UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549

FORM 10-Q

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

For the
quarterly period ended September 30, 2010

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|o | TRANSITION 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.) Yes o No x

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (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
15, 2010, 23,668,211 shares of the issuers common stock, $0.001 par value per
share, were outstanding.

---



KEYON COMMUNICATIONS HOLDINGS, INC.

Table of Contents

|         |                                                                                                                                |      | 
|-------- | ------------------------------------------------------------------------------------------------------------------------------ | ---- | 
|         |                                                                                                                                | Page
|         |                                                                                                                                |     
|PART I   | FINANCIAL INFORMATION                                                                                                          |      | 
|         |                                                                                                                                |      | 
|Item 1.  | Financial Statements                                                                                                           | 1    | 
|         |                                                                                                                                |      | 
|         | Condensed
 Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December
 31, 2009                             | 2    | 
|         |                                                                                                                                |      | 
|         | Condensed
 Consolidated Statements of Operations for the three and nine months ended
 September 30, 2010 and 2009 (Unaudited)  | 3    | 
|         |                                                                                                                                |      | 
|         | Condensed
 Consolidated Statements of Stockholders Equity (Deficit) for the nine months
 ended September 30, 2010 (Unaudited) | 4    | 
|         |                                                                                                                                |      | 
|         | Condensed
 Consolidated Statements of Cash Flows for the three and nine months ended
 September 30, 2010 and 2009 (Unaudited)  | 5    | 
|         |                                                                                                                                |      | 
|         | Notes to
 Condensed Consolidated Financial Statements (Unaudited)                                                              | 7    | 
|         |                                                                                                                                |      | 
|Item 2.  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                                         | 24   | 
|         |                                                                                                                                |      | 
|Item 4T. | Controls and
 Procedures                                                                                                       | 31   | 
|         |                                                                                                                                |      | 
|PART II  | OTHER
 INFORMATION                                                                                                             |      | 
|         |                                                                                                                                |      | 
|Item 6.  | Exhibits                                                                                                                       | 32   | 

i

---



PART I 
FINANCIAL INFORMATION

Item 1. Financial
Statements.

1

---



|                                                     
|-----------------------------------------------------
|KEYON
 COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
|                                                     
|CONDENSED
 CONSOLIDATED BALANCE SHEETS               
|                                                     

|                                                                                                            |  |                    |             |                   |   |             |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | ----------------- | - | ----------- | -
|                                                                                                            |  | September 30, 2010 |             | December 31, 2009 |  
|                                                                                                            |  |                    |             |                   |  
|                                                                                                            |  | (Unaudited)        |             |                   |   |            
|ASSETS                                                                                                      |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|CURRENT ASSETS:                                                                                             |  |                    |             |                   |   |             |  
|Cash and cash equivalents                                                                                   |  | $                  | 646,390     |                   | $ | 125,083     |  
|Accounts receivable, net                                                                                    |  |                    | 228,696     |                   |   | 155,228     |  
|Marketable securities                                                                                       |  |                    | 6,246,275   |                   |   |            |  
|Inventories                                                                                                 |  |                    | 170,843     |                   |   | 114,150     |  
|Deposits, proposed acquisition                                                                              |  |                    | 400,000     |                   |   |            |  
|Prepaid expenses and other current assets                                                                   |  |                    | 93,349      |                   |   | 114,296     |  
|                                                                                                            |  |                    |             |                   |   |             |  
|Total current assets                                                                                        |  |                    | 7,785,553   |                   |   | 508,757     |  
|                                                                                                            |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|PROPERTY AND EQUIPMENT, Net                                                                                 |  |                    | 3,533,967   |                   |   | 1,614,454   |  
|                                                                                                            |  |                    |             |                   |   |             |  
|OTHER ASSETS                                                                                                |  |                    |             |                   |   |             |  
|Goodwill                                                                                                    |  |                    | 1,783,786   |                   |   | 1,341,816   |  
|Subscriber base, net                                                                                        |  |                    | 922,405     |                   |   | 182,669     |  
|Trademarks                                                                                                  |  |                    | 16,667      |                   |   | 16,667      |  
|Deposits                                                                                                    |  |                    | 85,346      |                   |   | 70,416      |  
|Debt issuance costs, net                                                                                    |  |                    | 289,708     |                   |   | 117,548     |  
|                                                                                                            |  |                    |             |                   |   |             |  
|Total other assets                                                                                          |  |                    | 3,097,912   |                   |   | 1,729,116   |  
|                                                                                                            |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|TOTAL ASSETS                                                                                                |  | $                  | 14,417,432  |                   | $ | 3,852,327   |  
|                                                                                                            |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                              |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|CURRENT LIABILITIES:                                                                                        |  |                    |             |                   |   |             |  
|Accounts payable and accrued expenses (excluding interest expense)                                          |  | $                  | 1,929,086   |                   | $ | 1,872,745   |  
|Accrued interest expenses                                                                                   |  |                    | 794,399     |                   |   | 82,512      |  
|Revolving line of credit - related party                                                                    |  |                    |            |                   |   | 100,000     |  
|Term loan payable - related party                                                                           |  |                    |            |                   |   | 147,016     |  
|Line of credit                                                                                              |  |                    | 1,121,374   |                   |   |            |  
|Current portion of notes payable to seller in business combination                                          |  |                    | 208,419     |                   |   | 28,713      |  
|Current portion of capital lease obligations                                                                |  |                    | 650,615     |                   |   | 643,039     |  
|Deferred rent                                                                                               |  |                    | 67,625      |                   |   | 63,665      |  
|Deferred revenue                                                                                            |  |                    | 301,915     |                   |   | 213,674     |  
|Derivative liability                                                                                        |  |                    | 2,792,233   |                   |   |            |  
|                                                                                                            |  |                    |             |                   |   |             |  
|Total current liabilities                                                                                   |  |                    | 7,865,666   |                   |   | 3,151,364   |  
|                                                                                                            |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|LONG-TERM LIABILITIES:                                                                                      |  |                    |             |                   |   |             |  
|Term loan payable - related party                                                                           |  |                    |            |                   |   | 3,902,984   |  
|Convertible note (net of a $13,607,052 discount)                                                            |  |                    | 1,392,948   |                   |   | 7,842       |  
|Notes payable to seller in business combination, less current maturities                                    |  |                    | 216,037     |                   |   |            |  
|Capital lease obligations, less current maturities                                                          |  |                    | 310,977     |                   |   | 503,477     |  
|Deferred rent liability, less current portion                                                               |  |                    | 32,296      |                   |   | 80,094      |  
|                                                                                                            |  |                    |             |                   |   |             |  
|Total long term liabilities                                                                                 |  |                    | 1,952,258   |                   |   | 4,494,397   |  
|                                                                                                            |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS                                                             |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|STOCKHOLDERS EQUITY/(DEFICIT):                                                                             |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|Preferred Stock - 60,000,000 shares authorized with 60,000,000 shares
 designated in the following classes: |  |                    |             |                   |   |             |  
|Series Cal Cap preferred stock, 30,000,000 shares authorized; 0 shares
 issued                              |  |                    |            |                   |   |            |  
|Series KIP preferred stock, 0.0001 par value; 30,000,000 shares
 authorized; 0 shares issued                |  |                    |            |                   |   |            |  
|Common stock, $0.001 par value; 115,000,000 shares authorized;
 23,668,211 and 20,755,588                   |  |                    |             |                   |   |             |  
|shares issued and outstanding at September 30, 2010 and December 21,
 2009, respectively                    |  |                    | 23,668      |                   |   | 20,756      |  
|Additional paid-in capital                                                                                  |  |                    | 28,421,967  |                   |   | 24,490,534  |  
|Accumulated deficit                                                                                         |  |                    | (23,849,132 | )                 |   | (28,304,724 | )
|Accumulated other comprehensive income                                                                      |  |                    | 3,005       |                   |   |            |  
|                                                                                                            |  |                    |             |                   |   |             |  
|Total stockholders equity/(deficit)                                                                        |  |                    | 4,599,508   |                   |   | (3,793,434  | )
|                                                                                                            |  |                    |             |                   |   |             |  
|                                                                                                            |  |                    |             |                   |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)                                                        |  | $                  | 14,417,432  |                   | $ | 3,852,327   |  
|                                                                                                            |  |                    |             |                   |   |             |  

See notes to condensed
consolidated financial statements.

2

---



|                                                            
|------------------------------------------------------------
|                                                            
|KEYON
 COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES       
|                                                            
|CONDENSED
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|                                                            

|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|---------------------------------------------------- |  | ---------------------------------------- | ---------- | --------------------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                     |  | For the Three Months Ended September 30, |            | For the Nine Months Ended September 30, |  
|                                                     |  |                                          |            |                                         |  
|                                                     |  | 2010                                     |            | 2009                                    |   | 2010       |   | 2009 |           
|                                                     |  |                                          |            |                                         |   |            |   |      |           
|REVENUES:                                            |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Service and installation revenue                     |  | $                                        | 2,060,831  |                                         | $ | 1,620,035  |   | $    | 5,309,355  |   | $ | 5,180,864  |  
|Support and other revenue                            |  |                                          | 15,621     |                                         |   | 52,695     |   |      | 90,905     |   |   | 142,370    |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Total revenues                                       |  |                                          | 2,076,452  |                                         |   | 1,672,730  |   |      | 5,400,260  |   |   | 5,323,234  |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|OPERATING COSTS AND
 EXPENSES:                       |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Payroll, bonuses and taxes                           |  |                                          | 1,377,493  |                                         |   | 993,031    |   |      | 3,740,142  |   |   | 2,569,207  |  
|Network operating costs                              |  |                                          | 952,479    |                                         |   | 665,619    |   |      | 2,378,161  |   |   | 2,128,346  |  
|Professional fees                                    |  |                                          | 286,577    |                                         |   | 471,422    |   |      | 1,759,397  |   |   | 603,945    |  
|Depreciation and amortization                        |  |                                          | 570,721    |                                         |   | 582,405    |   |      | 1,460,518  |   |   | 1,839,362  |  
|Other general and administrative expense             |  |                                          | 492,803    |                                         |   | 326,950    |   |      | 1,126,524  |   |   | 893,668    |  
|Installation expense                                 |  |                                          | 85,164     |                                         |   | 53,279     |   |      | 185,786    |   |   | 133,245    |  
|Marketing and advertising                            |  |                                          | 82,516     |                                         |   | 21,001     |   |      | 210,779    |   |   | 42,179     |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Total operating costs and expenses                   |  |                                          | 3,847,753  |                                         |   | 3,113,707  |   |      | 10,861,307 |   |   | 8,209,952  |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|LOSS FROM OPERATIONS                                 |  |                                          | (1,771,301 | )                                       |   | (1,440,977 | ) |      | (5,461,047 | ) |   | (2,886,718 | )
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|OTHER INCOME (EXPENSE):                              |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Other income (expense)                               |  |                                          | (3,195     | )                                       |   |           |   |      | 150,161    |   |   |           |  
|Interest income                                      |  |                                          | 3,087      |                                         |   | 1          |   |      | 3,940      |   |   | 2          |  
|Interest expense                                     |  |                                          | (1,161,142 | )                                       |   | (1,463,349 | ) |      | (2,445,229 | ) |   | (2,074,270 | )
|Change in fair value of derivative instruments       |  |                                          | 4,458,953  |                                         |   |           |   |      | 12,207,767 |   |   |           |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Total other income (expense)                         |  |                                          | 3,297,703  |                                         |   | (1,463,348 | ) |      | 9,916,639  |   |   | (2,074,268 | )
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|PROVISION FOR INCOME TAXES                           |  |                                          |           |                                         |   |           |   |      |           |   |   |           |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|NET INCOME (LOSS)                                    |  | $                                        | 1,526,402  |                                         | $ | (2,904,325 | ) | $    | 4,455,592  |   | $ | (4,960,986 | )
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|OTHER COMPREHENSIVE INCOME
 (LOSS)                   |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Net income (loss)                                    |  |                                          | 1,526,402  |                                         |   | (2,904,325 | ) |      | 4,455,592  |   |   | (4,960,986 | )
|Unrealized gain on investments                       |  |                                          | 3,005      |                                         |   |           |   |      | 3,005      |   |   |           |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Total comprehensive income (loss)                    |  | $                                        | 1,529,407  |                                         | $ | (2,904,325 | ) | $    | 4,458,597  |   | $ | (4,960,986 | )
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Net income (loss) per
 common share, basic           |  | $                                        | 0.06       |                                         | $ | (0.20      | ) | $    | 0.20       |   | $ | (0.44      | )
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Net income (loss) per
 common share, diluted         |  | $                                        | (0.04      | )                                       | $ | (0.20      | ) | $    | (0.12      | ) | $ | (0.44      | )
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Weighted average common
 shares outstanding, basic   |  |                                          | 23,662,019 |                                         |   | 14,317,891 |   |      | 22,304,595 |   |   | 11,165,639 |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  
|Weighted average common
 shares outstanding, diluted |  |                                          | 44,535,260 |                                         |   | 14,317,891 |   |      | 44,834,836 |   |   | 11,165,639 |  
|                                                     |  |                                          |            |                                         |   |            |   |      |            |   |   |            |  

See notes to condensed
consolidated financial statements

3

---



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

|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   |       |  |   |            |  
|--------------------------------------------------------------- |  | ------------ | ---------- | ------ | - | ---------------------------- |  | -------------------- | ---------- | ----------------------------------------- | - | -------------------------------------- | - | - | ----- |  | - | ---------- | -
|                                                                |  | Common Stock |            |        |   |                              |  |                      |            | Accumulated
 Other
 Comprehensive
 Income |   | Total
 Stockholders
 Equity (Deficit) |  
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |  
|                                                                |  | Shares       |            | Amount |   | Additional Paid-
 In Capital |  | Accumulated
 Deficit |            |                                           |  
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |  
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   |       |  |   |            |  
|BALANCE, January 1, 2010                                        |  |              | 20,755,588 |        | $ | 20,755                       |  | $                    | 24,490,534 |                                           | $ | (28,304,724                            | ) | $ |      |  | $ | (3,793,434 | )
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   |       |  |   |            |  
|Common Stock issued to non-employees for professional
 services |  |              | 55,556     |        |   | 55                           |  |                      | 123,835    |                                           |   |                                        |   |   |       |  |   | 123,890    |  
|Employee stock option compensation expense                      |  |              |            |        |   |                              |  |                      | 696,043    |                                           |   |                                        |   |   |       |  |   | 696,043    |  
|Amortization of non-employee stock based
 compensation          |  |              |            |        |   |                              |  |                      | 549,574    |                                           |   |                                        |   |   |       |  |   | 549,574    |  
|Purchase of Affinity Wireless, LLC for
 Stock                   |  |              | 141,521    |        |   | 142                          |  |                      | 410,269    |                                           |   |                                        |   |   |       |  |   | 410,411    |  
|Purchase of RidgeviewTel, LLC for Stock                         |  |              | 168,733    |        |   | 169                          |  |                      | 151,691    |                                           |   |                                        |   |   |       |  |   | 151,859    |  
|Purchase of Dynamic Broadband Corporation
 for Stock            |  |              | 2,037,574  |        |   | 2,038                        |  |                      | 1,526,143  |                                           |   |                                        |   |   |       |  |   | 1,528,182  |  
|Purchase of TSG - Stock portion                                 |  |              | 30,465     |        |   | 30                           |  |                      | 18,249     |                                           |   |                                        |   |   |       |  |   | 18,279     |  
|Common Stock Issued for exercised warrants                      |  |              | 478,774    |        |   | 479                          |  |                      | 455,629    |                                           |   |                                        |   |   |       |  |   | 456,108    |  
|Unrealized gain on marketable security
 investment              |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   | 3,005 |  |   | 3,005      |  
|Net income for the nine months ended
 September 30, 2010        |  |              |            |        |   |                              |  |                      |            |                                           |   | 4,455,592                              |   |   |       |  |   | 4,455,592  |  
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   |       |  |   |            |  
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   |       |  |   |            |  
|BALANCE, September 30, 2010                                     |  |              | 23,668,211 |        | $ | 23,668                       |  | $                    | 28,421,967 |                                           | $ | (23,849,132                            | ) | $ | 3,005 |  | $ | 4,599,508  |  
|                                                                |  |              |            |        |   |                              |  |                      |            |                                           |   |                                        |   |   |       |  |   |            |  

See notes to condensed
consolidated financial statements.

4

---



|                                                                  
|------------------------------------------------------------------
|KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARIES               
|                                                                  
|CONDENSED
 CONSOLIDATED STATEMENTS OF CASH FLOWS                  
|FOR THE
 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
|                                                                  

|                                                                               |  |      |             |      |   |            |  
|------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ---------- | -
|                                                                               |  | 2010 |             | 2009 |  
|                                                                               |  |      |             |      |  
|CASH FLOWS FROM OPERATIONS:                                                    |  |      |             |      |   |            |  
|Net income/(loss)                                                              |  | $    | 4,455,592   |      | $ | (4,960,986 | )
|Adjustments to reconcile net income/(loss)
 to net cash flows from operations: |  |      |             |      |   |            |  
|Depreciation and amortization                                                  |  |      | 1,460,517   |      |   | 1,839,362  |  
|Provision for doubtful account                                                 |  |      | 149,044     |      |   | 213,262    |  
|Stock based compensation expense                                               |  |      | 1,369,507   |      |   | 720,644    |  
|Change in fair value of derivative
 liability                                  |  |      | (12,207,767 | )    |   |           |  
|Non-cash interest expense                                                      |  |      | 1,470,788   |      |   | 1,410,100  |  
|Gain on sale of asset                                                          |  |      | (1,921      | )    |   |           |  
|                                                                               |  |      |             |      |   |            |  
|Change in assets and liabilities, net of
 effect of acquisitions:              |  |      |             |      |   |            |  
|Accounts receivable                                                            |  |      | (197,820    | )    |   | (224,038   | )
|Inventory                                                                      |  |      | (24,416     | )    |   | 41,739     |  
|Prepaid expenses and other current assets                                      |  |      | 43,092      |      |   | (26,730    | )
|Refundable deposits                                                            |  |      | (14,930     | )    |   | (991       | )
|Accounts payable and accrued expenses (excluding interest expense)             |  |      | (179,309    | )    |   | (340,774   | )
|Accrued interest expense                                                       |  |      | 711,887     |      |   |           |  
|Deferred rent liability                                                        |  |      | (43,838     | )    |   | (43,921    | )
|Deferred revenue                                                               |  |      | (59,937     | )    |   | (37,276    | )
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Net cash flows used in operating activities                                    |  |      | (3,069,510  | )    |   | (1,409,609 | )
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                          |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Capital expenditures for property and
 equipment                               |  |      | (919,048    | )    |   | (98,933    | )
|Deposit, proposed acquisition                                                  |  |      | (400,000    | )    |   |           |  
|Payment on marketable securities                                               |  |      | (6,243,270  | )    |   |           |  
|Proceeds on disposal of equipment                                              |  |      | 1,800       |      |   | 791        |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Net cash flows used in investing activities                                    |  |      | (7,560,518  | )    |   | (98,142    | )
|                                                                               |  |      |             |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                          |  |      |             |      |   |            |  
|Payments of debt issuance costs                                                |  |      |            |      |   | (40,500    | )
|Proceeds/(payment) from revolving line of
 credit - related parties            |  |      | (100,000    | )    |   |           |  
|Payment on term loan payable - related
 parties                                |  |      | (4,050,000  | )    |   | (450,000   | )
|Deposits for future financing                                                  |  |      | (250,000    | )    |   |           |  
|Payments on notes payable                                                      |  |      | (606,874    | )    |   | (479,401   | )
|Proceeds from issuance of convertible note                                     |  |      | 15,000,000  |      |   |           |  
|Proceeds from line of credit                                                   |  |      | 1,121,374   |      |   |           |  
|Proceeds from notes payable                                                    |  |      |            |      |   | 600,000    |  
|Proceeds from exercise of common stock
      purchase warrants                 |  |      | 456,110     |      |   | 2,448,525  |  
|Payments on capital lease obligations                                          |  |      | (419,274    | )    |   | (301,430   | )
|Proceeds from notes payable - related party                                    |  |      |            |      |   | 100,001    |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|Net cash flows provided by financing
 activities                               |  |      | 11,151,336  |      |   | 1,877,195  |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|NET INCREASE IN CASH                                                           |  |      | 521,307     |      |   | 369,444    |  
|                                                                               |  |      |             |      |   |            |  
|CASH AND CASH EQUIVALENTS - Beginning of period                                |  |      | 125,083     |      |   | 28,032     |  
|                                                                               |  |      |             |      |   |            |  
|                                                                               |  |      |             |      |   |            |  
|CASH AND CASH EQUIVALENTS - End of period                                      |  | $    | 646,390     |      | $ | 397,476    |  
|                                                                               |  |      |             |      |   |            |  

5

---



|                                                                  
|------------------------------------------------------------------
|KEYON
 COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARIES              
|                                                                  
|CONDENSED
 CONSOLIDATED STATEMENTS OF CASH FLOWS                  
|FOR THE
 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
|                                                                  

|                                                               |  |      |           |      |   |         | 
|-------------------------------------------------------------- |  | ---- | --------- | ---- | - | ------- | 
|                                                               |  | 2010 |           | 2009 |  
|                                                               |  |      |           |      |   |         | 
|SUPPLEMENTAL
 DISCLOSURES OF CASH FLOW INFORMATION:            |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Stock issued for acquisition - Affinity:                       |  |      |           |      |   |         | 
|Network equipment                                              |  | $    | 118,205   |      | $ |        | 
|Customer premise equipment                                     |  |      | 20,150    |      |   |        | 
|Subscriber base                                                |  |      | 51,860    |      |   |        | 
|Vehicles                                                       |  |      | 9,840     |      |   |        | 
|Office equipment                                               |  |      | 5,795     |      |   |        | 
|Prepaid expenses                                               |  |      | 2,580     |      |   |        | 
|Accounts receivable                                            |  |      | 3,401     |      |   |        | 
|Accounts payable and accrued expenses                          |  |      | (11,342   | )    |   |        | 
|Loan payable                                                   |  |      | (69,487   | )    |   |        | 
|Obligations to subscribers                                     |  |      | (7,607    | )    |   |        | 
|Goodwill                                                       |  |      | 287,016   |      |   |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  | $    | 410,411   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Stock issued for acquisition - RidgeviewTel:                   |  |      |           |      |   |         | 
|Network equipment                                              |  | $    | 14,650    |      | $ |        | 
|Customer premise equipment                                     |  |      | 71,475    |      |   |        | 
|Subscriber base                                                |  |      | 26,714    |      |   |        | 
|Accounts receivable                                            |  |      | 1,589     |      |   |        | 
|Obligations to subscribers                                     |  |      | (539      | )    |   |        | 
|Goodwill                                                       |  |      | 37,970    |      |   |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  | $    | 151,859   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Stock issued for acquisition - Dynamic Broadband:              |  |      |           |      |   |         | 
|Network equipment                                              |  | $    | 674,711   |      | $ |        | 
|Customer premise equipment                                     |  |      | 746,153   |      |   |        | 
|Subscriber base                                                |  |      | 658,487   |      |   |        | 
|Vehicles                                                       |  |      | 18,925    |      |   |        | 
|Office equipment                                               |  |      | 29,178    |      |   |        | 
|Prepaid expenses                                               |  |      | 8,308     |      |   |        | 
|Accounts receivable                                            |  |      | 18,075    |      |   |        | 
|Accounts payable and accrued expenses                          |  |      | (208,621  | )    |   |        | 
|Loan payable                                                   |  |      | (380,617  | )    |   |        | 
|Obligations to subscribers                                     |  |      | (86,912   | )    |   |        | 
|Goodwill                                                       |  |      | 50,495    |      |   |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  | $    | 1,528,182 |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Stock and cash for acquisition - Technology Specialists Group: |  |      |           |      |   |         | 
|Network equipment                                              |  | $    | 4,489     |      | $ |        | 
|Customer premise equipment                                     |  |      | 62,028    |      |   |        | 
|Inventory                                                      |  |      | 2,278     |      |   |        | 
|Subscriber base                                                |  |      | 113,260   |      |   |        | 
|Office equipment                                               |  |      | 1,327     |      |   |        | 
|Prepaid expenses                                               |  |      | 7,372     |      |   |        | 
|Accounts receivable                                            |  |      | 1,627     |      |   |        | 
|Accounts payable and accrued expenses                          |  |      | (900      | )    |   |        | 
|Obligations to subscribers                                     |  |      | (10,356   | )    |   |        | 
|Goodwill                                                       |  |      | 56,610    |      |   |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  | $    | 237,735   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Cash for acquisition - Southwest Wireless Net:                 |  |      |           |      |   |         | 
|Network equipment                                              |  | $    | 160,000   |      | $ |        | 
|Customer premise equipment                                     |  |      | 75,000    |      |   |        | 
|Inventory                                                      |  |      | 30,000    |      |   |        | 
|Subscriber base                                                |  |      | 87,000    |      |   |        | 
|Vehicles                                                       |  |      | 4,000     |      |   |        | 
|Office equipment                                               |  |      | 13,000    |      |   |        | 
|Prepaid expenses                                               |  |      | 3,884     |      |   |        | 
|Obligations to subscribers                                     |  |      | (42,763   | )    |   |        | 
|Goodwill                                                       |  |      | 9,879     |      |   |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  | $    | 340,000   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Warrants granted for debt issuance costs                       |  | $    |          |      | $ | 105,998 | 
|                                                               |  |      |           |      |   |         | 
|Warrant interest expense                                       |  | $    |          |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|Deferred stock compensation for professional services          |  | $    |          |      | $ | 106,800 | 
|                                                               |  |      |           |      |   |         | 
|Notes payable to sell in business combination                  |  | $    | 559,456   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|Common stock payable subscription sales                        |  | $    | 456,108   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|Common stock issued for common stock payable                   |  | $    | 391,822   |      | $ | 14,372  | 
|                                                               |  |      |           |      |   |         | 
|Common stock issued for professional services                  |  | $    | 123,834   |      | $ |        | 
|                                                               |  |      |           |      |   |         | 
|Capital lease obligations for property and equipment           |  | $    | 234,350   |      | $ | 75,201  | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Cash payments for:                                             |  |      |           |      |   |         | 
|Interest                                                       |  | $    | 262,612   |      | $ | 526,780 | 
|                                                               |  |      |           |      |   |         | 
|                                                               |  |      |           |      |   |         | 
|Tax                                                            |  | $    |          |      | $ |        | 
|                                                               |  |      |           |      |   |         | 

See notes to condensed
consolidated financial statements.

6

---



Note 1 
Organization and Nature of Business

On August
9, 2007, KeyOn Communications, Inc.(KeyOn) became a publicly-traded company
upon its completion of a merger with Grant Enterprises, Inc. (Grant), a
publicly-traded company with nominal operations (the Merger). KeyOn was
incorporated on December 16, 2004, under the laws of the State of Nevada. In
connection with the Merger, a newly formed subsidiary of Grant merged with and
into KeyOn, and KeyOn, as the surviving corporation, became a wholly-owned
subsidiary of Grant. In connection with the Merger, (i) Grant subsequently
changed its name to KeyOn Communications Holdings, Inc. (the Company), (ii)
KeyOns officers and directors became the officers and directors of the
Company, (iii) the former of stockholders of KeyOn became the majority
stockholders of the Company and (iv) the Company succeeded to the business of
KeyOn as its sole line of business. Accordingly, the Merger was accounted for
as a reverse merger and recapitalization of KeyOn.

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 twelve (12) Western and Midwestern states:
Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, Nevada,
Ohio, South Dakota, and Texas. In an effort to generate additional accounting
and operational efficiencies, the Company consolidated its eight wholly-owned
organizations: KeyOn Communications, LLC; KeyOn SIRIS, LLC; KeyOn Grand
Junction, LLC; KeyOn Idaho Falls, LLC; KeyOn Pahrump, LLC; KeyOn Pocatello, LLC
and KeyOn SpeedNet LLC and KeyOn Spectrum Holdings, LLC (which had previously
been referred to as the related entities), into one, wholly-owned operating
subsidiary: KeyOn Communications, Inc.

Note 2  Liquidity and Financial Condition

The Company
incurred an operating loss of $5,461,047 for the nine months ended September
30, 2010. At September 30, 2010, the Companys accumulated deficit amounted to
$23,849,132. During the nine months ended September 30, 2010, net cash used in
operating activities amounted to $3,069,510. At September 30, 2010, the
Companys working capital amounted to a deficit of $80,113, which includes a liability for
the fair value of a derivative financial instrument which, if exercised, will
result in a net share settlement of 20,000,000 shares.

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

The Company
currently anticipates that its cash and cash equivalents will be sufficient to
meet its working capital requirements to continue its sales and marketing and
research and development through at least October 1, 2011. However, in order to
execute the Companys long-term strategy and penetrate new and existing
markets, the Company may need to raise additional funds, through public or
private equity offerings, debt financings, corporate collaborations or other
means. Management believes that the Company has access to capital resources
through possible public or private equity offerings, debt financings, corporate
collaborations or other means; however, the Company has not secured any
commitments for new financing at this time, nor can it provide any assurance
that new financing will be available on commercially acceptable terms, if
needed. If the Company is unable to secure additional capital, it may be
required to curtail its business development initiatives and take additional
measures to reduce costs in order to conserve its cash.

Note 3  Summary of Significant Accounting
Policies

Basis of Presentation

The
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial statements and with Form 10-Q and Article 8 of Regulation
S-X of the Securities and Exchange Commission. Accordingly, they do not contain
all the information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements. In
the opinion of the Companys management, the accompanying condensed
consolidated

7

---



financial statements contain all the adjustments necessary (consisting
only of normal recurring accruals) to make the financial position of the
Company as of September 30, 2010 and the results of operations for the three
months and nine months ended September 30, 2010 and 2009 and cash flows for the
nine months ended September 30, 2010 and 2009 not misleading. The unaudited
condensed consolidated financial statements for the three and nine months ended
September 30, 2010, and September 30, 2009 should be read in conjunction with
the audited financial statements for the years ended December 31, 2009 and 2008
as contained in the Form 10K/A filed on April 16, 2010.

Estimates

The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent liabilities at the
dates of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting periods. Periodically,
the Company evaluates and adjusts estimates accordingly. The Companys
significant estimates include accounts receivable and inventory valuation
allowances, goodwill and intangible assets, acquisition accounting, valuation
of stock options and derivative financial instruments. Actual results could
vary from the estimates that were used, and such variances could be
significant.

Consolidation Policy

The
accompanying consolidated balance sheets and consolidated statements of operations,
stockholders equity (deficit), and cash flows, include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Revenue Recognition

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

The Company
charges a recurring subscription fee for providing its various Internet access
services to its subscribers and recognizes revenues when they are earned, which
generally occurs as the service is provided. Subscriptions to the services are
in the form of one or two year contracts and are billed monthly, quarterly,
semiannually or annually in advance. Payments received in advance for
subscriptions are deferred and recognized as the services are provided.
Deferred revenues for payments received in advance of subscription services
amounted to $301,915 and $213,674 at September 30, 2010 and December 31, 2009,
respectively. For the satellite video business in which the Company is a
retailer of video services from DISH Network Corporation (DISH), the Company
recognizes revenues at the time of installation.

Cash and Cash Equivalents

The Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. For financial statement purposes,
investments in money market funds are considered a cash equivalent and are
included in cash and cash equivalents. The Company maintains it cash and cash
equivalents at high credit quality institutions.

Marketable Securities

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

8

---



Inventories

Inventories
consist of customer premise equipment, installation supplies, tower replacement
parts and goods that the Company sells as a retailer of satellite video service
from DISH. Inventories are stated at the lower of cost determined on first in
first out or net realizable value.

Intangible Assets

Intangible
assets, including goodwill, are accounted for under the provisions of
Accounting Standards Codification (ASC) 350, IntangiblesGoodwill and
Other. Under ASC 350, intangible assets, other than goodwill, are identified
and segregated between amortizable and non-amortizable assets. Goodwill and
other non-amortizable assets are reviewed, at least annually, for impairment in
the carrying value of the intangible asset. If impairment is deemed to have
occurred, a loss for such impairment is recorded as part of current operations.
We test goodwill and other intangible assets with indefinite lives for
impairment annually or in interim periods if certain events or changes in
circumstances indicate that the carrying value of amount of the assets may not
be fully recoverable.

Intangible
assets with definite lives (e.g., subscriber lists and non-compete agreements)
are amortized over their estimated useful lives and tested for impairment
whenever events or changes in circumstances indicate the carrying amount of the
asset may be impaired. Amortization has been calculated using the straight-line
method over the estimated useful lives of the intangible assets which range
from 3 years to 7 years. An asset begins to be amortized once that asset has
been placed into service. Impairment occurs when the undiscounted cash flows
over the remaining useful life of the asset exceed the carrying amount and the
fair value of the asset is less than its carrying amount. If impaired, the
asset is written down to its fair value.

The Company evaluated the carrying amounts of intangible assets as of September 30, 2010 and determined that no impairment charge is necessary.

Income Taxes

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

The Company
records net deferred tax assets to the extent it believes these assets will
more likely than not be realized in future periods. In making such
determination, the Company considers all available positive and negative
evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial
operations. A valuation allowance is established against deferred tax assets
that do not meet the criteria for recognition. In the event the Company was to
determine that it would realize the benefits of deferred income tax assets in
the future in excess of their net recorded amounts, an adjustment would be made
to reduce the valuation allowance to an appropriate amount.

The Company
follows the accounting guidance which provides that a tax benefit from an
uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits. Income
tax positions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized initially and in subsequent periods. Also
included is guidance on measurement, derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition.

Net Loss per Share

The Company
computes basic net income (loss) per share by dividing net income (loss) per
share available to common stockholders by the weighted average number of common
shares outstanding for the period and excludes the effects of any potentially
dilutive securities. Diluted earnings per share includes the dilution that

9

---



would occur upon the exercise or conversion of all potentially dilutive
securities into common stock using the treasury stock and/or if converted
methods as applicable.

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

|                                |  |               |        |      |  |       | 
|------------------------------- |  | ------------- | ------ | ---- |  | ----- | 
|                                |  | September 30, |       
|                                |  | 2010          |        | 2009 | 
|                                |  |               |        |      | 
|Common stock
 purchase warrants |  |               | 3,657  |      |  | 3,935 | 
|Stock
 options                  |  |               | 1,246  |      |  | 957   | 
|Convertible
 notes              |  |               | 20,000 |      |  | 0     | 
|                                |  |               |        |      |  |       | 
|                                |  |               | 24,903 |      |  | 4,892 | 
|                                |  |               |        |      |  |       | 

The
numerator in the EPS calculation for the three months ended September 30, 2010
gives effect to addbacks of (i) $542,466 of contractual interest expense under
our convertible notes, and (ii) $542,566 of accretion of discount under the
convertible notes (recorded as interest expense) and (iii) the elimination of
the $4,458,953 change in the fair value of the derivative liability associated
with the conversion option embedded in our convertible notes. The number of
shares included in the presentation of diluted loss per share for the three
months ended September 30, 2010 includes (i) 641,456 employee stock options and
(ii) 231,785 common stock purchase warrants, each with exercises prices that
are less than the average share price of $0.51 per share for the three months
ended September 30, 2010 and (iii) 20,000,000 shares of common stock underlying
the conversion option embedded in our convertible notes described in Note 7.

The
numerator in the EPS calculation for the nine months ended September 30, 2010
gives effect to addbacks of (i) $782,466 of contractual interest expense under
our convertible notes, and (ii) $1,392,868 of accretion of discount under the
convertible notes (recorded as interest expense) and (iii) the elimination of the
$12,207,767 change in the fair value of the derivative liability associated
with the conversion option embedded in our convertible notes. The number of
shares included in the presentation of diluted loss per share for the nine
months ended September 30, 2010 includes (i) 1,873,785 employee stock options
and (ii) 656,456 common stock purchase warrants, each with exercises prices
that are less than the average share price of $1.04 per share for the nine
months ended September 30, 2010 and (iiii) 20,000,000 shares of common stock
underlying the conversion option embedded in our convertible notes as described
in Note 7.

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

Stock-Based Compensation

The Company
accounts for all compensation related to stock, options or warrants using a
fair value based method whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period. The Company uses the Black-Scholes option
pricing model to calculate the fair value of options and warrants issued to
both employees and non-employees. Stock issued for compensation is valued using
the market price of the stock on the date of the related agreement. The Company
recorded total stock-based compensation of $1,369,507 for the nine month period
ended September 30, 2010, compared to $720,644 for the same period in 2009.

Common Stock Purchase Warrants and Derivative
Financial Instruments

The Company
classifies all of its common stock purchase warrants and derivative financial
instruments as equity if the contracts (i) require physical settlement or
net-share settlement or (ii) give the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside the control of the Company), (ii)
give the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement), or

10

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(iii) contracts that contain reset provisions. The Company assesses
classification of its common stock purchase warrants and other derivatives at
each reporting date to determine whether a change in classification between
assets and liabilities is required.

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

Fair Value of Financial Assets and Liabilities

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

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

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

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

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

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

|                       |  |                                               |           |                                                                   |   |                                           |  |                                        |  |  |   |           | 
|---------------------- |  | --------------------------------------------- | --------- | ----------------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- |  |  | - | --------- | 
|                       |  | Fair value measurements at September 30, 2010 |          
|                       |  |                                               |          
|                       |  | September 30,
 2010                           |           | Quoted prices in
 active markets for
 identical assets
 (Level 1) |   | Significantotherobservableinputs(Level 2) |  | Significantunobservableinputs(Level 3) | 
|                       |  |                                               |           |                                                                   |   |                                           |  |                                        | 
|Marketable
 securities |  | $                                             | 6,246,275 |                                                                   | $ | 6,245,275                                 |  |                                        |  |  |   |           | 
|Derivative
 liability  |  | $                                             | 2,792,233 |                                                                   |   |                                           |  |                                        |  |  | $ | 2,792,233 | 

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

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

|                                                                          |  |                                    |             |                  |   |   | 
|------------------------------------------------------------------------- |  | ---------------------------------- | ----------- | ---------------- | - | - | 
|                                                                          |  | September 
 30, 2010 
 (unaudited) |             | December 31,2009 |  
|                                                                          |  |                                    |             |                  |  
|Beginning
 Balance                                                        |  | $                                  |            |                  | $ |  | 
|Aggregate
 fair value of derivative issued                                |  |                                    | 44,792,150  |                  |   |  | 
|Issuance
 date charge for difference between fair value and note proceeds |  |                                    | (29,792,150 | )                |   |  | 
|Change in
 fair value of derivative included in income                    |  |                                    | (12,207,767 | )                |   |  | 
|                                                                          |  |                                    |            |                  |   |  | 
|                                                                          |  |                                    |             |                  |   |   | 
|Ending
 Balance                                                           |  | $                                  | 2,792,233   |                  | $ |  | 
|                                                                          |  |                                    |             |                  |   |   | 

11

---



Recent Accounting Pronouncements

In August
2009, the FASB issued ASU No. 2009-05  Fair Value Measurements and Disclosures
(Topic 820)  Measuring Liabilities at Fair Value. This ASU clarifies the fair
market value measurement of liabilities. In circumstances where a quoted price
in an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
techniques: a technique that uses quoted price of the identical or a similar
liability or liabilities when traded as an asset or assets, or another
valuation technique that is consistent with the principles of Topic 820 such as
an income or market approach. ASU No. 2009-05 was effective upon issuance and
it did not result in any significant financial impact on the Company upon
adoption.

In January
2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and
disclosures and improvement in the disclosure about fair value measurements.
This ASU requires additional disclosures regarding significant transfers in and
out of Levels 1 and 2 of fair value measurements, including a description of
the reasons for the transfers. Further, this ASU requires additional
disclosures for the activity in Level 3 fair value measurements, requiring
presentation of information about purchases, sales, issuances, and settlements
in the reconciliation for fair value measurements. This ASU is effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The adoption of this ASU does not have a material impact on
our consolidated financial statements.

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

Note 4 - Business Combinations

Affinity Wireless, LLC

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

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

RidgeviewTel, LLC

On April 1,
2010, the Company purchased substantially all of the Illinois wireless broadband
assets of RidgeviewTel, LLC, pursuant to an Asset Purchase Agreement, including
subscriber contracts, accounts, and fixed assets for 168,733 shares of common stock for a total purchase price of
$151,859. This acquisition enables the

12

---



Company to expand its business into the
geographical region in and around Mt. Vernon, Illinois. The preliminary
purchase price breakdown is as follows:

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

Dynamic Broadband Corporation

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

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

TS Wireless

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

13

---



|                                       |  |   |         |  
|-------------------------------------- |  | - | ------- | -
|Network equipment                      |  | $ | 4,489   |  
|Customer premise equipment             |  |   | 62,028  |  
|Inventory                              |  |   | 2,278   |  
|Subscriber base                        |  |   | 113,260 |  
|Office equipment                       |  |   | 1,327   |  
|Prepaid expenses                       |  |   | 7,372   |  
|Accounts receivable                    |  |   | 1,627   |  
|Accounts payable and
 accrued expenses |  |   | (900    | )
|Obligations to subscribers             |  |   | (10,356 | )
|Goodwill                               |  |   | 56,610  |  
|                                       |  |   |         |  
|                                       |  |   |         |  
|                                       |  | $ | 237,735 |  
|                                       |  |   |         |  

Southwest Wireless Net, Inc.

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

|                           |  |   |         |  
|-------------------------- |  | - | ------- | -
|Network equipment          |  | $ | 160,000 |  
|Customer premise equipment |  |   | 75,000  |  
|Inventory                  |  |   | 30,000  |  
|Subscriber base            |  |   | 87,000  |  
|Vehicles                   |  |   | 4,000   |  
|Office equipment           |  |   | 13,000  |  
|Prepaid expenses           |  |   | 3,884   |  
|Obligations to subscribers |  |   | (42,763 | )
|Goodwill                   |  |   | 9,879   |  
|                           |  |   |         |  
|                           |  |   |         |  
|                           |  | $ | 340,000 |  
|                           |  |   |         |  

Pro forma financials

The Company
accounted for these business combinations using the acquisition method of
accounting. The results of operations for the three and nine months ended
September 30, 2010, including the revenues and expenses of these acquired
businesses since their respective dates of acquisition.

The
unaudited pro-forma financial results for the three and nine months ended
September 30, 2010 and September 30, 2009, combines the historical results of
Southwest Wireless Net, Inc., Technology Specialists Group, Inc., Dynamic
Broadband Corporation, RidgeviewTel, LLC and Affinity, LLC with those of the
Company as if these acquisitions had been completed as of the beginning of each
of the periods presented. The pro-forma weighted average number of shares
outstanding also assumes that the shares issued as purchase consideration were
outstanding as of the beginning of each of the periods presented.

14

---



|                                                    
|----------------------------------------------------
|KEYON COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
|                                                    
|PRO FORMA
 COMBINED STATEMENT OF OPERATIONS         
|                                                    

|                                                       |  |                                        |            |                                        |   |                                       |   |                                       |            |   |   |            |  
|------------------------------------------------------ |  | -------------------------------------- | ---------- | -------------------------------------- | - | ------------------------------------- | - | ------------------------------------- | ---------- | - | - | ---------- | -
|                                                       |  | Three Months Ended
 September 30, 2010 |            | Three Months Ended
 September 30, 2009 |   | Nine Months Ended
 September 30, 2010 |   | Nine Months Ended
 September 30, 2009 |           
|Total revenues                                         |  | $                                      | 2,100,562  |                                        | $ | 2,491,699                             |   | $                                     | 6,588,374  |   | $ | 8,001,329  |  
|Loss from operations                                   |  | $                                      | (1,771,039 | )                                      | $ | (1,543,104                            | ) | $                                     | (5,327,342 | ) | $ | (2,733,625 | )
|Net income/(loss) available to common stockholders     |  | $                                      | 1,526,664  |                                        | $ | (3,006,452                            | ) | $                                     | 4,589,297  |   | $ | (4,807,893 | )
|Net income/(loss) per share, basic                     |  | $                                      | 0.06       |                                        | $ | (0.18                                 | ) | $                                     | 0.20       |   | $ | (0.35      | )
|Net income/(loss) per share, diluted                   |  | $                                      | (0.01      | )                                      | $ | (0.18                                 | ) | $                                     | (0.02      | ) | $ | (0.35      | )
|Pro forma weighted average shares outstanding, basic   |  |                                        | 23,668,211 |                                        |   | 16,696,184                            |   |                                       | 23,505,674 |   |   | 13,543,932 |  
|Pro forma weighted average shares outstanding, diluted |  |                                        | 44,541,452 |                                        |   | 16,696,184                            |   |                                       | 46,035,915 |   |   | 13,543,932 |  

The
unaudited pro-forma financial information is presented for informational
purposes only and is not indicative of the results of operations that would
have been achieved if the acquisitions of these businesses had taken place at
the beginning of each of the periods presented.

Note 5  Property and Equipment

Property
and equipment consists of the following:

|                                     |  |                    |             |                   |   |            |  
|------------------------------------ |  | ------------------ | ----------- | ----------------- | - | ---------- | -
|                                     |  | September 30, 2010 |             | December 31, 2009 |  
|                                     |  |                    |             |                   |   |            |  
|Subscriber equipment                 |  | $                  | 7,438,041   |                   | $ | 6,206,078  |  
|Fixed wireless tower site
 equipment |  |                    | 4,569,291   |                   |   | 2,816,295  |  
|Software and consulting
 costs       |  |                    | 625,011     |                   |   | 594,170    |  
|Computer and office
 equipment       |  |                    | 590,398     |                   |   | 459,089    |  
|Vehicles                             |  |                    | 255,575     |                   |   | 242,574    |  
|Leasehold improvements               |  |                    | 315,012     |                   |   | 312,100    |  
|                                     |  |                    |             |                   |   |            |  
|                                     |  |                    | 13,793,328  |                   |   | 10,630,306 |  
|Less: accumulated
 depreciation      |  |                    | (10,259,361 | )                 |   | (9,015,852 | )
|                                     |  |                    |             |                   |   |            |  
|                                     |  |                    |             |                   |   |            |  
|Property and equipment, net          |  | $                  | 3,533,967   |                   | $ | 1,614,454  |  
|                                     |  |                    |             |                   |   |            |  

Depreciation
expense for the nine months ended September 30, 2010 and September 30, 2009 was
$1,262,935 and $1,537,836 respectively. The total amount of fixed assets
acquired under equipment leases amounted to $3,857,325 as of September 30,
2010.

15

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Note 6  Intangible Assets

Intangible
assets at September 30, 2010 and December 31, 2009, consisted of the following:

|                                                |  |   |            |  
|----------------------------------------------- |  | - | ---------- | -
|Goodwill                                        |  |   |            |  
|Goodwill-December 31, 2009                      |  | $ | 1,341,816  |  
|Affinity Acquisition
 Goodwill                  |  |   | 287,016    |  
|Dynamic Broadband
 Acquisition Goodwill         |  |   | 50,495     |  
|RidgeviewTel Acquisition
 Goodwill              |  |   | 37,970     |  
|TSG Acquisition Goodwill                        |  |   | 56,610     |  
|Southwest Wireless
 Acquisition Goodwill        |  |   | 9,879      |  
|                                                |  |   |            |  
|Goodwill-September 30, 2010                     |  | $ | 1,783,786  |  
|                                                |  |   |            |  
|                                                |  |   |            |  
|Subscriber
 Base                                |  |   |            |  
|Subscriber Base-December
 31, 2009              |  | $ | 1,313,415  |  
|Affinity Acquisition
 Subscriber Base           |  |   | 51,861     |  
|Dynamic Broadband
 Acquisition Subscriber Base  |  |   | 26,714     |  
|RidgeviewTel Acquisition
 Subscriber Base       |  |   | 658,487    |  
|TSG Acquisition Subscriber
 Base                |  |   | 113,260    |  
|Southwest Wireless
 Acquisition Subscriber Base |  |   | 87,000     |  
|                                                |  |   |            |  
|Subscriber Base-September
 30, 2010             |  | $ | 2,250,737  |  
|Less accumulated
 amortization                  |  |   | (1,328,332 | )
|                                                |  |   |            |  
|Subscriber Base, net                            |  | $ | 922,405    |  
|                                                |  |   |            |  

Amortization
expense for the nine months ended September 30, 2010 and September 30, 2009 was
$197,582 and $301,533, respectively.

Estimated
amortization expense for the remainder of 2010 and future fiscal years is as
follows:

|                                                             |  |   |         | 
|------------------------------------------------------------ |  | - | ------- | 
|                                                             |  |   |         | 
|For the period of October
 1, 2010 through December 31, 2010 |  | $ | 96,287  | 
|For the years ending
 December,                              |  |   |         | 
|2011                                                         |  |   | 331,701 | 
|2012                                                         |  |   | 331,075 | 
|2013                                                         |  |   | 149,184 | 
|2014                                                         |  |   | 14,158  | 
|                                                             |  |   |         | 
|                                                             |  | $ | 922,405 | 
|                                                             |  |   |         | 

Note 7  Notes, Loans and Derivative Liabilities

Lines
of Credit:

In August 2010, the Company entered into a Portfolio Loan Account
 agreement with Morgan Stanley for an amount up to $5,000,000, under which it may borrow up to the amount of marketable securities held by the Company.
 The amount outstanding at September 30, 2010 was $1,121,374 at an interest rate of 2.76%. The borrowings are due on a demand basis, therefore all of
the outstanding balance has been classified as current.  As of September 30, 2010 the available amount under this facility was $3,878,626.

The
  Company was obligated under a line of credit loan with Sun West Bank that had
  an outstanding principal balance of $100,000 at December 31, 2009. The line of
  credit was fully paid as of September 30, 2010. Interest expense under this
  arrangement amounted to $667 and $3,998 for the nine months ended September 30,
  2010 and 2009, respectively.

Notes Payable in Connection with Acquisitions

In connection with the acquisition of the assets and assumption
of certain liabilities of TS Wireless and Southwest Wireless Net, after making the closing cash payments, the Company is obligated to make the balance of
the purchase price in eight consecutive quarterly installments. The last of these scheduled payments are scheduled to be made on June 30, 2012 and  August 1, 2012, respectively. There is no interest attached to these payment obligations.

Installment Obligations:

On
February 1, 2010, the Company entered into a Note Purchase Agreement (the Note
Purchase Agreement) with The California Capital Limited Partnership (CCLP).
On February 5, 2010, pursuant to the Note Purchase Agreement, the Company
issued to CCLP a secured convertible promissory note for the principal sum of

16

---



$15,000,000
(the Note). The Note bears interest at the rate of 8% per annum. However,
prior to September 30, 2010, interest under the Note shall accrue on the
outstanding principal amount, at the election of CCLP, at the rate of 4% per
annum and be payable in cash or at the rate of 8% per annum and be payable in
shares of Series Cal Cap Preferred Stock, with such shares of Series Cal Cap
Preferred Stock issued at a price per share of $1.50. After September 30, 2010,
interest shall accrue on the outstanding principal amount at the rate of 8% per
annum and is payable in cash. The Note matures on February 5, 2015, unless
accelerated by CCLP upon an event of default.

The
Note is convertible into shares of Series Cal Cap Preferred Stock as well as
common stock, at the option of CCLP, upon maturity or mandatorily under certain
circumstances. Pursuant to the terms of the Note, if the Company had been
successful in any of its Round One ARRA applications, the Note would have
mandatorily converted into shares of Series Cal Cap Preferred Stock. This
mandatory conversion feature expired as a result of the Companys announcement
on March 3, 2010 that none of the Round One ARRA applications advanced to an
award as fully described on Current Report on Form 8-K. The Company also entered
into a Registration Rights Agreement, a Security Agreement (the Security
Agreement) and various ancillary certificates, dated February 5, 2010.
Pursuant to the Security Agreement between CCLP and the Company, the Companys
obligations under the Note are secured by a perfected security interest in all
of the assets and properties of the Company, including the stock of its
subsidiaries.

Accretion
expense recognized for the three and nine month period ended September 30, 2010
was $542,566 and $1,392,948, respectively.

The
Company executed a loan agreement with Sun West Bank on February 8, 2008,
totaling $4.5 million (the Loan). On June 18, 2009, the Company entered into
a Change in Terms Agreement with Sun West Bank, whereby the Company made a
principal reduction payment of $450,000. Pursuant to the Change in Terms
Agreement, the payment reduced the Loan to $4.05 million with Sun West Bank and
extended its maturity until June 4, 2015. Payments for the first year are
interest only at a 7.25% fixed interest rate. A shareholder in the Company is
also a minority shareholder and Board member of the lending institution. 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 was guaranteed by three shareholders of the Company, one
being an officer of the Company. The interest is payable monthly. The loan and
all accrued interest were repaid in full on February 5, 2010.

Derivative Financial Instrument

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

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

The
Company evaluated the conversion option embedded in its convertible notes
issued in February 2010 in accordance with the provisions of ASC 815 and
determined that the conversion option has all of the characteristics of a
derivative in its entirety that does not qualify for an exception to the
derivative accounting rules. Specifically, the exercise price of the conversion
option is not fixed at any time during the term of the note based on

17

---



the
occurrence or non-occurrence of certain events and also entitles the
counterparty to an adjustment of the exercise price in the event that the
Company subsequently issues equity securities or equity linked securities at
prices more favorable than the exercise price of the conversion option embedded
in the notes. Accordingly, the conversion option is not considered indexed to
the Companys own stock.

As
a result of the above, the Company recorded a derivative liability on February
5, 2010, the commitment date of the transaction, in the amount of $44,792,150
and a corresponding charge of $29,792,150 for the difference between the
issuance date fair value of the derivative and the $15,000,000 of proceeds
received from the investor in the note transaction. The Company also adjusts
the carrying amount the derivative to its fair value at each reporting date
with the changes in fair value reported as a component of results of operations
under the heading of other income and expense. The fair value of the derivative
liability was reduced to $2,792,233 as of September 30, 2010 principally due to
reduction in our stock price as of September 30, 2010.

The
Company computed the fair value of the derivative liability at the date of
issuance and the reporting date of September 30, 2010 using the Black-Scholes
option pricing model with the following assumptions:

|                               |  |                                   |            |                                       |   |            |  
|------------------------------ |  | --------------------------------- | ---------- | ------------------------------------- | - | ---------- | -
|Input                          |  | February 5, 2010
 (Issuance Date) |            | September 30, 2010 
 (Reporting Date) |  
|                               |  |                                   |            |                                       |  
|Fair value of common stock     |  | $                                 | 2.90       |                                       | $ | .44        |  
|Exercise Price of Option       |  | $                                 | .75        |                                       | $ | .75        |  
|Term (years)                   |  |                                   | 5          |                                       |   | 4.33       |  
|Volatility                     |  |                                   | 55         | %                                     |   | 54.36      | %
|Risk Free Interest Rate        |  |                                   | 2.23       | %                                     |   | 3.12       | %
|Dividend Yield                 |  |                                   | 0          | %                                     |   | 0          | %
|Unit fair value                |  | $                                 | 2.24       |                                       | $ | 0.14       |  
|Shares issuable upon
 exercise |  |                                   | 20,000,000 |                                       |   | 20,000,000 |  
|                               |  |                                   |            |                                       |   |            |  
|Aggregate fair value           |  | $                                 | 44,792,150 |                                       | $ | 2,792,233  |  
|                               |  |                                   |            |                                       |   |            |  

The
Company recorded a net credit of $12,207,767 for the change in fair value of
the derivative for the nine months ended September 30, 2010, which includes the
effects of having recorded (i) the issuance date charge of $29,792,150 for the
difference between the issuance date fair value of the derivative and the
proceeds in the note transaction and (ii) a subsequent credit of $41,999,917
for the change between the issuance date fair value of the derivative, which
amounted to $44,792,150 and the reporting date fair value of the derivative
which amounted to $2,792,233. The change in the fair value of the derivative
is included in other income and expense in the accompanying condensed
consolidated statement of operations for the three and nine month periods ended
September 30, 2010.

18

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Note 8 - Operating and Capital Leases

Capital
Leases:

The
Company leases equipment from certain parties under various capital leases
expiring in 2008 through 2011. The Company has entered into four additional
capital leases that total, in aggregate $234,350 in the nine months ended
September 30, 2010. Future minimum lease payments under the capital
leases, which are stated at their principal amounts with initial or remaining
terms of one year or more consist of the following as of September 30, 2010:

|                                     |  |   |           |  
|------------------------------------ |  | - | --------- | -
|2010                                 |  |   | 238,103   |  
|2011                                 |  |   | 722,955   |  
|2012                                 |  |   | 200,405   |  
|2013                                 |  |   | 18,756    |  
|2014                                 |  |   | 179       |  
|                                     |  |   |           |  
|Total minimum lease
 payments        |  |   | 1,180,398 |  
|Less amounts representing
 interest  |  |   | (218,806  | )
|                                     |  |   |           |  
|                                     |  |   | 961,592   |  
|                                     |  |   |           |  
|Less current portion                 |  |   | (650,615  | )
|                                     |  |   |           |  
|                                    
|Long term capital lease
 obligations |  | $ | 310,977   |  
|                                     |  |   |           |  

Pursuant
to two master lease agreements, the Company has an aggregate lease borrowing
limit of that totals $2 million. No funding is available as of September 30,
2010 under these two master lease agreements.

Operating
Leases:

In
addition, the Company leases tower and roof-top space under operating leases
with terms that are typically for 5 years and contain automatic renewals for 2
or 3 additional 5 year terms. Finally, the Company also has various operating
leases for office space, equipment, and vehicles that generally are for 3 to 5
year terms. Future minimum lease payments under the operating leases with
initial or remaining terms of one year or more consist of the following at
September 30, 2010:

|                                                             |  |   |           | 
|------------------------------------------------------------ |  | - | --------- | 
|For the period of October
 1, 2010 through December 31, 2010 |  | $ | 271,489   | 
|For the years ending
 December,                              |  |   |           | 
|2011                                                         |  |   | 925,848   | 
|2012                                                         |  |   | 577,031   | 
|2013                                                         |  |   | 332,503   | 
|2014                                                         |  |   | 161,443   | 
|Thereafter                                                   |  |   | 45,030    | 
|                                                             |  |   |           | 
|                                                             |  |   |           | 
|                                                             |  | $ | 2,313,344 | 
|                                                             |  |   |           | 

The
total rental expense included in operating expenses for operating leases
included above is $436,489 and $328,883 for the three months ended September
30, 2010 and 2009, respectively.

Note 9  Stockholder Equity (Deficit)

Preferred
Stock

Pursuant
to the Companys Amended and Restated Certificate of Incorporation (the
Restated Certificate), the Company is now authorized to issue up to
175,000,000 shares of stock, of which 115,000,000 have been designated as
Common Stock and 60,000,000 have been designated as preferred stock. Of the
60,000,000 shares of Preferred Stock, 30,000,000 shares have been designated as
Series Cal Cap Preferred Stock and 30,000,000 shares have been designated as
Series KIP Preferred Stock. Each of the Series Cal Cap Preferred Stock and
Series KIP Preferred Stock are entitled to certain powers, preferences and
other special rights that are summarized below:

19

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Dividends

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

Liquidation Preference

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

Optional Conversion

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

Anti-Dilution Protection

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

20

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Mandatory
Conversion

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

Voting Rights

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

Election of Directors

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

Issuances of Common Stock

During
the nine month period ended September 30, 2010, 2,912,623 shares of common
stock were issued which includes the following:

55,556
shares of common stock valued at $123,890 were issued as payment for
contractual agreements for professional services on January 4 and February 4,
2010,

478,774
shares of common stock were issued upon the exercise of common stock purchase
warrants.

Warrants

A
roll-forward of the Companys common stock purchase warrants for the nine
months ended September 30, 2010 is as follows:

|                                   |  |  |           |  
|---------------------------------- |  |  | --------- | -
|Outstanding
 at January 1, 2010    |  |  | 3,936,291 |  
|Issued                             |  |  | 400,000   |  
|Exercised                          |  |  | (478,774  | )
|Cancelled                          |  |  | (150,000  | )
|Expired
 unexercised               |  |  | (50,356   | )
|Outstanding
 at September 30, 2010 |  |  | 3,657,161 |  

21

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All
warrants outstanding are exercisable and feature strike prices ranging from
$0.50 to $8.00 per share.

In February
2010, the Company issued 400,000 common stock purchase warrants to
non-employees for services being performed through December 31, 2010. The
aggregate grant date fair value of these warrants amounted to $572,247, which is
being amortized over the contractual service periods. The Company calculated
the grant  fair value of these warrants using the Black Scholes option
pricing model with the following assumptions: fair value of common stock $2.57,
exercise price $1.50, risk free interest rate 2.46%, volatility 55%, dividend
yield 0%. The Company recorded $119,652 and $509,822 of stock based
compensation expense with respect to these warrants during the three month and
nine months periods ended September 30, 2010, net of 150,000 common stock
purchase warrants for which performance conditions were not met.

Non-employee
stock based compensation relating to the issuance of common stock purchase
warrants amounted to $119,652 and $71,162 for the three months ended September
30, 2010 and 2009, respectively, and $549,574 and $71,162 for the nine months
ended September 30, 2010 and 2009, respectively, which is included as a
component of professional fees in the accompanying condensed consolidated
statements of operations.

22

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Stock Option Plans

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

As of
December 31, 2009, all 2,440,000 options authorized under the 2007 Plan were
outstanding. During the nine months ended September 30, 2010, the Company
granted 200,000 options to purchase shares of common stock, pursuant to the
2007 Plan. For the nine months ended September 30, 2010, 257,500 options were
forfeited. As of September 30, 2010, 2,382,500 options were outstanding and
1,245,723 are exercisable. Based upon the stock price of $0.44 on September 30,
2010, there are 641,456 options that are exercisable that have a strike price
of $0.25. The Company has 1,632,575 stock options outstanding that are exercisible at $0.25 per share. The aggregate intrinsic value amounts to approximately $310,000. Such options include 641,456 options currently exercisible at $0.25 per share with an intrinsic value of approximately $124,000. All other exercisable options have a strike price above $0.44.

On July 15,
2010, our Board of Directors adopted the 2010 Incentive Stock and Awards Plan
(the 2010 Plan). The 2010 Plan authorizes the Company to grant a total of
5,000,000 options, among other things. The terms and conditions of the 2010
Plan are substantially similar to the 2007 Plan and the 2010 Plan was formally
approved by the stockholders at the Companys Annual Meeting, held on August
24, 2010.

Compensation
expense recorded for stock options during the three and nine months ended
September 30, 2010, amounted to $231,901 and $696,043, respectively. The range
of strike price for outstanding options is $0.25 to $5.00 and the weighted
average strike price is $0.94 per share.

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

Note 10  Subsequent Events

Acquisitions

On October 23, 2010, through a
wholly-owned subsidiary, we entered into an agreement to acquire substantially
all of the wireless broadband assets and assume certain liabilities from On a
Wave Wireless, Inc., an Iowa corporation (OWW) (the OWW Agreement). The
assets to be acquired are used in the businesses of operating wireless
broadband networks that provide high-speed Internet access and other related
services to subscribers in Onawa, Iowa, among other communities.

On November 5, 2010, upon satisfaction of
certain closing conditions as described in the OWW Agreement, we completed the
acquisition, and initiated the Closing Payment of $33,500, less certain adjustments
as further described in the OWW Agreement.

Termination
of Asset Purchase Agreement

On September 23, 2010, the Company
entered into an agreement to acquire substantially all of the assets of the
hosted voice-over Internet Protocol business from CommPartners, LLC,
CommPartners Network Services, LLC, CommPartners Holding Corporation,
CommPartners Carrier Services Corp., and CommPartners, LLC (collectively known
as CommPartners) (the Asset Purchase Agreement). Pursuant to the Asset Purchase Agreement, the Company made an escrow payment of $400,000 towards the purchase price (the Deposit). The completion of this
transaction was dependent upon the consent of the Bankruptcy Court, among other
things.

23

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On October
25, 2010, the Bankruptcy Court denied CommPartners Section 363(b) motion to
approve the Asset Purchase Agreement and related documents. On October 29, 2010
the Company terminated the Asset Purchase Agreement as a result of a failure to
obtain the necessary consents and approvals from the Bankruptcy Court and the Deposit was returned.

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|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 VoIP and DISH video services to both residential and business subscribers.  Our markets are located in the following 12 Western and Midwestern
states: Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, Nevada, Ohio, South Dakota, and Texas.  We have principally grown our business through
the acquisition of wireless broadband companies operating in areas contiguous or adjacent to our existing operations as well as through the organic growth of our subscriber base.
 Over the past four years, we have acquired the assets of eleven companies, which has increased our subscriber base and expanded our network footprint.  In September of 2009, we launched Rural UniFi, which formalized
our strategic acquisition of wireless broadband companies and Rural UniFi continues to be one of our core growth strategies.  From December 2009 continuing through today,
 we completed seven acquisitions of wireless broadband assets, including subscribers and related equipment, located in Texas, Iowa, Illinois and Minnesota.  We are engaged
 in ongoing discussions with numerous potential acquisition candidates and believe we are well positioned to continue to make additional acquisitions and grow our revenue and cash flow.

In February of 2010,
we raised $15 million through the issuance of a secured convertible promissory note (the Cal Cap Note).  We believe that this financing provided us with sufficient
capital to execute our business plan, which consists of: Rural UniFi, overall organic subscriber growth and other strategic initiatives, including the participation in government
broadband programs.  Through the nine months ended September 30, 2010, we have been executing this plan, including the completion of six acquisitions, resulting in a 24% revenue
growth rate for the three months ended September 30,  2010 as compared to the three months ended September 30, 2009  in addition to a greater than 20% revenue growth rate compared
to the quarter ended June 30, 2010.  We also implemented a next-generation, 4G wireless network with the launch of our WiMAX network
 in Pahrump, Nevada.  We believe
  that the introduction of 4G networks helps increase subscriber growth and, with the availability of higher bandwidth services, revenues per subscriber.

At the end of March 2010, we submitted applications
for government stimulus funding under the Broadband Initiatives Program (BIP) of the American Recovery and Reinvestment Act of 2009 (ARRA). On September 13, 2010, we were announced
 as a $10.2 million award recipient under the BIP to deliver 4G wireless broadband to almost 40 communities throughout rural Nevada.  Pursuant to the projects design, we will make 4G,
 last-mile wireless broadband access and VoIP services available to approximately 93,000 people, 5,522 businesses and 849 critical community facilities in qualified rural communities throughout
 Nevada under Round Two of the BIP.  We plan to offer broadband service at speeds up to 8 megabits per second (Mbps).    We are currently in the process of entering into definitive documents
for the receipt of this award, subject to certain closing conditions.
 We cannot provide any assurance
  that we will be able to satisfy these closing conditions, and, if satisfied, the timing of the funding of the award.



Characteristics of Our Revenues and Operating Costs and Expenses

We offer our services under
month-to-month, annual or two-year 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 and general and administrative expenses. Payroll expenses
 consist of personnel costs, including salaries, benefits, employer taxes, bonuses and stock compensation expenses across our functional areas: executive, customer support, engineering,
accounting and billing, marketing, and local market operational staff.

24

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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, consulting and recruiting resources that we periodically utilize for functions that we do not perform internally such as our ARRA applications.  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 expenses.

Results of Operations

Three Month Period Ended September 30, 2010 as Compared to the Three Month Period Ended September 30, 2009

Revenues.  During
 the three month period ended September 30, 2010, we recognized revenues of $2,076,452, as compared to revenues of $1,672,730 during the three month period ended September 30, 2009, representing an
increase of approximately 24.1%.  Our increased revenue was a result of the combined effect of five acquisitions completed during the nine months ended September 30, 2010 and increased subscriber growth.

In December 2009, we began to gradually
 increase our marketing expenses in an effort to grow our subscriber base at an increased rate. As a result, for the three month period ended September 30, 2010, new customer installations increased
259% compared to the same period in 2009.  We expect to continue derive the benefit of our expanded marketing efforts throughout the remainder of 2010 and continuing into 2011.

In the three months ended September 30, 2010,
 we received the full revenue benefit from four previously closed acquisitions, however we received the benefit of only two months performance from the broadband assets acquired from Southwest Wireless Net, Inc.

Operating Loss. Operating
expenses, which consist of payroll, bonuses, taxes and stock based compensation, depreciation and amortization, other general and administrative costs, network operating costs, marketing and advertising,
installation expense, and professional fees totaled $3,847,753 for the three month period ended September 30, 2010, as compared to $3,113,707 for the three month period ended September 30, 2009, representing
a increase of approximately 23.6%.

The majority of this increase, 52.4%, was due to
 payroll and benefit expenses during the three month period ended September 30, 2010.  The payroll and benefits increase was primarily due to additional headcount in support of our expanded operations
resulting from our Rural UniFi initiatives and furtherance of our organic growth efforts, the temporary duplication of salaries and other expenses associated with the relocation of our accounting function
from Omaha, Nebraska to Las Vegas, Nevada, and increases in executive salaries as compared to the three months ended September 30, 2009.

Another reason for the increase, 39.1%,
was due to our increase in network operating costs.  Due to our expanded footprint from our five acquisitions during the nine months ended September 30, 2010, we incurred additional Internet transport
 costs, Internet termination costs and additional tower rents.  The remaining increase, 8.5%, in operating expenses was an increase marketing expenses and general and administrative expenses offset by
a reduction in professional fees.  Marketing expenses incurred increased with our continued efforts to increase organic growth during the three months ended September 30, 2010. Our operating loss margin
 improved by approximately one percentage point from a total operating loss of $1,771,301 for the three month period ended September 30, 2010 as compared to a loss of $1,440,977 for the three month period ended September 30
, 2009.  If we remove the
  non-recurring items and the non-cash stock based compensation, the normalized operating loss for the three months ended September 30, 2010 was $1,280,272 as compared to $835,766 for the three months ended
September 30, 2009, representing an increase of 53.2%.  Our normalized operating loss margin increased by 12 percentage points.

25

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Payroll, Bonuses and Taxes.  Payroll,
bonuses and taxes totaled $1,377,493 for the three month period ended September 30, 2010, as compared to $993,031 for the three month period ended September 30, 2009, representing an increase of approximately 38.7%.
 A majority of this increase, 66.1%, was due to additional headcount in support of our expanded operations resulting from our Rural UniFi initiative and in furtherance of our organic growth efforts. A second reason
for the increase, 24.3%, was due to the non-recurring duplication of relocating our accounting function from Omaha, Nebraska to Las Vegas, Nevada, The remaining reason for the increase, 9.6%, was due to the increased
non-cash stock based compensation and other compensation changes. By removing the non-recurring expenses and non-cash expenses incurred during the three months ended September 30, 2010 and from the three months
ended September 30, 2009, normalized payroll, bonuses and taxes would have been  $1,052,079 for the three months ended September 30, 2010 as compared to $713,430 for the three months ended September 30,2009, an increase of 47.5%.

Depreciation and Amortization. Depreciation and
amortization expenses totaled $570,721 for the three month period ended September 30, 2010, as compared to $582,405 for the three month period ended September 30, 2009, representing a decrease of approximately 2.0%. This decrease
was primarily due to the assets obtained from SpeedNet Services, Inc., (SpeedNet) acquired as of February 1, 2007 which became fully depreciated as of January 31, 2010, offset by the newly acquired assets from our five
acquisitions during the nine month period ended September 30, 2010.

Network Operating Costs. Network operating costs,
which consist of tower rent, Internet transport costs and Internet termination expenses, totaled $952,479 for the three month period ended September 30, 2010, as compared to $665,619 for the three month period ended September 30, 2009,
representing an increase of approximately 43.1%. During the three months ended September 30, 2009, we received a credit from a vendor for invoices previously recorded to network operating expense. By removing the non-recurring expense
credit incurred during the three months ended September 30, 2009, normalized network operating costs would have been $952,479 for the three months ended September 30, 2010 as compared to $709,021 for the three months ended September 30, 2009,
an increase of 34.3%. The increase was primarily due to an increase in network costs resulting from acquisitions.

Other General and
Administrative Expenses. Other general and administrative expenses totaled $492,803 for the three month period ended September 30, 2010, as compared to $326,950 for the three month period ended
September 30, 2009, representing an increase of approximately 50.7%.  The majority of the increase, 72.1%, was for higher postage charges related to broadened marketing initiatives implemented during 2010.  Another contributing
factor, 25.2%, resulted from increased office rents and office utilities in support of our Rural UniFi initiative. Travel related to acquisitions and moving costs related to the relocation of our accounting function to Las Vegas,
Nevada account for the remainder of the increase. If we remove the non-recurring items, the other general and
  administrative expenses for the three months ended September 30, 2010, normalized other general and administrative expenses would have been $482,308 as compared to $326,950 for the three months ended September 30, 2010, an increase of 47.5%.

Installation Expense.  Installation expense, which
consists primarily of expenses associated with new customer installations includes installation supplies, third party installation costs and transportation expenses relating to the installations, totaled $85,164 for the three month period
ended September 30, 2010, as compared to $53,279 for the three month period ended September 30, 2009, representing an increase of approximately 59.8%, due to the  This is a direct result of gross subscriber additions increasing 258.8% during
the three month period ended September 30, 2010 as compared to the three month period ended September 30, 2009 due to the success of organic marketing initiatives.

Professional Fees. Professional fees, which consist of legal,
accounting, and other related expenses, totaled $286,577 for the three month period ended September 30, 2010, as compared to $471,422 for the three month period ended September 30, 2009, representing a decrease of approximately 39.2%. This decrease
was due to expenses incurred in connection with our Round One ARRA applications during the three months ended September 30, 2009. During the three month period ended September 30, 2010, we incurred professional fees related to the proposed acquisition
of certain assets of a hosted voice-over Internet Protocol business and incurred an increase in  non-cash warrant expenses as compared to the three months ended September 30, 2009.  During the three months ended September 30, 2009, we received several
credits from vendors on
invoices that had already been
  recorded to

26

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expense previously. By removing the non-recurring expenses and non-cash expenses incurred during the three months ended September 30, 2010 and from the three
months ended September 30, 2009, normalized professional fees would have been $149,960 for the three months ended September 30, 2010 as compared to $102,410 for the three months ended September 30, 2009, an increase of 46.4%. During three months ended
September 30, 2010, we incurred fees related to our annual stockholders meeting that account for 45.1% of the increase on normalized expenses. The remaining increases were increased fees for our email outsourcing services.

Marketing and Advertising Expenses. Marketing and advertising expenses
totaled $82,516 for the three month period ended September 30, 2010, as compared to $21,001 for the three month period ended September 30, 2009, representing an increase of approximately 292.9%. Due to our ongoing efforts to organically grow our subscriber
base, we continued to increase marketing initiatives during the three months ended September 30, 2010.  Our marketing costs were 4.1% of revenue for the three month period ended September 30, 2010 and 1.3% of revenue for the three month period ended
September 30, 2009, representing a 3 percentage point increase. As a result of this greater emphasis on organic growth, our new customer additions during the three months ended September 30, 2010 were 259% higher than the three months ended
September 30,2009. We expect to see continuing
  positive impact of our marketing efforts throughout the remainder of 2010 and continuing into 2011.

Other Income and Expense.  We incurred other income of $3,297,703
for the three months ended September 30, 2010, as compared to other expense of $1,463,348 for the three months ended September 30, 2009, representing an improvement of 325.4%.  The primary reason for the increase was a non-cash credit recorded relating
to the fair value derivative accounting of a long term convertible note of $4,458,953, and a non-cash interest accretion expense recorded of $542,566. During the three months ended September 30, 2009, we incurred a non-cash beneficial ownership
expense $1,188,042. If the effects of the derivative accounting and the beneficial ownership are removed, other income and expense for the three months ended September 30, 2010 would have been an expense of $618,683 as compared to an expense of $275,306
for the three months ended September 30, 2009, an
  increase of 124.7%. The primary reason for the increase, 71.1%, was the recognition of contractual interest expense on the Cal Cap Note during the three months ended September 30, 2010. The change includes the overall effect of the increase in interest
incurred on the Cal Cap Note as compared to the interest incurred on a $4,050,000 term note (the Sun West Term Loan) which was outstanding during the three months ended September 30, 2009.



Net Income (Loss). We had net income of $1,526,402 for the three months
ended September 30, 2010, as compared to a net loss of $2,904,325 for the three months ended September 30, 2009, representing an improvement of approximately 152.6%. The primary reason for the increase was non-cash income  relating to the fair
value derivative accounting of the Cal Cap Note of $4,458,953, and  non-cash interest accretion expense  of $542,566.

During the three months ended September 30, 2009, we incurred a non-cash beneficial ownership
expense $1,188,042. If the effects of the derivative accounting were removed from other income and interest expense for the three months ended September 30, 2010 and the effects of the beneficial ownership expense were removed for the three months ended
September 30, 2009, the results would have been a net loss of $2,389,985 as compared to a net loss of $1,716,283 for the three month period ended September 30, 2009, an increase of 39.3%.

Our net income margin increased by 247 percentage points from a net income of $1,526,402 for
the three month period ended September 30, 2010 as compared to a net loss of $2,904,325 for the three month period ended September 30, 2009. By removing the effects of the derivative accounting, the non-recurring items and the non-cash stock based
compensation, from the reported net income for three months ended September 30, 2010 and the effects of the beneficial ownership expense, the non-recurring items and the non-cash stock based compensation from the reported net loss for the three
months ended September 30, 2009, our net loss increased by $787,884. Using the normalized net loss, our net loss increased by 25 percentage points from a total normalized net loss of $1,898,704 for the three months ended September 30, 2010 as compared
to a normalized net loss of
$1,111,072 for the three months
  ended September 30, 2009.

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Nine Month Period Ended September 30, 2010 as Compared to the Nine Month Period Ended September 30, 2009

Revenues. During the nine month period
ended September 30, 2010, we recognized revenues of $5,400,260, as compared to revenues of $5,323,234 during the nine month period ended September 30, 2009, representing an increase of approximately 1.5%. Our increased revenue was a result of
increased subscribers derived from greater marketing efforts coupled with the inclusion of five acquisitions during the nine month period ended September 30, 2010, off-set by a general contraction in our business and reduction in our subscriber
base that occurred throughout the nine months ended September 30, 2009.  The acquisitions and subscriber growth that we accomplished in the nine months ended September 30, 2010 serve to completely reverse the decline we experienced in the prior
nine month period.  As a result of the increase
 in gross subscriber additions, we expect to receive the full financial benefit of our subscriber growth throughout the year and continuing into 2011.

Operating Loss.Operating
expenses, which consist of payroll, bonuses, taxes and stock based compensation, depreciation and amortization, other general and administrative costs, network operating costs, marketing and advertising, installation expense, and professional fees
totaled $10,861,307 for the nine month period ended September 30, 2010, as compared to $8,209,952 for the nine month period ended September 30, 2009, representing an increase of approximately 32.3%.  One major increase, accounting for 43.6%, was an
increase in professional fees during the nine month period ended September 30, 2010.  These professional fees are almost entirely due to expenses incurred in connection with our Round Two ARRA applications. Additionally, 44.2% was due to an increase in
payroll and benefit expenses. The increases
  in payroll and benefits is primarily due to additional headcount in support of our expanded operations resulting from our Rural UniFi initiatives and furtherance of our organic growth efforts, as well as an increase in non-cash stock based compensation
and increases in salaries for activities supporting our internal controls and procedures for financial reporting. The remaining increase in operating expenses was due to an increase in marketing expenses and general and administrative expenses, offset by a
reduction in depreciation. Marketing expenses incurred increased with our continued efforts to increase organic growth during the nine months ended September 30, 2010. Our operating loss margin increased by 47 percentage points from a total operating loss
of $5,461,047 for the nine month period ended September 30, 2010 as compared to a loss of $2,886,718 for the nine month period ended September 30, 2009.  By removing Round Two ARRA application expenses, and non-cash stock
  compensation expense from payroll and other non-recurring expenses such as the cost of moving our accounting department from Omaha to Las Vegas, duplicative salaries related to the move, and executive bonus and employee severance pay of $2,255,715 for
the nine months ended September 30, 2010, and $823,210 for the nine months ended September 30, 2009, our operating expenses increased by $1,141,824. Using these normalized expenses, our operating loss margin increased by 21 percentage points from a total
normalized operating loss of $3,205,332 for the nine month period ended September 30, 2010, as compared to a loss of $2,063,508 for the nine month period ended September 30, 2009.

Payroll, Bonuses and Taxes.  Payroll, bonuses and taxes
totaled $3,740,142 for the nine month period ended September 30, 2010, as compared to $2,569,207 for the nine month period ended September 30, 2009, representing an increase of approximately 45.6%. A majority of this increase, 56.7%, was due to
additional headcount in support of our expanded operations resulting from our Rural UniFi initiative and in furtherance of our organic growth efforts. A second reason for the increase, 8.0%, was due to the non-recurring duplication of relocating our
accounting function from Omaha, Nebraska to Las Vegas, Nevada, The remaining reason for the increase, 35.3%, was due to the increased non-cash stock based compensation and other compensation changes. By removing the non-recurring expenses and non-cash
expenses incurred during the nine months ended September 30, 2010 and
  from the nine months ended September 30, 2009, normalized payroll, bonuses and taxes would be  $2,873,895 for the nine months ended September 30, 2010 as compared to $2,119,475 for the nine months ended September 30,2009, an increase of 35.6%.

Depreciation and
Amortization.Depreciation and amortization expenses totaled $1,460,518 for the nine month period ended September 30, 2010, as
compared to $1,839,362 for the nine month period ended September 30, 2009, representing a decrease of approximately 20.6%. This decrease is primarily due to the assets obtained from SpeedNet
Services, Inc., (SpeedNet) acquired on February 1, 2007, which became fully depreciated as of January 31, 2010.

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Network Operating
Costs. Network operating costs, which consist of tower rent, Internet transport costs and Internet termination expenses, totaled $2,378,161
for the nine month period ended September 30, 2010, as compared to $2,128,346 for the nine month period ended September 30, 2009, representing an increase of approximately 11.7%. During the
nine months ended September 30, 2009, we received a credit from a vendor for invoices previously recorded to network operating expense. By removing the non-recurring expense credit incurred
during the nine months ended September 30, 2009, normalized network operating costs would have been $2,378,161 for the nine months ended September 30, 2010 as compared to $2,171,748 for the
nine months ended September 30, 2009, an increase of 9.5%. The increase was primarily due to an increase in network costs resulting from acquisitions.

Other General and Administrative
Expenses.Other general and administrative expenses totaled $1,126,524 for the nine month period ended
September 30, 2010, as compared to $893,668 for the nine month period ended September 30, 2009, representing an increase of approximately 26.1%. The majority of the increase, 62.3%,
was for higher postage charges related to broadened marketing initiatives implemented during 2010.  Another contributing factor, 14.4%, resulted from increased office rents and office
utilities in support of our Rural UniFi initiative. Travel related to acquisitions and moving costs related to the relocation of our accounting function to Las Vegas, Nevada account for the
remainder of the increase. If we remove the non-recurring item of the relocation of accounting to the Las Vegas
 office, the other general and
  administrative expenses for the nine months ended September 30, 2010, normalized other general and administrative expenses would have been $1,116,029 as compared to $893,668 for the nine
months ended September 30, 2010, an increase of 24.9%.

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 $185,786 for the nine month period ended September 30, 2010, as compared to $133,245 for
the nine month period ended September 30, 2009, representing an increase of approximately 39.4%. This is a direct result of gross subscriber additions increasing 65.7% during the nine month
period ended September 30, 2010 as compared to the nine month period ended September 30, 2009 due to the success of organic marketing initiatives.

Professional
Fees.Professional fees, which consist of legal, accounting, and other related expenses, totaled $1,759,397 for
the nine month period ended September 30, 2010, as compared to $603,945 for the nine month period ended September 30, 2009, representing an increase of approximately 191.3%. The majority of
this increase, 87.6%, was due to expenses incurred in connection with our Round Two ARRA applications. During the nine month period ended September 30, 2010, we also incurred professional fees
related to the proposed acquisition of certain assets of a hosted voice-over Internet Protocol business and incurred an increase in non-cash warrant expenses as compared to the nine months ended
September 30, 2009. During the nine months ended September 30, 2009, we received several credits from vendors on
  invoices that had already been recorded to expense previously. By removing the non-recurring expenses and non-cash expenses incurred during the nine months ended September 30, 2010 and from the
nine months ended September 30, 2009, normalized professional fees would have been $413,850 for the nine months ended September 30, 2010 as compared to $230,467 for the nine months ended
September 30, 2009, an increase of 79.6%. During the nine months ended September 30, 2010, we incurred fees related to our annual stockholders meeting that accounts for 11.7% of the increase
on normalized expenses. The outsourcing of our email services accounts for 18.1% of the increase.  An increase in accounting fees accounts for 12.2% of the increase.  The remaining increase is in
legal and other professional fees incurred in connections with acquisitions.

Marketing and Advertising
Expenses.Marketing and advertising expenses totaled $210,779 for the nine month period ended September 30, 2010,
as compared to $42,179 for the nine month period ended September 30, 2009, representing an increase of approximately 399.7%.  Due to our ongoing efforts to organically grow our subscriber base,
we continued to increase marketing initiatives during the nine months ended September 30, 2010. The increase in new customer installations grew by approximately 66% from the nine months ended
September 30, 2009 to the nine months ended September 30, 2010. We expect to see the continued positive impact of our marketing efforts throughout the remainder of 2010 and carrying forward into 2011.

Other Income and Expense.  We incurred
other income of $9,916,639 for the nine months ended September 30, 2010, as compared to an expense of $2,074,268 for the nine months ended September 30, 2009, representing an improvement of 378.1%.  The primary reason
for the increase was the derivative accounting of the Cal Cap Note, which included the following non-cash items: $12,207,767 of increase in fair value of derivative instruments and a $1,392,948 increase in interest expense.  During the nine month period ended September 30, 2009, we incurred a non-cash beneficial ownership expense $1,188,042. If the effects
of the derivative accounting and the beneficial ownership were removed, other income and expense for the nine month period ended September 30, 2010 would have totaled
  $934,180 as compared to an expense of $886,226 for the nine months ended September 30, 2009, an increase of 5.4%. The primary reason for the increase was the interest incurred on
the Cal Cap Note as compared to the interest incurred on our Sun West Term Loan which was outstanding during the nine months ended September 30, 2009.

29

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Net Income (Loss)We
had net income of $4,455,592 for the nine months ended September 30, 2010, as compared to a net loss of $4,960,986 for the nine months ended September 30, 2009, representing an increase of approximately 189.8%. The primary reason for the
increase was non-cash income  relating to the fair valued derivative accounting of the Cal Cap Note of  $12,207,767 and  non-cash interest accretion expense of $1,392,948.

During the nine months ended September 30, 2009, we incurred a non-cash
beneficial ownership expense $1,188,042. If the effects of the derivative accounting and the beneficial ownership expense are removed, other income and expense for the nine months ended September 30, 2010 would have resulted in a
net loss of $6,359,227, as compared to a net loss of $3,772,944 for the nine months ended September 30, 2009, an increase of 68.5%.

Our net income margin increased by 176 percentage points from a net
income of $4,455,592 for the nine months ended September 30, 2010 as compared to a net loss of $4,960,986 for the nine months ended September 30, 2009. By removing the effects of the derivative accounting, the non-recurring items
and the non-cash stock based compensation, from the reported net income for nine months ended September 30, 2010 and the effects of the beneficial ownership expense, the non-recurring items and the non-cash stock based compensation
from the reported net loss for the nine months ended September 30, 2009, our net loss increased by $1,153,778. Using the normalized net loss, our net loss margin increased by 21 percentage points from a total normalized net loss of
$4,103,512 for the nine months ended September 30, 2010 as compared to a normalized net loss of $2,949,734 for the nine months ended
  September 30, 2009.



Liquidity and Capital Resources

General

We incurred an operating
loss of $5,461,047 for the nine months ended September 30, 2010. At September 30, 2010, our accumulated deficit amounted to $23,849,132. During the nine months ended September 30, 2010,
net cash used in operating activities amounted to $3,069,510. At September 30, 2010, our working capital amounted to a deficit of $80,113, which includes a liability for the fair value of a
derivative financial instrument which, if exercised, will result in a net share settlement of 20,000,000 shares.



On February 5, 2010,
we issued the Cal Cap Note to an investor in exchange for gross proceeds of $15 million.  The Cal Cap Note is convertible into shares of Series Cal Cap Preferred Stock and shares of
common stock.  We believe that this financing provided us with sufficient capital to execute our business plan, which consists of: Rural UniFi, overall organic subscriber growth and
other strategic initiatives, including the participation in government broadband programs.  Specifically, in 2010, we have completed six acquisitions, experienced a 259% growth rate in
gross subscriber additions year over year, and submitted applications for government stimulus funding totaling $374 million, for which we received a $10.2 million award to deliver 4G
wireless broadband to almost 40 communities throughout rural Nevada under Round Two of the BIP.  We are currently
 in the process of entering into
  definitive documents for the receipt of this award, subject to certain closing conditions.  We cannot provide any assurance that we will be able to satisfy these closing conditions, and, if satisfied, the timing of the funding of the award.



We currently anticipate that our
cash and cash equivalents will be sufficient to meet our working capital requirements to continue our sales and marketing and research and development through at least October 1, 2011.
However, in order to execute our long-term strategy and penetrate new and existing markets, we may need to raise additional funds, through public or private equity offerings, debt financings,
corporate collaborations or other means.  Management believes that we may be able to access capital through public or private equity offerings, debt financings, corporate collaborations or
other means; however, other than the $10.2 million award noted above we have not secured any commitment for new financing at this time, nor can we provide any assurance that new financing will
be available on commercially acceptable terms, if needed. If we are unable to secure additional capital, we may be required to curtail our business development initiatives and take additional
measures to reduce costs in order to conserve our cash needs.



Working Capital. As of
September 30, 2010, we had negative working capital of $80,113 that included a derivative liability balance of $2,792,233.   As of September 30, 2009 we had negative working capital $2,612,689, representing an improvement of $2,532,576.

30

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

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure. As of September 30, 2010, our Chief Executive Officer, who acts in the capacity of principal executive officer and our Chief Financial Officer who acts in the capacity of principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure
controls and procedures were not effective as of September 30, 2010, based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Disclosure Controls and Internal Controls



Disclosure controls are designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that our transactions are properly authorized, recorded and reported and our assets are safeguarded against unauthorized or improper use, to permit the preparation of our financial statements in conformity with generally accepted accounting principles, including all applicable SEC regulations.



As of December 31, 2009, management of our Company had reported at previous dates of assessment that we identified various deficiencies in our accounting processes and procedures that constitute a material weakness in internal control over financial reporting and disclosure controls. We took certain steps during the year ended December 31, 2009 to correct previously reported material weaknesses that include, among other things, consolidating all legacy systems into a single unified accounting system, hiring additional personnel and undertaking the process of documenting our controls; however, we still need to make substantial progress in these areas before we can definitively conclude that we have remediated our material weaknesses.



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



We believe that our internal control risks are sufficiently mitigated by the fact that our Chief Executive Officer and Chief Financial Officer review and approve substantially all of our major transactions and we have, when needed, hired outside experts to assist us with implementing complex accounting principles. We believe that our weaknesses in internal control over financial reporting and our disclosure controls relate in part to the fact that we are an emerging business with limited personnel. Management and the Board of Directors believe that the company must allocate additional human and financial resources to address these matters. Accordingly, during the quarter ended September 30, 2010 the Company began the process of relocating its accounting functions as well as hired additional accounting personnel to support the Compa
ny in its
  compliance process. The Company intends to continue making necessary changes until its material weaknesses are remediated.



Changes in Internal Control over Financial Reporting



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

31

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PART II  OTHER
INFORMATION

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

|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.1         |  | Form of Asset Purchase and Sale Agreement dated October 23, 2010 by
 and between KeyOn Communications, Inc. and On A Wave Wireless, Inc.
 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K
 of KeyOn Communications Holdings, Inc. filed with the Securities and Exchange
 Commission on October 25, 2010).                                                                                                                        
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.2         |  | Form of Asset Purchase Agreement dated September 23, 2010 by and
 between KeyOn Communications, Inc. and CommPartners, LLC, CommPartners
 Network Services, LLC, CommPartners Holding Corporation, CommPartners Carrier
 Services Corp., and CommPartners, LLC. (Incorporated by reference to Exhibit
 2.1 to the Current Report on Form 8-K of KeyOn Communications Holdings, Inc.
 filed with the Securities and Exchange Commission on September 24, 2010).
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|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

32

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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 15, 2010 | By:                                  | /s/Jonathan
 Snyder                   
|                         |                                      |                                       
|                         |                                      | Jonathan
 Snyder                      
|                         |                                      | President
 and Chief Executive Officer
|                         |                                      | (Principal
 Executive Officer)        
|                         |                                      |                                       
|Date:
 November 15, 2010 | By:                                  | /s/ Annette
 Eggert                   
|                         |                                      |                                       
|                         |                                      | Annette
 Eggert                       
|                         |                                      | Chief
 Financial Officer              
|                         |                                      | (Principal
 Financial Officer)        

33

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