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|                               |
|------------------------------------|
| UNITED STATES                      |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, DC 20549               |
|                               |
| **FORM 10-Q/AAmendment No. 1**     |

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

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                        |   | 74-3130469          |
|                                 |   |                     |
| (State or Other Jurisdiction of |   | (I.R.S. Employer    |
| Incorporation or Organization)  |   | Identification No.) |

|                                     |   |       |
|------------------------------------------|--------|------------|
| 11742 Stonegate Circle                   |   |       |
| Omaha, Nebraska 68164                    |   | 68164      |
|                                          |   |            |
| (Address of Principal Executive Offices) |   | (Zip Code) |

|   |                                                       |   |
|--------|------------------------------------------------------------|--------|
|   | (402) 998-4000                                             |   |
|   |                                                            |   |
|   | (Registrant’s Telephone Number, Including Area Code) |   |

|   |                                                                               |   |
|--------|------------------------------------------------------------------------------------|--------|
|   |                                                                                    |   |
|   | (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |   |

          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 x No        o

          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 the registrant was required to submit and post such files). o Yes        o No 

          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. (Check one): 

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

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

As of November 16, 2009, 20,624,890 shares of the issuer’s common stock, $0.001 par value per share, were outstanding. 

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|                                    |                                                                                                                                           |     |   |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|----------|--------|
| **KEYON COMMUNICATIONS HOLDINGS, INC.** |
|                                    |                                                                                                                                           |     |
| **Table of Contents**                   |
|                                    |                                                                                                                                           |     |
|                                    |                                                                                                                                           | **Page** |
|                                    |                                                                                                                                           |          |
| PART I                                  | FINANCIAL INFORMATION                                                                                                                          |     |   |
|                                    |                                                                                                                                           |     |   |
| Item 1.                                 | Financial Statements                                                                                                                           | 1        |   |
|                                    |                                                                                                                                           |     |   |
|                                    | Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008                                                    | 2        |   |
|                                    |                                                                                                                                           |     |   |
|                                    | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (Unaudited) | 3        |   |
|                                    |                                                                                                                                           |     |   |
|                                    | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (Unaudited)           | 4        |   |
|                                    |                                                                                                                                           |     |   |
|                                    | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                               | 1        |   |
|                                    |                                                                                                                                           |     |   |
| Item 2.                                 | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                    | 14       |   |
|                                    |                                                                                                                                           |     |   |
| Item 4T.                                | Controls and Procedures                                                                                                                        | 20       |   |
|                                    |                                                                                                                                           |     |   |
| PART II                                 | OTHER INFORMATION                                                                                                                              |     |   |
|                                    |                                                                                                                                           |     |   |
| Item 6.                                 | Exhibits                                                                                                                                       | 21       |   |

i

----

**EXPLANATORY NOTE**

          This Amendment No. 1 on Form 10-Q/A (this “Amendment”) is being filed solely for the purpose of providing corrections to the stock compensation recorded in payroll and in professional fees for the six months ended June 30, 2009. . Restricted stock compensation of $90,000 and option stock compensation expense of $408,155 had been reversed out in Q1 2009 for an employee who is no        longer with the Company. However, the risk of forfeiture related to the restricted stock grant lapsed and the stock was subsequently issued. In regards to the stock options, these options remain open and were not forfeited as originally recorded. As a result, the Company needed to recognize the full expense of the restricted stock option agreement, including the remaining expense of $150,000. Also, since the stock options were not forfeited, the expense previously recorded should not        have been reversed. Secondly, stock issued to a new investor relations company had been expensed in Q2 2009 for the entire value of $106,800, but needed to be expensed over the contract period of one year. The corrected amount of the expense for Q2 2009 is $14,050. Therefore, the correction for $648,155 of stock compensation expense was recorded for the three month period ended June 30, 2009 and created the need to amend the Company’s 10-Q for the quarterly and six        months period ended June 30, 2009 (the “Original Filing”). The correction of ($92,750) of stock compensation expense to professional fees was offset to deferred compensation in equity was recorded for the three month period ended June 30, 2009. The corrected information is described in the Condensed Consolidated Balance Sheet as of June 30, 2009, the Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and the Notes to Condensed        Consolidated Financial Statements included in Part I, Item 1 of the registrant’s Form 10-Q for the six months period ended June 30, 2009 (the “Original Filing”). 

          The Condensed Consolidated Statements of Operations as of June 30, 2009 has been changed from the Original Filing to the Amendment as reflected in the following table. 

|                                                            |
|-----------------------------------------------------------------|
| **KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES**     |
|                                                            |
| **CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)** |
|                                                                 |

|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
|----------------------------------------------|--------|----------------------------------------------|------------|--------------------------------------------|--------|----------------|--------|-----------------|---------|-------------------------|--------|----------------|--------|--------|------------|--------|--------|----------|--------|
|                                         |   | **For the Three Months Ended June 30, 2009** |       | **For the Six Months Ended June 30, 2009** |   |
|                                         |   | **As Restated**                              |       | **As Originally Filed**                    |   | **Difference** |   | **As Restated** |    | **As Originally Filed** |   | **Difference** |   |
| OPERATING COSTS AND EXPENSES:                |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| Payroll, bonuses and taxes                   |   | $                                            | 703,606    |                                       | $      | 703,606        |   | $               | — |                    | $      | 1,576,176      |   | $      | 928,021    |   | $      | 648,155  |   |
| Professional fees                            |   |                                         | 95,430     |                                       |   | 188,180        |   |            | (92,750 | )                       |   | 132,523        |   |   | 225,273    |   |   | (92,750  | )      |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| Total operating costs and expenses           |   |                                         | 2,467,848  |                                       |   | 2,560,598      |   |            | (92,750 | )                       |   | 5,096,245      |   |   | 4,540,840  |   |   | 555,405  |   |
|                                         |   |                                              |            |                                       |        |                |   |                 |         |                    |        |                |   |        |            |   |        |          |   |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| LOSS FROM OPERATIONS                         |   |                                         | (683,516   | )                                          |   | (776,266       | )      |            | 92,750  |                    |   | (1,445,741     | )      |   | (890,336   | )      |   | (555,405 | )      |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| NET LOSS                                     |   | $                                            | (1,034,083 | )                                          | $      | (1,126,833     | )      | $               | 92,750  |                    | $      | (2,056,661     | )      | $      | (1,501,256 | )      | $      | (555,405 | )      |
|                                         |   |                                              |            |                                       |        |                |   |                 |         |                    |        |                |   |        |            |   |        |          |   |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| Net loss per common share--basic and diluted |   | $                                            | (0.10      | )                                          | $      | (0.11          | )      | $               | (0.01   | )                       | $      | (0.22          | )      | $      | (0.16      | )      | $      | (0.06    | )      |
|                                         |   |                                              |            |                                       |        |                |   |                 |         |                    |        |                |   |        |            |   |        |          |   |

|                                     |
|------------------------------------------|
| **CONDENSED CONSOLIDATED BALANCE SHEET** |
| **AS OF JUNE 30, 2009 (UNAUDITED)**      |
|                                          |

|                                                                                                                                                                                  |   |            |        |                                                           |   |           |   |   |     |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-------------|----------------------------------------------------------------|--------|----------------|--------|--------|----------|--------|
|                                                                                                                                                                                  |   | **As Restated** |        | **As of June 30, 2009                    As Originally Filed** |   | **Difference** |   |
| STOCKHOLDERS’ (DEFICIT):                                                                                                                                                        |   |            |        |                                                           |   |           |   |   |     |   |
| Series A preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2008 and at June 30, 2009                                    |   |            | —     |                                                           |   |           |   |   |     |   |
| Common stock, $0.001 par value; 95,000,000 shares authorized; 8,771,350 shares issued and outstanding at December 31, 2008; 12,930,154 shares issued and outstanding at June 30, 2009 |   |            | 12,930      |                                                           |   | 12,930         |   |   | —  |   |
| Additional paid-in capital                                                                                                                                                            |   |            | 18,352,392  |                                                           |   | 17,704,237     |   |   | 648,155  |   |
| Deferred compensation                                                                                                                                                                 |   |            | (92,750     | )                                                              |   | —        |   |   | (92,750  | )      |
| Accumulated deficit                                                                                                                                                                   |   |            | (23,765,683 | )                                                              |   | (23,210,278    | )      |   | (555,405 | )      |
|                                                                                                                                                                                  |   |                 |             |                                                           |        |                |   |        |          |   |
| Total stockholders’ (deficit)                                                                                                                                                   |   |            | (5,493,111  | )                                                              |   | (5,493,111     | )      |   | —  |   |
|                                                                                                                                                                                  |   |                 |             |                                                           |        |                |   |        |          |   |

          The Condensed Consolidated Balance Sheet as of June 30, 2009 has been changed by an additional $648,155 increase to Additional Paid in Capital from $17,704,237 to $18,352,392 from the Original Filing to the Amendment, respectively. Stock issued to a new investor relations company had been expensed in Q2 2009 for the entire value of $106,800, but needed to be expensed over the contract period of        one year. The corrected amount of the expense for Q2 2009 is $14,050. The correction of ($92,750) of stock compensation expense to professional fees was offset to deferred compensation in equity was recorded for the three month period ended June 30, 2009. Deferred compensation of ($92,750) was added to the equity portion of the balance sheet in the Amendment for the amount of deferred expense on the new investor relation agreement. An increase of $555,405 was recorded to        Accumulated Deficit from $23,210,278 to $23,765,683 from the Original Filing to the Amendment, respectively. 

          The Condensed Statements of Cash Flows for the Six Months Ended June 30, 2009 has been changed by an increase of $555,405 in the Net Loss from the Original Filing amount of $1,501,256 to $2,056,661 in the Amendment. The Stock Based Compensation Expense has been changed by a charge of $648,155 from the Original Filing amount of ($418,024) to $230,131 in the Amendment. The Common Stock        Exchanged for Professional Services has been changed by a credit of $92,750 from the Original Filing amount of $106,800 to $14,050 in the Amendment. The total amount of Net Cash Flows From Operations is unchanged.

          The Notes to the Condensed Financial Statements have been revised to reflect the changes described above. Specifically, in Note 2—Summary of Significant Accounting Policies, under the sub-heading Stock Based Compensation, the Original Filing amount of negative $418,024 was changed to $230,131 in the Amendment. Note 8—Capital Stock, Stock Based Compensation, and Warrants, under the        sub-heading Common Shareholders Equity, the Original Filing stated: “2,120,000 shares of stock were issued for professional services valued at $106,800.” The Amendment states: “2,120,000 shares of stock were issued for professional services that will occur from May 11, 2009 through May 10, 2010 valued at $106,800. Of this amount, $14,050 was expensed during the six months ended June 30, 2009 and $92,750 was recorded in equity as deferred compensation.” Note        8—Capital Stock, Stock Based Compensation, and Warrants, under the sub-heading Stock Option Plans, the Original Filing amount stated: “For the six months ended June 30, 2009, 227,777 options were forfeited. As of June 30, 2009, 848,700 options were outstanding.” The Amendment states: “For the six months ended June 30, 2009, 37,777 options were forfeited. As of June 30, 2009, 1,038,700 options were outstanding.” The Original Filing stated “Compensation        expense recorded on stock options for the three months ended June 30, 2009, totaled $42,649 and for the six months totaled $80,131, and $150,000 for restricted stock option expense which was offset by a credit for forfeitures on stock options and restricted stock of $498,155. The range of strike price per outstanding option is $0.25 to $5.00 and the weighted average strike price is $2.06 per share.” The Amendment states: “Compensation expense recorded on stock options for        the three months ended June 30, 2009, totaled $42,649 and for the six months totaled $80,131, and $150,000 for restricted stock option expense. The range of strike price per outstanding option is $0.25 to $5.00 and the weighted average strike price is $2.20 per share.” 

          Except as discussed above, we have not modified or updated the disclosures presented in the Original Filing.

ii

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**PART I – FINANCIAL INFORMATION**

**Item 1.     Financial Statements.**

**KEYON COMMUNICATIONS HOLDINGS, INC.        AND RELATED ENTITIES**

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009

1

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|                                                        |
|-------------------------------------------------------------|
| **KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES** |
|                                                        |
| **CONDENSED CONSOLIDATED BALANCE SHEETS**                   |
| **AS OF JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008**   |
|                                                             |

|                                                                                                                                                                                  |   |           |        |     |   |        |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-------------|----------|--------|-------------|--------|
|                                                                                                                                                                                  |   | **2009**       |        | **2008** |   |
|                                                                                                                                                                                  |   | **(Restated)** |        |     |   |
| **ASSETS**                                                                                                                                                                            |   |           |        |     |   |        |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| CURRENT ASSETS:                                                                                                                                                                       |   |           |        |     |   |        |   |
| Cash                                                                                                                                                                                  |   | $              | 23,333      |     | $      | 28,032      |   |
| Accounts receivable, net of allowance for doubtful accounts                                                                                                                           |   |           | 189,909     |     |   | 129,592     |   |
| Inventories                                                                                                                                                                           |   |           | 143,381     |     |   | 172,434     |   |
| Prepaid expenses and other current assets                                                                                                                                             |   |           | 113,640     |     |   | 74,198      |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
| Total current assets                                                                                                                                                                  |   |           | 470,263     |     |   | 404,256     |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| PROPERTY AND EQUIPMENT - Net                                                                                                                                                          |   |           | 2,337,699   |     |   | 3,292,245   |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| OTHER ASSETS                                                                                                                                                                          |   |           |        |     |   |        |   |
| Goodwill                                                                                                                                                                              |   |           | 1,641,138   |     |   | 1,641,138   |   |
| Subscriber base - net                                                                                                                                                                 |   |           | 361,721     |     |   | 562,743     |   |
| Trademarks                                                                                                                                                                            |   |           | 16,667      |     |   | 16,667      |   |
| Refundable deposits                                                                                                                                                                   |   |           | 67,818      |     |   | 66,827      |   |
| Debt issuance costs - net                                                                                                                                                             |   |           | 179,712     |     |   | 189,638     |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
| Total other assets                                                                                                                                                                    |   |           | 2,267,056   |     |   | 2,477,013   |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| TOTAL ASSETS                                                                                                                                                                          |   | $              | 5,075,018   |     | $      | 6,173,514   |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| **LIABILITIES AND STOCKHOLDERS’ (DEFICIT)**                                                                                                                                     |   |           |        |     |   |        |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| CURRENT LIABILITIES:                                                                                                                                                                  |   |           |        |     |   |        |   |
| Accounts payable and accrued expenses                                                                                                                                                 |   | $              | 2,681,285   |     | $      | 2,522,884   |   |
| Accounts payable and accrued expenses - related parties                                                                                                                               |   |           | 100,395     |     |   | 43,139      |   |
| Cash overdraft                                                                                                                                                                        |   |           | 54,330      |     |   | 120,553     |   |
| Revolving line of credit - related party                                                                                                                                              |   |           | 100,050     |     |   | 100,000     |   |
| Term loan payable - related party                                                                                                                                                     |   |           | —     |     |   | 4,500,000   |   |
| Current portion of notes payable - related parties                                                                                                                                    |   |           | 667,012     |     |   | 567,011     |   |
| Current portion of notes payable                                                                                                                                                      |   |           | 1,045,694   |     |   | 648,610     |   |
| Current portion of deferred rent liability                                                                                                                                            |   |           | 60,249      |     |   | 58,945      |   |
| Current portion of capital lease obligations                                                                                                                                          |   |           | 559,465     |     |   | 596,411     |   |
| Deferred revenue                                                                                                                                                                      |   |           | 324,910     |     |   | 310,689     |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
| Total current liabilities                                                                                                                                                             |   |           | 5,593,390   |     |   | 9,468,242   |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| LONG-TERM LIABILITIES:                                                                                                                                                                |   |           |        |     |   |        |   |
| Deferred rent liability, less current maturities                                                                                                                                      |   |           | 111,094     |     |   | 141,463     |   |
| Term loan payable - related party                                                                                                                                                     |   |           | 4,050,000   |     |   | —     |   |
| Notes payable, less current maturities                                                                                                                                                |   |           | 20,295      |     |   | 36,867      |   |
| Capital lease obligations, less current maturities                                                                                                                                    |   |           | 793,350     |     |   | 854,390     |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
| Total long term liabilities                                                                                                                                                           |   |           | 4,974,739   |     |   | 1,032,720   |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                         |   |           |        |     |   |        |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| STOCKHOLDERS’ (DEFICIT):                                                                                                                                                        |   |           |        |     |   |        |   |
| Series A preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2008 and at June 30, 2009                                    |   |           | —     |     |   | —     |   |
| Common stock, $0.001 par value; 95,000,000 shares authorized; 8,771,350 shares issued and outstanding at December 31, 2008; 12,930,154 shares issued and outstanding at June 30, 2009 |   |           | 12,930      |     |   | 8,771       |   |
| Common stock payable for exercised options                                                                                                                                            |   |           | —     |     |   | 14,372      |   |
| Additional paid-in capital                                                                                                                                                            |   |           | 18,352,392  |     |   | 17,358,431  |   |
| Deferred Compensation                                                                                                                                                                 |        |                | (92,750     | )        |        | —     |        |
| Accumulated deficit                                                                                                                                                                   |   |           | (23,765,683 | )        |   | (21,709,022 | )      |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
| Total stockholders’ (deficit)                                                                                                                                                   |   |           | (5,493,111  | )        |   | (4,327,448  | )      |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)                                                                                                                                   |   | $              | 5,075,018   |     | $      | 6,173,514   |   |
|                                                                                                                                                                                  |   |                |             |     |        |             |   |
|                                                                                                                                                                                  |   |           |        |     |   |        |   |
| See notes to condensed consolidated financial statements.                                                                                                                             |   |           |        |     |   |        |   |

2

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|                                                            |
|-----------------------------------------------------------------|
| **KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES**     |
|                                                            |
| **CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)** |
|                                                                 |

|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|------------|---------------------------------------|--------|----------------|--------|----------|------------|--------|--------|------------|--------|
|                                                               |   | **For the Three Months Ended June 30,** |       | **For the Six Months Ended June 30,** |   |
|                                                               |   | **2009**                                |       | **2008**                              |   | **2009**       |   | **2008** |       |
|                                                                    |        | **(Restated)**                          |            |                                       |        | **(Restated)** |        |          |            |
| REVENUES:                                                          |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Service and installation revenue                                   |   | $                                       | 1,728,838  |                                  | $      | 1,951,059      |   | $        | 3,560,829  |   | $      | 3,932,017  |   |
| Support and other revenue                                          |   |                                    | 55,494     |                                  |   | 35,229         |   |     | 89,675     |   |   | 100,302    |   |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Total revenues                                                     |   |                                    | 1,784,332  |                                  |   | 1,986,288      |   |     | 3,650,504  |   |   | 4,032,319  |   |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| OPERATING COSTS AND EXPENSES:                                      |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Payroll, bonuses and taxes                                         |   |                                    | 703,606    |                                  |   | 2,476,354      |   |     | 1,576,176  |   |   | 4,606,428  |   |
| Depreciation and amortization                                      |   |                                    | 617,500    |                                  |   | 688,934        |   |     | 1,256,957  |   |   | 1,404,183  |   |
| Network operating costs                                            |   |                                    | 754,541    |                                  |   | 726,876        |   |     | 1,462,727  |   |   | 1,470,274  |   |
| Other general and administrative expense                           |   |                                    | 258,333    |                                  |   | 310,697        |   |     | 566,718    |   |   | 676,880    |   |
| Installation expense                                               |   |                                    | 32,613     |                                  |   | 121,535        |   |     | 79,966     |   |   | 243,421    |   |
| Professional fees                                                  |   |                                    | 95,430     |                                  |   | 56,304         |   |     | 132,523    |   |   | 245,141    |   |
| Marketing and advertising                                          |   |                                    | 5,825      |                                  |   | 136,746        |   |     | 21,178     |   |   | 301,080    |   |
| Cost of DISH inventory                                             |   |                                    | —    |                                  |   | 14,308         |   |     | —    |   |   | 31,113     |   |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Total operating costs and expenses                                 |   |                                    | 2,467,848  |                                  |   | 4,531,754      |   |     | 5,096,245  |   |   | 8,978,520  |   |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| LOSS FROM OPERATIONS                                               |   |                                    | (683,516   | )                                     |   | (2,545,466     | )      |     | (1,445,741 | )      |   | (4,946,201 | )      |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| OTHER INCOME (EXPENSE):                                            |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Gain/(loss) on disposal of equipment                               |   |                                    | —    |                                  |   | 4,869          |   |     | —    |   |   | 4,869      |   |
| Interest income                                                    |   |                                    | 1          |                                  |   | 97             |   |     | 1          |   |   | 682        |   |
| Interest expense                                                   |   |                                    | (350,568   | )                                     |   | (191,654       | )      |     | (610,921   | )      |   | (363,137   | )      |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
| Total other income (expense)                                       |   |                                    | (350,567   | )                                     |   | (186,688       | )      |     | (610,920   | )      |   | (357,586   | )      |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| PROVISION FOR INCOME TAXES                                         |   |                                    | —    |                                  |   | —        |   |     | —    |   |   | —    |   |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| NET LOSS                                                           |   | $                                       | (1,034,083 | )                                     | $      | (2,732,154     | )      | $        | (2,056,661 | )      | $      | (5,303,787 | )      |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Net loss per common share—basic and diluted                  |   | $                                       | (0.10      | )                                     | $      | (0.33          | )      | $        | (0.22      | )      | $      | (0.64      | )      |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| Weighted average common shares outstanding—basic and diluted |   |                                    | 10,292,397 |                                  |   | 8,251,142      |   |     | 9,563,390  |   |   | 8,250,463  |   |
|                                                               |   |                                         |            |                                  |        |                |   |          |            |   |        |            |   |
|                                                               |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |
| See notes to condensed consolidated financial statements           |   |                                    |       |                                  |   |           |   |     |       |   |   |       |   |

3

----

|                                                            |
|-----------------------------------------------------------------|
| **KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES**     |
|                                                            |
| **CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**             |
| **FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)** |
|                                                                 |

|                                                                             |   |           |       |     |   |       |   |
|----------------------------------------------------------------------------------|--------|----------------|------------|----------|--------|------------|--------|
|                                                                             |   | **2009**       |       | **2008** |   |
|                                                                                  |        | **(Restated)** |            |          |        |
| **CASH FLOWS FROM OPERATIONS:**                                                  |   |           |       |     |   |       |   |
| Net loss                                                                         |   | $              | (2,056,661 | )        | $      | (5,303,787 | )      |
| Adjustments to reconcile net loss to net cash flows from operations:             |   |           |       |     |   |       |   |
| Depreciation expense                                                             |   |           | 1,055,935  |     |   | 1,203,161  |   |
| Amortization expense on subscriber base                                          |   |           | 201,022    |     |   | 201,022    |   |
| Stock based compensation expense                                                 |   |           | 230,131    |     |   | 2,560,832  |   |
| Amortization of debt issuance costs                                              |   |           | 156,424    |     |   | —    |   |
| Common stock exchanged for professional services                                 |   |           | 14,050     |     |   | —    |   |
|                                                                             |   |           |       |     |   |       |   |
| Change in assets and liabilities, net of effect of acquisitions:                 |   |           |       |     |   |       |   |
| Accounts receivable                                                              |   |           | (60,317    | )        |   | (54,503    | )      |
| Inventories                                                                      |   |           | 29,053     |     |   | 64,872     |   |
| Prepaid expenses and other current assets                                        |   |           | (39,442    | )        |   | 8,495      |   |
| Refundable deposits                                                              |   |           | (991       | )        |   | (1,134     | )      |
| Other assets                                                                     |   |           | —    |     |   | 7,379      |   |
| Accounts payable and accrued expenses                                            |   |           | 158,401    |     |   | 148,301    |   |
| Accounts payable and accrued expenses - related party                            |   |           | 57,256     |     |   | —    |   |
| Payment on cash overdraft                                                        |   |           | (66,223    | )        |   | (81,344    | )      |
| Deferred rent liability                                                          |   |           | (29,065    | )        |   | (28,485    | )      |
| Deferred revenue                                                                 |   |           | 14,221     |     |   | (2,899     | )      |
|                                                                             |   |                |            |     |        |            |   |
| **Net cash flows from operations**                                               |   |           | (336,206   | )        |   | (1,278,090 | )      |
|                                                                             |   |           |       |     |   |       |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                        |   |           |       |     |   |       |   |
|                                                                             |   |           |       |     |   |       |   |
| Capital expenditures for property and equipment                                  |   |           | (26,988    | )        |   | (86,739    | )      |
| Proceeds on disposal of equipment                                                |   |           | 791        |     |   | —    |   |
|                                                                             |   |                |            |     |        |            |   |
| **Net cash flows from investing activities**                                     |   |           | (26,197    | )        |   | (86,739    | )      |
|                                                                             |   |           |       |     |   |       |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                        |   |           |       |     |   |       |   |
| Additions to debt issuance costs                                                 |   |           | (40,500    | )        |   | —    |   |
| Proceeds from term note payable - related parties                                |   |           | 4,050,000  |     |   | 1,500,000  |   |
| Payments on term note payable - related parties                                  |   |           | (4,500,000 | )        |   | —    |   |
| Proceeds from revolving line of credit - related parties                         |   |           | 50         |     |   | —    |   |
| Payments on notes payable                                                        |   |           | (219,479   | )        |   | (18,570    | )      |
| Proceeds from notes payable                                                      |   |           | 600,000    |     |   | 118,337    |   |
| Proceeds from subscription sales                                                 |   |           | 540,819    |     |   | —    |   |
| Payments on capital lease obligations                                            |   |           | (173,187   | )        |   | (530,388   | )      |
| Proceeds from notes payable - related party                                      |   |           | 100,001    |     |   | —    |   |
|                                                                             |   |                |            |     |        |            |   |
| **Net cash flows from financing activities**                                     |   |           | 357,704    |     |   | 1,069,379  |   |
|                                                                             |   |                |            |     |        |            |   |
| **NET INCREASE/ (DECREASE) IN CASH**                                             |   |           | (4,699     | )        |   | (295,450   | )      |
|                                                                             |   |           |       |     |   |       |   |
| **CASH - Beginning of period**                                                   |   |           | 28,032     |     |   | 316,999    |   |
|                                                                             |   |                |            |     |        |            |   |
| **CASH - End of period**                                                         |   | $              | 23,333     |     | $      | 21,549     |   |
|                                                                             |   |                |            |     |        |            |   |
| **SUPPLEMENTAL NON-CASH DISCLOSURES FROM INVESTING & FINANCING ACTIVITIES:** |   |           |       |     |   |       |   |
|                                                                             |   |           |       |     |   |       |   |
| Warrants granted for debt issuance costs                                         |   | $              | 105,998    |     | $      | —    |   |
|                                                                             |   |                |            |     |        |            |   |
| Common Stock Payable                                                             |   | $              | —    |     | $      | 14,372     |   |
|                                                                             |   |                |            |     |        |            |   |
| Deferred stock compensation for professional services                            |        | $              | 106,800    |          |        |            |        |
|                                                                                  |        |           |       |          |   |       |        |
| Capital lease obligations for property and equipment                             |   | $              | 75,201     |     | $      | 391,165    |   |
|                                                                             |   |                |            |     |        |            |   |
| Stock issued for common stock payable                                            |   | $              | 14,372     |     | $      | —    |   |
|                                                                             |   |                |            |     |        |            |   |
| **Cash payments for:**                                                           |   |           |       |     |   |       |   |
| Interest                                                                         |   | $              | 526,780    |     | $      | 264,237    |   |
|                                                                             |   |                |            |     |        |            |   |
| Tax                                                                              |   | $              | —    |     | $      | —    |   |
|                                                                             |   |                |            |     |        |            |   |

See notes to condensed consolidated financial statements.

4

----

**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**Note 1 – Organization and Nature of Business**

          On August 9, 2007, KeyOn Communications, Inc. (“KeyOn” or “the Company”) became a publicly-traded company by virtue of a merger with a publicly-traded company, Grant Enterprises, Inc. (“Grant”), a holding company with no operating business (the “Merger”). In connection with the merger, 900,001 shares of Grant remained outstanding and all other        outstanding shares of Grant were cancelled. Also, in connection with the merger, Grant issued 6,650,069 shares of its common stock for all outstanding common stock of KeyOn. Upon closing of the Merger transaction, a wholly owned subsidiary of Grant merged with and into KeyOn, and KeyOn, as the surviving corporation, became a wholly-owned subsidiary of Grant. All pre-merger assets and liabilities of Grant were split-off from Grant, leaving KeyOn’s business as the surviving        operations of Grant. As a result of the transaction, the former owners of KeyOn became the controlling stockholders of Grant and Grant changed its name to KeyOn Communications Holdings, Inc. Accordingly, the merger of KeyOn and Grant is a reverse merger. Effective on August 9, 2007, and for all reporting periods thereafter, the Company’s operating activities, including any prior comparative period, will include only those of KeyOn Communications Holdings, Inc. 

          KeyOn Communications, Inc., 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 (11) Western and Midwestern states: Colorado, Idaho, Illinois, Indiana,        Iowa, Kansas, Nebraska, Nevada, Ohio, South Dakota, and Texas. The Company has eight wholly-owned organizations (in combination referred to as the “related entities”): 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. 

          KeyOn Communications, LLC (KeyOn LLC), a wholly-owned limited liability operating entity of the Company, was organized on February 26, 2002 under the laws of the State of Nevada, to serve a market located in Las Vegas, Nevada and its surrounding areas with wireless broadband services. It will continue its operations until February 26, 2502 or until dissolved, if sooner. 

          KeyOn Pahrump, LLC (Pahrump), a wholly-owned limited liability operating entity of the Company, was organized on September 26, 2003 under the laws of the State of Nevada, to serve a market located in Pahrump, Nevada and its surrounding areas with a wireless broadband service as previously described. It will continue its operations until September 26, 2503 or until dissolved, if sooner.        

          KeyOn SIRIS, LLC (SIRIS), a wholly-owned limited liability operating entity of the Company, was organized on June 16, 2005 under the laws of the State of Nevada, to serve markets KeyOn acquired in June 2005 located in southern Iowa with a wireless broadband service as previously described. It will continue its operations until June 16, 2505 or until dissolved, if sooner. 

          KeyOn Grand Junction, LLC (Grand Junction), a wholly-owned limited liability operating entity of the Company, was organized on May 31, 2005 under the laws of the State of Nevada, to serve a market located in Grand Junction, Colorado and its surrounding areas with a wireless broadband service as previously described. It will continue its operations until May 31, 2505 or until dissolved, if        sooner. 

          KeyOn Idaho Falls, LLC (Idaho Falls), a wholly-owned limited liability operating entity of the Company, was organized on May 31, 2005 under the laws of the State of Nevada, to serve a market located in Idaho Falls, Idaho and its surrounding areas with a wireless broadband service as previously described. It will continue its operations until May 31, 2505 or until dissolved, if sooner.        

          KeyOn Pocatello, LLC (Pocatello), a wholly-owned limited liability operating entity of the Company, was organized on May 31, 2005 under the laws of the State of Nevada to serve a market located in Pocatello, Idaho and its surrounding areas with a wireless broadband service as previously described. It will continue its operations until May 31, 2505 or until dissolved, if sooner. 

          KeyOn SpeedNet, LLC (SpeedNet LLC), a wholly-owned limited liability operating entity of the Company, 

5

----

**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

was organized on June 27, 2006 under the laws of the State of Nevada. It served as an acquisition subsidiary in the acquisition of SpeedNet. SpeedNet LLC houses the previous operations of SpeedNet, including wireless broadband markets operating the states of Idaho, Illinois, Indiana, Iowa, Kansas, Nebraska, Ohio, South Dakota, and Texas. It will continue its operations until June 27, 2506 or until dissolved, if sooner. 

          KeyOn Spectrum Holdings, LLC (Spectrum Holdings), a wholly-owned limited liability operating entity of the Company, was organized on November 26, 2007 under the laws of the State of Nevada. It has no current operations and serves as a subsidiary to pursue potential spectrum acquisitions. It will continue its operations until November 26, 2507 or until dissolved, if sooner.

**Note 2 – Summary of Significant Accounting Policies**

          **Basis of Presentation**

          The Condensed Consolidated Statements of Operations and the Balance Sheet as of June 30, 2009 has been restated from the Original Filing to the Amendment as reflected in the following table. 

|                                                            |
|-----------------------------------------------------------------|
| **KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES**     |
|                                                            |
| **CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)** |
|                                                                 |

|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
|----------------------------------------------|--------|----------------------------------------------|------------|--------------------------------------------|--------|----------------|--------|-----------------|---------|-------------------------|--------|----------------|--------|--------|------------|--------|--------|----------|--------|
|                                         |   | **For the Three Months Ended June 30, 2009** |       | **For the Six Months Ended June 30, 2009** |   |
|                                         |   | **As Restated**                              |       | **As Originally Filed**                    |   | **Difference** |   | **As Restated** |    | **As Originally Filed** |   | **Difference** |   |
| OPERATING COSTS AND EXPENSES:                |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| Payroll, bonuses and taxes                   |   | $                                            | 703,606    |                                       | $      | 703,606        |   | $               | — |                    | $      | 1,576,176      |   | $      | 928,021    |   | $      | 648,155  |   |
| Professional fees                            |   |                                         | 95,430     |                                       |   | 188,180        |   |            | (92,750 | )                       |   | 132,523        |   |   | 225,273    |   |   | (92,750  | )      |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| Total operating costs and expenses           |   |                                         | 2,467,848  |                                       |   | 2,560,598      |   |            | (92,750 | )                       |   | 5,096,245      |   |   | 4,540,840  |   |   | 555,405  |   |
|                                         |   |                                              |            |                                       |        |                |   |                 |         |                    |        |                |   |        |            |   |        |          |   |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| LOSS FROM OPERATIONS                         |   |                                         | (683,516   | )                                          |   | (776,266       | )      |            | 92,750  |                    |   | (1,445,741     | )      |   | (890,336   | )      |   | (555,405 | )      |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| NET LOSS                                     |   | $                                            | (1,034,083 | )                                          | $      | (1,126,833     | )      | $               | 92,750  |                    | $      | (2,056,661     | )      | $      | (1,501,256 | )      | $      | (555,405 | )      |
|                                         |   |                                              |            |                                       |        |                |   |                 |         |                    |        |                |   |        |            |   |        |          |   |
|                                         |   |                                         |       |                                       |   |           |   |            |    |                    |   |           |   |   |       |   |   |     |   |
| Net loss per common share--basic and diluted |   | $                                            | (0.10      | )                                          | $      | (0.11          | )      | $               | (0.01   | )                       | $      | (0.22          | )      | $      | (0.16      | )      | $      | (0.06    | )      |
|                                         |   |                                              |            |                                       |        |                |   |                 |         |                    |        |                |   |        |            |   |        |          |   |

|                                     |
|------------------------------------------|
| **CONDENSED CONSOLIDATED BALANCE SHEET** |
| **AS OF JUNE 30, 2009 (UNAUDITED)**      |
|                                          |

|                                                                                                                                                                                  |   |            |        |                                                           |   |           |   |   |     |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-------------|----------------------------------------------------------------|--------|----------------|--------|--------|----------|--------|
|                                                                                                                                                                                  |   | **As Restated** |        | **As of June 30, 2009                    As Originally Filed** |   | **Difference** |   |
| STOCKHOLDERS’ (DEFICIT):                                                                                                                                                        |   |            |        |                                                           |   |           |   |   |     |   |
| Series A preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2008 and at June 30, 2009                                    |   |            | —     |                                                           |   |           |   |   |     |   |
| Common stock, $0.001 par value; 95,000,000 shares authorized; 8,771,350 shares issued and outstanding at December 31, 2008; 12,930,154 shares issued and outstanding at June 30, 2009 |   |            | 12,930      |                                                           |   | 12,930         |   |   | —  |   |
| Additional paid-in capital                                                                                                                                                            |   |            | 18,352,392  |                                                           |   | 17,704,237     |   |   | 648,155  |   |
| Deferred compensation                                                                                                                                                                 |   |            | (92,750     | )                                                              |   | —        |   |   | (92,750  | )      |
| Accumulated deficit                                                                                                                                                                   |   |            | (23,765,683 | )                                                              |   | (23,210,278    | )      |   | (555,405 | )      |
|                                                                                                                                                                                  |   |                 |             |                                                           |        |                |   |        |          |   |
| Total stockholders’ (deficit)                                                                                                                                                   |   |            | (5,493,111  | )                                                              |   | (5,493,111     | )      |   | —  |   |
|                                                                                                                                                                                  |   |                 |             |                                                           |        |                |   |        |          |   |

          The Condensed Consolidated Balance Sheet as of June 30, 2009 has been restated by an additional $648,155 increase to Additional Paid in Capital from $17,704,237 to $18,352,392 from the Original Filing to the Amendment, respectively. Stock issued to a new investor relations company had been expensed in Q2 2009 for the entire value of $106,800, but needed to be expensed over the contract period        of one year. The corrected amount of the expense for Q2 2009 is $14,050. The correction of ($92,750) of stock compensation expense to professional fees was offset to deferred compensation in equity was recorded for the three month period ended June 30, 2009. Deferred compensation of ($92,750) was added to the equity portion of the balance sheet in the Amendment for the amount of deferred expense on the new investor relation agreement. An increase of $555,405 was recorded to Accumulated        Deficit from $23,210,278 to $23,765,683 from the Original Filing to the Amendment, respectively. 

          The Condensed Statements of Cash Flows for the Six Months Ended June 30, 2009 has been restated by an increase of $555,405 in the Net Loss from the Original Filing amount of $1,501,256 to $2,056,661 in the Amendment. The Stock Based Compensation Expense has been changed by a charge of $648,155 from the Original Filing amount of ($418,024) to $230,131 in the Amendment. The Common Stock Exchanged        for Professional Services has been changed by a credit of $92,750 from the Original Filing amount of $106,800 to $14,050 in the Amendment. The total amount of Net Cash Flows From Operations is unchanged.

          The Notes to the Condensed Financial Statements have been restated to reflect the changes described above. Specifically, in Note 2--Summary of Significant Accounting Policies, under the sub-heading Stock Based Compensation, the Original Filing amount of negative $418,024 was changed to $230,131 in the Amendment. Note 8--Capital Stock, Stock Based Compensation, and Warrants, under the        sub-heading Common Shareholders Equity, the Original Filing stated: “2,120,000 shares of stock were issued for professional services valued at $106,800.” The Amendment states: “2,120,000 shares of stock were issued for professional services that will occur from May 11, 2009 through May 10, 2010 valued at $106,800. Of this amount, $14,050 was expensed during the six months ended June 30, 2009 and $92,750 was recorded in equity as deferred compensation.” Note        8--Capital Stock, Stock Based Compensation, and Warrants, under the sub-heading Stock Option Plans, the Original Filing amount stated: “For the six months ended June 30, 2009, 227,777 options were forfeited. As of June 30, 2009, 848,700 options were outstanding.” The Amendment states: “For the six months ended June 30, 2009, 37,777 options were forfeited. As of June 30, 2009, 1,038,700 options were outstanding.” The Original Filing stated “Compensation        expense recorded on stock options for the three months ended June 30, 2009, totaled $42,649 and for the six months totaled $80,131, and $150,000 for restricted stock option expense which was offset by a credit for forfeitures on stock options and restricted stock of $498,155. The range of strike price per outstanding option is $0.25 to $5.00 and the weighted average strike price is $2.06 per share.” The Amendment states: “Compensation expense recorded on stock options for        the three months ended June 30, 2009, totaled $42,649 and for the six months totaled $80,131, and $150,000 for restricted stock option expense. The range of strike price per outstanding option is $0.25 to $5.00 and the weighted average strike price is $2.20 per share.” 

          **Estimates**

          Management uses estimates and assumptions in preparing these financial statements in accordance with U.S. generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used, and such        variances could be significant. 

          **Revenue Recognition**

          The Company prepares its financial statements on the accrual method of accounting. Under this basis, income is recognized when earned, and expenses are generally recognized when incurred. 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 annual or two year contracts and are generally billed monthly, quarterly, semiannually 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 time of installation. 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. 

6

----

**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

          **Inventories**

          The Company maintains a consistent stock supply of customer premise equipment, installation supplies, and tower replacement parts. The value of this inventory was $128,966 and $158,019 as of June 30, 2009 and December 31, 2008, respectively. The Company also began to carry inventory in 2007 in support of its launch as a retailer of satellite video service from DISH. The value of this inventory        was $14,415 as of June 30, 2009 and December 31, 2008. The inventory is carried at the incurred cost value of the invoiced amount from the suppliers. Once the DISH installation is complete, the revenue is recognized and the cost of inventory is expensed to operating expense 

          **Acquisition Costs and Intangible Assets**

          Acquisition costs, which may include certain intangible assets, are capitalized as incurred as part of the related investment. Once a potential acquisition is identified as no longer attainable, such costs are charged to expense. 

          Intangible assets, including goodwill, are accounted for under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under SFAS 142, intangible assets, other than goodwill, are identified and segregated between amortizable and non-amortizable assets. Amortizable intangibles are        amortized over their estimated, contractual, or regulated useful lives. Goodwill and other non-amortizable assets are reviewed, at least annually, for impairment in the carrying value of the intangible asset. In addition, this review also includes the net carrying value of amortizable intangible assets. If impairment is deemed to have occurred, a loss for such impairment is recorded as part of current operations. 

          **Deferred Revenues**

          Payments received in advance for subscriptions are deferred and recognized as the services are provided. The amount of revenue that was deferred was $324,910 and $310,689 at June 30, 2009 and December 31, 2008, respectively. 

          **Reclassifications**

          Certain reclassifications have been made to the 2009 financial statement amounts to conform to the 2008 financial presentation. 

          **Income Taxes**

          The Company has adopted SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities        are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109 the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company recorded a        full valuation loss for the net loss incurred for the six months ended June 30, 2009. 

          In July 2006, FASB issued Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a        company’s income tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 utilizes a two-step approach for evaluating tax positions. Step one, *Recognition*, occurs when a company concludes that a tax position is more likely than not to be sustained upon examination. Step two, *Measurement*, is based on the largest amount of benefit, which is more likely than not to        be realized on ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle to be 

7

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

recorded as an adjustment to the beginning balance of retained earnings; and, therefore, is effective for the Company in the first quarter of fiscal 2008. For the six months ended June 30, 2009, there were no implications on the Company’s consolidated financial position, results of operations or cash flows. 

          **Stock-Based Compensation**

          Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R supersedes APB No. 25, “Accounting for Stock Issued to Employees”, and        amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based upon their fair values. The Company recorded total stock-based compensation and warrant compensation of $230,131 (see Note 8) for the six month period ended June 30, 2009, compared to $2,560,832 for the same period in 2008. 

          **Consolidation Policy**

          The accompanying consolidated balance sheets and consolidated statements of operations, stockholders’ equity, and cash flows, referred to as “KeyOn Communications Holdings, Inc.,” includes the accounts of KeyOn Communications, Inc., KeyOn Communications, LLC, KeyOn Pahrump, LLC, KeyOn SIRIS, LLC, KeyOn Grand Junction, LLC, KeyOn Idaho Falls, LLC, KeyOn Pocatello, LLC, KeyOn        SpeedNet LLC and KeyOn Spectrum Holdings, LLC all of which are under common ownership. Intercompany balances and transactions have been eliminated in consolidation.

          **Going Concern**

          The accompanying consolidated financial statements are prepared assuming that the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Certain factors, including current liabilities exceeding current assets and the presence of recurring losses and negative cash flow, among others, indicate the        Company may be unable to continue as a going concern for a reasonable period of time. 

          Management has taken the following steps to strengthen the financial condition of the Company. Certain of these initiatives are described below: 

*Operations*

          During 2008 and continuing through the first quarter of 2009, the Company materially reduced its headcount from March 31, 2008 to April 15, 2009. In addition, the Company modified work schedules across the organization and continued to narrow its marketing efforts in the second half of fiscal year 2008, choosing to focus its efforts on its existing customer base to obtain new customer        referrals. These initiatives resulted in fewer gross customer additions but reduced expenses in this area. The Company also increased its charges for new subscriber installations, resulting in a faster break-even point for new subscriber additions. 

*Financial Restructuring*

          In addition to the operational changes, management has undertaken a variety of measures to restructure the Company’s current and long-term liabilities. In March of 2009, the Company executed a second restructuring with another one of its existing lease financing companies. The effect of this restructuring also served to reduce the monthly payment obligations of the Company and extended        the payments for an additional 24 months. Beginning in August and continuing through December 2008, the Company raised additional capital in the amount of $1,281,877 through the issuance of subordinated secured notes. The note holders consisted of existing shareholders as well as members and affiliates of management. The Company’s $4.5 million senior secured Promissory Note held by Sun West Bank matured on June 4, 2009. The Company reduced the Note to $4.05 million with Sun West        Bank and amended the Promissory Note which extended its maturity until June 4, 2015. Payments for the first year are interest only at 7.75% fixed interest rate. The Company raised $475,000 in subscription sales during June, 2009. 

8

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

          In order to continue our acquisition and organic growth strategies, as well as to sustain our current capital needs, management projects that we will require funds from sources outside of our normal operations. Management is in the process of raising additional outside capital from institutions or other third parties while realizing additional cash flow from the restructurings commenced in the        fourth quarter of 2008. 

          **Recent Accounting Pronouncements**

          The following pronouncements have been issued by the Financial Accounting Standards Board (“FASB”): 

          In June 2001, the FASB issued FAS 141, Business Combinations, which was established to (1) better reflect investments made in acquired companies, and (2) to provide additional information regarding acquired intangible assets. FAS 141 mandates that all assets acquired and liabilities assumed are valued at their fair value. FAS 141 was revised in December 2007, and is effective 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, 2008. This revision represents a major departure from the historical cost accounting that many companies use currently. The adoption of FAS 141 did not have a material impact on the Company’s financial position, results of operation or cash flows for the six months ended June 30, 2009. 

          In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the de-consolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is equity in the        consolidated financial statements. SFAS No. 160 is effective for fiscal years and interim periods beginning after December 15, 2008. The adoption of SFAS 160 did not have a material impact on the Company’s financial position, results of operation or cash flows for the six months ended June 30, 2009. 

          In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a simplified method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of plain vanilla share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company’s election to use the        simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified        method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for “plain vanilla” share options and warrants, and will assess the impact of SAB 110 for fiscal year        2009. SAB 110 did not have an impact on the Company’s consolidated financial position, results of operations or cash flows for the six months ended June 30, 2009. 

          In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for        under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of SFAS 161 did not have a material impact on its consolidated financial position, results of operations or cash        flows for the six months ended June 30, 2009. 

          In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the 

9

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time. 

          In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60”. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This        statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time. 

          In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”), to address challenges in estimating fair value when the volume and level of activity for an asset or liability have significantly        decreased. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under        current market conditions. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. The Company is currently evaluating FSP FAS 157-4 to determine its impact on its future consolidated financial position, results of operations, or cash flows. 

          In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted the provisions of SFAS 165 for the quarter ended June 30, 2009. The        adoption of these provisions did not have a material effect on its consolidated financial statements. 

          In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (SFAS 168). SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB        Accounting Standards CodificationTM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements,        FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. SFAS 168 becomes effective for the Company for the period ending September 30, 2009. Management has determined that the adoption of SFAS 168 will not have an impact on its        consolidated financial statements. 

**Note 3 – Equipment**

          Equipment at June 30, 2009 and December 31, 2008, consisted of the following: 

10

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

|                                |   |          |       |           |   |       |   |
|-------------------------------------|--------|---------------|------------|----------------|--------|------------|--------|
|                                |   | **6/30/2009** |       | **12/31/2008** |   |
|                                |   |          |       |           |   |       |   |
| Subscriber equipment                |   | $             | 6,161,825  |           | $      | 6,051,100  |   |
| Fixed wireless tower site equipment |   |          | 2,642,349  |           |   | 2,656,229  |   |
| Software and consulting costs       |   |          | 611,649    |           |   | 611,649    |   |
| Computer and office equipment       |   |          | 418,030    |           |   | 418,030    |   |
| Vehicles                            |   |          | 242,923    |           |   | 241,106    |   |
| Leasehold improvements              |   |          | 312,100    |           |   | 312,100    |   |
|                                |   |               |            |                |        |            |        |
|                                |   |          | 10,388,876 |           |   | 10,290,214 |   |
| Less: accumulated depreciation      |   |          | (8,051,177 | )              |   | (6,997,969 | )      |
|                                |   |               |            |                |        |            |        |
|                                |   |          |       |           |   |       |   |
| Fixed assets - net                  |   | $             | 2,337,699  |           | $      | 3,292,245  |   |
|                                |   |               |            |                |        |            |        |

          Depreciation expense for the three months ended June 30, 2009 and 2008 was $516,988 and $588,423 respectively. Depreciation expense for the six months ended June 30, 2009 and 2008 was $1,055,935 and $1,203,161, respectively. 

**Note 4 – Intangible Assets**

          Intangible assets at June 30, 2009 and December 31, 2008, consisted of the following: 

|   |                           |   |          |      |           |   |      |   |
|--------|--------------------------------|--------|---------------|-----------|----------------|--------|-----------|--------|
|   |                           |   | **6/30/2009** |      | **12/31/2008** |   |
|   |                           |   |          |      |           |   |      |   |
|   | Goodwill                       |   | $             | 1,641,138 |           | $      | 1,641,138 |   |
|   | Subscriber base                |   |          | 1,290,887 |           |   | 1,290,887 |   |
|   | Trademark                      |   |          | 16,667    |           |   | 16,667    |   |
|   |                           |   |               |           |           |        |           |   |
|   |                           |   |          | 2,948,692 |           |   | 2,948,692 |   |
|   | Less: accumulated amortization |   |          | (929,166  | )              |   | (728,144  | )      |
|   |                           |   |               |           |           |        |           |   |
|   |                           |   |          |      |           |   |      |   |
|   | Intangible assets - net        |   | $             | 2,019,526 |           | $      | 2,220,548 |   |
|   |                           |   |               |           |           |        |           |   |

          Amortization expense for the three months ended June 30, 2009 and 2008 was $100,511 and $100,511, respectively. Amortization expense for the six months ended June 30, 2009 and 2008 was $201,022 and $201,022, respectively. 

          Estimated amortization expense for the remainder of 2009 and future fiscal years is as follows: 

|   |       |   |   |    |   |
|--------|------------|--------|--------|---------|--------|
|   | 2009       |   | $      | 201,022 |   |
|   | 2010       |   |   | 109,493 |   |
|   | 2011       |   |   | 21,189  |   |
|   | 2012       |   |   | 21,189  |   |
|   | 2013       |   |   | 8,828   |   |
|   | Thereafter |   |   | — |   |
|   |       |   |        |         |   |
|   |       |   | $      | 361,721 |   |
|   |       |   |        |         |   |

11

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**Note 5 – Line of Credit and Other Debt**

          The Company executed a loan agreement with Sun West Bank on February 8, 2008, totaling $4.5 million (the “Loan”). The Loan matured on February 8, 2009. On March 27, 2009, KeyOn entered into an extension of the Loan, pursuant to which the Company obtained a one-hundred and twenty (120) day extension of the Loan until June 4, 2009 (the “Extension”). On June 4, 2009, the        Company reduced the Loan to $4.05 million with Sun West Bank and amended the Promissory Note which extended its maturity until June 4, 2015. Payments for the first year are interest only at 7.75% fixed interest rate. Beginning in June, 2010 through May, 2015, the payment plan is $48,604 per month. A final payment of $2,483,129 is due at maturity. A shareholder in the Company is also a minority shareholder and Board member of the lending institution. As a member of the bank’s Board        and Loan Committee, the shareholder abstained from voting on this transaction as required under the appropriate banking regulations. The Loan is guaranteed by three shareholders of the Company, one being an officer of the Company. The interest is payable monthly. 

          Future minimum payments under the Loan, which are stated at their principal amount consist of the following as of June 30, 2009: 

|   |                   |   |   |      |   |
|--------|------------------------|--------|--------|-----------|--------|
|   | 2009                   |   | $      | —   |   |
|   | 2010                   |   |   | 136,880   |   |
|   | 2011                   |   |   | 290,144   |   |
|   | 2012                   |   |   | 313,446   |   |
|   | 2013                   |   |   | 338,620   |   |
|   | Thereafter   |   |   | 2,970,911 |   |
|   |                   |   |        |           |   |
|   |                   |   | $      | 4,050,000 |   |
|   |                   |   |        |           |   |

          The Company holds a line of credit loan for $100,050 with Sun West Bank. The line of credit agreement was entered into on December 18, 2006. The line is a variable rate revolving line of credit loan for $100,050 due upon demand. The interest rate is the base rate plus an added margin rate of 3%. The base rate for floating commercial loans is published by Sun West Bank and varies weekly. The        variable interest rate as of June 30, 2009 was 7.75%. The interest on the line of credit is paid monthly. The line of credit is guaranteed by a shareholder and officer of the Company. 

          As of June 30, 2009, the Company had total subordinated secured notes outstanding of $1,281,878. The original subordinated secured notes in the aggregate amount of $981,877 outstanding (“Sub Notes”) were issued in August, 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        of its senior management to fund working capital obligations which would also allow the Company time to seek longer term financing or to pursue other strategic options. These notes bear 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 on January 29, 2009 or a change of control (which includes the merger),        among other things. These Sub Notes have been amended and now mature on August 31, 2009. 

          A new set of senior secured subordinated notes were issued beginning in March 2009 (“New Sub Notes”). An aggregate amount of $300,000 was issued to certain of its present investors to fund working capital obligations. These New Sub Notes bear interest at 17% per annum (compounded monthly) and mature on September 30, 2009. The notes are 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 include detachable warrants at 50% of the face value of the note exercisable at 50 cents per warrant. 

          At June 30, 2009, the following Company officers and directors held the principal amount of subordinated secured notes as related parties: Jerome Snyder - $203,094; Jonathan Snyder - $335,052 and Jason Lazar - $128,866. 

          The Company had the following notes payable at June 30, 2009 and December 31, 2008: 

12

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|------------|----------------|--------|----------|--------|
| **Notes payable**                                                                                                                                                                                   |   | **6/30/2009** |       | **12/31/2008** |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           A series of 17.0% subordinated secured notes payable maturing on August 31, 2009                                                        |   | $             | 414,866    |           | $      | 414,866  |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           A series of 17.0% subordinated secured notes payable maturing on September 30, 2009 with a conversion to equity option for the holder   |   |          | 200,000    |           |   | —  |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           One 0.0% notes payable maturing on July 31, 2009, 30,000 warrants issued at $0.75 strike price                                          |   |          | 200,000    |           |   | —  |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           One 0.0% notes payable matured on June 30, 2009, 100,000 warrants issued at $0.75 strike price; paid 7/3/2009                           |   |          | 50,000     |           |   | —  |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           One 5.0% notes payable matured from October 9, 2008, with interest payable at maturity; converted to secured subordinated note 7/9/2009 |   |          | 20,000     |           |   | 20,000   |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           An unsecured, non-interest bearing notes payable maturing June 2009 from the conversion of accounts payable.                            |   |          | —    |           |   | 50,000   |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           An unsecured, non-interest bearing notes payable maturing November 2009 resulting from the conversion of accounts payable.              |   |          | 7,012      |           |   | 11,223   |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           Note and loan payable for professional services non-interest bearing                                                                    |   |          | 121,737    |           |   | 121,737  |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           7.8% note payable to American National Bank, payable monthly for 48 months for the purchase of vans                                     |   |          | 40,714     |           |   | 50,845   |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
|           9.1% note payable to GMAC, payable monthly for 60 months for the purchase of two trucks                                                 |   |          | 11,660     |           |   | 16,806   |   |
|                                                                                                                                                                                                |   |               |            |           |        |          |   |
|                                                                                                                                                                                                |   |          | 1,065,989  |           |   | 685,477  |   |
| Less current portion                                                                                                                                                                                |   |          | (1,045,694 | )              |   | (648,610 | )      |
|                                                                                                                                                                                                |   |               |            |           |        |          |   |
|                                                                                                                                                                                                |   |          |       |           |   |     |   |
| Long term portion                                                                                                                                                                                   |   | $             | 20,295     |           | $      | 36,867   |   |
|                                                                                                                                                                                                |   |               |            |           |        |          |   |

          Future minimum payments on the notes payable (including notes payable – related parties), which are stated at their principal amounts with initial or remaining terms of one year or more consist of the following as of June 30, 2009: 

|   |   |   |   |      |   |
|--------|--------|--------|--------|-----------|--------|
|   | 2009   |   | $      | 1,696,332 |   |
|   | 2010   |   |   | 28,827    |   |
|   | 2011   |   |   | 7,842     |   |
|   | 2012   |   |   | —   |   |
|   |   |   |        |           |   |
|   |   |   | $      | 1,733,001 |   |
|   |   |   |        |           |   |

**Note 6 - Operating and Capital Leases**

          The Company and its related entities lease equipment from certain parties under various capital leases expiring in 2008 through 2011. Pursuant to those capital lease financing arrangements, the Company has drawn down an additional $75,201 in the six months ended June 30, 2009. On March 12, 2009, the Company entered into an Amendment of a certain Master Equipment Lease Agreement with another one        of the Company’s secured lenders (the “Lender”) (the “Amendment”), pursuant to which the Lender agreed to restructure certain lease schedules, payment and purchase terms arising under that certain Master Equipment Lease Agreement executed by the Company and the Lender on November 9, 2005 (the “Master Lease”). The Lender agreed to suspend certain rental 

13

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

payments due and owing by the Company during the first quarter of 2009. The Lender also has agreed to extend and restructure the payments due and owing under the Master Lease such that in April 2009, we will begin to make reduced payments for the first of 24 scheduled monthly payments. 

          In addition, the related entities lease 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, several also have various operating leases for office space, equipment, and vehicles that generally are for 3 to 5 year terms. The total amount of fixed assets capitalized through leasing is        $3,564,260 as of June 30, 2009. 

          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 June 30, 2009: 

|                                |   |   |      |   |
|-------------------------------------|--------|--------|-----------|--------|
| 2009                                |   | $      | 409,950   |   |
| 2010                                |   |   | 819,900   |   |
| 2011                                |   |   | 545,253   |   |
| 2012                                |   |   | —   |   |
|                                |   |        |           |   |
| Total minimum lease payments        |   |   | 1,775,103 |   |
| Less amounts representing interest  |   |   | (422,288  | )      |
|                                |   |        |           |   |
|                                |   |   | 1,352,815 |   |
|                                |   |   |      |   |
| Less current portion                |   |   | (559,465  | )      |
|                                |   |        |           |   |
|                                |
| Long term capital lease obligations |   | $      | 793,350   |   |
|                                |   |        |           |   |

          Future minimum lease payments under the operating leases with initial or remaining terms of one year or more consist of the following at June 30, 2009: 

|       |   |   |      |   |
|------------|--------|--------|-----------|--------|
| 2009       |   | $      | 468,635   |   |
| 2010       |   |   | 727,844   |   |
| 2011       |   |   | 587,568   |   |
| 2012       |   |   | 282,361   |   |
| 2013       |   |   | 98,585    |   |
| Thereafter |   |   | 25,868    |   |
|       |   |        |           |   |
|       |   |   |      |   |
| Total      |   | $      | 2,190,861 |   |
|       |   |        |           |   |

          The total rental expense included in operating expenses for operating leases included above is $326,114 and $333,336 for the three months ended June 30, 2009 and 2008, respectively. For the six months ended June 30, 2009 and 2008, the total rental expense included in operating expenses for operating leases was $676,145 and $632,065, respectively. 

**Note 7 - Related Party Transactions**

          Related parties that entered into transactions with the Company include officers and stockholders. Transactions with related parties as of June 30, 2009 and December 31, 2008 are the following: 

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

|                                                                 |   |          |      |           |   |      |   |
|----------------------------------------------------------------------|--------|---------------|-----------|----------------|--------|-----------|--------|
|                                                                 |   | **6/30/2009** |      | **12/31/2008** |   |
|                                                                 |   |          |      |           |   |      |   |
| Term loan payable - related party (see also Note 5)                  |   | $             | 4,050,000 |           | $      | 4,500,000 |   |
| Current portion of notes payable - related parties (see also Note 5) |   |          | 667,012   |           |   | 567,011   |   |
| Accounts payable and accrued expenses - related parties              |   |          | 100,395   |           |   | 43,139    |   |
| Revolving line of credit - related party (see also Note 5)           |   |          | 100,050   |           |   | 100,000   |   |
|                                                                 |   |               |           |           |        |           |   |
|                                                                 |   | $             | 4,917,457 |           | $      | 5,210,150 |   |
|                                                                 |   |               |           |           |        |           |   |

**Note 8 - Capital Stock, Stock Based Compensation, and Warrants**

          On December 31, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” requiring us to recognize expenses related to the fair value of its employee stock option awards. We recognize the cost of all share-based awards on a straight line vesting basis over the vesting period of the award. 

***Common Shareholders’ Equity***

          On August 9, 2007, KeyOn Communications, Inc. became a publicly-traded company by virtue of a merger with a publicly-traded company, Grant Enterprises, Inc., a holding company with no operating business (the “Merger”). Upon closing of the Merger transaction, a wholly owned subsidiary of Grant merged with and into KeyOn, and KeyOn, as the surviving corporation, became a wholly-owned        subsidiary of Grant. All pre-merger assets and liabilities of Grant were split off from Grant leaving KeyOn’s business as the surviving operations of Grant. After accounting for the Merger and the equity financing, KeyOn Holdings had 8,101,770 shares outstanding. KeyOn later changed the name of Grant to KeyOn Communications Holdings, Inc. (“KeyOn Holdings”) and KeyOn and its subsidiaries became wholly owned subsidiaries of KeyOn Holdings. KeyOn Holdings’ shares        are listed on the OTC Bulletin Board under the symbol “KEYO”. 

          The Company is authorized to issue up to 95,000,000 shares of common stock with a par value of $.001 for each share. 12,930,154 and 8,771,350 shares were issued and outstanding as of June 30, 2009 and December 31, 2008, respectively. 

          During the six month period ended June 30, 2009, 4,158,804 shares of common stock were issued. 2,120,000 shares of stock were issued for professional services that will occur from May 11, 2009 through May 10, 2010 valued at $106,800. Of this amount, $14,050 was expensed during the six months ended June 30, 2009 and $92,750 was recorded in equity as deferred compensation. 1,250,000        shares of stock were issued as subscription sales for $475,000. 788,804 shares of stock were issued upon the exercise of stock options. 57,487 of these shares of stock were options exercised by a director and shown as a stock payable totaling $14,372 as of December 31, 2008. The remaining 731,317 shares were options exercised at $.09 per share, totally $65,819, during the three months ended June 30, 2009. 

***Preferred Shareholders’ Equity***

          The Company is authorized to issue up to 5,000,000 shares of Series A Convertible Preferred Stock (“preferred stock”) with a par value of $0.001 for each share. As of June 30, 2009, no shares of preferred stock were issued and outstanding. 

***Warrants***

          The Company has 2,448,000 common stock warrants outstanding and exercisable as of June 30, 2009 with a warrant strike price ranging from $3.31 to $8.00 and an average price of $3.87 for each share of common stock. These warrants have expiration dates of three to seven years from their date of issue. As of December 31, 2008, a total of 1,712,735 warrants to purchase shares of our common stock        were outstanding and exercisable. 755,000 warrants were issued in during the six months ended June 30, 2009. No warrants were exercised during the six months ended June 30, 2009. 19,735 warrants were forfeited due to expiration during the six months ended June 30, 2009. The amount capitalized for debt issuance costs during the six months ended June 30, 2009 was $105,998. The 

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

amount expensed to interest expense for the amortization of the debt issuance costs during the three and six months ended June 30, 2009, was $119,626 and $156,424, respectively. 

***Stock Option Plans***

          On April 25, 2006, KeyOn’s Board of Directors and stockholders adopted the 2006 Stock Incentive Plan (the “2006 Plan”). Under the 2006 Plan, KeyOn was authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options and restricted stock. The 2006 Plan was administered by KeyOn’s Board of Directors. Prior to the        time of the Merger, there were 20,278 KeyOn stock options outstanding under the 2006 Plan. Immediately following the closing of the Merger, these options were exchanged for options to purchase 612,831 shares of our common stock under our 2007 Incentive Stock and Awards Plan (the “2007 Plan”) with a weighted average exercise price of approximately $2.48 per share. Following this exchange, KeyOn terminated the 2006 Plan. 

          On August 9, 2007, our Board of Directors and stockholders adopted the 2007 Stock Incentive 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 KeyOn’s development and financial success. Under the 2007 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 2007 Plan is administered by the Compensation Committee at the direction of the Board of Directors. 

          As of December 31, 2008, 1,865,281 options were outstanding. During the six months ended June 30, 2009, the Company did not grant any options to purchase shares of common stock, pursuant to the 2007 Plan. For the six months ended June 30, 2009, 37,777 options were forfeited. 788,804 options were exercised in the six month period ending June 30, 2009. As of June 30, 2009, 1,038,700 options were        outstanding. 

          Compensation expense recorded on stock options for the three months ended June 30, 2009, totaled $42,649 and for the six months totaled $80,131, and $150,000 for restricted stock option expense. The range of strike price per outstanding option is $0.25 to $5.00 and the weighted average strike price is $2.20 per share. 

**Note 9 – Subsequent Events**

The Company evaluated these subsequent events through the date the accompanying financial statements were issued, which was August 19, 2009. 

**Additional sales of common stock after June 30, 2009**

          As a result of these common stock sales, cash increased $700,000 and the number of common shares outstanding will be increased by 1,400,000 shares. A portion of the cash has been used to reduce outstanding payables and to pay for additional costs incurred for the government stimulus application. The Company has not completed the Black Scholes valuation on the warrants associated with these new stock        subscriptions. These stock sales were further described on Form 8-K on July 22, 2009. 

**Third Amendment to Secured Subordinated Notes**

          By August 5, 2009 the Company entered into a third amendment with the holders of the Sub Notes whereby as an alternative to repayment at maturity, the holders were given the option to convert their Sub Notes into shares of common stock at a price per share of $0.50. This afforded the Company with an additional opportunity to de-lever its balance sheet by reducing its outstanding debt and provided the holders        with an alternative methodology to be repaid. The Company evaluated this subsequent event through the date the accompanying financial statements were issued, which was August 19, 2009. The Company has not finished the analysis on the accounting implications 

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**KEYON COMMUNICATIONS HOLDINGS, INC. AND RELATED ENTITIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

for the beneficial conversion features for this amendment as of this date. As of August 18, 2009, two holders of the Sub Notes have agreed to exercise their rights of conversion, thereby reducing notes payable and interest payable liability by $80,417 in exchange for the issuance of 160,835 shares of common stock. 

**Applications under the American Recovery and Reinvestment Act of 2009**

          On August 18, 2009, KeyOn filed applications for over $150 million of broadband stimulus funds with the Rural Utilities Service pursuant to the ARRA. Of the $7.2 billion allocated for broadband infrastructure in the ARRA, $2.5 billion is administered by the Rural Utilities Service for specific deployment of broadband networks and related infrastructure in rural, unserved and underserved communities across the        U.S. If successful under this program, KeyOn’s existing wireless networks, which currently cover approximately 2.5 million people, would be expanded to cover as many as 16 states, and provide wireless broadband access to as many as 6.5 million people. KeyOn has submitted its applications in the first round of an expected three rounds, in which $2.4 billion has been set aside for funding. 

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|        |                                                                                            |
|-------------|-------------------------------------------------------------------------------------------------|
| **Item 2.** | **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 satellite video and VoIP services to both residential and business subscribers. As of March 31, 2009, the Company had over 15,200 subscribers and operated networks covering over        50,000 square miles in 11 states across the Midwest and Western United States. KeyOn primarily focuses on providing fixed wireless broadband to rural and other areas of the country that it believes are currently underserved by traditional phone and cable companies. Including the operations of SpeedNet our markets are located in the following 11 Western and Midwestern states: Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Nebraska, Nevada, Ohio, South Dakota, and Texas. Our results        for the year ended 2007 include eleven months of operations of SpeedNet and two full months of operations from MicroLnk.

          The Company has grown through the consolidation of similar companies throughout its target markets as well as continued organic growth. To date, the Company has completed and successfully integrated four acquisitions adjacent to the Company’s existing network footprint. KeyOn’s acquisition strategy allows the Company to rapidly grow its subscriber base while expanding its earnings        through operating expense reductions and extraction of synergies achieved in integration. 

          As the capital market environment became increasingly difficult beginning in fiscal year 2008, the Company began to explore strategic alternatives in addition to seeking additional financing. This direction resulted in the Company executing an agreement and plan of merger with a similarly situated provider of wireless broadband on November 14, 2008 (the “Merger Agreement”). The        Company was optimistic that this merger would result in greater scale and operational efficiencies than the Company could generate as a stand-alone entity, especially against the backdrop of challenging financial markets. However, prior to its consummation, the Company terminated the Merger Agreement effective on February 19, 2009 for reasons disclosed in Form 8-K dated February 24, 2009. The failure to complete the merger caused the Company to seek other sources of capital to fund        operations, including the issuance of additional subordinated secured promissory notes from existing shareholders and other methods to reduce ongoing monthly cash requirements such as renegotiating existing secured lease financing agreements and others further described below in Liquidity and Capital Reserves. The Company has succeeded in several of these initiatives while continuing to seek additional financing. Although the Company is raising capital in a particularly challenging        economic environment, the Company believes that in light of its stronger operating performance and the opportunity for financing to deploy broadband in rural and underserved areas pursuant to specific portions of the 2009 American Recovery and Reinvestment Act, management believes it will be successful these efforts.

**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, semiannually 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, cost of DISH inventory, depreciation and general and administrative expenses. Payroll expenses consist of personnel costs, including salaries, benefits, employer taxes, stock based compensation and bonuses 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

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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**

*Three-Month Period Ended June 30, 2009 as Compared to the Three-Month Period Ended June 30, 2008*

          *Revenues*. During the three-month period ended June 30, 2009, we recognized revenues of $1,784,332, as compared to revenues of $1,986,288 during the three-month period ended June 30, 2008, representing a decrease of approximately 10.2%. This decrease was the result of a net customer decline. While customer disconnects have remained stable, we have not spent marketing dollars to acquire        new subscribers. This reduction in marketing expenses is consistent with our cost restructuring plan which is focused on maintaining our current customer base while reducing costs. 

          *Operating Loss*. Operating expenses, which consist of payroll, bonuses and taxes, depreciation and amortization, other general and administrative costs, network operating costs, marketing and advertising, installation expense, and professional fees totaled $2,467,848 for the three-month period ended June 30, 2009, as compared to $4,531,754 for the three-month period ended June 30, 2008,        representing a decrease of approximately 45.5%. A majority of this decrease, 67.6%, was due to non-cash stock-based compensation expenses during the three-month period ended June 30, 2009 of only $42,649, as compared to $1,438,446 incurred in the three-month period ended June 30, 2008. Another contributing factor, accounting for 18.2% of the decrease, was the reduction in salaries and benefits due to our focused cost reduction initiatives. A third contributing factor, accounting for        10.6% of the decrease is in our new customer costs such as marketing and installation costs which are down due to our initiative to maintain our current customer base. The other operating expenses netted a slight decrease of 3.6%, was the increase of professional fees in support of the application for the government broadband stimulus funding offset by decreases in other general administrative costs that were the result of our expense savings initiatives during the three month period        ended June 30, 2009 as compared to June 30, 2008. Included in the professional fees is $14,050 for professional services in exchange for common stock shares. Without the non-cash stock compensation expenses in payroll and in professional fees, normalized operating expenses would have been $2,411,149 for the three-month period ended June 30, 2009 as compared to $3,093,308 for the three-month period ended June 30, 2008, representing a decrease of 22.1% in operating expenses. Our actual        operating loss margin improved by 90 percentage points from a total operating loss of $683,516 for the three-month period ended June 30, 2009 as compared to a loss of $2,545,466 for the three-month period ended June 30, 2008. By removing non-cash stock compensation expense recorded in payroll and in professional fees of $149,449 and $1,438,446, respectively, our normalized operating loss margin improved by 21 percentage points from a total normalized operating loss $626,817 for the        three-month period ended June 30, 2009 as compared to a loss of $1,107,020 for the three-month period ended June 30, 2008. 

          *Payroll, Bonuses and Taxes*. Payroll bonuses and taxes totaled $703,606 for the three-month period ended June 30, 2009, as compared to $2,476,354 for the three-month period ended June 30, 2008, representing a decrease of approximately 71.6%. A majority of this decrease, 78.7%, was primarily due to the non-cash stock compensation recorded for the three-month period ended June 30, 2009 as        compared to the three month period ended June 30, 2008. The remaining portion of the decrease, 21.3%, is due to our efforts to improve our internal processes which resulted in our ability to significantly reduce headcount. 

          *Depreciation and Amortization*. Depreciation and amortization expenses totaled $617,500 for the three-month period ended June 30, 2009, as compared to $688,934 for the three-month period ended June 30, 2008, representing a decrease of approximately 10.4%. This decrease was primarily due to limited new equipment purchases resulting from slowing sales.

          *Network Operating Costs*. Network operating costs, which consist of tower rent, Internet transport costs and Internet termination expense, totaled $754,541 for the three-month period ended June 30, 2009, as compared to

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$726,876 for the three-month period ended June 30, 2008, representing an increase of approximately 3.8%. The increase was primarily due to increased costs in our transport and termination purchased costs from our providers.

          *Other General and Administrative Expenses*. Other general and administrative expenses totaled $258,333 for the three-month period ended June 30, 2009, as compared to $310,697 for the three-month period ended June 30, 2008, representing a decrease of approximately 16.9%. 93.0% was due to a credit for a payment agreement on printing services incurred during 2007. The remaining 7.0% is due        to an overall focus on cost reduction initiatives expenses in the three-month period ended June 30, 2009 as compared to the three-month period ended June 30, 2008.

          *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 $32,613 for the three-month period ended June 30, 2009, as compared to $121,535 for the three-month period ended June 30, 2008, representing a decrease of approximately        73.2%. Installation volumes decreased by 70.4%, accounting for 96.2% of the decline, for the three-month period ended June 30, 2009 as compared to the three-month period ended June 30, 2008. The remaining 3.8% decline is due to reduced fuel prices during the three-month period ended June 30, 2009 as compared to the three-month period ended June 30, 2008.

          *Professional Fees*. Professional fees, which consist of legal, accounting, and other related expenses, totaled $95,430 for the three month period ended June 30, 2009, as compared to $56,304 for the three-month period ended June 30, 2008, representing an increase of approximately 69.4%. The majority of the increase, 69.1%, is in other professional fees due to a credit for a litigation        settlement during the three month period ended June 30, 2008 that ended in our favor. The remaining increase, 30.6% is a non-cash compensation to a new investor relations company during the three month period ended June 30, 2009 as compared to the three month period ended June 30, 2008.

         *Marketing and Advertising Expenses*. Marketing and advertising expenses totaled $5,825 for the three-month period ended June 30, 2009, as compared to $136,746 for the three-month period ended June 30, 2008, representing a decrease of approximately 95.7%. This decrease was attributed to our concentration on programs to maintain existing customers and obtain new customer referrals from those        customers during the three month period ended June 30, 2009 as compared to the more broad-based marketing plan we employed during the three month period ended June 30, 2008. Our marketing costs were 0.3% of revenue for the three month period ended June 30, 2009 and 6.9% for the three month period ended June 30, 2008, representing a 7 percentage point decrease.

          *Cost of DISH Inventory*. No expense for the cost of DISH inventory was recognized for the three month period ended June 30, 2009 as compared to $14,308 for the three month period ended June 30, 2008. The expense for DISH inventory is recognized immediately after installation. We began installations as a DISH retailer in January 2008. During the three month period ended June 30, 2009, as a        result of our focus on our existing customers, we did not complete any DISH installations.

          *Other Income and Expense*. We incurred other income and expense of $350,567 for the three-month period ended June 30, 2009, as compared to $186,688 for the three-month period ended June 30, 2008, representing an increase of 87.8%. The primary reason for the increase, 68.5%, resulted from the amortization expense recorded as interest expense on our debt financing during the three month        period ended June 30, 2009 as compared to the three month period ended June 30, 2008. This amortization expense is for stock issued in a capital lease restructure that was transacted in September 2008 and for warrants granted with a short term note issued in June 2009. The remaining 31.5% is due to interest expense on our subordinated secured notes issued after the period ended June 30, 2008 that remain outstanding as of the period ended June 30, 2009. The increase in this loan interest        expense is slightly offset with small decreases in our term loan interest expense and our other interest expense

          *Net Loss*. We had a net loss of $1,034,083 for the three-month period ended June 30, 2009, as compared to a net loss of $2,732,154 for the three-month period ended June 30, 2008, representing an improvement of approximately 62.1%. The major contributing factor of the improved net loss was $56,699 of non-cash stock-based compensation expenses in salaries and in professional fees for the        three month period ended June 30, 2009 as compared to $1,438,446 for the three month period ended June 30, 2008, which accounted for 81.3% of the

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improvement. Another contributing factor, accounting for 23.5% of the improvement in the net loss, was the cost reduction initiative to reduce headcount across the company. This improvement was offset by the increase in interest expenses for the three month period ended June 30, 2009 as compared to the three month period ended June 30, 2008. Normalized net loss without the non-cash compensation expenses would have been $977,384 for the three-month        period ended June 30, 2009 as compared to $1,293,708 for the three-month period ended June 30, 2008, representing an improvement of 24.5%. This improvement was the result of our cost reduction initiatives with the majority of the reduction in salaries and wages. Our net loss margin improved by 80 percentage points from a net loss of $1,034,083 for the three-month period ended June 30, 2009 as compared to a net loss of $2,732,154 for the three-month period ended June 30, 2008. After        removing the non-cash compensation expenses of $56,699 and $1,438,446, respectively, our normalized net loss margin improved by 10 percentage points from a total normalized net loss $977,384 for the three-month period ended June 30, 2009 as compared to a net loss of $1,293,708 for the three-month period ended June 30, 2008.

*Six-Month Period Ended June 30, 2009 as Compared to the Six-Month Period Ended June 30, 2008*

          *Revenues*. During the six-month period ended June 30, 2009, we recognized revenues of $3,650,504, as compared to revenues of $4,032,319 during the six-month period ended June 30, 2008, representing a decrease of approximately 9.5%. This decrease was the result of a net customer decline. While customer disconnects have remained stable, we have not spent marketing dollars to acquire new        subscribers. This reduction in marketing expenses is consistent with our cost restructuring plan which is focused on maintaining our current customer base while reducing costs. 

          *Operating Loss*. Operating expenses, which consist of payroll, bonuses and taxes, depreciation and amortization, other general and administrative costs, network operating costs, marketing and advertising, installation expense, and professional fees totaled $5,096,245 for the six-month period ended June 30, 2009, as compared to $8,978,520 for the six-month period ended June 30, 2008,        representing a decrease of approximately 43.2%. A majority of this decrease, 60.0%, was due to $230.131 for non-cash stock-based compensation expenses during the six-month period ended June 30, 2009, as compared to $2,560,832 incurred in the six-month period ended March 31, 2008. Another contributing factor, accounting for 18.0% of the decrease, was the reduction in salaries and benefits due to our focused cost reduction initiatives. A third contributing factor, accounting for 11.4% of        the decrease is in our new customer costs such as marketing and installation costs which are down due to our initiative to maintain our current customer base. The remaining decrease in operating expenses, or 10.6%, was the reduction of professional fees and other general administrative costs that were the result of our expense savings initiatives during the six month period ended June 30, 2009 as compared to June 30, 2008. Without the non-cash stock compensation expenses including        $14,050 in professional fees incurred during the six month period ended June 30, 2009, normalized operating expenses would have been $4,852,064 for the six-month period ended June 30, 2009 as compared to $6,417,688 for the six-month period ended June 30, 2008, representing a decrease of 24.4% in operating expenses. Our actual operating loss margin improved by 83 percentage points from a total operating loss of $1,455,741 for the six-month period ended June 30, 2009 as compared to a loss        of $4,946,201 for the six-month period ended June 30, 2008. By removing non-cash stock compensation expense from payroll and from professional fees of $244,181 and $2,560,832, respectively, our normalized operating loss margin improved by 26 percentage points from a total normalized operating loss $1,201,560 for the six-month period ended June 30, 2009 as compared to a loss of $2,385,369 for the six-month period ended June 30, 2008. 

          *Payroll, Bonuses and Taxes*. Payroll bonuses and taxes totaled $1,576,176 for the six-month period ended June 30, 2009, as compared to $4,606,428 for the six-month period ended June 30, 2008, representing a decrease of approximately 65.8%. A majority of this decrease, 76.9%, was primarily due to the non-cash stock compensation recorded for the six-month period ended June 30, 2009 as        compared to the six-month period ended June 30, 2008. The remaining portion of the decrease, 23.1%, is due to our efforts to improve our internal processes which resulted in our ability to significantly reduce headcount. 

          *Depreciation and Amortization*. Depreciation and amortization expenses totaled $1,256,957 for the six-month period ended June 30, 2009, as compared to $1,404,183 for the six-month period ended June 30, 2008,

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representing a decrease of approximately 10.5%. This decrease was primarily due to limited new equipment purchases resulting from slowing sales.

          *Network Operating Costs*. Network operating costs, which consist of tower rent, Internet transport costs and Internet termination expense, totaled $1,462,727 for the six-month period ended June 30, 2009, as compared to $1,470,274 for the six-month period ended June 30, 2008, representing a decrease of approximately 0.5%. The negligible decrease was primarily due to our efforts to reduce        costs by eliminating certain unnecessary and underperforming transmission sites.

          *Other General and Administrative Expenses*. Other general and administrative expenses totaled $566,718 for the six-month period ended June 30, 2009, as compared to $676,880 for the six-month period ended June 30, 2008, representing a decrease of approximately 16.3%. 44.2% was due to a settlement agreement on a payment arrangement that was satisfied in full during the six months ended June        30, 2009. 39.3% was due to the reduction in travel expenses associated with fund raising initiatives; and the remaining 16.5% was due to the reduction in our telephone expenses, a reduction in postage and shipping charges for equipment between locations expenses and an overall focus on cost reduction in the six-month period ended June 30, 2009 as compared to the six-month period ended June 30, 2008.

          *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 $79,966 for the six-month period ended June 30, 2009, as compared to $243,421 for the six-month period ended June 30, 2008, representing a decrease of approximately 67.1%.        Installation volumes decreased by 65.7%, accounting for 97.9% of the decline, for the six-month period ended June 30, 2009 as compared to the six-month period ended June 30, 2008. Automobile expense decreased slightly during the six-month period ended June 30, 2009 as compared to the six-month period ended June 30, 2008 due to reduced fuel prices. 

          *Professional Fees*. Professional fees, which consist of legal, accounting, and other related expenses, totaled $132,523 for the six-month period ended June 30, 2009, as compared to $245,141 for the six-month period ended June 30, 2008, representing a decrease of approximately 45.9%. During the six-month period ended June 30, 2009, consulting and advisory expenses of $14,050 were recorded        in exchange for stock. Without these non-cash expenses, professional fees for the six-month period ended June 30, 2009, would have been $118,473, or a decrease of 51.7% as compared to the six-month period ended June 30, 2008. Legal fees account for 56.5% of the decrease and accounting fees account for the remaining difference, 43.5%.for the six-month period ended June 30, 2009, as compared the six-month period ended June 30, 2008. 

          *Marketing and Advertising Expenses*. Marketing and advertising expenses totaled $21,178 for the six-month period ended June 30, 2009, as compared to $301,080 for the six-month period ended June 30, 2008, representing a decrease of approximately 93.0%. This decrease was attributed to our concentration on programs to maintain existing customers and obtain new customer referrals from those        customers during the six month period ended June 30, 2009 as compared to the more broad-based marketing plan we employed during the six month period ended June 30, 2008. Our marketing costs were 0.6% of revenue for the six month period ended June 30, 2009 and 7.5% for the six month period ended June 30, 2008, representing a 7 percentage point decrease.

          *Cost of DISH Inventory*. No expense for the cost of DISH inventory was recognized for the six month period ended June 30, 2009 as compared to $31,113 for the six month period ended June 30, 2008. The expense for DISH inventory is recognized immediately after installation. We began installations as a DISH retailer in January 2008. During the six month period ended June 30, 2009, as a        result of our focus on our existing customers, we did not complete any DISH installations.

          *Other Income and Expense*. We incurred other income and expense of $610,920 for the six-month period ended June 30, 2009, as compared to $357,586 for the six-month period ended June 30, 2008, representing an increase of 70.8%. The primary reason for the increase, 60.2%, resulted from the interest amortization expense on our debt financing costs recorded as interest expense. Secondly, the        interest on our subordinated secured notes issued during the six month period ended June 30, 2009 as compared to the six month period ended June 30, 2008

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accounts for 43.7% of the change. This is offset by a gain on disposal of an asset during the six month period ended June 30, 2008, as well as by small decreases in other interest and interest on the Sun West Bank term loan during the six month period ended June 30, 2009. 

          *Net Loss*. We had a net loss of $2,056,661 for the six-month period ended June 30, 2009, as compared to a net loss of $5,303,787 for the six-month period ended June 30, 2008, representing an improvement of approximately 61.2%. The major contributing factor of the improved net loss was the $230,131 of non-cash stock-based compensation expenses for the six month period ended June 30, 2009        as compared to $2,560,832 for the six month period ended June 30, 2008, which accounted for 71.7% of the improvement. Another contributing factor, accounting for 21.5% of the improvement in the net loss, was the cost reduction initiative to reduce headcount across the company. The remaining improvement, or 6.8%, was the result of focused cost savings initiatives in marketing, installation, general and administrative costs and network operating costs. The decrease in these operating        costs was partially offset by the increase in our interest expense increase for the six month period ended June 30, 2009 as compared to the six month period ended June 30, 2008. Normalized net loss without the non-cash compensation expenses in payroll and in professional fees would have been $1,812,480 for the six-month period ended June 30, 2009 as compared to $2,742,955 for the six-month period ended June 30, 2008, representing an improvement of 33.9%. This improvement was the result        of our cost reduction initiatives during the six month period ended June 30, 2009 in support of our external fund raising initiatives. Our net loss margin improved by 75 percentage points from a net loss of $2,056,661 for the six-month period ended June 30, 2009 as compared to a net loss of $5,303,787 for the six-month period ended June 30, 2008. After removing the non-cash compensation expenses from payroll and professional fees of $244,181 and $2,560,832, respectively, our normalized        net loss margin improved by 18 percentage points from a total normalized net loss $1,812,480 for the six-month period ended June 30,2009 as compared to a net loss of $2,742,955 for the six-month period ended June 30, 2008.

**Liquidity and Capital Resources**

*General*

          As of June 30, 2009 and June 30, 2008, we had cash of $23,333 and $21,549, respectively.

          *Net Cash Used by Operating Activities*. Net cash used in operating activities totaled $336,206 for the six-month period ended June 30, 2009, as compared to net cash used from operating activities of $1,278,090 for the six-month period ended June 30, 2008. The change in cash used in operating activities is primarily attributed to a concentrated effort to reduce our headcount. Payroll and        payroll related expenses decreased $699,551 from the six month period ended June 30, 2008 as compared to the six month period ended June 30, 2009. Other cost reductions in operating such as marketing, installations, and general and administrative costs account for the remaining improvement in the net cash used by operating activities for the six month period ended June 30, 2009 as compared to the six month period ended June 30, 2008. 

          *Net Cash Used in Investing Activities*. Net cash used in investing activities totaled $26,197 for the six-month period ended June 30, 2009, as compared to net cash used in investing activities of $86,739 for the six-month period ended June 30, 2009. Due to the focused cost reduction initiatives and concentration on maintaining the current customer base, the company has only needed to        purchase replacement equipment during the six month period ended June 30, 2009, as compared to the six month period ended June 30, 2008. 

          *Net Cash Provided By Financing Activities*. Net cash provided by financing activities totaled $357,704 for the six-month period ended June 30, 2009, as compared to $1,069,379 for the six-month period ended June 30, 2008. During the six-month period ended June 30, 2008, the company entered into a commercial loan agreement for $4,500,000 of which $3,000,000 was used to pay the prior term        loan. The company drew down $1,500,000 of the remaining amount on the loan balance for use in operations during the six month period ended June 31, 2008. During the six-month period ended June 30, 2009, the company entered into several subordinated secured note agreements with the proceeds totaling $300,000. The company also entered into two short term note agreements for 

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$400,000, of which $150,000 was paid back during the six month period ending June 30, 2009. The company renewed the term loan by paying $450,000 towards the principal balance and extending the terms to June 4, 2015. During the first year, interest only payments are due on a monthly basis at a rate of 7.75%. During the six month period ended June 30, 2009, the company issued stock for options exercised netting cash proceeds of $65,819 and sold stock        subscriptions netting cash proceeds of $475,000.

          *Working Capital*. As of June 30, 2009, we had negative working capital of $5,123,127. This amount includes $1,451,672 for the secured subordinated notes and related accrued interest payable, $559,465 for capital leases, and $324,910 for deferred revenue. The Company’s continued ability to execute pursuant to its business plan could be significantly impacted in the event that the        Company is unable to raise the additional capital.

          Management has taken a variety of steps to strengthen the financial condition of the Company. These initiatives have positively affected both the Company’s operating financial performance as well as its existing financing arrangements with secured lenders. Certain of these initiatives are described below:

*Operations*

          During 2008 and continuing through the first quarter of 2009, the Company sought to become more efficient operationally, the results of which allowed KeyOn to reduce headcount and other related expenses. Management reduced its headcount from 65 full-time employees on March 31, 2008 to only 46 full-time employees as of May 15, 2009. In addition, we modified work schedules across the organization        and continued to narrow marketing efforts in the second half of fiscal year 2008, choosing to focus our efforts on our existing customer base to obtain new customer referrals. These initiatives resulted in fewer gross customer additions but significantly reduced expenses in this area. In light of fewer gross additions, customer installation expenses and capital expenditures for customers premise equipment are reduced as well as the need to procure additional lease financing debt. We        also increased its charges for new subscriber installations, resulting in a faster break-even point for new subscriber additions. 

*Financial Restructuring*

          In addition to the operational changes, management has undertaken a variety of measures to restructure the Company’s current and long-term liabilities. In March of 2009, we executed a second restructuring with another lease financing company. The effect of this restructuring also served to reduce the monthly payment obligations of the Company and extended the payments for an additional 24        months. Beginning in August 2008 and continuing through April 2009, the Company raised additional capital in the amount of $1,281,877 through the issuance of subordinated secured notes. The note holders consisted of existing shareholders as well as members and affiliates of management. The Company raised $475,000 through subscription sales as of June 30, 2009. In July and August, 2009, the Company raised an additional $1,427,500 through subscription sales. The Company’s $4.5        million senior secured Promissory Note held by Sun West Bank matured on June 4, 2009. The Company paid $450,000 towards the principal balance and renewed the term loan to mature on June 4, 2015. The new terms are interest only at 7.75% for the first year. 

          In order to continue our acquisition and organic growth strategies, as well as to sustain our current capital needs, management projects that we will require funds from sources outside of our normal operations. To the extent we are unable to obtain the required capital from existing shareholders of the Company, management will seek to raise additional capital from institutions or other        third-parties.

|         |                         |
|--------------|------------------------------|
| **Item 4T.** | **Controls and Procedures.** |

**Controls and Procedures**

          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 Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or        persons performing similar functions, as appropriate to allow 

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timely decisions regarding required disclosure. We were unable to conclude that our disclosure controls and procedures are effective, as of the end of the period covered by this report (June 30, 2009), in ensuring that material information that we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the        Securities and Exchange Commission’s rules and forms. We believe that we will have effective internal controls to meet this requirement prior to the filing of our annual report for the year ended December 31, 2009. 

**Changes in Internal Control Over Financial Reporting**

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

**PART II – OTHER INFORMATION**

|        |          |
|-------------|---------------|
| **Item 6.** | **Exhibits.** |

|             |   |                                                         |   |
|------------------|--------|--------------------------------------------------------------|--------|
| **Exhibit No.**  |   | **Description**                                              |
|                  |   |                                                              |   |
|             |
| 31.1*            |   | Section 302 Certification by the Principal Executive Officer |
|             |   |                                                         |
| 31.2*            |   | Section 302 Certification by the Principal Financial Officer |
|             |   |                                                         |
| 32.1*            |   | Section 906 Certification by the Principal Executive Officer |
|             |   |                                                         |
| 32.2*            |   | Section 906 Certification by the Principal Financial Officer |
|             |   |                                                         |
|                  |
| * Filed herewith |

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**SIGNATURES**

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

|                    |                                |                                  |   |
|-------------------------|-------------------------------------|---------------------------------------|--------|
|                    | KEYON COMMUNICATIONS HOLDINGS, INC. |
|                    |                                |                                  |   |
| Date: November 16, 2009 | By:                            | /s/ Jonathan Snyder                   |   |
|                    |                                |                                       |   |
|                    |                                | Jonathan Snyder                       |
|                    |                                | President and Chief Executive Officer |
|                    |                                | (Principal Executive Officer)         |
|                    |                                |                                  |
| Date: November 16, 2009 | By:                            | /s/ Annette Eggert                    |
|                    |                                |                                       |   |
|                    |                                | Annette Eggert                        |
|                    |                                | Chief Financial Officer               |
|                    |                                | (Principal Financial Officer)         |

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**EXHIBIT INDEX**

|             |   |                                                         |   |
|------------------|--------|--------------------------------------------------------------|--------|
| **Exhibit No.**  |   | **Description**                                              |
|                  |   |                                                              |   |
|             |
| 31.1*            |   | Section 302 Certification by the Principal Executive Officer |
|             |   |                                                         |
| 31.2*            |   | Section 302 Certification by the Principal Financial Officer |
|             |   |                                                         |
| 32.1*            |   | Section 906 Certification by the Principal Executive Officer |
|             |   |                                                         |
| 32.2*            |   | Section 906 Certification by the Principal Financial Officer |
|             |   |                                                         |
|                  |
| * Filed herewith |

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