TS Wireless July 2, 2010                                                                            |  |              | 30,465     |                                   |   | 30                        |  |                                                          | 18,249     |                                                        |   |             |   |   |       |  |   | 18,279     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Stock option compensation expense                                                                               |  |              |           |                                   |   |                          |  |                                                          | 1,067,768  |                                                        |   |             |   |   |       |  |   | 1,067,768  |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Amortization of deferred compensation for
      stock issued for professional fee                               |  |              |            |                                   |   |                           |  |                                                          | 39,754     |                                                        |   |             |   |   |       |  |   | 39,754     |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Fair value of warrants issued in exchange
      for professional services                                       |  |              |            |                                   |   |                           |  |                                                          | 434,708    |                                                        |   |             |   |   |       |  |   | 434,708    |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Accumulated Other Comp Income                                                                                   |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |            |   |   | 1,224 |  |   | 1,224      |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Net Income for the Year ended December 31,
      2010                                                           |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   | 2,042,884   |   |   |       |  |   | 2,042,884  |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|                                                                                                                |  |              |            |                                   |   |                           |  |                                                          |            |                                                        |   |             |   |   |       |  |   |            |  
|Balance, December 31, 2010                                                                                      |  |              | 23,668,211 |                                   |   | 23,668                    |  |                                                          | 28,718,581 |                                                        |   | (26,261,840 | ) |   | 1,224 |  |   | 2,481,633  |  

See notes to
consolidated financial statements

49

---



KEYON COMMUNICATIONS HOLDINGS, INC. AND
SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31

|                                                                               |  |      |             |      |   |            |  
|------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ---------- | -
|                                                                               |  | 2010 |             | 2009 |  
|                                                                               |  |      |             |      |   |            |  
|CASH FLOWS
      FROM OPERATIONS:                                              |  |      |             |      |   |            |  
|Net Income (loss)                                                              |  | $    | 2,042,882   |      | $ | (6,595,702 | )
|Adjustments to reconcile net income (loss) to net cash flows from operations:  |  |      |             |      |   |            |  
|Depreciation and amortization                                                  |  |      | 2,079,647   |      |   | 2,423,657  |  
|Goodwill asset impairment                                                      |  |      |            |      |   | 299,322    |  
|Provision for doubtful accounts related to accounts receivable                 |  |      | 69,535      |      |   |           |  
|Write offs of accounts receivable directly to bad debt                         |  |      | 181,420     |      |   |            |  
|(Gain) Loss on disposal of equipment                                           |  |      | (17,457     | )    |   | 88         |  
|Stock based compensation expense                                               |  |      | 1,067,768   |      |   | 682,244    |  
|Warrant expense for professional services                                      |  |      | 434,708     |      |   | 124,926    |  
|Professional services paid for or to be paid in common stock                   |  |      | 163,644     |      |   | 288,194    |  
|Change in fair value of derivative liability                                   |  |      | (12,609,485 | )    |   |           |  
|Non-cash interest expense                                                      |  |      | 2,047,119   |      |   | 246,228    |  
|Beneficial conversion interest                                                 |  |      |            |      |   | 1,188,042  |  
|Deferred income tax liability                                                  |  |      | 165,471     |      |   |           |  
|Gain on acquisition of SkyWi                                                   |  |      |            |      |   | (21,686    | )
|                                                                               |  |      |             |      |   |            |  
|Change in assets and liabilities, net of effect of acquisitions:               |  |      |             |      |   |            |  
|Accounts receivable                                                            |  |      | (351,911    | )    |   | (25,636    | )
|Prepaid expenses and other current assets                                      |  |      | 7,243       |      |   | 18,186     |  
|Refundable deposits                                                            |  |      | (14,970     | )    |   | (3,589     | )
|Accounts payable and accrued expenses                                          |  |      | 108,108     |      |   | (568,056   | )
|Accrued interest expense                                                       |  |      | 1,014,274   |      |   |           |  
|Deferred rent liability                                                        |  |      | (60,776     | )    |   | (56,649    | )
|Deferred revenue                                                               |  |      | (112,873    | )    |   | (97,015    | )
|                                                                               |  |      |             |      |   |            |  
|Net cash flows used in operations                                              |  |      | (3,785,653  | )    |   | (2,097,446 | )
|                                                                              
|CASH FLOWS
      FROM INVESTING ACTIVITIES:                                    |  |      |             |      |   |            |  
|                                                                              
|Capital expenditures for property and equipment                                |  |      | (1,334,796  | )    |   | (141,896   | )
|Proceeds on disposal of equipment                                              |  |      | 58,621      |      |   |           |  
|Deposit for a proposed acquisition                                             |  |      | 400,000     |      |   |           |  
|Deposit applied to an acquisition                                              |  |      | (400,000    | )    |   |           |  
|Proceeds from the sale of marketable securities                                |  |      | 497,882     |      |   |           |  
|Cash paid to acquire businesses                                                |  |      | (100,000    | )    |   |            |  
|Investment in marketable securities                                            |  |      | (6,243,270  | )    |   |           |  
|Proceeds from trademark                                                        |  |      | 100         |      |   | 791        |  
|                                                                               |  |      |             |      |   |            |  
|Net cash flows used in investing activities                                    |  |      | (7,121,463  | )    |   | (141,105   | )
|                                                                              
|CASH FLOWS
      FROM FINANCING ACTIVITIES:                                    |  |      |             |      |   |            |  
|Payments of debt issuance costs                                                |  |      | (250,000    | )    |   | (40,500    | )
|Payment on revolving line of credit-related parties                            |  |      | (100,000    | )    |   |           |  
|Payments on term note payable - related parties                                |  |      | (4,050,000  | )    |   | (450,000   | )
|Payments on notes payable                                                      |  |      | (199,862    | )    |   | (492,320   | )
|Proceeds from notes payable                                                    |  |      | 433,297     |      |   | 600,000    |  
|Payment on cash overdraft                                                      |  |      | 2,663       |      |   | (69,592    | )
|Proceeds from subscription sales                                               |  |      |            |      |   | 3,128,944  |  
|Proceeds from issuance of convertible note                                     |  |      | 15,000,000  |      |   |            |  
|Payments on capital lease obligations                                          |  |      | (959,850    | )    |   | (440,931   | )
|Proceeds from exercise of common stock purchase warrants                       |  |      | 456,108     |      |   |            |  
|Proceeds from notes payable - related party                                    |  |      | 1,215,938   |      |   | 100,001    |  
|                                                                               |  |      |             |      |   |            |  
|Net cash flows provided by financing activities                                |  |      | 11,548,294  |      |   | 2,335,602  |  
|                                                                               |  |      |             |      |   |            |  
|NET
      INCREASE IN CASH                                                     |  |      | 641,178     |      |   | 97,051     |  
|                                                                               |  |      |             |      |   |            |  
|CASH -
      Beginning of period                                               |  |      | 125,083     |      |   | 28,032     |  
|                                                                               |  |      |             |      |   |            |  
|CASH - End
      of period                                                     |  | $    | 766,261     |      | $ | 125,083    |  
|                                                                               |  |      |             |      |   |            |  
|                                                                              
|SUPPLEMENTAL
      NON-CASH DISCLOSURES FROM INVESTING & FINANCING ACTIVITIES: |  |     
|                                                                              
|Stock issued for acquisition - SkyWi:                                          |  |      |             |      |   |            |  
|Subscriber Base                                                                |  | $    |            |      | $ | 22,528     |  
|Property and equipment                                                         |  |      |            |      |   | 65,600     |  
|Less: Gain on acquisition                                                      |  |      |            |      |   | (21,686    | )
|                                                                               |  |      |             |      |   |            |  
|Total stock consideration                                                      |  | $    |            |      | $ | 66,442     |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Stock issued for acquisition - Affinity:                                       |  |      |             |      |   |            |  
|Network equipment                                                              |  | $    | 118,205     |      |   |            |  
|Customer premise equipment                                                     |  |      | 20,150      |      |   |            |  
|Subscriber base                                                                |  |      | 51,860      |      |   |            |  
|Vehicles                                                                       |  |      | 9,840       |      |   |            |  
|Office equipment                                                               |  |      | 5,795       |      |   |            |  
|Prepaid expenses                                                               |  |      | 2,580       |      |   |            |  
|Accounts receivable                                                            |  |      | 3,401       |      |   |            |  
|Accounts payable and accrued expenses                                          |  |      | (11,342     | )    |   |            |  
|Loan payable                                                                   |  |      | (69,487     | )    |   |            |  
|Obligations to subscribers                                                     |  |      | (7,607      | )    |   |            |  
|Goodwill                                                                       |  |      | 287,016     |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Total Stock Consideration                                                      |  | $    | 410,411     |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|RidgeviewTel:                                                                  |  |      |             |      |   |            |  
|Network equipment                                                              |  | $    | 14,650      |      |   |            |  
|Customer premise equipment                                                     |  |      | 71,475      |      |   |            |  
|Subscriber base                                                                |  |      | 26,714      |      |   |            |  
|Accounts receivable                                                            |  |      | 1,589       |      |   |            |  
|Obligations to subscribers                                                     |  |      | (539        | )    |   |            |  
|Goodwill                                                                       |  |      | 37,970      |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Total Stock Consideration                                                      |  | $    | 151,859     |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Dynamic Broadband:                                                             |  |      |             |      |   |            |  
|Network equipment                                                              |  | $    | 674,711     |      |   |            |  
|Customer premise equipment                                                     |  |      | 746,153     |      |   |            |  
|Subscriber base                                                                |  |      | 658,487     |      |   |            |  
|Vehicles                                                                       |  |      | 18,925      |      |   |            |  
|Office equipment                                                               |  |      | 29,178      |      |   |            |  
|Prepaid expenses                                                               |  |      | 8,308       |      |   |            |  
|Accounts receivable                                                            |  |      | 18,075      |      |   |            |  
|Accounts payable and accrued expenses                                          |  |      | (208,621    | )    |   |            |  
|Loan payable                                                                   |  |      | (380,617    | )    |   |            |  
|Obligations to subscribers                                                     |  |      | (86,912     | )    |   |            |  
|Goodwill                                                                       |  |      | 50,495      |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Total Stock Consideration                                                      |  | $    | 1,528,182   |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Technology Specialists Group:                                                  |  |      |             |      |   |            |  
|Network equipment                                                              |  | $    | 4,489       |      |   |            |  
|Customer premise equipment                                                     |  |      | 62,028      |      |   |            |  
|Subscriber base                                                                |  |      | 113,260     |      |   |            |  
|Office equipment                                                               |  |      | 1,327       |      |   |            |  
|Prepaid expenses                                                               |  |      | 9,650       |      |   |            |  
|Accounts receivable                                                            |  |      | 1,627       |      |   |            |  
|Accounts payable and accrued expenses                                          |  |      | (900        | )    |   |            |  
|Obligations to subscribers                                                     |  |      | (10,356     | )    |   |            |  
|Goodwill                                                                       |  |      | 56,610      |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Total Stock  and Debt Consideration                                            |  | $    | 237,735     |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Southwest Wireless Net:                                                        |  |      |             |      |   |            |  
|Network equipment                                                              |  | $    | 160,000     |      |   |            |  
|Customer premise equipment                                                     |  |      | 75,000      |      |   |            |  
|Subscriber base                                                                |  |      | 87,000      |      |   |            |  
|Vehicles                                                                       |  |      | 4,000       |      |   |            |  
|Office equipment                                                               |  |      | 13,000      |      |   |            |  
|Prepaid expenses                                                               |  |      | 33,885      |      |   |            |  
|Obligations to subscribers                                                     |  |      | (42,763     | )    |   |            |  
|Goodwill                                                                       |  |      | 9,879       |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Total Consideration                                                            |  | $    | 340,000     |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Less Portion Debt Financed                                                     |  |      | (240,000    | )    |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Cash Consideration                                                             |  |      | 100,000     |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|On A Wave Communications:                                                      |  |      |             |      |   |            |  
|Network equipment                                                              |  | $    | 5,869       |      |   |            |  
|Customer premise equipment                                                     |  |      | 13,905      |      |   |            |  
|Prepaid Expenses                                                               |  |      | 3,046       |      |   |            |  
|Subscriber base                                                                |  |      | 39,727      |      |   |            |  
|Accounts receivable                                                            |  |      | 2,075       |      |   |            |  
|Note Payable                                                                   |  |      | (16,476     | )    |   |            |  
|Obligations to subscribers                                                     |  |      | (4,618      | )    |   |            |  
|Goodwill                                                                       |  |      | 31,309      |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Total Debt Consideration                                                       |  | $    | 74,837      |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Warrants granted for debt issuance costs                                       |  | $    |            |      | $ | 133,638    |  
|                                                                               |  |      |             |      |   |            |  
|Capital lease obligations for property and equipment                           |  | $    | 234,350     |      | $ | 136,647    |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Cash payments for:                                                             |  |      |             |      |   |            |  
|Interest                                                                       |  | $    | 421,083     |      | $ | 697,907    |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Income Taxes                                                                   |  | $    |            |      | $ |           |  
|                                                                               |  |      |             |      |   |            |  

See notes to
consolidated financial statements

50

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Organization and Nature of Business

On August
9, 2007, KeyOn Communications, Inc.(KeyOn) became a publicly-traded company upon
its completion of a reverse merger and recapitalization with Grant Enterprises,
Inc. (Grant), a publicly-traded
company with no operations (the Merger). Grant subsequently changed its name to
KeyOn Communications Holdings, Inc. (the Company).
KeyOn was incorporated on December 16,
2004, under the laws of the State of Nevada.

The
Company provides wireless broadband, satellite video and voice-over-IP (VoIP)
services primarily to small and rural markets in the Western and Midwestern
United States. KeyOns markets are located in eleven Western and
Midwestern states: Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Minnesota,
Nebraska, Nevada, Ohio, South Dakota, and Texas. In an effort to generate additional accounting
and operational efficiencies, the Company consolidated its eight wholly-owned
subsidiaries: KeyOn Communications, LLC; KeyOn SIRIS, LLC; KeyOn Grand
Junction, LLC; KeyOn Idaho Falls, LLC; KeyOn Pahrump, LLC; KeyOn Pocatello, LLC
and KeyOn SpeedNet LLC and KeyOn Spectrum Holdings, LLC (which had previously
been referred to as the related
entities), into one, wholly-owned operating subsidiary:
KeyOn Communications, Inc.

Note 2  Liquidity and Financial Condition

The Companys net income amounted to
$2,042,884 for the year ended December 31, 2010 and includes a $12,609,485, net
credit resulting from the recognition of and change in fair value of derivative
liability. The Companys
net loss amounted to $6,595,702 for the year ended December 31, 2009. The
Companys accumulated
deficit amounted to $26,261,840 at December 31, 2010. During the year ended
December 31, 2010, net cash used in operating activities amounted to
$3,785,653. At December 31, 2010, The Companys working capital amounted to a deficit
of $1,194,516, which includes a liability for the fair value of a derivative
financial instrument which, if exercised, will result in a net share settlement
of up to 20,000,000 shares.

On February
1, 2010, the Company and The California Capital Limited Partnership LP (Cal Cap) entered into a Note Purchase
Agreement (the Note Purchase
Agreement). On February 5, 2010,
pursuant to the Note Purchase Agreement, the Company issued to Cal Cap a
secured convertible note for the principal sum of $15,000,000 (the Note), which Note is convertible into
shares of Series Cal Cap Preferred Stock, of the Company (the Series Cal Cap Preferred Stock) and shares of common stock, of the
Company pursuant to the terms more fully described in Note 7.

On February
15, 2011, the Company acquired the East Central Texas wireless broadband assets from ERF Wireless, Inc. for an initial payment of $2,700,00. The remaining $300,000 is subject to certain post-closing adjustments (See Note 12 Subsequent Events).

The Company
  has undertaken several measures during the year ended December 31, 2010 to
  streamline its operations and increase its overall revenue generating
  capabilities by reducing and controlling operating costs and increasing its
  overall base of subscribers by completing several acquisitions (Note 4). In addition, the Company
  incurred approximately $1,000,000 of expenses in connection with applying for
  various loans and grants under the American Recovery and Reinvestment Act of
  2009 (ARRA). As a result, management anticipates
  that the Companys
  capital resources, which consist of cash and cash equivalents of approximately
  $766,000 and marketable securities with a fair value of approximately
  $5,746,000, will enable it to meet its general working capital requirements,
  repay the current portion of its debt obligations and continue its business
  development efforts through at least January 1, 2012. However, in order to execute the
  Companys long-term
  strategy and penetrate new and existing markets, the Company may need to raise
  additional funds, through public, debt financings, or other means. Management believes that the Company
  has access to capital resources through possible public or private equity
  offerings, debt financings or other means; however, the Company has not secured
  any commitments for new financing at this time, nor can it provide any
  assurance that new financing will be available on commercially acceptable
  terms, if needed. If the Company is unable to secure additional capital, it may
  be required to curtail its business development initiatives and take additional
measures to reduce costs in order to conserve its cash.

51

---



In
addition, the Company received an award under ARRA, specifically, Round Two of
the Broadband Initiatives Program (BIP) administered by the Rural Utilities
Service (RUS). This federal program allocated $2.5 billion for broadband
infrastructure in rural markets and created a new opportunity for us to access
federal grants and loans for the build-out of next-generation wireless networks
in eligible markets. On
September 13, 2010, we were announced as a $10.2 million award winner to build
and operate networks throughout rural Nevada to nearly 100,000 rural residents. We expect to contribute
approximately $2 million in matching funds during the projects construction. We anticipate
commencing our project in the second quarter of 2011 and will be substantially
complete within two years. Although
we are currently working with our third-party contractors and applicable RUS
personnel to begin requisitioning funds pursuant to the award, we cannot
provide any assurances as to the timing of the funding of the award or whether
we will ultimately receive it. By
accepting the loan and grant funds, KeyOn also agreed to certain long-term
conditions. The RUS will have a continued interest (in the form of a retained
security interest) in the assets over their economic life, which is expected to
be up to 12 years. In the event of default of the award documents, the
government could exercise the rights under its retained security interest to
gain control and ownership of these assets. In addition, in the event of a
proposed change in control of KeyOn, the acquiring party would need to receive
approval from the RUS prior to effectuating the proposed transaction, for which
pre-approval will not be unreasonably withheld.

Subsequent
to December 31, 2010, the Company acquired  two businesses and the CalCap Note was converted into Series A Preferred Stock as described in
Note 12-Subsequent Events.

Note
3  Summary of Significant Accounting Policies

Reclassifications

Certain
amounts in the December 31, 2009 financial statement have been reclassified to
conform to the December 31, 2010 presentation.

Use of
Estimates

The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates. These
estimates and assumptions include valuing equity securities and derivative
financial instruments issued as consideration in business combinations and/or
in financing transactions and in share based payment arrangements, accounts
receivable reserves, deferred taxes and related valuation allowances,
allocating the purchase price to the fair values of assets acquired and
liabilities assumed in business combinations (including separately identifiable
intangible assets and goodwill) and estimating the fair values of long lived
assets to assess whether impairment charges may be necessary. Certain of our
estimates, including accounts receivable and the carrying amounts of intangible
assets could be affected by external conditions including those unique to our
industry and general economic conditions. It is reasonably possible that these
external factors could have an effect on our estimates that could cause actual
results to differ from our estimates. We re-evaluate all of our accounting
estimates at least quarterly based on these conditions and record adjustments,
when necessary.

Consolidation Policy

The
accompanying consolidated balance sheets and consolidated statements of
operations, stockholders equity (deficit), and cash flows for
the year ended December 31, 2009, include the accounts of the Company and its
wholly owned subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation. During
the year ended December 31, 2010, the Company transferred and assigned all
assets and liabilities of its wholly owned subsidiaries into a single
subsidiary.

52

---



Revenue Recognition

The Company
records revenue in accordance with SEC Staff Accounting Bulletin No. 104 based
on when (i) persuasive evidence of an arrangement exists, (ii) delivery or
performance has occurred, (iii) the fee is fixed or determinable, and (iv)
collectability of the sale is reasonably assured.

The Company
charges a recurring subscription fee for providing its various Internet access
services to its subscribers and recognizes revenues when they are earned, which
generally occurs as the service is provided. Subscriptions to the services are
in the form of one or two year contracts and are billed monthly, quarterly,
semi-annually or annually in advance. Payments received in advance for
subscriptions are deferred and recognized as the services are provided.
Deferred revenues for payments received in advance of subscription services
amounted to $284,473 and $213,674 at December 31, 2010 and 2009, respectively.
For the satellite video business in which the Company is a retailer of video
services from DISH Network Corporation (DISH), the Company recognizes revenues at
the time of installation.

Cash and Cash Equivalents

The Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. For financial statement purposes,
investments in money market funds are considered a cash equivalent and are
included in cash and cash equivalents. The Company maintains it cash and cash
equivalents at high credit quality institutions, with balances, at times, in
excess of federally insured limits. As of December 31, 2010, the Company
has approximately $369,305 in excess of federally insured limits. Management believed that the financial
institution that holds our deposits are financially sound and therefore pose
minimal credit risk.

Marketable Securities

Marketable
securities consist of investments in government agencies notes. The maximum
maturity for any investment is six months. The Company accounts for its
marketable securities in accordance with the provisions of ASC 320-10. The
Company classifies these securities as available for sale and the securities
are reported at fair value. Unrealized
gains and losses are recorded as a component of accumulated other comprehensive
income and excluded from net income (loss). As of December 31, 2010, the Company had an unrealized
gain of $1,224 relating to the marketable securities.

Property
and Equipment

Property
and equipment is stated at cost, including any cost to place the property into
service, less accumulated depreciation. Depreciation is recorded on a straight-line
basis over the estimated useful lives of the assets which currently range from
3 to 5years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the lease. Maintenance, repairs and minor
replacements are charged to operations as incurred; major replacements and
betterments are capitalized. The cost of any assets sold or retired and related
accumulated depreciation are removed from the accounts at the time of
disposition, and any resulting profit or loss is reflected in income or expense
for the period.

The guidance from the Financial Accounting Standards Board
    FASB guidance on
asset retirement obligations addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated costs. This
guidance requires the recognition of an asset retirement obligation and an
associated asset retirement cost when there is a legal obligation associated
with the retirement of tangible long-lived assets. The Companys network equipment is installed on
both buildings in which the Company has a lease agreement (Company Locations) and at customer locations. In both instances, the
installation and removal of the Companys equipment is not complicated and does not require
structural changes to the properties where the equipment is installed. Costs associated with the
removal of the Companys
equipment at company or customer locations are not material, and accordingly,
the Company has determined that it does not presently have asset retirement
obligations under the FASBs
accounting guidance.

53

---



Goodwill
and Intangible Assets

We account
for goodwill and intangible assets in accordance with Accounting Standards Codification (ASC) 350 Intangibles -
Goodwill and Other (ASC 350). ASC 350 requires that goodwill and other intangibles with
indefinite lives should be tested for impairment annually or on an interim
basis if events or circumstances indicate that the fair value of an asset has
decreased below its carrying value.

Goodwill
represents the excess of the purchase price over the fair value of net assets
acquired in business combinations. GAAP requires that goodwill be tested for
impairment at the reporting unit level (operating segment or one level below an
operating segment) on an annual basis and between annual tests when circumstances
indicate that the recoverability of the carrying amount of goodwill may be in
doubt. Application of the goodwill impairment test requires judgment, including
the identification of reporting units, assigning assets and liabilities to
reporting units, assigning goodwill to reporting units, and determining the
fair value. Significant judgment is required to estimate the fair value of
reporting units including estimating future cash flows, determining appropriate
discount rates and other assumptions. Changes in these estimates and
assumptions could materially affect the determination of fair value and/or
goodwill impairment. Upon consideration of our operations, we have determined
that KeyOn operates a single reporting unit.

Our business includes one goodwill reporting unit. We annually
review goodwill for possible impairment by comparing the fair value of the
reporting unit to the carrying value of the assets. If the fair value exceeds
the carrying value of net asset, no goodwill impairment is deemed to exist. If
the fair value does not exceed the carrying value, goodwill is tested for
impairment and written down to its implied fair value if it is determined to be
impaired. We performed our annual goodwill impairment test on our designated
testing dates of December 31, 2009 and 2010 using both the income approach and
market approach with assumptions that our management believes are appropriate
in the circumstances. Based upon the results, we determined that it would be
appropriate to record a goodwill impairment charge of $299,322 for the year
ended December 31, 2009 to reduce the carrying amount to its net realizable value. We determined that
goodwill was not impaired as of December 31, 2010.

Our
amortizable intangible assets consist of acquired subscriber bases. These costs
are being amortized using the straight-line method over their estimated useful
lives. We amortize customer relationships on a straight line basis over a 36 to
48 month estimated useful life.

We review
the carrying value of intangibles and other long-lived assets for impairment at
least annually or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
long-lived assets is measured by comparing the carrying amount of the asset or
asset group to the undiscounted cash flows that the asset or asset group is
expected to generate. If the undiscounted cash flows of such assets are less
than the carrying amount, the impairment to be recognized is measured by the
amount by which the carrying amount of the property, if any, exceeds its fair
market value. We intend to re-evaluate the carrying amounts of our amortizable
intangibles at least quarterly to identify any triggering events. As described
above, if triggering events require us to undertake an impairment review, it is
not possible at this time to determine whether it would be necessary to record
a charge or if such charge would be material.

Income Taxes

The Company
accounts for income taxes under the asset and liability method, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.

54

---



Net Loss per Share

The Company
computes basic net income (loss) per share by dividing net income (loss) per
share available to common stockholders by the weighted average number of common
shares outstanding for the period and excludes the effects of any potentially
dilutive securities. Diluted earnings per share includes the dilution that
would occur upon the exercise or conversion of all potentially dilutive
securities into common stock using the treasury stock and/or if converted methods as applicable.

The table
of all of our common stock equivalents is as follows (in thousands):

|                                |  |              |        |      |  |       | 
|------------------------------- |  | ------------ | ------ | ---- |  | ----- | 
|                                |  | December 31, |       
|                                |  |              |       
|                                |  | 2010         |        | 2009 | 
|                                |  |              |        |      | 
|Common stock
 purchase warrants |  |              | 3,750  |      |  | 3,936 | 
|Stock
 options                  |  |              | 2,159  |      |  | 2,440 | 
|Convertible
 notes              |  |              | 18,027 |      |  | 0     | 
|                                |  |              |        |      |  |       | 
|                                |  |              | 23,936 |      |  | 6,376 | 
|                                |  |              |        |      |  |       | 

The
numerator in the loss per share calculation for the year ended December 31,
2010 gives effect to addbacks of (i) $1,085,938 of contractual interest expense
under our convertible notes, and (ii) $1,958,541 of accretion of discount under
the convertible notes (recorded as interest expense) and (iii) the elimination
of the $12,609,485 net credit related to the recognition of and change in the
fair value of the derivative liability associated with the conversion option
embedded in our convertible notes. The number of shares included in the
presentation of diluted loss per share for the year ended December 31, 2010
includes (i) 1,061,054 employee stock options and (ii) 372,093 common stock
purchase warrants, each with exercises prices that are less than the average
share price of $0.86 per share for the year ended December 31, 2010 and (iii)
18,027,397 prorated for the weighted average number of common shares underlying
the conversion option embedded in our convertible notes described in Note 7.

The
adjustment for employee stock options was calculated using the treasury stock
method and the adjustment for the conversion option embedded in our notes was
calculated using the if converted
method.

Share-Based
Payments

We account
for share based payments in accordance with ASC 718 Compensation  Stock
Payments which results in the recognition of expense under applicable GAAP and
requires measurement of compensation cost for all share based payment awards at
fair value on the date of grant and recognition of compensation expense over
the service period for awards expected to vest. We calculate the fair value of
stock options using the Black-Scholes option pricing model. The fair value of
restricted stock is determined based on the number of shares granted and the
fair value of our common stock on date of grant. The recognized expense is net
of expected forfeitures.

55

---



Common Stock Purchase Warrants and Derivative
Financial Instruments

The Company
classifies all of its common stock purchase warrants and derivative financial
instruments as equity if the contracts (i) require physical settlement or
net-share settlement or (ii) give the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside the control of the Company), (ii)
give the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement), or (iii) contracts that
contain reset provisions. The Company assesses classification of its common
stock purchase warrants and other derivatives at each reporting date to
determine whether a change in classification between assets and liabilities is
required.

The Company
determined that the embedded conversion option included in its convertible
notes more fully described in Note 7 meets the definition of derivative
financial instruments that must be bifurcated from the host and accounted for
as a freestanding derivative at fair value.

Financial
instruments, including cash and cash equivalents, accounts payable and accrued
liabilities are carried at cost, which management believes approximates fair
value due to the short-term nature of these instruments. The fair value of
capital lease obligations and equipment loans approximates their carrying
amounts as a market rate of interest is attached to their repayment.

The Company
measures the fair value of financial assets and liabilities based on the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. The Company maximizes the use of observable inputs and
minimizes the use of unobservable inputs when measuring fair value. The Company
uses three levels of inputs that may be used to measure fair value:

Level 1 
quoted prices in active markets for identical assets or liabilities

Level 2 
quoted prices for similar assets and liabilities in active markets or inputs
that are observable

Level 3 
inputs that are unobservable (for example cash flow modeling inputs based on
assumptions)

Financial
liabilities measured at fair value on a recurring basis are summarized below:

Fair value measurements at December 31, 2010

|                       |  |                    |           |                                                                   |   |                                                   |  |                                              |   |  |   |           | 
|---------------------- |  | ------------------ | --------- | ----------------------------------------------------------------- | - | ------------------------------------------------- |  | -------------------------------------------- | - |  | - | --------- | 
|                       |  | December 31,
 2010 |           | Quoted prices in
 active markets for
 identical assets
 (Level 1) |   | Significant
 other
 observable
 inputs
 (Level 2) |  | Significant
 unobservable
 inputs
 (Level 3) |  
|Marketable
 securities |  | $                  | 5,746,612 |                                                                   | $ | 5,746,612                                         |  | $                                            |  |  | $ |          | 
|Derivative
 liability  |  | $                  | 2,390,515 |                                                                   | $ |                                                  |  | $                                            |  |  | $ | 2,390,515 | 

The
derivative liabilities are measured at fair value using quoted market prices
and estimated volatility factors based on historical quoted market prices for
the Companys
common stock, and are classified within Level 3 of the valuation hierarchy.

56

---



The
following table sets forth a summary of the changes in the fair value of the
Companys
Level 3 financial liabilities that are measured at fair value on a recurring
basis:

|                                                                          |  |                    |             |                    |   |   | 
|------------------------------------------------------------------------- |  | ------------------ | ----------- | ------------------ | - | - | 
|                                                                          |  | December 31,
 2010 |             | December 31,
 2009 |  
|Beginning
 Balance                                                        |  | $                  |            |                    | $ |  | 
|Aggregate
 fair value of derivative issued                                |  |                    | 44,792,150  |                    |   |  | 
|Issuance
 date charge for difference between fair value and note proceeds |  |                    | (29,792,150 | )                  |   |  | 
|Change in
 fair value of derivative included in income                    |  |                    | (12,609,485 | )                  |   |  | 
|                                                                          |  |                    |             |                    |   |   | 
|                                                                          |  |                    |             |                    |   |  | 
|                                                                          |  |                    |             |                    |   |   | 
|Ending
 Balance                                                           |  | $                  | 2,390,515   |                    | $ |  | 
|                                                                          |  |                    |             |                    |   |   | 

The
significant assumptions and valuation methods that we used to determine fair
value and the change in fair value of the derivative financial instrument at
issue are discussed in Note 7 (disclosure of Notes, Loans and Derivative
Liabilities), which appears on page 63 of the notes to the Companys consolidated financial statements.

In
accordance with the provisions of ASC 815, the Company presented the conversion
option liability at fair value on its balance sheet, with the corresponding
changes in fair value recorded in the Companys statement of operations for the
applicable reporting periods. As
disclosed in Note 7, the Company computed the fair value of the derivative
liability at the date of issuance and the reporting date of December 31, 2010
using both the Black-Scholes option pricing and lattice pricing methods. The value calculated using the lattice pricing method is within 1% of the value determined under the Black-Scholes method.

The Company
developed the assumptions that were used as follows: The fair value of the
Companys
common stock was obtained from quoted market prices; the term represents the
remaining contractual term of the derivative; the volatility rate was developed
based on analysis of the Companys
historical stock price volatility and the historical volatility rates of
several other similarly situated companies (using a number of observations that
was at least equal to or exceeded the number of observations in the life of the
derivative financial instrument at issue); the risk free interest rates were
obtained from publicly available US Treasury yield curve rates; the dividend
yield is zero because the Company has not paid dividends and does not expect to
pay dividends in the foreseeable future.

At the time
the Company issued the convertible note on February 5, 2010, the Company
bifurcated the derivative from its debt host in accordance with ASC 815. The
issuance date fair value of the derivative amounted to approximately
$44,792,150, which exceeded the $15,000,000 of proceeds received by the Company
upon the issuance of the convertible secured note. As a result, the Company
recorded a $29,792,150 charge to the statement of operations for the difference
between the fair value of the derivative at the commitment date of the note
transaction and the proceeds received from the note holder. The carrying amount of the
derivative was adjusted to its fair value of $2,390,515 at December 31, 2010.

The overall
decrease in the fair value of the derivative amounted to $42,401,635 between
February 5, 2010 and December 31, 2010. The decrease was recorded in the
Companys statement of operations for the year ended December 31, 2010. As a result, the
Company recorded $12,609,485 of other income which is the net of the
$29,792,150 charge recorded upon the issuance of the convertible note on
February 5, 2010 and the approximately $42,401,635 decrease in its fair value
through December 31 2010. The decrease in the fair value of the derivative is
principally attributable to the reduction in the price of the Companys common stock from
February 5, 2010 through December 31, 2010. The fair value of the Companys common stock amounted to
$2.90 on February 5, 2010 and decreased by 85% to a fair value of $0.42 on
December 31, 2010. Further,
the conversion option was in the money at its date of issuance with an
intrinsic value of $2.15 per share and was out of the money by $0.33 per share
on December 31 2010.

57

---



Recent Accounting Pronouncements

In February
2010, the FASB issued Accounting
Standards Update (ASU) 2010-09, Subsequent Events (Topic 855)  Amendments
to Certain Recognition and Disclosure Requirements. ASC 2010-09 requires an
entity that is an SEC filer to evaluate subsequent events through the date that
the financial statements are issued and removes the requirement that an SEC
filer disclose the date through which subsequent events have been evaluated.
ASC 2010-09 was effective upon issuance. The adoption of this standard had no
effect on the Companys consolidated financial position or results of
operations. Disclosures have been modified to reflect the new requirements.

The FASB
has issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business Combinations. This
amendment affects any public entity as defined by Topic 805, Business
Combinations that enters into business combinations that are material on an
individual or aggregate basis. The comparative financial statements should
present and disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as
of the beginning of the comparable prior annual reporting period only. The
amendments also expand the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination included in the
reported pro forma revenue and earnings. The amendments are effective
prospectively for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2010. The adoption of this standard is not expected to have a
material impact on the Companys consolidated financial position and results of
operations.

In
December 2010, the FASB issued ASU 2010-28, Intangibles  Goodwill and
Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts. ASU 2010-28 modifies
Step 1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts by requiring an entity to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill
impairment exists. This update will be effective for fiscal years beginning
after December 15, 2010. The adoption of this standard is not expected to
have a material impact on the Companys consolidated financial position and
results of operations.

Other
accounting standards that have been issued or proposed by the FASB, SEC and/or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption

Note 4 - Business Combinations

SkyWi, Inc.

On November
12, 2009, KeyOn Communications Holdings, Inc. purchased the assets of SkyWi,
Inc., pursuant to an Asset Purchase Agreement, from Data Sales, Inc., including
subscriber contracts, accounts, and fixed assets for 33,388 shares of common
stock. The value of the stock on the date of issuance was $1.99 per share for a
total purchase value of $66,442. The purchase valuation breakdown is as
follows:

|                          |  |   |         |  
|------------------------- |  | - | ------- | -
|Subscriber
base           |  | $ | 22,528  |  
|Property and
equipment    |  |   | 65,600  |  
|Less: Gain
on acquisition |  |   | (21,686 | )
|                          |  |   |         |  
|Total
consideration       |  | $ | 66,442  |  
|                          |  |   |         |  

58

---



Affinity Wireless, LLC:

On February
3, 2010, the Company purchased the assets of Affinity Wireless, LLC, pursuant
to an Asset Purchase Agreement, including subscriber contracts, accounts, and
fixed assets for 141,521 shares of common stock. The value of the stock on the
date of issuance was $2.90 for a total purchase price of $410,411. This
acquisition enables the Company to expand its business into the geographical
region in and around Ottumwa, Iowa. The purchase price breakdown is as follows:

|                                      |  |   |         |  
|------------------------------------- |  | - | ------- | -
|Network
equipment                     |  | $ | 118,205 |  
|Customer
premise equipment            |  |   | 20,150  |  
|Subscriber
base                       |  |   | 51,860  |  
|Vehicles                              |  |   | 9,840   |  
|Office
equipment                      |  |   | 5,795   |  
|Prepaid
expenses                      |  |   | 2,580   |  
|Accounts
receivable                   |  |   | 3,401   |  
|Accounts
payable and accrued expenses |  |   | (11,342 | )
|Loan payable                          |  |   | (69,487 | )
|Obligations
to subscribers            |  |   | (7,607  | )
|Goodwill                              |  |   | 287,016 |  
|                                      |  |   |         |  
|Total
consideration                   |  | $ | 410,411 |  
|                                      |  |   |         |  

RidgeviewTel, LLC

On April 1,
2010, the Company purchased substantially all of the Illinois wireless
broadband assets of RidgeviewTel, LLC, pursuant to an Asset Purchase Agreement,
including subscriber contracts, accounts, and fixed assets for 168,733 shares
of common stock. The value of the stock on the date of the initial issuance was
$0.90 for a total purchase price of $151,859. This acquisition enables the
Company to expand its business into the geographical region in and around Mt.
Vernon, Illinois. The preliminary purchase price breakdown is as follows:

|                           |  |   |         |  
|-------------------------- |  | - | ------- | -
|Network
equipment          |  | $ | 14,650  |  
|Customer
premise equipment |  |   | 71,475  |  
|Subscriber
base            |  |   | 26,714  |  
|Accounts
receivable        |  |   | 1,589   |  
|Obligations
to subscribers |  |   | (539    | )
|Goodwill                   |  |   | 37,970  |  
|                           |  |   |         |  
|Total
consideration        |  | $ | 151,859 |  
|                           |  |   |         |  

Dynamic Broadband Corporation

On May 28,
2010, the Company purchased substantially all of the assets of the wireless
Internet service provider business of Dynamic Broadband Corporation, pursuant
to an Asset Purchase Agreement, including subscriber contracts, accounts, and
fixed assets for 2,005,306 shares of common stock initially upon close and an
additional 32,268 shares issued after the completion of the required purchase
price adjustments. The value of the stock on the date of the initial issuance
was $0.75, for a total purchase price of $1,528,182. This acquisition enables
the Company to expand its business into the geographical region in and around
Cedar Rapids, Iowa and Rochester, Minnesota. The preliminary purchase price
breakdown is as follows:

59

---



|                                      |  |   |           |  
|------------------------------------- |  | - | --------- | -
|Network
equipment                     |  | $ | 674,711   |  
|Customer
premise equipment            |  |   | 746,153   |  
|Subscriber
base                       |  |   | 658,487   |  
|Vehicles                              |  |   | 18,925    |  
|Office
equipment                      |  |   | 29,178    |  
|Prepaid
expenses                      |  |   | 8,308     |  
|Accounts
receivable                   |  |   | 18,075    |  
|Accounts
payable and accrued expenses |  |   | (208,621  | )
|Loan payable                          |  |   | (380,617  | )
|Obligations
to subscribers            |  |   | (86,912   | )
|Goodwill                              |  |   | 50,495    |  
|                                      |  |   |           |  
|Total
consideration                   |  | $ | 1,528,182 |  
|                                      |  |   |           |  

TS Wireless

On July 2,
2010, the Company purchased substantially all of the assets of the wireless
Internet service provider business known as TS Wireless from Technology
Specialists Group, Inc., pursuant to an Asset Purchase Agreement, including
subscriber contracts, accounts, and fixed assets for $219,456 in cash over a
period of two years, subject to certain adjustments, and issue 30,465 shares of
common stock at a fair value of $0.60 per share, for a total purchase price of
$237,735. This acquisition enables the Company to expand its business into the
geographical region in and around Champaign, Illinois. The preliminary purchase
price breakdown is as follows:

|                                      |  |   |         |  
|------------------------------------- |  | - | ------- | -
|Network
equipment                     |  | $ | 4,489   |  
|Customer
premise equipment            |  |   | 62,028  |  
|Subscriber
base                       |  |   | 113,260 |  
|Office
equipment                      |  |   | 1,327   |  
|Prepaid
expenses                      |  |   | 9,650   |  
|Accounts
receivable                   |  |   | 1,627   |  
|Accounts
payable and accrued expenses |  |   | (900    | )
|Obligations
to subscribers            |  |   | (10,356 | )
|Goodwill                              |  |   | 56,610  |  
|                                      |  |   |         |  
|Total
consideration                   |  | $ | 237,735 |  
|                                      |  |   |         |  

Southwest Wireless Net, Inc.

On August
3, 2010, the Company purchased substantially all of the assets of the wireless
Internet service provider business from Southwest Wireless Net, Inc., a
Minnesota corporation, pursuant to an Asset Purchase Agreement, including
subscriber contracts, accounts, and fixed assets for $340,000 of which $100,000
was paid in cash on closing and $240,000 is a note payable, subject to certain
adjustments. This acquisition enables the Company to expand the business into
the geographical region in and around Worthington, Minnesota. The preliminary
purchase price breakdown is as follows:

|                           |  |   |         |  
|-------------------------- |  | - | ------- | -
|Network
equipment          |  | $ | 160,000 |  
|Customer
premise equipment |  |   | 75,000  |  
|Subscriber
base            |  |   | 87,000  |  
|Vehicles                   |  |   | 4,000   |  
|Office
equipment           |  |   | 13,000  |  
|Prepaid
expenses           |  |   | 33,884  |  
|Obligations
to subscribers |  |   | (42,763 | )
|Goodwill                   |  |   | 9,879   |  
|                           |  |   |         |  
|Total
consideration        |  | $ | 340,000 |  
|                           |  |   |         |  

60

---



On A Wave Wireless, Inc

On November
5, 2010, the Company purchased substantially all of the assets and assumed
certain liabilities of the wireless Internet service provider business from On
a Wave Wireless, Inc., an Iowa corporation, pursuant to an Asset Purchase Agreement,
including subscriber contracts, accounts receivable and tower leases for
$74,837, payable in two semi-annual non-interest bearing payments of $59,000 through
October 11, 2011. This acquisition enables the Company to expand the business
into the geographical region in and around Onawa, Iowa. The preliminary
purchase price breakdown is as follows:

|                                      |  |   |         |  
|------------------------------------- |  | - | ------- | -
|Network
equipment                     |  | $ | 5,869   |  
|Customer
premise equipment            |  |   | 13,905  |  
|Prepaid
expenses                      |  |   | 3,046   |  
|Subscriber
base                       |  |   | 39,727  |  
|Accounts
receivable due to subscriber |  |   | 2,075   |  
|Obligations
to subscribers            |  |   | (4,618  | )
|Note Payable                          |  |   | (16,476 | )
|Goodwill                              |  |   | 31,309  |  
|                                      |  |   |         |  
|Total
consideration                   |  | $ | 74,837  |  
|                                      |  |   |         |  

Pro forma financials

The Company
accounted for these business combinations using the acquisition method of
accounting. The results of operations for the year ended December 31, 2010,
including the revenues and expenses of these acquired businesses, are included
in the Companys results of operations since their respective dates of
acquisition.

The
pro-forma financial results for the years ended December 31, 2010 and 2009,
combines the historical results of Southwest Wireless Net, Inc., TS Wireless,
Dynamic Broadband Corporation, RidgeviewTel, LLC, Affinity, LLC and On A Wave
Wireless, Inc. with those of the Company as if these acquisitions had been
completed as of the beginning of each of the periods presented. The pro-forma
weighted average number of shares outstanding also assumes that the shares
issued as purchase consideration were outstanding as of the beginning of each
of the periods presented.

|                                                       |  |                   |            |                  |   |            |  
|------------------------------------------------------ |  | ----------------- | ---------- | ---------------- | - | ---------- | -
|                                                       |  | Year Ended        |           
|                                                       |  | December 31, 2010 |            | December 31,2009 |  
|                                                       |  |                   |            |                  |  
|Total revenues                                         |  | $                 | 8,785,346  |                  | $ | 10,063,014 |  
|Loss from operations                                   |  | $                 | (6,940,180 | )                | $ | (3,884,973 | )
|Net income/(loss) available to common
stockholders     |  | $                 | 2,379,414  |                  | $ | (6,155,132 | )
|Net income/(loss) per share, basic                     |  | $                 | 0.10       |                  | $ | (0.39      | )
|Net income/(loss) per share, diluted                   |  | $                 | (0.17      | )                | $ | (0.39      | )
|Pro forma weighted average shares
outstanding, basic   |  |                   | 23,534,327 |                  |   | 15,859,043 |  
|Pro forma weighted average shares
outstanding, diluted |  |                   | 42,995,391 |                  |   | 15,859,043 |  

61

---



The
pro-forma financial information is presented for informational purposes only
and is not indicative of the results of operations that would have been
achieved had the acquisitions of these businesses taken place at the beginning
of each of the periods presented nor is the pro-forma financial information
intended to project expected results for any future period.

Note 5  Property and Equipment

Property and equipment at December 31, 2010 and 2009, consisted of the
following:

|                                    |  |                   |             |                   |   |            |  
|----------------------------------- |  | ----------------- | ----------- | ----------------- | - | ---------- | -
|                                    |  | December 31, 2010 |             | December 31, 2009 |  
|                                    |  |                   |             |                   |   |            |  
|Subscriber equipment                |  | $                 | 7,027,318   |                   | $ | 6,206,078  |  
|Fixed wireless tower site equipment |  |                   | 5,253,097   |                   |   | 2,816,295  |  
|Software and consulting costs       |  |                   | 633,704     |                   |   | 594,170    |  
|Computer and office equipment       |  |                   | 703,467     |                   |   | 459,089    |  
|Vehicles                            |  |                   | 243,107     |                   |   | 242,574    |  
|Leasehold improvements              |  |                   | 315,012     |                   |   | 312,100    |  
|                                    |  |                   |             |                   |   |            |  
|Property and equipment              |  |                   | 14,175,706  |                   |   | 10,630,306 |  
|Less: accumulated depreciation      |  |                   | (10,769,366 | )                 |   | (9,015,852 | )
|                                    |  |                   |             |                   |   |            |  
|Property and equipment, net         |  | $                 | 3,406,340   |                   | $ | 1,614,454  |  
|                                    |  |                   |             |                   |   |            |  

Depreciation
expense amounted to $1,784,795 and $2,021,055 for the years ended December 31,
2010 and 2009 respectively. The total amount of fixed assets acquired under
equipment leases amounted to $3,857,325 less accumulated depreciation of
$3,456,057 for a net balance of $401,268 as of December 31, 2010,

Note 6  Intangible Assets

|                                         |  |               |           |      |   |           | 
|---------------------------------------- |  | ------------- | --------- | ---- | - | --------- | 
|                                         |  | December
 31, |          
|Goodwill
 Detail                         |  | 2010          |           | 2009 |  
|                                         |  |               |           |      |  
|                                         |  |               |           |      |   |           | 
|Pocatello
 Acquisition Goodwill          |  | $             | 165,016   |      | $ | 165,016   | 
|Speednet
 Acquisition Goodwill           |  |               | 1,176,800 |      |   | 1,176,800 | 
|Affinity
 Acquisition Goodwill           |  |               | 287,016   |      |   |          | 
|Dynamic
 Broadband Acquisition Goodwill  |  |               | 50,495    |      |   |          | 
|RidgeviewTel
 Acquisition Goodwill       |  |               | 37,970    |      |   |          | 
|TS Wireless
 Acquisition Goodwill        |  |               | 56,610    |      |   |          | 
|Southwest
 Wireless Acquisition Goodwill |  |               | 9,879     |      |   |          | 
|On A Wave
 Acquisition Goodwill          |  |               | 31,309    |      |   |          | 
|                                         |  |               |           |      |   |           | 
|Goodwill-
 December 31, 2010             |  | $             | 1,815,095 |      | $ | 1,341,816 | 
|                                         |  |               |           |      |   |           | 

|                                                |  |   |            |  
|----------------------------------------------- |  | - | ---------- | -
|Subscriber
 Base                                |  |   |            |  
|                                                |  |   |            |  
|Subscriber
 Base-December 31, 2009              |  | $ | 1,313,415  |  
|Affinity
 Acquisition Subscriber Base           |  |   | 51,861     |  
|Dynamic
 Broadband Acquisition Subscriber Base  |  |   | 26,714     |  
|RidgeviewTel
 Acquisition Subscriber Base       |  |   | 658,487    |  
|TS Wireless
 Acquisition Subscriber Base        |  |   | 113,260    |  
|Southwest
 Wireless Acquisition Subscriber Base |  |   | 87,000     |  
|On A Wave
 Acquisition Subscriber Base          |  |   | 39,727     |  
|                                                |  |   |            |  
|Subscriber
 Base- December 31, 2010             |  |   | 2,290,464  |  
|Less
 accumulated amortization                  |  |   | (1,425,597 | )
|                                                |  |   |            |  
|Subscriber
 Base, net                           |  | $ | 864,867    |  
|                                                |  |   |            |  

62

---



Trademarks were $16,567 and 16,667 as of December 31, 2010 and 2009,
respectively.

Amortization expense for the year ended December 31, 2010 and 2009 was
$294,851 and $402,602, respectively.

Estimated amortization expense for future fiscal years is as follows:

|                                |      |  |   |         | 
|------------------------------- | ---- |  | - | ------- | 
|For the
 years ending December, |      |  |   |        
|                                | 2011 |  | $ | 360,015 | 
|                                | 2012 |  |   | 335,713 | 
|                                | 2013 |  |   | 149,184 | 
|                                | 2014 |  |   | 19,955  | 
|                                |      |  |   |         | 
|                                |      |  | $ | 864,867 | 
|                                |      |  |   |         | 

Note 7  Notes, Loans and Derivative
Liabilities

Lines of Credit:

In August
2010, the Company entered into a Portfolio Loan Account agreement with Morgan
Stanley for an amount up to $5,000,000, under which it may borrow up to the
amount of marketable securities held by the Company. The amount outstanding at
December 31, 2010 was $1,215,938 at an interest rate of 2.76%. The borrowings
are due on demand therefore all of the outstanding balance has been classified
as current. The facility agreement expires on March 31, 2011. The remaining
balance outstanding of approximately $1.2 million will be repaid with proceeds
to be received from sales of marketable securities. As of December 31, 2010, the
available amount under this facility was $3,784,062.

The Company was obligated under a line of credit loan with Sun West
Bank that had an outstanding principal balance of $100,000 at December 31,
2009. The line of credit was fully paid as of September 30, 2010. The line of
credit was guaranteed by a shareholder and officer of the Company.

63

---



Notes Payable

|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------ | 
|                                                                                                                                                                                                                                    |  | December 31, |        
|                                                                                                                                                                                                                                    |  |              |        
|                                                                                                                                                                                                                                    |  | 2010         |         | 2009 |  
|                                                                                                                                                                                                                                    |  |              |         |      |  
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable to Nevada State Bank in
 monthly installments of $10,828 including interest at 7% through October
 2014.                                                                                                               |  | $            | 425,087 |      | $ |       | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable in connection with acquisition
 of assets and assumption of certain liabilities of Southwest Wireless,
 payable in quarterly non-interest bearing payments of $30,000 through August
 1, 2012. (Note 4)                |  |              | 210,000 |      |   |       | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable in connection with acquisition
 of assets and assumption of certain liabilities of TS Wireless, payable in
 quarterly non-interest bearing payments of $18,750 through June 30, 2012.
 (Note 4)                        |  |              | 184,456 |      |   |       | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable in connection with acquisition
 of assets and assumption of certain liabilities of On A Wave Wireless, Inc.,
 payable in two semi-annually non-interest bearing payments of 59,000 through
 October 11, 2011. (Note 4) |  |              | 59,000  |      |   |       | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable to a Blencoe State Bank
 assumed in connection with acquisition of On A Wave Wireless, Inc., payable
 in monthly installments of $450 including interest at 7.25% through May 2014.
 (Note 4)                          |  |              | 15,774  |      |   |       | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable to GMAC, payable in 60 monthly
 installments including interest at 9.1%                                                                                                                                                |  |              |         |      |   | 6,374  | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Note payable to American National Bank,
 payable in 48 monthly installments including interest at 7.8%.                                                                                                                             |  |              | 7,842   |      |   | 30,181 | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|                                                                                                                                                                                                                                    |  |              | 902,159 |      |   | 36,555 | 
|Current
 portion                                                                                                                                                                                                                    |  |              | 396,847 |      |   | 28,713 | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 
|Non-current
 portion                                                                                                                                                                                                                |  | $            | 505,312 |      | $ | 7,842  | 
|                                                                                                                                                                                                                                    |  |              |         |      |   |        | 

Future
minimum payments under notes payable, which are stated at their principal
amounts with initial or remaining terms of one year or more consist of the
following as of December 31, 2010;

|     |  |   |         | 
|---- |  | - | ------- | 
|2011 |  | $ | 396,847 | 
|2012 |  |   | 286,222 | 
|2013 |  |   | 123,503 | 
|2014 |  |   | 95,587  | 
|     |  |   |         | 
|     |  | $ | 902,159 | 
|     |  |   |         | 

Installment Obligations:

On February
1, 2010, the Company entered into a Note Purchase Agreement (the Note Purchase
Agreement) with The California Capital Limited Partnership (CalCap). On
February 5, 2010, pursuant to the Note Purchase Agreement, the Company issued to
CalCap a secured convertible promissory note for the principal sum of
$15,000,000 (the Note). The Note bears interest at the rate of 8% per annum.
However, prior to September 30, 2010, interest under the Note  accrued on
the outstanding principal amount, at the election of CalCap at the rate of either (i) 4%
per annum and be payable in cash or (ii) 8% per annum and  payable
in shares of Series Cal Cap Preferred Stock, with such shares of Series Cal Cap
Preferred Stock issued at a price per share of $1.50. After September 30, 2010,
interest  accrues on the outstanding principal amount at the rate of 8% per
annum and is payable in cash. The Note matures on February 5, 2015, unless
accelerated by CalCap upon an event of default. Additionally, In connection with the Company issuing the Note to CalCap, each of Jonathan Snyder, the Companys president and the chief executive officer, and two other stockholders (collectively, the Guarantors) executed a Guaranty on February 5, 2010 (the Guaranty), pursuant to which the Guarantors agreed to, jointly and severally, guarantee the full and prompt payment when due of up to $4,050,000 of obligations of the Company under the Note. This Guaranty will terminate upon the satisfaction (whether by repayment, conversion or otherwise and in each case in accordance with the terms and provisions of the Note) of obligations by the Company having an aggregate amount of at least $4,050,00.

The Note is
convertible into shares of Series Cal Cap Preferred Stock as well as common
stock, at the option of CalCap, upon maturity or mandatorily under certain
circumstances. Pursuant to the terms of the Note, if the Company had been
successful in any of its Round One ARRA applications, the Note would have
mandatorily converted into shares of Series Cal Cap Preferred Stock. This
mandatory conversion feature expired as a result of the Companys announcement
on March 3, 2010 that none of the Round One ARRA applications advanced to an
award. The Company also entered into a Registration Rights Agreement, a
Security Agreement (the Security Agreement) and various ancillary
certificates, dated February 5, 2010. Pursuant to the Security Agreement
between CalCap and the Company, the Companys obligations under the Note are
secured by a perfected security interest in all of the assets and properties of
the Company, including the stock of its subsidiaries. On December 3, 2010, we
entered into an agreement (the Conversion Agreement) with CalCap, subject to
stockholder approval, pursuant to which CalCap agreed to convert all of the
outstanding principal and accrued but unpaid interest under the Note into
shares of Preferred Stock at a
conversion price of $1.00 per share (the Conversion), as further described in
Note 12 Subsequent Events. On March 11,
2011, the Company issued 16,315,068 shares of Preferred Stock in
addition to 10,300,000 exercisable warrants to obtain Preferred Stock. The Preferred Stock has super-majority voting preferences compared
to the common stock. Each share of  Preferred Stock has three votes compared to common
stock, which has one vote per share. As a result, the  Preferred Stock controls over 77%
of the voting rights afforded to stockholders. The  Preferred Stock also has the
ability to name a majority of our members of our Board of Directors, among
other rights and preferences that do not belong to common stockholders. The
Company is in the process of determining the proper accounting treatment of the
Conversion.

64

---



Accretion
of the discount amounted to $1,958,541 during the year ended December 31, 2010.

The Company
executed a loan agreement with Sun West Bank on February 8, 2008, totaling $4.5
million (the Loan). On June 18, 2009, the Company entered into a Change in
Terms Agreement with Sun West Bank, whereby the Company made a principal
reduction payment of $450,000. Pursuant to the Change in Terms Agreement, the
payment reduced the Loan to $4.05 million, modified the interest rate so that interest accrued at the rate of 7.25% per annum and extended the
maturity until June 4, 2015. Payments for the first year are interest only at a
7.25% fixed interest rate. A shareholder in the Company is also a minority
shareholder and Board member of the lending institution (See Note 8). As a
member of the banks Board and Loan Committee, the shareholder abstained from
voting on this transaction as required under the applicable banking
regulations. The Loan was guaranteed by three shareholders of the Company, one
being an officer of the Company. The interest is payable monthly. The
outstanding balance of $4.05 million and all accrued interest were paid in full
on February 5, 2010.

Prior
to August 31, 2009, the Company had a series of subordinated secured notes
outstanding of $1,281,878 (Sub Notes) that were issued between July and December 2008. The Sub Notes, whose terms were
approved by the independent members of the Companys board, were issued to
certain of its present investors and certain members of senior management as
bridge financing that was used to fund working capital obligations. These notes
featured interest at 17% per annum (compounded monthly) and three percent of
the amount of the subordinated secured notes was retained by the investors in
the form of a closing payment. In the original terms, the Sub Notes were due to
mature upon the earlier of January 29, 2009 or upon a change of control, among
other things. These Sub Notes were amended to extend the maturity date until
August 31, 2009 and include a conversion into shares of the Companys common
stock at the option of the holder. In July 2009, all of the Sub Note holders
accepted an offer to exchange their Sub Notes for common stock at a price per
share of $0.50, with a fair value of $1.01 per share. On or before August 31, 2009,
all holders elected to convert their Sub Notes to stock and the Company issued
2,376,090 shares to those holders. As a result of the settlement, we recorded a
non-cash loss on the exchange of shares for the settlement of the Sub Notes.

A second set of senior secured subordinated notes were issued beginning in May 2009 (Second Sub Notes). An aggregate amount of $300,000 was issued to certain of the Companys existing shareholders to fund current working capital obligations. These Second Sub Notes bear interest at 17% per annum (compounded monthly) and matured on September 30, 2009. The notes were convertible at any time prior to maturity into shares of the Companys common stock at a price per share of $0.25 at the option of the holder. These notes included 300,000 five-year warrants to purchase common stock and had an exercise price of $0.50 per share, for an aggregate fair value of $14,753. On or before September 29, 2009, all holders elected to convert their Sub Notes and accrued interest, which amounted to $329,244, into common stock at the contractual conversion price of $0.25 per share and the
Company issued 1,316,979 shares to the holders.

Derivative Financial Instrument

The
Company evaluates and accounts for conversion options embedded in its
convertible instruments in accordance with ASC 815 Derivative and Hedging
which requires issuers of financial statements to make a determination as to
whether (i) an embedded conversion meets the definition of a derivative in its
entirety and (ii) would qualify for a scope exception to derivative accounting,
which further includes evaluating whether the embedded derivative would be
considered indexed to the issuers own stock.

65

---



ASC 815
generally provides three criteria that, if met, require companies to bifurcate
conversion options from their host instruments and account for them as separate
derivatives in the event such derivatives would not be classified in stockholders
equity if they were free standing. These three criteria include circumstances
in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) the hybrid instrument that embodies both
the embedded derivative instrument and the host contract is not re-measured at
fair value under other applicable GAAP with changes in fair value reported in
earnings as they occur and (c) a separate instrument with the same terms as the
embedded derivative instrument would be considered a derivative instrument
subject to the requirements of ASC 815. ASC 815 also provides for an exception
to this rule if a debt host instrument is deemed to be a conventional debt
instrument.

The Company
evaluated the conversion option embedded in its convertible notes issued in
February 2010 in accordance with the provisions of ASC 815 and determined that
the conversion option has all of the characteristics of a derivative in its
entirety that does not qualify for an exception to the derivative accounting
rules. Specifically, the exercise price of the conversion option is not fixed
at any time during the term of the note based on the occurrence or non-occurrence
of certain events and also entitles the counterparty to an adjustment of the
exercise price in the event that the Company subsequently issues equity
securities or equity linked securities at prices more favorable than the
exercise price of the conversion option embedded in the notes. Accordingly, the
conversion option is not indexed to the Companys own stock.

As a result
of the above, the Company recorded a derivative liability on February 5, 2010,
the commitment date of the transaction, in the amount of $44,792,150 and a
corresponding charge of $29,792,150 for the difference between the issuance
date fair value of the derivative and the $15,000,000 of proceeds received from
the investor in the note transaction. The Company also adjusts the carrying
amount the derivative to its fair value at each reporting date with the changes
in fair value reported as a component of results of operations under the
heading of other income and expense. The fair value of the derivative liability
was reduced to $2,390,515 as of December 31, 2010, principally due to a reduction
in the trading price of our common stock from $2.90 at February 5, 2010 to
$0.42 as of December 31, 2010.

The Company
computed the fair value of the derivative liability at the date of issuance and
the reporting date of December 31, 2010 using the Black-Scholes option pricing
model with the following assumptions:

|                               |  |                                   |            |                                      |   |            |  
|------------------------------ |  | --------------------------------- | ---------- | ------------------------------------ | - | ---------- | -
|Input                          |  | February 5, 2010
 (Issuance Date) |            | December 31, 2010 
 (Reporting Date) |  
|                               |  |                                   |            |                                      |  
|Fair value
 of common stock    |  | $                                 | 2.90       |                                      | $ | .42        |  
|Exercise
 Price of Option      |  | $                                 | .75        |                                      | $ | .75        |  
|Term (years)                   |  |                                   | 5          |                                      |   | 4.08       |  
|Volatility                     |  |                                   | 55         | %                                    |   | 53.70      | %
|Risk Free
 Interest Rate       |  |                                   | 2.23       | %                                    |   | 3.12       | %
|Dividend
 Yield                |  |                                   | 0          | %                                    |   | 0          | %
|Unit fair
 value               |  | $                                 | 2.24       |                                      | $ | 0. 12      |  
|Shares
 issuable upon exercise |  |                                   | 20,000,000 |                                      |   | 20,000,000 |  
|                               |  |                                   |            |                                      |   |            |  
|Aggregate
 fair value          |  | $                                 | 44,792,150 |                                      | $ | 2,390,515  |  

66

---



The Company
recorded a net credit of $12,609,485 for the issuance and change in fair value
of the derivative for the year ended December 31, 2010. The net credit includes
the effects of having recorded (i) the issuance date charge of $29,792,150 for
the difference between the issuance date fair value of the derivative and the
proceeds in the note transaction and (ii) a subsequent credit of $42,401,635
for the change between the issuance date fair value of the derivative, which
amounted to $44,792,150 and the reporting date fair value of the derivative
which amounted to $2,390,515. The decrease in the fair value of the derivative
is principally attributable to the reduction in the price of the Companys
common stock from February 5, 2010 through December 31, 2010. The fair value of
the Companys common stock amounted to $2.90 on February 5, 2010 and decreased
by 85% to a fair value of $0.42 on December 31, 2010. Further, the conversion
option was in the money at its date of issuance with an intrinsic value of
$2.15 per share and was out of the money by $0.33 per share December 31 2010.
The change in the fair value of the derivative is included in other income and
expense in the accompanying condensed consolidated statement of operations for
the year ended December 31, 2010.

Note 8 - Related Party Financing Transactions

We had a series of Sub Notes that were issued between
July and December 2008. In the original terms, the Sub Notes
were due to mature upon the earlier of January 29, 2009 or upon a change of
control, among other things. These Sub Notes were subsequently amended to
extend the maturity date until August 31, 2009 and include a conversion into
shares of the Companys common stock at the option of the holder (See
Note 7). The Sub Notes were scheduled to mature on August 31, 2009 and were
convertible into shares of our common stock at a price per share of $0.50 at
any time prior to maturity. As of August 31, 2009, all of the holders of the
Sub Notes elected to convert the Sub Notes into shares of our common stock.
Consequently, we effectively reduced notes payable and interest payable
liability by $1,188,042 in exchange for the issuance of 2,376,090 shares of
common stock. Two of our executives and their affiliates - Jonathan Snyder,
CEO, and Jason Lazar, Vice President Corporate Development and General Counsel
- held notes totaling $555,137 (47% of the total notes outstanding) and
participated in this conversion.

Note 9 - Operating and Capital Leases

Capital Leases:

The Company
leases equipment from certain parties under various capital leases expiring in
2011 through 2014. The Company has entered into five additional capital leases
that total, in aggregate $234,350 in the year ended December 31, 2010. Future
minimum lease payments under the capital leases, which are stated at their
principal amounts with initial or remaining terms of one year or more consist
of the following as of December 31, 2010:

|                                        |  |   |          |  
|--------------------------------------- |  | - | -------- | -
|2011                                    |  | $ | 752,493  |  
|2012                                    |  |   | 123,227  |  
|2013                                    |  |   | 18,635   |  
|2014                                    |  |   | 504      |  
|Thereafter                              |  |   |         |  
|                                        |  |   |          |  
|Total
 minimum lease payments           |  |   | 894,859  |  
|Less amounts
 representing interest     |  |   | (105,135 | )
|                                        |  |   |          |  
|                                        |  |   | 789,724  |  
|Less current
 portion                   |  |   | (644,119 | )
|                                        |  |   |          |  
|Capital
 lease obligations, non-current |  | $ | 145,605  |  
|                                        |  |   |          |  

Pursuant to
two master lease agreements, the Company was provided with an aggregate lease
borrowing limit of that totals $2 million. No funding is available as of
December 31, 2010 under these two master lease agreements.

67

---



Operating Leases:

In
  addition, the Company leases tower and roof-top space under operating leases
  with terms that are typically for 5 years and contain automatic renewals for 2
  or 3 additional 5 year terms. Finally, the Company also has various operating
  leases for office space, equipment, and vehicles that generally are for 3 to 5
  year terms. Future minimum lease payments under the operating leases with initial
  or remaining terms of one year or more consist of the following at December 31
  2010:

|                                  |  |   |           | 
|--------------------------------- |  | - | --------- | 
|For the
years ending December 31, |  |   |           | 
|2011                              |  | $ | 925,848   | 
|2012                              |  |   | 577,031   | 
|2013                              |  |   | 332,503   | 
|2014                              |  |   | 161,443   | 
|2015                              |  |   | 38,528    | 
|Thereafter                        |  |   | 6,502     | 
|                                  |  |   |           | 
|                                  |  | $ | 2,041,855 | 
|                                  |  |   |           | 

The total
rental expense included in operating expenses for operating leases included
above is $1,618,217 and $1,329,602 for the year ended December 31, 2010 and
December 31, 2009, respectively.

In February
2007, the Company entered into a lease agreement for its corporate offices in
Omaha, Nebraska. The lease term commenced in February 2007 and terminates five
years from the date of commencement with an option to renew for an additional
five-year term. The Companys annual rent payments totaled approximately
$103,000 in 2010 and will remain at that level through March 2011, before
increasing to approximately $106,200 through March 2012.

The
landlord provided the Company with incentives as an inducement to enter the
lease agreement. These incentives included (i) an allowance of $265,000 for
leasehold improvements, (ii) an initial three-month rent-free period and (iii)
a reduced initial monthly payment schedule from April 2007 through September
2007 with escalating monthly charges thereafter. Leasehold improvements
funded by the landlord have been (i) capitalized and are being amortized over
the remaining lease term and (ii) recognized as deferred rent and amortized
ratably over the term of the lease. The economic value of the rent-free period
and the reduced initial monthly payments are recognized as deferred rent and
amortized ratably over the term of the lease. Current and long term balances
totaled $63,945 and $16,148 at December 31, 2010.

68

---



Note 10- Income Taxes

The
  income tax provision (benefit) consists of the following:

|                               |  |                          |          |      |   |            |  
|------------------------------ |  | ------------------------ | -------- | ---- | - | ---------- | -
|                               |  | Years Ended December 31, |         
|                               |  | 2010                     |          | 2009 |  
|                               |  |                          |          |      |  
|Federal                        |  |                          |          |      |   |            |  
|Current                        |  | $                        |         |      | $ |           |  
|Deferred                       |  |                          | 657,268  |      |   | (2,103,000 | )
|State and
 local               |  |                          |          |      |   |            |  
|Current                        |  |                          |         |      |   |           |  
|Deferred                       |  |                          | 124,718  |      |   | (399,000   | )
|Change in valuation allowance  |  |                          | (616,515 | )    |   | 2,502,000  |  
|                               |  |                          |          |      |   |            |  
|Income tax provision (benefit) |  | $                        | 165,471  |      | $ |           |  
|                               |  |                          |          |      |   |            |  

For the
years ended December 31, 2010 and 2009, the expected tax expense (benefit)
based on the statutory rate is reconciled with actual tax expense (benefit) as
follows:

|                                          |  |                          |       |      |  |       |   
|----------------------------------------- |  | ------------------------ | ----- | ---- |  | ----- | --
|                                          |  | Years Ended December 31, |      
|                                          |  | 2010                     |       | 2009 | 
|                                          |  |                          |       |      | 
|                                          |  |                          |       |      |  |       |   
|U.S. federal
 statutory rate              |  |                          | 34.0  | %    |  | (34.0 | %)
|State income
 tax, net of federal benefit |  |                          | 4.0   |      |  | (4.0  | ) 
|Other
      permanent differences         |  |                          | (2.6  | )    |  | 0.1   |   
|Change in
 valuation allowance            |  |                          | (27.9 | )    |  | 37.9  |   
|                                          |  |                          |       |      |  |       |   
|                                          |  |                          |       |      |  |       |   
|Income tax
 provision (benefit)           |  |                          | 7.5   | %    |  |      | % 
|                                          |  |                          |       |      |  |       |   

As of
December 31, 2010 and December 31, 2009, the Companys deferred tax assets
consisted of the effects of temporary differences attributable to the
following:

|                               |  |                          |            |      |   |            |  
|------------------------------ |  | ------------------------ | ---------- | ---- | - | ---------- | -
|                               |  | Years Ended December 31, |           
|Deferred tax
      assets      |  | 2010                     |            | 2009 |  
|                               |  |                          |            |      |  
|                               |  |                          |            |      |   |            |  
|Net
      operating losses     |  | $                        | 8,826,897  |      | $ | 6,603,162  |  
|A/R Reserve                    |  |                          | 107,204    |      |   | 24,193     |  
|Interest
      expense         |  |                          | 1,794,235  |      |   | 603,674    |  
|Intangibles                    |  |                          | 394,022    |      |   | 232,744    |  
|Goodwill impairment            |  |                          | 113,742    |      |   | 113,742    |  
|Stock compensation             |  |                          | 1,996,257  |      |   | 1,527,626  |  
|Depreciation                   |  |                          | 500,205    |      |   | 429,258    |  
|Deferred rent                  |  |                          | 31,534     |      |   | 54,628     |  
|                               |  |                          |            |      |   |            |  
|                               |  |                          | 13,764,096 |      |   | 9,589,027  |  
|                               |  |                          |            |      |   |            |  
|Deferred Tax
      Liabilities |  |                          |           |      |   |           |  
|FV of Derivative               |  |                          | (4,791,604 | )    |   |           |  
|Goodwill amortization          |  |                          | (165,471   | )    |   |           |  
|                               |  |                          |            |      |   |            |  
|                               |  |                          | (4,957,075 | )    |   |           |  
|                               |  |                          |            |      |   |            |  
|Valuation Allowance            |  |                          | (8,972,492 | )    |   | (9,589,027 | )
|                               |  |                          |            |      |   |            |  
|Total                          |  |                          | (165,471   | )    |   |           |  
|                               |  |                          |            |      |   |            |  

69

---



As of  December 31, 2010, the Company had
approximately $23,238,000 and $17,377,000 of federal and state net operating
loss carryovers (NOLS) which begin to expire in 2025. The net operating loss
carryovers may be subject to limitation under Section 382 of the Internal Revenue Code
should there be a greater than 50% ownership change as determined under the
applicable regulations.

Management
prepared an analysis of the Companys stock ownership activity from
November 2007 through March 2011 and concluded that no ownership change
occurred prior to December 31, 2010, but an ownership change did occur in
March 2011 with the result being that our ability to use $23,000,000 of
federal and state NOL carryforwards is subject to an annual limitation.

In
assessing the realization of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and
tax strategies in making this assessment. Based on this assessment,
management has established a full valuation allowance against all of the
deferred tax assets for every period, since it is more likely than not that all
of the deferred tax assets will not be realized. The increase (decrease) in valuation
allowance for the years ended December 31, 2010 and December 31, 2009 is
($616,515) and $2,502,000, respectively.

The Company
accounts for uncertain tax positions based upon authoritative guidance that
prescribes a recognition and measurement process for financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return (ASC 740-10).  The guidance also provides direction on derecognition and
classification of interest and penalties.

Management
has evaluated and concluded that there are no material uncertain tax positions
requiring recognition in the financial statements for the years ended December
31, 2010 and 2009.  The Company files a federal income tax return as well as income tax
returns in eight state jurisdictions in the United States.  The tax years ended
December 31, 2007 through 2009 remain subject to examination for federal, state
and local income tax purposes as of Decembers 31, 2010.

The Companys
policy is to classify assessments, if any, for tax related interest as interest
expense and penalties as tax expense.

Note 11  Stockholder Equity (Deficit)

Preferred Stock

Pursuant The Company is authorized to issue up to 175,000,000 shares of
stock, of which 115,000,000 have been designated as Common Stock and 60,000,000
have been designated as preferred stock. Of the 60,000,000 shares of Preferred
Stock, 30,000,000 shares have been designated as Series Cal Cap Preferred Stock
and 30,000,000 shares have been designated as Series KIP Preferred Stock. Each
of the Series Cal Cap Preferred Stock and Series KIP Preferred Stock are
entitled to certain powers, preferences and other special rights that are
summarized below:

Dividends

The holders of shares of Series Cal Cap Preferred Stock and Series KIP
Preferred Stock are entitled to receive dividends, on a pari passu basis, out
of any assets legally available therefore, prior and in preference to any
declaration or payment of any dividend (payable other than in common stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of common stock) on the
common stock, at the rate of 10% of the Original Series Cal Cap Issue Price (as
defined below) per share per annum for the Series Cal Cap Preferred Stock and
10% of the Original Series KIP Issue Price (as defined below) per share per
annum for the Series KIP Preferred Stock, payable within thirty (30) days
following the last day of each fiscal quarter. During the first two years
following the initial issuance of either the Series Cal Cap Preferred Stock or
Series KIP Preferred Stock, such dividends shall, at the option of the Company,
be payable in either cash or additional shares of Series Cal Cap Preferred
Stock or Series KIP Preferred Stock, as applicable (with such shares being valued consistently with the common stock). Following such two
year period, dividends shall be paid in cash unless otherwise elected by the
holder.

70

---



Liquidation Preference

In the
event of the liquidation, dissolution or winding up of the Company, the
acquisition of the Company by another entity as a result of which the Companys
stockholders have less than 50% control of the acquiring entitys voting power
following such acquisition or the sale of all or substantially all of the
assets of the Company, the holders of Series Cal Cap Preferred Stock and Series
KIP Preferred Stock shall be entitled to receive, on a pari passu basis, prior
and in preference to any distribution of any of the assets of the Company to
the holders of common stock, (i) for the Series Cal Cap Preferred Stock, an
amount per share equal to greater of (I) the sum of (A) the product of (1) 1.5
and (2) the aggregate amount paid to, or deemed to be paid to, the Company in
connection with the issuance of such shares of Series Cal Cap Preferred Stock
divided by the number of shares of Series Cal Cap Preferred Stock issued by the
Company (the Original Series Cal Cap Issue Price) for each outstanding share
of Series Cal Cap Preferred Stock and (B) an amount equal to all accrued but
unpaid dividends on such share and (II) the amount of cash, securities or other
property which such holder would be entitled to receive in such sale,
liquidation, dissolution or winding up of the Company with respect to such
shares if such shares had been converted to common stock immediately prior to
such sale, liquidation, dissolution or winding up of the Company and (ii) for
the Series KIP Preferred Stock, an amount per share equal to the greater of (I)
the sum of (A) the product of (1) 1.5 and (2) the aggregate amount paid to the
Company in connection with the issuance of such shares of Series KIP Preferred
Stock divided by the number of shares of Series KIP Preferred Stock issued by
the Company (the Original Series KIP Issue Price) for each outstanding share
of Series KIP Preferred Stock and (B) an amount equal to all accrued but unpaid
dividends on such share and (II) the amount of cash, securities or other property
which such holder would be entitled to receive in such sale, liquidation,
dissolution or winding up of the Company with respect to such shares if such
shares had been converted to common stock immediately prior to such sale,
liquidation, dissolution or winding up of the Company. Upon completion of these
distributions, the holders of Series Cal Cap Preferred Stock and Series KIP
Preferred Stock shall not be entitled to any further participation as such in
any distribution of the assets or funds of the Company.

Optional Conversion

Each share
of Series Cal Cap Preferred Stock or Series KIP Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share into such number of fully paid and nonassessable shares
of common stock as is determined by dividing the Original Series Cal Cap Issue
Price and Original Series KIP Issue Price, as the case may be, by the then
applicable conversion price. The initial conversion price per share for shares
of Series Cal Cap Preferred Stock and Series KIP Preferred Stock shall be the
Original Series Cal Cap Issue Price and Original Series KIP Issue Price,
respectively.

Anti-Dilution Protection

Both the
Series Cal Cap Preferred Stock and Series KIP Preferred Stock are subject to
weighted-average anti-dilution adjustments in the event of an issuance of
common stock below the then current conversion price of the Series Cal Cap
Preferred Stock or Series KIP Preferred Stock, as the case may be, or the
issuance of any securities convertible into common stock with an exercise or
conversion price below such conversion prices, in each case subject to certain
exemptions.

Mandatory Conversion

If the
volume weighted average price for any 10 consecutive trading days exceeds, with
respect to the Series Cal Cap Preferred Stock, the product of (i) 5 and (ii)
the Original Series Cal Cap Issue Price, the Company may require any holder of
shares of Series Cal Cap Preferred Stock to convert such shares, and any
accrued but unpaid dividends thereon, into such number of shares of common
stock as provided above. In addition, if the volume weighted average price for
any 10 consecutive trading days exceeds the product of (i) 5 and (ii) the
Original Series KIP Issue Price, the Company may require any holder of shares
of Series KIP Preferred Stock to convert such shares, and any accrued but unpaid dividends thereon, into such number
of shares of common stock as provided above.

71

---



Voting Rights

The holders
of Series Cal Cap Preferred Stock and Series KIP Preferred Stock are entitled
to vote, together with holders of common stock as a single class, on any matter
upon which holders of common stock have the right to vote, and shall have the
right to one vote for each share of common stock into which the shares of
Series Cal Cap Preferred Stock or Series KIP Preferred Stock held by such
holders could then be converted.

72

---



Election of Directors

So long as
no shares of Series Cal Cap Preferred Stock or Series KIP Preferred Stock have
been issued, the holders of shares of common stock shall be entitled to elect
all directors of the Company. In the event that any shares of Series Cal Cap
Preferred Stock or Series KIP Preferred Stock are outstanding, the holders of
the Series Cal Cap Preferred Stock and Series KIP Preferred Stock are entitled,
voting together as a single class, to elect such number of directors of the
Company as is consistent with their pro rata ownership of the Companys outstanding
common stock assuming the full conversion of all outstanding shares of Series
Cal Cap Preferred Stock and Series KIP Preferred Stock. In such event, the
holders of shares of common stock shall be entitled, voting separately as a
single class, to elect all remaining directors of the Company.

Issuances of Common Stock

2010

During the year ended December 31, 2010, we issued shares of common
stock totaling 2,912,623 in the following transactions:

In January
2010, we issued 66,667 shares of common stock at a price of $1.50 per share for
an aggregate purchase price of $100,000. We received the proceeds in December
2009 and issued the shares in January 2010.

In January
2010, we issued 27,778 fully-vested, non-forfeitable shares of common stock
valued at a price per share of $2.23 with an aggregate fair value of $61,945 to
a consultant in exchange for certain strategic advisory services.

In January
2010, we issued 2,865 shares of common stock as a result of an exercise of
warrants at $0.50 per share.

In January
2010, we issued 98,774 shares of common stock at $1.75 per share and 130,000
shares of common stock at $0.75 per share resulting from the exercise of
warrants.

In February
2010, we issued 27,778 fully-vested, non-forfeitable shares of common stock
valued at a price per share of $2.23 with an aggregate fair value of $61,945 to
a consultant in exchange for certain strategic advisory services.

In February
2010, we issued 141,512 shares of common stock at price per share of $2.90 as
consideration for the assets of Affinity Wireless with an aggregate fair value
of $410,410 (Note 4).

In April
2010, we issued 168,733 shares of common stock at $0.90 per share as
consideration for the Illinois network assets of RidgeviewTel, LLC with an
aggregate fair value of $151,860 (Note 4).

In April
2010, we issued 250,000 shares of common stock as a result of warrants
exercised at $0.75 per share.

In May
2010, we issued 2,037,574 shares of common stock at a price per share of $0.75,
in addition to the assumption of liabilities of $380,620 for an aggregate fair
value of $1,908,800 (Note 4).

73

---



In July
2010, we issued 30,465 shares of common stock at a price per share of $0.60 as
partial consideration for the purchase of the assets of TS Wireless with an
aggregate fair value of $18,729 (Note 4).

2009

During the year ended December 31, 2009, we issued of common stock
totaling 11,914,706 in the following transactions:

In January
2009, we issued 57,487 shares of common stock upon the exercise of options at
$0.25 per share. We received the proceeds in December 2008 and issued the
shares in January 2009.

In May
2009, we issued 2,120,000 fully-vested and non-forfeitable shares of common
stock to a consultant in exchange for that consultant agreeing to provide
investor relations services through April 2010. The market price per share was
$0.05 per share on the date of issuance for an aggregate fair value of
$106,000. We recorded $66,249 and $39,751 of compensation expense under this
arrangement during the years ended December 31, 2010 and December 31, 2009,
respectively.

In May
2009, we issued 731,317 shares of common stock at a price per share of $0.19
pursuant to subscription agreements, for an aggregate purchase price of
$138,950.

In May
2009, we issued 600,000 shares of common stock at a price per share of $0.25
pursuant to subscription agreements, for an aggregate purchase price of $150,000.

In June
2009, we issued 650,000 shares of common stock at a price per share of $0.50 as
well as 325,000 five-year warrants to purchase common stock at a price per
share of $0.75, pursuant to subscription agreements, for an aggregate purchase
price of $325,000. The proceeds from these subscription agreements were used in
part for the reduction of principal of our existing senior secured loan with
Sun West Bank.

In July
2009, we issued 1,400,000 shares of common stock at a price per share of $0.50
as well as 700,000 five-year warrants to purchase common stock at a price per
share of $0.75, pursuant to subscription agreements, for an aggregate purchase
price of $700,000.

In July
2009, we issued 50,000 shares of restricted stock, valued at $0.50 per share
with an aggregate fair value of $25,000 to a consultant agreement in exchange
for professional services.

In August
2009, we issued 1,670,000 shares of common stock at a price per share of $0.50
as well as 835,000 five-year warrants to purchase common stock, pursuant to
subscription agreements, for an aggregate purchase price of $835,000.

In
September 2009, we issued 2,376,090 shares of common stock in settlement of a
set of subordinated secured notes issued between July and December 2008 (the
Sub Notes) (Note 7). At the time of conversion, the amount and principal and
accrued interest under the Sub Notes amounted to $1,188,042. As a result of an
amendment executed by us and the holders of the Sub Notes, the Sub Notes were
convertible at any time prior to maturity into common stock at a price per
share of $0.50. All of the holders elected to convert their Sub Notes to stock
on or before maturity.

In October
2009, we issued 1,316,979 shares of our common stock upon the contractual
exercise of the conversion option featured in the Second Sub Notes. The
principal and interest of the Second Sub Notes amounted to $329,244 at the date
of conversion (Note 7).

In October
2009, we issued 626,667 shares of its common stock at a price per share of
$1.50, pursuant to subscription agreements, for an aggregate purchase price of
$940,000.

In October 2009, we issued 66,667 shares of our common stock at a price per share of $1.50, pursuant to subscription agreements, for an aggregate purchase price of $100,000.

In October 2009, we issued 33,333 shares of our common stock at a price per share of $1.50, pursuant to subscription agreements, for an aggregate purchase price of $50,000.

74

---



In October
2009, we issued 75,000 fully-vested, non-forfeitable shares of common stock
valued at $1.50 per share with an aggregate fair value of $112,500.

In October
2009, we issued 80,000 shares of common stock pursuant to a restricted stock
agreement to a former executive of ours. The restrictions lapsed and the shares
were issued.

In December
2009, we issued 27,778 fully-vested, non-forfeitable shares of common stock
valued at $2.23 per share with an aggregate fair value of $61,945 to a
consultant in exchange for strategic advisory services.

In December
2009, we issued 33,388 shares of common stock valued at $1.99 per share with an
aggregate fair value of $66,443 as consideration for the purchase of the SkyWi,
Inc., wireless broadband assets.

Warrants

A
roll-forward of the Companys common stock purchase warrants for the year ended
December 31, 2010 is as follows:

|                                  |  |  |           |  
|--------------------------------- |  |  | --------- | -
|                                  |  |  |           |  
|Outstanding
 at January 1, 2009   |  |  | 1,712,735 |  
|Issued                            |  |  | 2,361,151 |  
|Exercised                         |  |  | (100,000  | )
|Expired
 unexercised              |  |  | (37,595   | )
|                                  |  |  |           |  
|Outstanding
 at January 1, 2010   |  |  | 3,936,291 |  
|Issued                            |  |  | 493,333   |  
|Exercised                         |  |  | (478,774  | )
|                                  |  |  |           |  
|Cancelled                         |  |  | (150,000  | )
|Expired
 unexercised              |  |  | (50,356   | )
|                                  |  |  |           |  
|Outstanding
 at December 31, 2010 |  |  | 3,750,494 |  

A
total of 2,361,151 warrants were issued during the year ended December 31, 2009
in the following circumstances. 1,860,000 were issued with stock purchases with
an exercise price of $0.75. 300,000 were issued with the Second Sub Notes with
an exercise price of $0.50 and an aggregate fair value of $14,753 (See Note 7).
130,000 were issued with an exercise price $0.75 as consideration for short term
promissory note agreements which we repaid, with an aggregate fair value of
$108,885. 71,151 were issued with consulting agreements with the exercise price
ranging from $0.50 to $1.50 and an aggregate fair value of $124,926. The amount
capitalized for debt issuance costs during the year ended December 31, 2009 was
$174,138. The amount expensed to interest expense for the amortization of the
debt issuance costs during the year ended December 31, 2009,
was $246,228.

As of
December 31, 2010, all warrants outstanding are exercisable and feature strike
prices ranging from $0.30 to $8.00 per share.

In February
2010, the Company issued 400,000 common stock purchase warrants to
non-employees for services being performed through December 31, 2010. The Company calculated
the grant date fair value of these warrants to be $1.63 per share using the Black Scholes option pricing
model with the following assumptions: fair value of common stock $2.57,
exercise price $1.50, risk free interest rate 2.46%, volatility 55%, dividend
yield 0%. The Company recorded $406,776 of stock based compensation expense
with respect to these warrants during the year ended December 31, 2010, net of 150,000 common stock purchase warrants
for which performance conditions were not met.

75

---



In December
2010, the Company issued 93,333 common stock purchase warrants to non-employees
for services being performed through December 31, 2010. The aggregate grant
date fair value of these warrants amounted to $ 27,933. The Company calculated
the grant fair value of these warrants using the Black Scholes option pricing
model with the following assumptions: fair value of common stock $2.57,
exercise price $1.50, risk free interest rate 2.46%, volatility 55%, dividend
yield 0%.

Non-employee
stock based compensation relating to the issuance of common stock purchase
warrants amounted to $434,709 and $124,926 for the years ended December 31,
2010 and 2009, respectively, which is included as a component of professional
fees in the accompanying condensed consolidated statements of operations.

Stock Option Plans

On August
9, 2007, our Board of Directors and stockholders adopted the 2007 Incentive
Stock and Awards Plan (the 2007 Plan). The purpose of the 2007 Plan is to
provide an incentive to attract and retain directors, officers, consultants,
advisors and employees whose services are considered valuable, to encourage a
sense of proprietorship and to stimulate an active interest of such persons
into our development and financial success. The 2007 Plan authorizes us to
grant a total of 2,200,000 options. Under the 2007 Plan, we are authorized to
issue incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986 as amended, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock and long term
incentive awards. The 2007 Plan is administered by the Board of Directors.

On July 15,
2010, our Board of Directors adopted the 2010 Incentive Stock and Awards Plan
(the 2010 Plan). The 2010 Plan authorizes the Company to grant a total of
5,000,000 options, among other things. The terms and conditions of the 2010
Plan are substantially similar to the 2007 Plan and the 2010 Plan was formally
approved by the stockholders at the Companys Annual Meeting, held on August
24, 2010. As of December 31, 2010, no awards under the 2010 Plan have been
granted. A summary of stock options that we granted during the years ended
December 31, 2010 and 2009, respectively, is as follows:

|            |  |                  |           |               |   |               |  |            |         |                 |  |                           |   |                    |      |   |  |      |   |   |      | 
|----------- |  | ---------------- | --------- | ------------- | - | ------------- |  | ---------- | ------- | --------------- |  | ------------------------- | - | ------------------ | ---- | - |  | ---- | - | - | ---- | 
|Date Earned |  | Options
 Granted |           | Strike
 Price |   | Expected Life |  | Volatility |         | Dividend
 Yield |  | Risk Free
 Interest
 Rate |   | Value
 Per
 Option |     
|            |  |                  |           |               |   |               |  |            |         |                 |  |                           |   |                    |     
|6/1/09      |  |                  | 1,311,300 |               | $ | 0.25          |  |            | 7 years |                 |  | 145                       | % |                    | 0.00 | % |  | 2.47 | % | $ | 2.29 | 
|9/21/09     |  |                  | 90,000    |               | $ | 2.35          |  |            | 7 years |                 |  | 145                       | % |                    | 0.00 | % |  | 2.47 | % | $ | 2.12 | 
|7/26/10     |  |                  | 200,000   |               | $ | 0.58          |  |            | 7 years |                 |  | 54                        | % |                    | 0.00 | % |  | 1.75 | % | $ | 0.31 | 
|11/29/10    |  |                  | 50,000    |               | $ | 0.26          |  |            | 7 years |                 |  | 54                        | % |                    | 0.00 | % |  | 1.51 | % | $ | 0.14 | 

| |     |                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Options
 granted vest 25% on the first anniversary of the grant and 2.08% monthly
 through 2013 and carry a ten year contractual term
|
| | (2) | Options
 granted vest 25% on the first anniversary of the grant and 2.08% monthly
 through 2013 and carry a ten year contractual term
|
| | (3) | Options
 granted vest 25% on the first anniversary of the grant and 2.08% monthly
 through 2014 and carry a ten year contractual term
|
| | (4) | Options
 granted vest 25% on the first anniversary of the grant and 2.08% monthly
 through 2014 and carry a ten year contractual term

76

---



The
weighted average grant date fair value of options we granted during the years
ended December 31, 2010 and 2009 amounted to $0.28 and $2.28 per share
respectively.

A summary
of the status of our stock option plan and the changes during the years ended
December 31, 2010 and 2009, respectively, is presented in the table below:

|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 
|--------------------------------------- |  | ----------------- | --------- | --------------------------------- | - | ----------------------------------------------- |  | -------------------------- | ---- |  | - | ---------- | 
|                                        |  | Number of Options |           | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Remaining
 Contractual
 term |  | Aggregate
 Intrinsic Value |     
|                                       
|Balance, January 1st, 2009              |  |                   | 1,865,281 |                                   | $ | 1.32                                            |  |                            |      |  |   |            | 
|Granted                                 |  |                   | 1,401,300 |                                   | $ | 0.38                                            |  |                            |      |  |   |            | 
|Exercised                               |  |                   | (57,487   | )                                 | $ | 0.25                                            |  |                            |      |  |   |            | 
|Cancelled                               |  |                   | (731,317  | )                                 | $ | 0.09                                            |  |                            |      |  |   |            | 
|Forfeited                               |  |                   | (37,777   | )                                 | $ | 2.48                                            |  |                            |      |  |   |            | 
|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 
|Balance, December 31, 2009              |  |                   | 2,440,000 |                                   | $ | 1.16                                            |  |                            |      |  |   |            | 
|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 
|Granted                                 |  |                   | 250,000   |                                   | $ | 0.52                                            |  |                            |      |  |   |            | 
|Forfeited                               |  |                   | (530,656  | )                                 | $ | 1.85                                            |  |                            |      |  |   |            | 
|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 
|Balance, December 31, 2010              |  |                   | 2,159,344 |                                   | $ | 0.96                                            |  |                            | 4.42 |  | $ | 386,562.00 | 
|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 
|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 
|Options Exercisable,
 December 31, 2010 |  |                   | 1,414,552 |                                   | $ | 1.33                                            |  |                            | 3.85 |  | $ | 199,864.00 | 
|                                        |  |                   |           |                                   |   |                                                 |  |                            |      |  |   |            | 

As of
December 31, 2010, 2,159,344 options were outstanding; 1,414,552 options are
exercisable and 45,656 remain to be granted under the 2007 Plan. Based upon the
stock price of $0.42 on December 31, 2010, there are 799,457 options that are
exercisable that have a strike price of below $0.42 per share. The aggregate
intrinsic value of these exercisable options amounts to approximately $199,864.
The Company has 1,544,249 that have a strike price below $0.42. The aggregate
intrinsic value of these outstanding options amounts to approximately $386,562.

The Company
calculates the fair value of stock options using the Black-Scholes option-pricing
model. The option-pricing model requires the input of subjective assumptions,
such as those included in the table above. The volatility rates are based on
historical stock prices of similarly situated companies and expectations of the
future volatility of our common stock. The expected life of options granted is
based upon the average of the vesting and contractual term. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time
of grant. The total expense to be recorded in future periods will depend on
several variables, including the number of share-based awards expected to vest.

Compensation
expense recorded for stock options during year ended December 31, 2010 and
2009, amounted to $1,067,768 and $682,244, respectively.

Unamortized
stock compensation expense as of December, 2010 amounted to $2,195,136 and is
being recognized as compensation expense through June 30, 2014.

Note 12 Subsequent Events

Entry Into and Amendment of Material Agreements

On December
3, 2010, we entered the Conversion Agreement, pursuant to which CalCap
agreed to convert all of the outstanding principal and accrued but unpaid interest
under the Note into shares of Preferred Stock at
a conversion price of $1.00 per share, subject to the terms
and conditions set forth therein and the modification of our existing preferred
stock as fully described in our Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 9, 2010. On January 31, 2011, we
entered into Amendment No. 1 to Agreement and Waiver under Secured Convertible
Promissory Note with CalCap (Amendment No. 1), pursuant to which we and
CalCap (i) extended the time that we are required to amend and restate our certificate of incorporation, as set forth in the
Conversion Agreement, from 90 days to 120 days and (ii) extended the date upon
which the Conversion Agreement automatically terminates from March 2, 2011 to
April 1, 2011. In addition, pursuant to Amendment No. 1, CalCap agreed to waive
compliance with Section 7(h) of the Note, solely for the purpose of allowing us
to sell certain assets used to provide wireless broadband and related services
in the Grand Junction, Colorado market, provided that the aggregate purchase
price was no less than $220,000 as fully described on Current Report on Form 8-K
field on February 4, 2011.

77

---



Acquisitions and Divestitures

On December 9, 2010, we entered into an agreement to acquire certain wireless broadband assets and assume certain recurring liabilities from Wells Rural Electric Company, a Nevada based rural electric cooperative (WREC). As consideration for the acquired assets, we agreed to pay $373,920 in cash over a period of two years, subject to further adjustments. We agreed to pay twenty-five percent (25%) of the purchase price at the closing of the transaction and the unpaid balance will accrue interest at the rate of 5.25% per annum.

On January
31, 2011, upon the satisfaction of certain closing conditions, we completed the
acquisition of the wireless broadband assets from Wells Rural Electric Company
(WREC) and initiated the Closing Payment of $94,734 as described on Current
Report on Form 8-K filed on February 3, 2011. The balance of the purchase price
will be made in eight consecutive quarterly payments and will accrue interest
at the rate of 5.25% per annum.

On February
1, 2011, we entered into an agreement to sell substantially all of the wireless
broadband assets and assign certain liabilities used in the operation of our
Grand Junction, Colorado network to Skybeam, Inc. As consideration for the
acquired assets, the Company agreed to accept an aggregate purchase price of
$261,000 in cash, subject to a holdback in the amount of $52,200 with which to make
post-closing purchase price adjustments based upon the number of broadband
subscribers and monthly Internet service revenue. Also, on February 1, 2011,
upon the satisfaction of certain closing conditions as described in the Asset
Purchase Agreement, KeyOn completed the divesture, and received the initial
closing payment of $208,800. The balance of the purchase price will be
delivered ninety days thereafter and is subject to the subscriber and revenue
adjustments, as well as any adjustments for liabilities that were not assumed
by Skybeam.

On February
10, 2011, we entered into an agreement to acquire certain wireless broadband
assets and assume certain liabilities used to provide wireless Internet access
and other related services from ERF Wireless, Inc., (ERF). The assets to be
acquired are used in the business of operating wireless networks that provide
high-speed Internet access and other related services to residential and
commercial subscribers in East Central Texas (the Business). The wireless
broadband assets to be acquired exclude assets owned by ERF and its separate
subsidiaries that are used to deliver broadband services to the oil and gas and
banking industries, as well as any wireless broadband assets outside of the
Business. As consideration for the acquired assets, the Company has agreed to
pay $3,000,000 in cash, subject to further adjustments as described in the
Asset Purchase Agreement and issue 100,000 shares of the Companys common
stock. The Asset Purchase Agreement contains customary representations and
warranties by the Company and ERF. On February 15, 2011, upon the satisfaction
of the closing conditions, we consummated this transaction by delivering
$2,700,000 in cash and issued 100,000 restricted shares of our common stock.

Equity Issuances

On December
3, 2010, we entered into the Conversion Agreement with CalCap, subject to
stockholder approval, pursuant to which CalCap agreed to convert all of the
outstanding principal and accrued but unpaid interest under the Note into
Preferred Stock at a conversion price of $1.00 per share. In addition, upon the conversion of the Note and in accordance
with the Conversion, we also agreed to issue CalCap a five year warrant to
purchase 4,300,000 shares of Preferred Stock at an exercise price of
$0.25 per share, a five year warrant to purchase 4,000,000 shares of Preferred Stock at an exercise price of $0.40 per share and a five year warrant
to purchase 2,000,000 shares of Preferred Stock at an exercise price
of $0.60 per share (collectively, the Warrants).

In order to
effectuate the Conversion, we held a special meeting of our stockholders (the
Special Meeting) on March 11, 2011. The purpose of the Special Meeting was to
vote on the adoption of the Second Amended and Restated Certificate of
Incorporation in order to eliminate the Series KIP Preferred Stock and rename
the Series Cal Cap Preferred Stock as the Series A Preferred Stock and amend
certain of its terms, all as more fully described in our Definitive Proxy
Statement filed with the SEC on Schedule 14A on February 4, 2011. Upon approval
by vote of the stockholders, on March 11, 2011, the Company issued 16,315,068
shares of Preferred Stock in addition to 10,300,000 exercisable
warrants to obtain Preferred Stock.

On January 3, 2011,  February 15, 2011 and March 21, 2011 we issued 100,000, 150,000 and 200,000 options, respectively, to purchase common stock to new members of our management team.  These awards vest 25% upon the first anniversary of the grant and in equal monthly installments for the remaining 36 months, provided the grantees remain employed by us.

On February 19, 2010, the Company issued two separate warrant agreements (the Warrants) to purchase up to 150,000 and 100,000 shares of common stock, respectively, $.001 par value per share, of the Company, at an exercise price of $1.50 per share. These warrant agreements were issued in connection with consulting agreements, entered into by and between the Company and the warrant holders, whereby the holders agreed to perform strategic advisory services to the Company. On February 23, 2011, we and the holders agreed to amend the Warrants. In exchange for continuing to provide such advisory services for a period of 6 months and until December 31, 2011, respectively, we agreed to reduce the strike price of the Warrants from $1.50 to $0.50. Unless previously exercised in full, the Warrants expire on February 19, 2015.

78

---