---

---

|                                                                                          
|------------------------------------------------------------------------------------------
|UNITED
 STATES                                                                            
|SECURITIES
 AND EXCHANGE COMMISSION                                                       
|Washington, DC 20549                                                                      
|                                                                                          
|FORM 10-Q                                                                                 
|                                                                                          
|xQUARTERLY REPORT
 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                                                          
|For the quarterly period ended June 30, 2009                                              
|                                                                                          
|oTRANSITION REPORT
 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                          
|For the transition period from ________ to ____________                                   
|                                                                                          
|Commission
 file number: 001-33842                                                        
|                                                                                          
|KEYON COMMUNICATIONS HOLDINGS, INC.                                                       
|                                                                                          
|(Exact Name of Registrant as Specified in Its Charter)                                    

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

|                                                                                    |                                          |  |            | 
|----------------------------------------------------------------------------------- | ---------------------------------------- |  | ---------- | 
|                                                                                    | 11742 Stonegate Circle                   |  |            | 
|                                                                                    | Omaha, Nebraska 68164                    |  | 68164      | 
|                                                                                    |                                          |  |            | 
|                                                                                    | (Address of Principal Executive Offices) |  | (Zip Code) | 
|                                                                                    |                                          |  |            | 
|(402) 998-4000                                                                     
|                                                                                   
|(Registrants Telephone Number, Including Area Code)                               
|                                                                                   
|                                                                                   
|(Former Name, Former Address and Former Fiscal Year, if Changed Since
 Last Report)

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). 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 August
18, 2009, 14,540,989 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
 June 30, 2009 (Unaudited) and December 31, 2008                            |  | 2    | 
|         |  |                                                                                                                         |  |      | 
|         |  | Condensed Consolidated Statements of
 Operations for the three and six months ended June 30, 2009 and 2008
 (Unaudited) |  | 3    | 
|         |  |                                                                                                                         |  |      | 
|         |  | Condensed Consolidated Statements of
Cash
 Flows for the six months ended June 30, 2009 and 2008 (Unaudited)            |  | 4    | 
|         |  |                                                                                                                         |  |      | 
|         |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                        |  | 1    | 
|         |  |                                                                                                                         |  |      | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                                  |  | 13   | 
|         |  |                                                                                                                         |  |      | 
|Item 4T. |  | Controls and Procedures                                                                                                 |  | 20   | 
|         |  |                                                                                                                         |  |      | 
|PART II  |  | OTHER INFORMATION                                                                                                       |  |      | 
|         |  |                                                                                                                         |  |      | 
|Item 6.  |  | Exhibits                                                                                                                |  | 20   | 

i

---



|                                                 |                      
|------------------------------------------------ | ---------------------
|PART I  FINANCIAL
 INFORMATION                 
|                                                 |                      
|Item 1.                                          | Financial Statements.
|                                                 |                      
|KEYON COMMUNICATIONS HOLDINGS, INC.             
|AND RELATED ENTITIES                            
|                                                
|FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009

1

---



|                                                                                                                                                                                        |  |      |             |      |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|KEYON
 COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES                                                                                                                               
|                                                                                                                                                                                       
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                                                                                                                  
|AS OF JUNE
 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008                                                                                                                                 
|                                                                                                                                                                                       
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  | 2009 |             | 2008 |  
|ASSETS                                                                                                                                                                                  |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|CURRENT ASSETS:                                                                                                                                                                         |  |      |             |      |   |             |  
|Cash                                                                                                                                                                                    |  | $    | 23,333      |      | $ | 28,032      |  
|Accounts receivable, net of allowance for doubtful
accounts                                                                                                                             |  |      | 189,909     |      |   | 129,592     |  
|Inventories                                                                                                                                                                             |  |      | 143,381     |      |   | 172,434     |  
|Prepaid expenses and other current assets                                                                                                                                               |  |      | 113,640     |      |   | 74,198      |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|Total current assets                                                                                                                                                                    |  |      | 470,263     |      |   | 404,256     |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|PROPERTY AND EQUIPMENT - Net                                                                                                                                                            |  |      | 2,337,699   |      |   | 3,292,245   |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|OTHER ASSETS                                                                                                                                                                            |  |      |             |      |   |             |  
|Goodwill                                                                                                                                                                                |  |      | 1,641,138   |      |   | 1,641,138   |  
|Subscriber base - net                                                                                                                                                                   |  |      | 361,721     |      |   | 562,743     |  
|Trademarks                                                                                                                                                                              |  |      | 16,667      |      |   | 16,667      |  
|Refundable deposits                                                                                                                                                                     |  |      | 67,818      |      |   | 66,827      |  
|Debt issuance costs - net                                                                                                                                                               |  |      | 179,712     |      |   | 189,638     |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|Total other assets                                                                                                                                                                      |  |      | 2,267,056   |      |   | 2,477,013   |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|TOTAL ASSETS                                                                                                                                                                            |  | $    | 5,075,018   |      | $ | 6,173,514   |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|LIABILITIES AND STOCKHOLDERS
(DEFICIT)                                                                                                                                                 |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                    |  |      |             |      |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                   |  | $    | 2,681,285   |      | $ | 2,522,884   |  
|Accounts payable and accrued expenses - related
parties                                                                                                                                 |  |      | 100,395     |      |   | 43,139      |  
|Cash overdraft                                                                                                                                                                          |  |      | 54,330      |      |   | 120,553     |  
|Revolving line of credit - related party                                                                                                                                                |  |      | 100,050     |      |   | 100,000     |  
|Term loan payable - related party                                                                                                                                                       |  |      |            |      |   | 4,500,000   |  
|Current portion of notes payable - related
parties                                                                                                                                      |  |      | 667,012     |      |   | 567,011     |  
|Current portion of notes payable                                                                                                                                                        |  |      | 1,045,694   |      |   | 648,610     |  
|Current portion of deferred rent liability                                                                                                                                              |  |      | 60,249      |      |   | 58,945      |  
|Current portion of capital lease
obligations                                                                                                                                            |  |      | 559,465     |      |   | 596,411     |  
|Deferred revenue                                                                                                                                                                        |  |      | 324,910     |      |   | 310,689     |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|Total current liabilities                                                                                                                                                               |  |      | 5,593,390   |      |   | 9,468,242   |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|LONG-TERM LIABILITIES:                                                                                                                                                                  |  |      |             |      |   |             |  
|Deferred rent liability, less current
maturities                                                                                                                                        |  |      | 111,094     |      |   | 141,463     |  
|Term loan payable - related party                                                                                                                                                       |  |      | 4,050,000   |      |   |            |  
|Notes payable, less current maturities                                                                                                                                                  |  |      | 20,295      |      |   | 36,867      |  
|Capital lease obligations, less current
maturities                                                                                                                                      |  |      | 793,350     |      |   | 854,390     |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|Total long term liabilities                                                                                                                                                             |  |      | 4,974,739   |      |   | 1,032,720   |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                           |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|STOCKHOLDERS (DEFICIT):                                                                                                                                                                |  |      |             |      |   |             |  
|Series A preferred stock, $0.001 par value;
5,000,000 shares
 authorized; 0 shares issued and outstanding at December 31, 2008 and at June
 30, 2009                                    |  |      |            |      |   |            |  
|Common stock, $0.001 par value; 95,000,000 shares
authorized;
 8,771,350 shares issued and
 outstanding at December 31, 2008; 12,930,154 shares issued and outstanding at June 30, 2009 |  |      | 12,930      |      |   | 8,771       |  
|Common stock payable for exercised options                                                                                                                                              |  |      |            |      |   | 14,372      |  
|Additional paid-in capital                                                                                                                                                              |  |      | 17,704,237  |      |   | 17,358,431  |  
|Accumulated deficit                                                                                                                                                                     |  |      | (23,210,278 | )    |   | (21,709,022 | )
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|Total stockholders (deficit)                                                                                                                                                           |  |      | (5,493,111  | )    |   | (4,327,448  | )
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS
(DEFICIT)                                                                                                                                           |  | $    | 5,075,018   |      | $ | 6,173,514   |  
|                                                                                                                                                                                        |  |      |             |      |   |             |  

See notes to condensed consolidated financial
statements.

2

---



|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|------------------------------------------------------------ |  | ----------------------------------- | ---------- | --------------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|KEYON
 COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES    
|                                                            
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 
|                                                            
|                                                            
|                                                             |  | For the Three Months Ended June 30, |            | For the Six Months Ended June 30, |  
|                                                             |  | 2009                                |            | 2008                              |   | 2009       |   | 2008 |           
|REVENUES:                                                    |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Service and installation revenue                             |  | $                                   | 1,728,838  |                                   | $ | 1,951,059  |   | $    | 3,560,829  |   | $ | 3,932,017  |  
|Support and other revenue                                    |  |                                     | 55,494     |                                   |   | 35,229     |   |      | 89,675     |   |   | 100,302    |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Total revenues                                               |  |                                     | 1,784,332  |                                   |   | 1,986,288  |   |      | 3,650,504  |   |   | 4,032,319  |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|OPERATING COSTS AND EXPENSES:                                |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Payroll, bonuses and taxes                                   |  |                                     | 703,606    |                                   |   | 2,476,354  |   |      | 928,021    |   |   | 4,606,428  |  
|Depreciation and amortization                                |  |                                     | 617,500    |                                   |   | 688,934    |   |      | 1,256,957  |   |   | 1,404,183  |  
|Network operating costs                                      |  |                                     | 754,541    |                                   |   | 726,876    |   |      | 1,462,727  |   |   | 1,470,274  |  
|Other general and administrative expense                     |  |                                     | 258,333    |                                   |   | 310,697    |   |      | 566,718    |   |   | 676,880    |  
|Installation expense                                         |  |                                     | 32,613     |                                   |   | 121,535    |   |      | 79,966     |   |   | 243,421    |  
|Professional fees                                            |  |                                     | 188,180    |                                   |   | 56,304     |   |      | 225,273    |   |   | 245,141    |  
|Marketing and advertising                                    |  |                                     | 5,825      |                                   |   | 136,746    |   |      | 21,178     |   |   | 301,080    |  
|Cost of DISH inventory                                       |  |                                     |           |                                   |   | 14,308     |   |      |           |   |   | 31,113     |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Total operating costs and expenses                           |  |                                     | 2,560,598  |                                   |   | 4,531,754  |   |      | 4,540,840  |   |   | 8,978,520  |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|LOSS FROM OPERATIONS                                         |  |                                     | (776,266   | )                                 |   | (2,545,466 | ) |      | (890,336   | ) |   | (4,946,201 | )
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|OTHER INCOME (EXPENSE):                                      |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Gain/(loss) on disposal of equipment                         |  |                                     |           |                                   |   | 4,869      |   |      |           |   |   | 4,869      |  
|Interest income                                              |  |                                     | 1          |                                   |   | 97         |   |      | 1          |   |   | 682        |  
|Interest expense                                             |  |                                     | (350,568   | )                                 |   | (191,654   | ) |      | (610,921   | ) |   | (363,137   | )
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Total other income (expense)                                 |  |                                     | (350,567   | )                                 |   | (186,688   | ) |      | (610,920   | ) |   | (357,586   | )
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|PROVISION FOR INCOME TAXES                                   |  |                                     |           |                                   |   |           |   |      |           |   |   |           |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|NET LOSS                                                     |  | $                                   | (1,126,833 | )                                 | $ | (2,732,154 | ) | $    | (1,501,256 | ) | $ | (5,303,787 | )
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Net loss per common sharebasic and
diluted                  |  | $                                   | (0.11      | )                                 | $ | (0.33      | ) | $    | (0.16      | ) | $ | (0.64      | )
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  
|Weighted average common shares outstandingbasic
and diluted |  |                                     | 10,292,397 |                                   |   | 8,251,142  |   |      | 9,563,390  |   |   | 8,250,463  |  
|                                                             |  |                                     |            |                                   |   |            |   |      |            |   |   |            |  

See notes to condensed consolidated financial
statements

3

---



KEYON COMMUNICATIONS HOLDINGS INC. AND
RELATED ENTITIES

|                                                            
|------------------------------------------------------------
|CONDENSED
 CONSOLIDATED STATEMENTS OF CASH FLOWS            
|FOR THE
 SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)

|                                                                          |  |      |            |      |   |            |  
|------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                         
|                                                                         
|                                                                          |  | 2009 |            | 2008 |  
|                                                                          |  |      |            |      |  
|CASH FLOWS FROM OPERATIONS:                                               |  |      |            |      |   |            |  
|Net loss                                                                  |  | $    | (1,501,256 | )    | $ | (5,303,787 | )
|Adjustments to reconcile net loss to net cash flows from
operations:      |  |      |            |      |   |            |  
|Depreciation expense                                                      |  |      | 1,055,935  |      |   | 1,203,161  |  
|Amortization expense on subscriber base                                   |  |      | 201,022    |      |   | 201,022    |  
|Stock based compensation expense                                          |  |      | (418,024   | )    |   | 2,560,832  |  
|Amortization of debt issuance costs                                       |  |      | 156,424    |      |   |           |  
|Common stock exchanged for professional services                          |  |      | 106,800    |      |   |           |  
|                                                                          |  |      |            |      |   |            |  
|Change in assets and liabilities, net of effect of
acquisitions:          |  |      |            |      |   |            |  
|Accounts receivable                                                       |  |      | (60,317    | )    |   | (54,503    | )
|Inventories                                                               |  |      | 29,053     |      |   | 64,872     |  
|Prepaid expenses and other current assets                                 |  |      | (39,442    | )    |   | 8,495      |  
|Refundable deposits                                                       |  |      | (991       | )    |   | (1,134     | )
|Other assets                                                              |  |      |           |      |   | 7,379      |  
|Accounts payable and accrued expenses                                     |  |      | 158,401    |      |   | 148,301    |  
|Accounts payable and accrued expenses - related party                     |  |      | 57,256     |      |   |           |  
|Payment on cash overdraft                                                 |  |      | (66,223    | )    |   | (81,344    | )
|Deferred rent liability                                                   |  |      | (29,065    | )    |   | (28,485    | )
|Deferred revenue                                                          |  |      | 14,221     |      |   | (2,899     | )
|                                                                          |  |      |            |      |   |            |  
|                                                                         
|Net cash flows from operations                                            |  |      | (336,206   | )    |   | (1,278,090 | )
|                                                                          |  |      |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                     |  |      |            |      |   |            |  
|                                                                          |  |      |            |      |   |            |  
|Capital expenditures for property and equipment                           |  |      | (26,988    | )    |   | (86,739    | )
|Proceeds on disposal of equipment                                         |  |      | 791        |      |   |           |  
|                                                                          |  |      |            |      |   |            |  
|                                                                         
|Net cash flows from investing activities                                  |  |      | (26,197    | )    |   | (86,739    | )
|                                                                          |  |      |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                     |  |      |            |      |   |            |  
|                                                                          |  |      |            |      |   |            |  
|Additions to debt issuance costs                                          |  |      | (40,500    | )    |   |           |  
|Proceeds from term note payable - related parties                         |  |      | 4,050,000  |      |   | 1,500,000  |  
|Payments on term note payable - related parties                           |  |      | (4,500,000 | )    |   |           |  
|Proceeds from revolving line of credit - related parties                  |  |      | 50         |      |   |           |  
|Payments on notes payable                                                 |  |      | (219,479   | )    |   | (18,570    | )
|Proceeds from notes payable                                               |  |      | 600,000    |      |   | 118,337    |  
|Proceeds from subscription sales                                          |  |      | 540,819    |      |   |           |  
|Payments on capital lease obligations                                     |  |      | (173,187   | )    |   | (530,388   | )
|Proceeds from notes payable - related party                               |  |      | 100,001    |      |   |           |  
|                                                                          |  |      |            |      |   |            |  
|                                                                         
|Net cash flows from financing activities                                  |  |      | 357,704    |      |   | 1,069,379  |  
|                                                                          |  |      |            |      |   |            |  
|                                                                         
|NET INCREASE/ (DECREASE) IN CASH                                          |  |      | (4,699     | )    |   | (295,450   | )
|                                                                          |  |      |            |      |   |            |  
|CASH - Beginning of period                                                |  |      | 28,032     |      |   | 316,999    |  
|                                                                          |  |      |            |      |   |            |  
|                                                                         
|CASH - End of period                                                      |  | $    | 23,333     |      | $ | 21,549     |  
|                                                                          |  |      |            |      |   |            |  
|                                                                          |  |      |            |      |   |            |  
|SUPPLEMENTAL
 NON-CASH DISCLOSURES FROM INVESTING & FINANCING ACTIVITIES: |  |     
|                                                                          |  |      |            |      |   |            |  
|Warrants granted for debt issuance costs                                  |  | $    | 105,998    |      | $ |           |  
|                                                                          |  |      |            |      |   |            |  
|Common Stock Payable                                                      |  | $    |           |      | $ | 14,372     |  
|                                                                          |  |      |            |      |   |            |  
|Capital lease obligations for property and equipment                      |  | $    | 75,201     |      | $ | 391,165    |  
|                                                                          |  |      |            |      |   |            |  
|Stock issued for common stock payable                                     |  | $    | 14,372     |      | $ |           |  
|                                                                          |  |      |            |      |   |            |  
|Cash payments for:                                                        |  |      |            |      |   |            |  
|Interest                                                                  |  | $    | 526,780    |      | $ | 264,237    |  
|                                                                          |  |      |            |      |   |            |  
|Tax                                                                       |  | $    |           |      | $ |           |  
|                                                                          |  |      |            |      |   |            |  
|                                                                          |  |      |            |      |   |            |  
|See notes to condensed consolidated financial statements.                 |  |      |            |      |   |            |  

4

---



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

Note 1  Organization and Nature of Business

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

KeyOn
Communications, Inc. was incorporated on December 16, 2004, under the laws of
the State of Nevada. The Company provides wireless broadband, satellite video
and voice-over-IP (VoIP) services primarily to small and rural markets in the
Western and Midwestern United States. KeyOns markets are located in eleven
(11) Western and Midwestern states: Colorado, Idaho, Illinois, Indiana, Iowa,
Kansas, Nebraska, Nevada, Ohio, South Dakota, and Texas. The Company has eight
wholly-owned organizations (in combination referred to as the related
entities): KeyOn Communications, LLC; KeyOn SIRIS, LLC; KeyOn Grand Junction,
LLC; KeyOn Idaho Falls, LLC; KeyOn Pahrump, LLC; KeyOn Pocatello, LLC and KeyOn
SpeedNet LLC and KeyOn Spectrum Holdings, LLC.

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

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

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

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

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

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

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

1

---



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

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

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

Note 2  Summary of Significant Accounting Policies

Basis of Presentation

The
condensed consolidated 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. The
condensed consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. In the opinion of the
Companys management, the accompanying condensed consolidated financial
statements contain all the adjustments necessary (consisting only of normal
recurring accruals) to make the financial position of the Company as of June
30, 2009 and the results of operations for the three and six months ended June
30, 2009 and 2008 and cash flows for the six months ended June 30, 2009 and
2008 not misleading. The unaudited condensed consolidated financial statements
for the three month and six month period ended June 30, 2009, and June 30, 2008
should be read in conjunction with the audited financial statements for the
years ended December 31, 2008 and 2007 as contained in the Form 10K filed on
April 15, 2009.

Estimates

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

Revenue
Recognition

The
Company prepares its financial statements on the accrual method of accounting.
Under this basis, income is recognized when earned, and expenses are generally
recognized when incurred. The
Company charges a recurring subscription fee for providing its various Internet
access services to its subscribers and recognizes revenues when they are
earned, which generally occurs as the service is provided. Subscriptions to the
services are in the form of annual or two year contracts and are generally
billed monthly, quarterly, semiannually or annually in advance. Payments
received in advance for subscriptions are deferred and recognized as the
services are provided. Service initiation fees are recognized at time of
installation. For the satellite video business, in which the Company is a
retailer of video services from DISH Network Corporation (DISH), the Company
recognizes revenues at the time of installation.

Cash
and Cash Equivalents

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

2

---



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

Inventories

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

Acquisition
Costs and Intangible Assets

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

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

Deferred
Revenues

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

Reclassifications

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

Income
Taxes

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

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

3

---



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

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

Stock-Based Compensation

Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123R), which
is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123). SFAS No. 123R supersedes APB No. 25, Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based upon their
fair values. The Company recorded total stock-based compensation and warrant
compensation of negative $418,024 (see Note 8) for the six month period ended
June 30, 2009, compared to $2,560,832 for the same period in 2008.

Consolidation
Policy

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

Going Concern

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

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

Operations

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

Restructuring and Equity Raise

In
addition to the operational changes, management has undertaken a variety of
measures to restructure the Companys current and long-term liabilities. The Company has successfully reduced its current liabilities, specifically accounts payable and as a result, preserved working capital through settlement and other agreements. In the fourth quarter of 2008, we received $43,505 of forgiveness, in the second quarter of 2009 we received an additional $48,682 of forgiveness and additional forgiveness will be obtained as we continue to perform under these settlement and other agreements. In
March of 2009, the Company executed a second restructuring with another one of
its existing lease financing companies. The effect of this restructuring also
served to reduce the monthly payment obligations of the Company and extended
the payments for an additional 24 months. Beginning in August 2008 and continuing
through March 2009, the Company raised additional capital in the amount of
$1,281,877 through the issuance of subordinated secured notes. The note holders
consisted of existing shareholders as well as members and affiliates of
management. The Companys $4,500,000 Senior Secured Promissory Note held by Sun
West Bank matured on June 4, 2009  (the Loan). Upon maturity, the Company entered into a
Change in Terms Agreement with

4

---



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

Sun
West Bank regarding the Senior Secured Promissory Note (the Change in Terms).
Pursuant to the Change in Terms, the Company made a principal reduction payment
of $450,000 to Sun West Bank, reducing the principal balance of the Loan from
$4,500,000 to $4,050,000. Additionally, the maturity date of the Loan was
extended for six years from June 4, 2009 until June 4, 2015 and the interest
rate of the Loan was modified to a fixed interest rate of 7.75%.

The Company
  also raised approximately $613,950 from sales of common stock during the second
  quarter 2009.

In
order to pursue our acquisition, organic growth strategies and the further
pursuit of broadband stimulus funds under the American Recovery and
Reinvestment Act of 2009 (ARRA), as well as to sustain our current capital
needs, management projects that we will require funds from sources outside of
our normal operations. Management is in the process of raising additional
outside capital from institutions or other third parties while realizing
additional cash flow from the restructurings commenced in the fourth quarter of
2008.

Recent Accounting Pronouncements

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

In
June 2001, the FASB issued FAS 141, Business Combinations, which was
established to (1) better reflect investments made in acquired companies, and
(2) to provide additional information regarding acquired intangible assets. FAS
141 mandates that all assets acquired and liabilities assumed are valued at
their fair value. FAS 141 was revised in December 2007, and is effective for
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. This revision represents a major departure from the historical cost
accounting that many companies use currently. The adoption of FAS 141 did not
have a material impact on the Companys financial position, results of
operation or cash flows for the six months ended June 30, 2009.

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

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

In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activitiesan amendment of
FASB Statement No. 133. This standard requires companies to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and

5

---



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

interim
periods beginning after November 15, 2008, with early application encouraged.
The adoption of SFAS 161 did not have a material impact on its consolidated
financial position, results of operations or cash flows for the six months
ended June 30, 2009.

In
May 2008, the Financial Accounting Standards Board (FASB) issued SFAS No.
162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162
sets forth the level of authority to a given accounting pronouncement or
document by category. Where there might be conflicting guidance between two
categories, the more authoritative category will prevail. SFAS No. 162 will
become effective 60 days after the SEC approves the PCAOBs amendments to AU
Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on
the Companys financial position, statements of operations, or cash flows at
this time.

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

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

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

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

6

---



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

Note 3  Equipment

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

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

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

Note 4  Intangible Assets

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

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

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

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

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

7

---



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

Note 5  Line of Credit and Other Debt

The
Company executed a loan agreement with Sun West Bank on February 8, 2008,
totaling $4,500,000 (the Loan). The Loan matured on February 8, 2009. On
March 27, 2009, KeyOn entered into an extension of the Loan, pursuant to which
the Company obtained a one-hundred and twenty (120) day extension of the Loan
until June 4, 2009 (the Extension). On June 4, 2009, the Company reduced the
Loan to $4,050,000 million with Sun West Bank and amended the Senior Secured
Promissory Note which extended its maturity date until June 4, 2015. Payments
for the first year are interest only at a 7.75% fixed interest rate. Beginning
in June, 2010 through May, 2015, the payment plan is $48,604 per month. A final
payment of $2,483,129 is due at maturity. A shareholder in the Company is also
a minority shareholder and Board member of the lending institution. As a member
of the banks Board and Loan Committee, the shareholder abstained from voting
on this transaction as required under the appropriate banking regulations. The
Loan is guaranteed by three shareholders of the Company, one being an officer
of the Company. The interest is payable monthly.

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

|           |  |   |           | 
|---------- |  | - | --------- | 
|2009       |  | $ |          | 
|2010       |  |   | 136,880   | 
|2011       |  |   | 290,144   | 
|2012       |  |   | 313,446   | 
|2013       |  |   | 338,620   | 
|Thereafter |  |   | 2,970,910 | 
|           |  |   |           | 
|           |  | $ | 4,050,000 | 
|           |  |   |           | 

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

As
of June 30, 2009, the Company had subordinated secured notes outstanding of
$1,281,878. The original subordinated secured notes in the aggregate amount of
$981,877 outstanding were issued between July and November, 2008 (Sub Notes).
The Sub Notes, whose terms were approved by the independent members of the
Companys board, were issued to certain of its present investors and certain of
its senior management to fund working capital obligations which would also
allow the Company time to seek longer term financing or to pursue other
strategic options. These notes bear interest at 17% per annum (compounded
monthly) and three percent of the amount of the subordinated secured notes was
retained by the investors in the form of a closing payment. These Sub Notes
mature on August 31, 2009 and are convertible into the shares of the Companys
common stock at any time prior to maturity.

A
new set of senior secured subordinated notes were issued beginning in March
2009 (New Sub Notes). An aggregate amount of $300,000 was issued to certain
of its present investors to fund working capital obligations. These New Sub
Notes bear interest at 17% per annum (compounded monthly) and mature on
September 30, 2009. The notes are convertible at any time prior to maturity
into shares of the Companys common stock at a price per share of $0.25 at the
option of the holder. These notes include detachable warrants at 50% of the
face value of the note exercisable at 50 cents per warrant.

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

8

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

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

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

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

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

Note 6 - Operating and Capital Leases

The
Company and its related entities lease equipment from certain parties under
various capital leases expiring in 2008 through 2011. Pursuant to those capital
lease financing arrangements, the Company has drawn down an additional $75,201
in the six months ended June 30, 2009. On March 12, 2009, the Company entered
into an Amendment of a certain Master Equipment Lease Agreement with another
one of the Companys secured lenders (the Lender) (the Amendment), pursuant
to which the Lender agreed to restructure certain lease schedules,

9

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

payment
and purchase terms arising under that certain Master Equipment Lease Agreement
executed by the Company and the Lender on November 9, 2005 (the Master
Lease). The Lender agreed to suspend certain rental payments due and owing by
the Company during the first quarter of 2009. The Lender also has agreed to
extend and restructure the payments due and owing under the Master Lease such
that in April 2009, the Company began making reduced payments for the first of 24
scheduled monthly payments.

In
addition, the related entities lease tower and roof-top space under operating
leases with terms that are typically for 5 years and contain automatic renewals
for 2 or 3 additional 5 year terms. Finally, several of these leases also have
various operating leases for office space, equipment, and vehicles that
generally are for 3 to 5 year terms. The total amount of fixed assets
capitalized through leasing is $3,564,260 as of June 30, 2009.

Future
minimum lease payments under the capital leases, which are stated at their
principal amounts with initial or remaining terms of one year or more consist
of the following as of June 30, 2009:

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

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

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

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

Note 7 - Related Party Transactions

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

10

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

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

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

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

Common Shareholders Equity

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

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

During
the six month period ended June 30, 2009, 4,158,804 shares of common stock were
issued. 2,120,000 shares of stock were issued for professional services valued
at $106,800. 1,250,000 shares of stock were issued as subscription sales for
$475,000. 788,804 shares of stock were issued upon the exercise of stock
options. 57,487 of these shares of stock were options exercised by a director
and shown as a stock payable totaling $14,372 as of December 31, 2008. The
remaining 731,317 shares were options exercised at $.09 per share, totally
$65,819, during the three months ended June 30, 2009.

Preferred Shareholders Equity

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

Warrants

The
Company has 2,448,000 common stock warrants outstanding and exercisable as of
June 30, 2009 with a warrant strike price ranging from $0.50 to $8.00 and an
average price of $3.87 for each share of common stock. These warrants have
expiration dates of three to seven years from their date of issue. As of
December 31, 2008, a total of 1,712,735 warrants to purchase shares of our
common stock were outstanding and exercisable. 755,000 warrants were issued in
during the six months ended June 30, 2009. No warrants were exercised during
the six months ended June 30, 2009. 19,735 warrants were forfeited due to
expiration during the six months ended June 30, 2009. The amount capitalized
for debt issuance costs during the six months ended June 30, 2009 was $105,998.
The

11

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

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

Stock Option Plans

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

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

As
of December 31, 2008, 1,865,281 options were outstanding. During the six months
ended June 30, 2009, the Company did not grant any options to purchase shares
of common stock, pursuant to the 2007 Plan. For the six months ended June 30,
2009, 227,777 options were forfeited. 788,804 options were exercised in the six
month period ending June 30, 2009. As of June 30, 2009, 848,700 options were
outstanding.

Compensation
expense recorded on stock options for the three months ended June 30, 2009,
totaled $42,649 and for the six months totaled $80,131 which was offset by a
credit for forfeitures on stock options and restricted stock of $498,155. The
range of strike price per outstanding option is $0.25 to $5.00 and the weighted
average strike price is $2.06 per share.

Note 9  Subsequent Events

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

Additional sales of common stock after June 30, 2009.

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

Third Amendment to Secured Subordinated Notes.

By August 5, 2009 the
Company entered into a third amendment with the holders of the Sub Notes
whereby as an alternative to repayment at maturity, the holders were given the
option to convert their Sub Notes into shares of common stock at a price per
share of $0.50. This afforded the Company with an additional opportunity to
de-lever its balance sheet by reducing its outstanding debt and provided the
holders with an alternative methodology to be repaid. The Company evaluated
this subsequent event through the date the accompanying financial statements
were issued, which was August 19, 2009. The Company has not finished the
analysis on the accounting implications for the beneficial conversion features
for this amendment as of this date. As of August 18, 2009, two holders of the
Sub Notes have agreed to exercise their rights of conversion, thereby reducing
notes payable and interest payable liability by $80,417 in exchange for the
issuance of 160,835 shares of common stock.

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

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

12

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

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Managements
 Discussion and Analysis of Financial Condition and Results of Operations

Overview

We
provide wireless broadband services primarily to rural and other underserved
markets under the KeyOn, SpeedNet, and SIRIS brands. We offer our
broadband services along with satellite video and VoIP services to both
residential and business subscribers. As of June 30, 2009, the Company had
approximately 15,000 subscribers and operated networks covering over 50,000
square miles in 11 states across the Midwest and Western United States. KeyOn
primarily focuses on providing fixed wireless broadband to rural and other
areas of the country that it believes are currently underserved by traditional
phone and cable companies. Including the operations of SpeedNet our markets are
located in the following 11 Western and Midwestern states: Colorado, Idaho,
Illinois, Indiana, Iowa, Kansas, Nebraska, Nevada, Ohio, South Dakota, and
Texas. Our results for the year ended 2007 include eleven months of operations
of SpeedNet and two full months of operations from MicroLnk.

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

The Company believes it has significantly improved its financial condition through the raising of additional capital, the deleveraging of its balance sheet and pursuit of government stimulus funds. Since April 30, 2009, the Company has successfully raised $613,950 in equity through the issuance of common stock. In addition, the Company entered into a Change in Terms Agreement with Sun West Bank which allowed for a reduction in principal, a maturity of date of June 4, 2015 and the classification of the loan as a long-term obligation. Finally, the Company has submitted applications for stimulus funds under the broadband portions of ARRA.

Characteristics of Our Revenues and Operating Costs and
Expenses

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

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

13

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

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

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

Results of Operations

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

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

Operating
Loss. Operating
expenses, which consist of payroll, bonuses and taxes, depreciation and
amortization, other general and administrative costs, network operating costs,
marketing and advertising, installation expense, and professional fees totaled
$2,560,598 for the three-month period ended June 30, 2009, as compared to
$4,531,754 for the three-month period ended June 30, 2008, representing a
decrease of approximately 43.5%. A majority of this decrease, 70.8%, was due to
non-cash stock-based compensation expenses during the three-month period ended
June 30, 2009 of only $42,649, as compared to $1,438,446 incurred in the
three-month period ended June 30, 2008. Another contributing factor, accounting
for 19.1% of the decrease, was the reduction in salaries and benefits due to
our focused cost reduction initiatives. A third contributing factor, accounting
for 11.2% of the decrease was that new subscriber costs such as marketing and
installation costs were down as a result of our reduction in marketing expenses. The other operating expenses netted a slight increase of
1.1%, primarily due to the increase of professional fees in support of the
application for the government broadband stimulus funding during the three
month period ended June 30, 2009 as compared to June 30, 2008, otherwise other
operating expenses would have decreased for the period. Included in the
professional fees is $106,800 for professional services in exchange for shares
of common stock. Without the non-cash stock compensation expenses in payroll
and in professional fees, normalized operating expenses would have been
$2,411,149 for the three-month period ended June 30, 2009 as compared to
$3,093,308 for the three-month period ended June 30, 2008, representing a
decrease of 22.1% in operating expenses. Our actual operating loss margin
improved by 85 percentage points from a total operating loss of $776,266 for
the three-month period ended June 30, 2009 as compared to a loss of $2,545,466
for the three-month period ended June 30, 2008. By removing non-cash stock
compensation expense recorded in payroll and in professional fees of $149,449
and $1,438,446, respectively, our normalized operating loss margin improved by
21 percentage points from a total normalized operating loss $626,817 for the
three-month period ended June 30, 2009 as compared to a loss of $1,107,020 for
the three-month period ended June 30, 2008.

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

Depreciation
and Amortization.
Depreciation and amortization expenses totaled $617,500 for the three-month
period ended June 30, 2009, as compared to $688,934 for the three-month period
ended June 30, 2008,

14

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

representing
a decrease of approximately 10.4%. This decrease was primarily due to limited
new equipment purchases resulting from fewer subscriber gross additions.

Network Operating Costs. Network operating costs, which consist of
tower rent, Internet transport costs and Internet termination expense, totaled
$754,541 for the three-month period ended June 30, 2009, as compared to
$726,876 for the three-month period ended June 30, 2008, representing an
increase of approximately 3.8%. The increase was primarily due to increased
costs in our transport and termination purchased costs from our providers.

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

Installation Expense. Installation expense, which consists
primarily of expenses associated with installation supplies, third party
installation costs and transportation expenses relating to the installations,
totaled $32,613 for the three-month period ended June 30, 2009, as compared to
$121,535 for the three-month period ended June 30, 2008, representing a
decrease of approximately 73.2%. Installation volumes decreased by 70.4%,
accounting for 96.2% of the decline, for the three-month period ended June 30,
2009 as compared to the three-month period ended June 30, 2008. The remaining
3.8% decline is due to reduced fuel prices during the three-month period ended
June 30, 2009 as compared to the three-month period ended June 30, 2008.

Professional Fees. Professional fees, which consist of legal, accounting, and other
related expenses, totaled $188,180 for the three-month period ended June 30,
2009, as compared to $56,304 for the three-month period ended June 30, 2008,
representing an increase of approximately 234.2%. Advisory and consulting fees
account for 92.5% of the increase. The majority of this charge, 87.6%, is a
non-cash stock compensation provided to the Companys new investor relations company. The remaining
7.5% of the increase is in other professional fees due to a one-time credit for
a litigation settlement that occurred during the three month period ended June
30, 2008.

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

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

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

15

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

Net
Loss. We had a net
loss of $1,126,833 for the three-month period ended June 30, 2009, as compared
to a net loss of $2,732,154 for the three-month period ended June 30, 2008,
representing an improvement of approximately 58.8%. The major contributing
factor of the improved net loss was $149,449 of non-cash stock-based
compensation expenses in salaries and in professional fees for the three month
period ended June 30, 2009 as compared to $1,438,446 for the three month period
ended June 30, 2008, which accounted for 80.3% of the improvement. Another
contributing factor, accounting for 23.5% of the improvement in the net loss,
was the cost reduction initiative to reduce headcount across the company. This
improvement was offset by the increase in interest expenses for the three month
period ended June 30, 2009 as compared to the three month period ended June 30,
2008. Normalized net loss without the non-cash compensation expenses would have
been $977,384 for the three-month period ended June 30, 2009 as compared to
$1,293,708 for the three-month period ended June 30, 2008, representing an
improvement of 24.5%. This improvement was the result of our cost reduction
initiatives primarily through the reductions in salaries and wages. Our net loss
margin improved by 74 percentage points from a net loss of $1,126,833 for the
three-month period ended June 30, 2009 as compared to a net loss of $2,732,154
for the three-month period ended June 30, 2008. After removing the non-cash
compensation expenses of $149,449 and $1,438,446, respectively, our normalized
net loss margin improved by 10 percentage points from a total normalized net
loss $977,384 for the three-month period ended June 30, 2009 as compared to a
net loss of $1,293,708 for the three-month period ended June 30, 2008.

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

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

Operating
Loss. Operating expenses,
which consist of payroll, bonuses and taxes, depreciation and amortization,
other general and administrative costs, network operating costs, marketing and
advertising, installation expense, and professional fees totaled $4,540,840 for
the six-month period ended June 30, 2009, as compared to $8,978,520 for the
six-month period ended June 30, 2008, representing a decrease of approximately
49.4%. A majority of this decrease, 67.1%, was due to a credit of $418,024 for
non-cash stock-based compensation expenses during the six-month period ended
June 30, 2009, as compared to $2,560,832 incurred in the six-month period ended
March 31, 2008. Another contributing factor, accounting for 15.8% of the
decrease, was the reduction in salaries and benefits due to our focused cost
reduction initiatives. A third contributing factor, accounting for 10.0% of the
decrease, was reduced subscriber growth resulting in lower marketing and installation
costs. The remaining decrease in operating expenses, or 7.1%, was the
reduction of professional fees and other general administrative costs that were
the result of our cost savings initiatives during the six month period ended
June 30, 2009 as compared to June 30, 2008. Without the non-cash stock
compensation expenses including $106,800 in professional fees incurred during
the six month period ended June 30, 2009, normalized operating expenses would
have been $4,852,064 for the six-month period ended June 30, 2009 as compared
to $6,417,688 for the six-month period ended June 30, 2008, representing a
decrease of 24.4% in operating expenses. Our actual operating loss margin
improved by 98 percentage points from a total operating loss of $890,336 for
the six-month period ended June 30, 2009 as compared to a loss of $4,946,201
for the six-month period ended June 30, 2008. By removing non-cash stock
compensation expense of $311,224 from payroll as a credit and $2,560,832 from
professional fees, respectively, our normalized operating loss margin improved
by 26 percentage points from a total normalized operating loss $1,201,560 for
the six-month period ended June 30, 2009 as compared to a loss of $2,385,369
for the six-month period ended June 30, 2008.

Payroll,
Bonuses and Taxes. Payroll bonuses and taxes totaled
$928,021 for the six-month period ended June 30, 2009, as compared to
$4,606,428 for the six-month period ended June 30, 2008, representing a
decrease of approximately 79.9%. A majority of this decrease, 81.0%, was
primarily due to the non-cash stock compensation reversal recorded for the
six-month period ended June 30, 2009 as compared to the six-month period ended
June 30,

16

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

2008. The remaining portion of the decrease, 19.0%, was due to our
efforts to improve our internal processes which resulted in our ability to
significantly reduce headcount.

Depreciation
and Amortization. Depreciation and amortization expenses
totaled $1,256,957 for the six-month period ended June 30, 2009, as compared to
$1,404,183 for the six-month period ended June 30, 2008, representing a
decrease of approximately 10.5%. This decrease was primarily due to limited new
equipment purchases resulting from fewer subscriber additions.

Network
Operating Costs. Network operating costs, which consist of
tower rent, Internet transport costs and Internet termination expense, totaled
$1,462,727 for the six-month period ended June 30, 2009, as compared to
$1,470,274 for the six-month period ended June 30, 2008, representing a
decrease of approximately 0.5%. The negligible decrease was primarily due to
our efforts to reduce costs by eliminating certain unnecessary and
underperforming transmission sites, but also includes a credit of $29,162 for the three month period ending in March 31, 2009.

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

Installation
Expense. Installation
expense, which consists primarily of expenses associated with installation
supplies, third party installation costs and transportation expenses relating
to the installations, totaled $79,966 for the six-month period ended June 30,
2009, as compared to $243,421 for the six-month period ended June 30, 2008,
representing a decrease of approximately 67.1%. Installation volumes decreased
by 65.7%, accounting for 97.9% of the decline, for the six-month period ended
June 30, 2009 as compared to the six-month period ended June 30, 2008.
Automobile expense decreased slightly during the six-month period ended June
30, 2009 as compared to the six-month period ended June 30, 2008 due to reduced
fuel prices.

Professional
Fees. Professional
fees, which consist of legal, accounting, and other related expenses, totaled
$225,273 for the six-month period ended June 30, 2009, as compared to $245,141
for the six-month period ended June 30, 2008, representing a decrease of
approximately 8.1%. During the six-month period ended June 30, 2009, consulting
and advisory expenses of $106,800 were recorded in exchange for stock. Without
these non-cash expenses, professional fees for the six-month period ended June
30, 2009, would have been $118,473, or a decrease of 51.7% as compared to the
six-month period ended June 30, 2008. Legal fees accounted for 56.5% of the
decrease and accounting fees accounted for the remaining difference, 43.5% for
the six-month period ended June 30, 2009, as compared to the six-month period
ended June 30, 2008.

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

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

17

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

Other
Income and Expense. We incurred other income and
expense of $610,920 for the six-month period ended June 30, 2009, as compared
to $357,586 for the six-month period ended June 30, 2008, representing an
increase of 70.8%. The primary reason for the increase, 60.2%, resulted from
the interest amortization expense on our debt financing costs recorded as
interest expense. Secondly, the interest on our subordinated secured notes
issued during the six month period ended June 30, 2009 as compared to the six
month period ended June 30, 2008 accounts for 43.7% of the change. This is
offset by a gain on disposal of an asset during the six month period ended June
30, 2008, as well as by small decreases in other interest and interest on the
Loan during the six month period ended June 30, 2009.

Net Loss. We had a net
loss of $1,501,256 for the six-month period ended June 30, 2009, as compared to
a net loss of $5,303,787 for the six-month period ended June 30, 2008,
representing an improvement of approximately 71.7%. The major contributing
factor of the improved net loss was the credit of $418,024 of non-cash
stock-based compensation expenses for the six month period ended June 30, 2009
as compared to $2,560,832 for the six month period ended June 30, 2008, which
accounted for 78.3% of the improvement. Another contributing factor, accounting
for 18.4% of the improvement in the net loss, was the cost reduction initiative
to reduce headcount across the company. The remaining improvement, or 3.3%, was
the result of focused cost savings initiatives in marketing, installation,
general and administrative costs and network operating costs. The decrease in
these operating costs was partially offset by the increase in our interest
expense increase for the six month period ended June 30, 2009 as compared to
the six month period ended June 30, 2008. Normalized net loss without the
non-cash compensation expenses in payroll and in professional fees would have
been $1,812,480 for the six-month period ended June 30, 2009 as compared to
$2,742,955 for the six-month period ended June 30, 2008, representing an
improvement of 33.9%. This improvement was the result of our cost reduction
initiatives during the six month period ended June 30, 2009 in support of our
external fund raising initiatives. Our net loss margin improved by 90
percentage points from a net loss of $1,501,256 for the six-month period ended
June 30, 2009 as compared to a net loss of $2,560,832 for the six-month period
ended June 30, 2008. After removing the non-cash compensation expenses from
payroll and professional fees of ($311,224) and $2,560,832, respectively, our
normalized net loss margin improved by 18 percentage points from a total
normalized net loss $1,812,480 for the six-month period ended June 30,2009 as
compared to a net loss of $2,742,955 for the six-month period ended June 30,
2008.

Liquidity and Capital Resources

General

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

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

Net Cash
Used in Investing Activities. Net cash used in investing activities totaled
$26,197 for the six-month period ended June 30, 2009, as compared to net cash
used in investing activities of $86,739 for the six-month period ended June 30,
2009. Due to the focused cost reduction initiatives and fewer new customer installations due to lowered marketing expenses, the Company has only purchased
replacement equipment during the six month period ended June 30, 2009, as
compared to the six month period ended June 30, 2008.

Net Cash
Provided By Financing Activities. Net cash
provided by financing activities totaled $357,704 for the six-month period
ended June 30, 2009, as compared to $1,069,379 for the six-month period ended
June 30,

18

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

2008. During the six-month period ended June 30, 2008, the Company
entered into a commercial loan agreement for $4,500,000 of which $3,000,000 was
used to pay the prior term loan. The Company drew down $1,500,000 of the
remaining amount on the loan balance for use in operations during the six month
period ended June 31, 2008. During the six-month period ended June 30, 2009,
the Company entered into several subordinated secured note agreements with the
proceeds totaling $300,000. The Company also entered into two short term note
agreements for $400,000, of which $150,000 was paid back during the six month
period ending June 30, 2009. The Company renewed the term loan by paying
$450,000 towards the principal balance and extending the terms to June 4, 2015.
During the first year, interest only payments are due on a monthly basis at a
rate of 7.75%. During the six month period ended June 30, 2009, the Company
issued common stock for options exercised netting cash proceeds of $65,819 and
sold stock subscriptions netting cash proceeds of $475,000.

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

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

Operations

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

Restructuring and Equity Raise

In addition
to the operational changes, management has undertaken a variety of measures to
restructure the Companys current and long-term liabilities. The Company has successfully reduced its current liabilities, specifically accounts payable and as a result, preserved working capital through settlement and other agreements. In the fourth quarter of 2008, we received $43,505 of forgiveness, in the second quarter of 2009 we received an additional $48,682 of forgiveness and additional forgiveness will be obtained as we continue to perform under these settlement and other agreements. In March of 2009,
we executed a second restructuring with another lease financing company. The
effect of this restructuring also served to reduce the monthly payment
obligations of the Company and extended the payments for an additional 24 months.
Beginning in August 2008 and continuing through March 2009, the Company raised
additional capital in the amount of $1,281,877 through the issuance of
subordinated secured notes. The note holders consisted of existing shareholders as well as members and affiliates of management. The Companys $4,500,000 Loan matured on June 4, 2009. Upon maturity, the Company entered into a Change in Terms Agreement with Sun West Bank regarding the Loan (the Change in Terms). Pursuant to the Change in Terms, the Company made a principal reduction payment of $450,000 to Sun West Bank, reducing the principal balance of the Loan from $4,500,000 to $4,050,000. Additionally, the maturity date of the Loan was extended for six years from June 4, 2009 until June 4, 2015 and the interest rate of the Loan was modified to a fixed interest rate of 7.75%, which is anticipated to be changed to 7.25%.

The Company successfully raised $613,950 from sales of common stock during the second quarter 2009 and raised an additional $700,000 through the issuance of common stock in July of 2009 as disclosed on Form 8-K on July 22, 2009.

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

19

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

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

Controls and Procedures

Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in
the reports that it files or submits under the Securities Exchange Act of 1934,
as amended, is accumulated and communicated to the issuers management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. We were unable to conclude that our disclosure
controls and procedures are effective, as of the end of the period covered by
this report (June 30, 2009), in ensuring that material information that we are
required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. We believe that we will have effective internal
controls to meet this requirement prior to the filing of our annual report for
the year ended December 31, 2009.

Changes in Internal Control Over Financial
Reporting

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

PART 11  OTHER INFORMATION

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

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

|                 
|-----------------
|                 
|* Filed
 herewith

20

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

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: August
 19, 2009 | By:                                  | /s/ Jonathan
 Snyder                   | 
|                       |                                      |                                        | 
|                       |                                      | Jonathan
 Snyder                       | 
|                       |                                      | President
 and Chief Executive Officer | 
|                       |                                      | (Principal
 Executive Officer)         | 
|                       |                                      |                                        | 
|Date: August
 19, 2009 | By:                                  | /s/ Annette
 Eggert                    | 
|                       |                                      |                                        | 
|                       |                                      | Annette
 Eggert                        | 
|                       |                                      | Chief
 Financial Officer               | 
|                       |                                      | (Principal
 Financial Officer)         | 

21

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

EXHIBIT INDEX

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

|                 
|-----------------
|                 
|* Filed
 herewith

22

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