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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Washington, DC 20549


FORM 10-Q / A

First Amendment

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

For the quarterly period ended September 30,
2008

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 333-136487

|                                                                |                                                        |  |  |                                       
|--------------------------------------------------------------- | ------------------------------------------------------ |  |  | --------------------------------------
|KEYON COMMUNICATIONS HOLDINGS, INC.                            
|                                                               
|                                                                | (Exact Name of Registrant as Specified in Its Charter) | 
|Delaware                                                        |                                                        |  |  | 74-3130469                            
|                                                                |                                                        |  |  |                                       
|(State or Other Jurisdiction of
 Incorporation or Organization) |                                                        |  |  | (I.R.S. Employer 
 Identification No.)

| |                                             |  |            | 
| | ------------------------------------------- |  | ---------- | 
| | 11742 Stonegate CircleOmaha, 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 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 December
2, 2008, 8,634,845 shares of the issuers common stock, $0.001 par value per
share, were outstanding.

---

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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (this Amendment) is being filed solely for the purpose of providing further clarifying information described in the Condensed Consolidated Balance Sheet as of  September 30, 2008, the Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of the registrants Form 10-Q for the quarterly period ended September 30, 2008 (the Original Filing).



The Condensed Consolidated Balance Sheet as of September 30, 2008 has been changed to separate the Current Portion of Notes Payable into two categories, Current Portion of Notes Payable and Current Portion of Notes Payable  related party.  The Original Filing an amount of $1,068,929 which has been revised and separated into $501,918 and $567,011 of Current Portion of Notes Payable and Current Portion of Notes Payable  related party, respectively, the total amount being unchanged.



The Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2008 has been changed to separate Proceeds from notes payable into two categories, Proceeds from notes payable and Proceeds from notes payable  related party.  The Original Filing showed an amount of $937,246 which has been revised and separated into $386,750 and $550,496 of Proceeds from notes payable and Proceeds from notes payable  related party, respectively, the total amount being unchanged.



The Notes to the Condensed Financial Statements have been revised to reflect the changes described above.  Specifically, in Note 5- Line of Credit and Other Debt, an explanatory paragraph was added to describe the subordinated secured notes issued to certain officers and directors of the company who are deemed to be Related Parties.  Furthermore, these subordinated secured notes were further broken out in a separate table in Note 7- Related Party Transactions and addressed separately from the tables associated with Note 5.  As a result, the amount of subordinated secured notes payable maturing from November 2008 or January 2009 changed from $839,609 to $272,598 because the difference of $567,011 is reflected in Note 7.  A corresponding change was made to the entries for Total Long term debt and Less current maturities, reducing those amounts by the amount of subordinated secured notes
  held by related parties.   The preceding changes did not affect the total outstanding amount of the subordinated secured notes payable, only the separation into those held by Related Parties as described above and more fully in Notes 5 and 7.  Finally, Note 10- Subsequent Events was updated to reflect the amount of additional subordinated secured notes issued from September 30, 2008 and the total amount issued through December 2, 2008, increasing the amount outstanding by $105,824 to a total outstanding as of December 2, 2008 of $1,033,375.



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



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KEYON COMMUNICATIONS HOLDINGS, INC.

Table of Contents

|        |          |                       |                                                                                                                                             |  |     
|------- | -------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|        |          |                       |                                                                                                                                             |  | Page
|        |          |                       |                                                                                                                                             |  |     
|        |          |                       |                                                                                                                                             |  |     
|PART I  |          | FINANCIAL INFORMATION |                                                                                                                                             | 
|        |          |                       |                                                                                                                                             |  |     
|        | Item 1.  |                       | Financial Statements                                                                                                                        |  | 1   
|        |          |                       |                                                                                                                                             |  |     
|        |          |                       | Condensed Consolidated Balance Sheets as of September 30, 2008
 (Unaudited) and December 31, 2007                                           |  | 2   
|        |          |                       |                                                                                                                                             |  |     
|        |          |                       | Condensed Consolidated Statements of Operations for the three months
 and for the nine months ended September 30, 2008 and 2007 (Unaudited) |  | 3   
|        |          |                       |                                                                                                                                             |  |     
|        |          |                       | Condensed Consolidated Statements of Cash Flows for the nine months
 ended September 30, 2008 and 2007 (Unaudited)                          |  | 4   
|        |          |                       |                                                                                                                                             |  |     
|        |          |                       | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                            |  | 5   
|        |          |                       |                                                                                                                                             |  |     
|        | Item 2.  |                       | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                                                      |  | 16  
|        |          |                       |                                                                                                                                             |  |     
|        | Item 4T. |                       | Controls and Procedures                                                                                                                     |  | 22  
|        |          |                       |                                                                                                                                             |  |     
|PART II |          | OTHER INFORMATION     |                                                                                                                                             | 
|        |          |                       |                                                                                                                                             |  |     
|        | Item 6.  |                       | Exhibits                                                                                                                                    |  | 22  

i

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PART I 
FINANCIAL INFORMATION

|        |                      
|------- | ---------------------
|Item 1. | Financial Statements.

KEYON COMMUNICATIONS HOLDINGS, INC.
AND RELATED ENTITIES

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2008

1

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KEYON COMMUNICATIONS HOLDINGS INC. AND
RELATED ENTITIES

CONDENSED CONSOLIDATD BALANCE SHEETS
AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007

|                                                                                                                                                                                               |  |      |             |      |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                                               |  | 2008 |             | 2007 |  
|ASSETS                                                                                                                                                                                         |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|CURRENT
 ASSETS:                                                                                                                                                                               |  |      |             |      |   |             |  
|Cash                                                                                                                                                                                           |  | $    | 51,220      |      | $ | 316,999     |  
|Accounts
 receivable, net of allowance for doubtful accounts                                                                                                                                   |  |      | 129,883     |      |   | 94,098      |  
|Inventories                                                                                                                                                                                    |  |      | 206,696     |      |   | 300,610     |  
|Prepaid
 expenses and other current assets                                                                                                                                                     |  |      | 63,427      |      |   | 75,259      |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|Total
 current assets                                                                                                                                                                          |  |      | 451,226     |      |   | 786,966     |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|PROPERTY AND
 EQUIPMENT - Net                                                                                                                                                                  |  |      | 3,811,433   |      |   | 4,571,220   |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|OTHER ASSETS                                                                                                                                                                                   |  |      |             |      |   |             |  
|Goodwill                                                                                                                                                                                       |  |      | 1,738,773   |      |   | 1,738,773   |  
|Subscriber base net                                                                                                                                                                           |  |      | 663,254     |      |   | 964,787     |  
|Trademarks                                                                                                                                                                                     |  |      | 16,667      |      |   | 16,667      |  
|Refundable deposits                                                                                                                                                                            |  |      | 66,758      |      |   | 65,624      |  
|Debt issuance costs  net                                                                                                                                                                      |  |      | 227,652     |      |   | 10,065      |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|Total other assets                                                                                                                                                                             |  |      | 2,713,104   |      |   | 2,795,916   |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|TOTAL ASSETS                                                                                                                                                                                   |  | $    | 6,975,763   |      | $ | 8,154,102   |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY
 (DEFICIT)                                                                                                                                                |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                           |  |      |             |      |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                          |  | $    | 2,336,196   |      | $ | 2,389,356   |  
|Cash overdraft                                                                                                                                                                                 |  |      | 140,725     |      |   | 298,516     |  
|Revolving line of credit - related party                                                                                                                                                       |  |      | 100,000     |      |   | 100,000     |  
|Term loan payable - related party                                                                                                                                                              |  |      | 4,500,000   |      |   | 3,000,000   |  
|Current portion of notes payable  related
 party                                                                                                                                              |  |      | 567,011     |      |   |            |  
|Current portion of notes payable                                                                                                                                                               |  |      | 501,918     |      |   | 149,685     |  
|Current portion of deferred rent liability                                                                                                                                                     |  |      | 58,294      |      |   | 57,007      |  
|Current portion of capital lease
 obligations                                                                                                                                                  |  |      | 585,538     |      |   | 742,562     |  
|Deferred
 revenue                                                                                                                                                                              |  |      | 350,979     |      |   | 391,193     |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|Total
 current liabilities                                                                                                                                                                     |  |      | 9,140,661   |      |   | 7,128,319   |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|LONG-TERM
 LIABILITIES                                                                                                                                                                         |  |      |             |      |   |             |  
|Deferred rent liability, less current
 maturities                                                                                                                                              |  |      | 156,332     |      |   | 200,320     |  
|Notes payable, less current maturities                                                                                                                                                         |  |      | 45,943      |      |   | 68,525      |  
|Capital lease obligations, less current
 maturities                                                                                                                                            |  |      | 987,379     |      |   | 667,639     |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|Total long term liabilities                                                                                                                                                                    |  |      | 1,189,654   |      |   | 936,484     |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                  |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|STOCKHOLDERS EQUITY (DEFICIT):                                                                                                                                                                |  |      |             |      |   |             |  
|Series A preferred stock, $0.001 par value; 5,000,000 shares authorized 0 shares issued and outstanding at September
 30, 2008 and at December 31, 2007                                        |  |      |            |      |   |            |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|Common stock, $0.001 par value; 95,000,000
 shares authorized; 8,634,845 shares issued and outstanding at September 30,
 2008; 8,249,106 shares issued and outstanding as of December 31, 2007 |  |      | 8,635       |      |   | 8,249       |  
|Additional paid-in capital                                                                                                                                                                     |  |      | 17,088,868  |      |   | 13,739,714  |  
|Accumulated deficit                                                                                                                                                                            |  |      | (20,452,055 | )    |   | (13,658,664 | )
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|Total stockholders equity (deficit)                                                                                                                                                           |  |      | (3,354,552  | )    |   | 89,299      |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
 (DEFICIT)                                                                                                                                          |  | $    | 6,975,763   |      | $ | 8,154,102   |  
|                                                                                                                                                                                               |  |      |             |      |   |             |  

See notes to
condensed consolidated financial statements.

2

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KEYON COMMUNICATIONS HOLDINGS INC. AND
RELATED ENTITIES

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)

|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|------------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                              |  | Three Months Ended
 September 30 |            | Nine Months Ended
 September 30 |  
|                                                              |  | 2008                             |            | 2007                            |   | 2008       |   | 2007 |           
|REVENUES:                                                     |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Service and installation revenue                              |  | $                                | 1,860,112  |                                 | $ | 1,829,891  |   | $    | 5,792,129  |   | $ | 5,119,460  |  
|Support and other revenue                                     |  |                                  | 18,625     |                                 |   | 33,531     |   |      | 118,927    |   |   | 97,516     |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Total revenues                                                |  |                                  | 1,878,737  |                                 |   | 1,863,422  |   |      | 5,911,056  |   |   | 5,216,976  |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|OPERATING COSTS AND EXPENSES:                                 |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Stock based compensation                                      |  |                                  | 537,294    |                                 |   | 1,335,306  |   |      | 3,098,126  |   |   | 1,339,891  |  
|Payroll, bonuses and taxes                                    |  |                                  | 868,733    |                                 |   | 914,045    |   |      | 2,914,329  |   |   | 2,403,899  |  
|Network operating costs                                       |  |                                  | 639,517    |                                 |   | 673,478    |   |      | 2,109,791  |   |   | 1,662,310  |  
|Depreciation and amortization                                 |  |                                  | 669,935    |                                 |   | 668,354    |   |      | 2,069,249  |   |   | 1,862,646  |  
|Other general and administrative expense                      |  |                                  | 248,116    |                                 |   | 391,025    |   |      | 924,997    |   |   | 1,246,083  |  
|Installation expense                                          |  |                                  | 99,519     |                                 |   | 124,850    |   |      | 342,940    |   |   | 299,407    |  
|Marketing and advertising                                     |  |                                  | 13,950     |                                 |   | 166,958    |   |      | 315,030    |   |   | 397,593    |  
|Professional fees                                             |  |                                  | 75,230     |                                 |   | 319,341    |   |      | 320,370    |   |   | 429,991    |  
|Cost of DISH inventory                                        |  |                                  |           |                                 |   |           |   |      | 31,113     |   |   |           |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Total operating costs and expenses                            |  |                                  | 3,152,294  |                                 |   | 4,593,357  |   |      | 12,125,945 |   |   | 9,641,820  |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|LOSS FROM OPERATIONS                                          |  |                                  | (1,273,557 | )                               |   | (2,729,935 | ) |      | (6,214,889 | ) |   | (4,424,844 | )
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|OTHER INCOME (EXPENSE):                                       |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Interest expense - Net of interest income                     |  |                                  | (216,047   | )                               |   | (136,621   | ) |      | (578,502   | ) |   | (429,520   | )
|Minority interest in income                                   |  |                                  |           |                                 |   |           |   |      |           |   |   |           |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Total other income (expense)                                  |  |                                  | (216,047   | )                               |   | (136,621   | ) |      | (578,502   | ) |   | (429,520   | )
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|PROVISION FOR INCOME TAXES                                    |  |                                  |           |                                 |   |           |   |      |           |   |   |           |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|NET LOSS                                                      |  | $                                | (1,489,604 | )                               | $ | (2,866,556 | ) | $    | (6,793,391 | ) | $ | (4,854,364 | )
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Net loss per common sharebasic and
 diluted                  |  | $                                | (0.18      | )                               | $ | (0.40      | ) | $    | (0.82      | ) | $ | (0.82      | )
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                              |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Weighted average common shares
 outstandingbasic and diluted |  |                                  | 8,386,790  |                                 |   | 7,217,297  |   |      | 8,295,905  |   |   | 5,886,567  |  

See notes to condensed
consolidated financial statements

3

---



KEYON COMMUNICATIONS HOLDINGS INC. AND
RELATED ENTITIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)

|                                                                     |  |      |            |      |   |            |  
|-------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                     |  | 2008 |            | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                |  |      |            |      |  
|Net loss                                                             |  | $    | (6,793,391 | )    | $ | (4,854,363 | )
|Adjustments to reconcile net loss to net cash flows
from operations: |  |      |            |      |   |            |  
|Depreciation expense                                                 |  |      | 1,767,716  |      |   | 1,625,243  |  
|Amortization expense on subscriber base                              |  |      | 301,533    |      |   | 237,403    |  
|Amortization expense on debt issuance
costs                          |  |      | 5,022      |      |   | 17,889     |  
|Stock based compensation expense                                     |  |      | 3,098,126  |      |   | 1,339,891  |  
|Warrant interest expense                                             |  |      |           |      |   | 54,139     |  
|Professional services in exchange for
stock                          |  |      | 51,414     |      |   | 226,105    |  
|                                                                     |  |      |            |      |   |            |  
|Change in assets and liabilities, net of effect of
acquisitions:     |  |      |            |      |   |            |  
|(Increase) in accounts receivable                                    |  |      | (35,785    | )    |   | (3,219     | )
|Decrease in inventory                                                |  |      | 93,914     |      |   |           |  
|(Increase) decrease in prepaid expenses and other
current assets     |  |      | 11,831     |      |   | 33,659     |  
|(Increase) in refundable deposits                                    |  |      | (1,134     | )    |   | (7,592     | )
|(Increase) decrease in other assets                                  |  |      | (22,609    | )    |   | 18,872     |  
|(Decrease) in accounts payable and accrued
expenses                  |  |      | (53,160    | )    |   | 616,195    |  
|(Decrease) increase in deferred rent
liability                       |  |      | (42,702    | )    |   | 6,579      |  
|(Decrease) in deferred revenue                                       |  |      | (40,214    | )    |   | (18,287    | )
|                                                                     |  |      |            |      |   |            |  
|Net cash provided by (used in) operating
activities                  |  |      | (1,659,438 | )    |   | (707,486   | )
|                                                                     |  |      |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                |  |      |            |      |   |            |  
|                                                                    
|Capital expenditures for property and
equipment                      |  |      | (109,118   | )    |   | (339,044   | )
|Acquisition of SpeedNet and Microlnk                                 |  |      |           |      |   | (3,458,255 | )
|                                                                     |  |      |            |      |   |            |  
|Net
cash (used in) investing activities                              |  |      | (109,118   | )    |   | (3,797,299 | )
|                                                                     |  |      |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                |  |      |            |      |   |            |  
|Proceeds from cash overdraft                                         |  |      |           |      |   |           |  
|Payment on cash overdraft                                            |  |      | (157,791   | )    |   | (17,246    | )
|Payments on line of credit                                           |  |      |           |      |   |           |  
|Payments on loans payable to shareholder                             |  |      |           |      |   | (185,000   | )
|Proceeds from term note payable                                      |  |      | 1,500,000  |      |   | 3,000,000  |  
|Payments on notes payable                                            |  |      | (40,583    | )    |   | (27,695    | )
|Proceeds from notes payable  - Related Party                         |  |      | 550,496    |      |   |           |  
|Proceeds from notes payable                                          |  |      | 386,750    |      |   | 102,988    |  
|Payments on capital lease obligations                                |  |      | (736,095   | )    |   | (509,841   | )
|Proceeds from stock issuance                                         |  |      |           |      |   | 3,706,292  |  
|                                                                     |  |      |            |      |   |            |  
|Net cash provided by financing
activities                            |  |      | 1,502,777  |      |   | 6,069,498  |  
|                                                                     |  |      |            |      |   |            |  
|NET INCREASE (DECREASE) IN CASH                                      |  |      | (265,779   | )    |   | 1,564,713  |  
|                                                                     |  |      |            |      |   |            |  
|CASH - Beginning of period                                           |  |      | 316,999    |      |   | 4,690      |  
|                                                                     |  |      |            |      |   |            |  
|CASH - End of period                                                 |  | $    | 51,220     |      | $ | 1,569,403  |  
|                                                                     |  |      |            |      |   |            |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                   |  |      |            |      |   |            |  
|                                                                    
|Acquisition - SpeedNet:                                              |  |      |            |      |   |            |  
|Accounts receivable                                                  |  |      |           |      |   | 73,197     |  
|Prepaid assets                                                       |  |      |           |      |   | 109,913    |  
|Goodwill                                                             |  |      |           |      |   | 1,282,052  |  
|Subscriber Base                                                      |  |      |           |      |   | 916,301    |  
|Trademark                                                            |  |      |           |      |   | 16,667     |  
|Property and equipment                                               |  |      |           |      |   | 1,618,459  |  
|Inventory                                                            |  |      |           |      |   | 308,666    |  
|Accounts payable and accrued expenses                                |  |      |           |      |   | (180,846   | )
|Deferred Revenue                                                     |  |      |           |      |   | (431,912   | )
|Capital lease obligations                                            |  |      |           |      |   | (254,242   | )
|                                                                     |  |      |            |      |   |            |  
|                                                                     |  | $    |           |      | $ | 3,458,255  |  
|                                                                     |  |      |            |      |   |            |  
|                                                                    
|                                                                     |  |      |            |      |   |            |  
|Stock issued to shareholders for notes
payable                       |  | $    |           |      | $ | 1,065,999  |  
|                                                                     |  |      |            |      |   |            |  
|Stock issued to shareholders for notes payable
interest              |  | $    |           |      | $ | 100,561    |  
|                                                                     |  |      |            |      |   |            |  
|Common stock exchange for professional
services                      |  | $    | 51,414     |      | $ | 26,105     |  
|                                                                     |  |      |            |      |   |            |  
|Deferred rent liability for tenant
improvement                       |  | $    |           |      | $ | 265,000    |  
|                                                                     |  |      |            |      |   |            |  
|Warrants for debt issuance costs                                     |  | $    | 200,000    |      | $ | 35,177     |  
|                                                                     |  |      |            |      |   |            |  
|Warrant interest expense                                             |  | $    |           |      | $ | 54,139     |  
|                                                                     |  |      |            |      |   |            |  
|Capital lease obligations for property and
equipment                 |  | $    | 898,811    |      | $ | 370,308    |  
|                                                                     |  |      |            |      |   |            |  
|                                                                     |  |      |            |      |   |            |  
|Cash payments for:                                                   |  |      |            |      |   |            |  
|Interest                                                             |  | $    | 620,524    |      | $ | 128,190    |  
|                                                                     |  |      |            |      |   |            |  

4

---



Note 1  Organization and Nature of Business

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. (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. (KeyOn or the Company), 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, 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.

5

---



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
September 30, 2008 and the results of operations for the three and nine months
ended September 30, 2008 and 2007 and cash flows for the nine months ended
September 30, 2008 not misleading. The unaudited condensed consolidated financial
statements for the three and nine-month periods ended September 30, 2008, and
September 30, 2007 should be read in conjunction with the audited financial
statements for the years ended December 31, 2007 and 2006 as contained in the
Form 10K SB filed on March 31, 2008.

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 DISH retailer line of business, 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.

Inventories

With the
purchase of SpeedNet Services, Inc., the Company began to maintain a consistent
stock supply of customer premise equipment, installation supplies, and tower
replacement parts. The value of this inventory was $191,152 as of September 30,
2008. The Company also began to carry inventory in 2007 in support of its
launch as a reseller of satellite video service from DISH Network Corporation.
The value of this inventory was $15,544 as of September 30, 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.

6

---



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 $350,979 at
September 30, 2008.

Reclassifications

Certain
reclassifications have been made to the 2007 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 nine months ended
September 30, 2008.

As
single-member limited liability companies, KeyOn LLC, Pahrump, SIRIS, Grand
Junction, Idaho Falls, Pocatello, SpeedNet LLC and Spectrum Holdings are not
taxed as separate entities for federal income tax purposes. Rather, these
organizations taxable items of income, deduction, loss, and credit are
included with the federal income tax return of the Company. Accordingly, the
members separately account for their share of the organizations income,
deductions, losses and credits. Therefore, no separate provision for income tax
expense or benefit has been recognized in the accompanying consolidated
financial statements for these related entities, but was considered for KeyOn
as part of its SFAS 109 reporting requirement.

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 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 nine months ended September 30, 2008, 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 $537,294 and $3,098,126 for the three and nine month periods
ended September 30, 2008, respectively, compared to $1,335,306 and $1,339,891
for the

7

---



same periods
in 2007.

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.

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. The Company has taken steps to mitigate this going concern opinion,
including executing a commercial loan agreement with Sun West Bank on February
8, 2008 totaling $4.5 million (the Loan), the proceeds of which were used to
refinance the $3.0 million term loan and for working capital as to help sustain
its current capital needs. The Loan matured on August 8, 2008 though it was
renewed on August 27, 2008 for a period of 6 months, with a new maturity date
of February 8, 2009. In addition, in July 2008, the company had been in the
process of raising $1 million of capital through the issuance of Subordinated
Secured Promissory Notes (the Notes) to accredited investors. As of September
30, 2008, KeyOn has raised a total of $839,609 through the Notes (see Note 5
and Subsequent Events).

Finally,
beginning in 2007 and through the first quarter of 2008, the Company had been
staffed to accelerate growth through acquisitions and rapid organic growth of
its subscriber base. The Company has since moderated its growth strategy by
postponing further acquisitions. In addition, in order to minimize cash
outlays, the Company has slowed its organic growth while instituting
cost-cutting measures such as a reduction in marketing expenses and company
overhead. As a result, the Company has begun to generate operating income and
positive cash from operations. At the same time, KeyOn has been exploring
strategic alternatives, including a merger or sale of the company. These
financial statements have been prepared assuming the Company will continue as a
going concern and, accordingly, do not include any adjustments that might
result from the outcome of the uncertainties described above.

Recent Accounting Pronouncements

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

In
September 2006, the FASB issued Statement of Financial Accounting Standards
157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 applies to other accounting pronouncements that require or permit fair
value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of SFAS 157 will change current
practice. The provisions of SFAS 157 are effective as of the beginning of the
Companys 2009 fiscal year. For the three and nine month periods ended
September 30, 2008, there was no impact on the Companys consolidated financial
position, results of operations or cash flows due to SFAS 157.

In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in the Current Year Financial Statements (SAB
108). SAB 108 addresses how the effects of prior-year uncorrected
misstatements should be considered when quantifying misstatements in
current-year financial statements. SAB 108 requires an entity to quantify
misstatements using a balance sheet and income-statement approach and to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. The
guidance is applicable for fiscal years ending after November 15, 2006. We
currently do not believe that SAB 108 has a material impact on our financial
statements.

In February
2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, (SFAS 159) which expands opportunities to use fair
value measurements in financial reporting and permits entities to choose to
measure many financial instruments and certain other items at fair value. SFAS
159 is

8

---



effective for fiscal years beginning after November 15, 2007. For the
three and nine month periods ended September 30, 2008, there was no impact on
the Companys consolidated financial position, results of operations or cash
flows due to SFAS 159.

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 Company is currently evaluating FAS 141 to
determine its impact on its future consolidated financial position, results of
operations or cash flows.

Note 3  Equipment

Equipment
at September 30, 2008 and December 31, 2007, consisted of the following:

|                                     |  |           |            |            |   |            |  
|------------------------------------ |  | --------- | ---------- | ---------- | - | ---------- | -
|                                     |  | 9/30/2008 |            | 12/31/2007 |  
|                                     |  |           |            |            |   |            |  
|Subscriber equipment                 |  | $         | 6,089,255  |            | $ | 5,329,361  |  
|Fixed wireless tower site
 equipment |  |           | 2,573,561  |            |   | 2,353,683  |  
|Software and consulting
 costs       |  |           | 611,187    |            |   | 572,728    |  
|Computer and office
 equipment       |  |           | 418,030    |            |   | 417,077    |  
|Vehicles                             |  |           | 241,106    |            |   | 277,439    |  
|Leasehold improvements               |  |           | 312,100    |            |   | 312,100    |  
|                                     |  |           |            |            |   |            |  
|                                     |  |           | 10,245,239 |            |   | 9,262,388  |  
|Less: accumulated
 depreciation      |  |           | (6,433,806 | )          |   | (4,691,168 | )
|                                     |  |           |            |            |   |            |  
|                                     |  |           |            |            |   |            |  
|Fixed assets - net                   |  | $         | 3,811,433  |            | $ | 4,571,220  |  
|                                     |  |           |            |            |   |            |  

Depreciation
expense for the three months ended September 30, 2008 and 2007 was $569,424 and
$586,698 respectively. Depreciation expense for the nine months ended September
30, 2008 and 2007 was $1,767,716 and $1,643,132, respectively.

Note 4  Intangible Assets

Intangible
assets at September 30, 2008 and December 31, 2007, consisted of the following:

|                                                  |  |           |           |            |   |           |  
|------------------------------------------------- |  | --------- | --------- | ---------- | - | --------- | -
|                                                  |  | 9/30/2008 |           | 12/31/2007 |  
|                                                  |  |           |           |            |   |           |  
|Goodwill                                          |  | $         | 1,738,773 |            | $ | 1,738,773 |  
|Subscriber base                                   |  |           | 1,290,887 |            |   | 1,290,887 |  
|Trademark                                         |  |           | 16,667    |            |   | 16,667    |  
|                                                  |  |           |           |            |   |           |  
|                                                  |  |           | 3,046,327 |            |   | 3,046,327 |  
|Less: accumulated
 amortization - subscriber base |  |           | (627,633  | )          |   | (326,100  | )
|                                                  |  |           |           |            |   |           |  
|                                                  |  |           |           |            |   |           |  
|Intangible assets - net                           |  | $         | 2,418,694 |            | $ | 2,720,227 |  
|                                                  |  |           |           |            |   |           |  

Amortization
expense for the three months ended September 30, 2008 and 2007 was $100,511 and
$81,656, respectively. Amortization expense for the nine months ended September
30, 2008 and 2007 was $301,533 and $219,514, respectively.

Estimated
amortization expense for the remainder of 2008 and future fiscal years is as
follows:

9

---



|           |  |   |         | 
|---------- |  | - | ------- | 
|2008       |  | $ | 100,511 | 
|2009       |  |   | 402,044 | 
|2010       |  |   | 109,493 | 
|2011       |  |   | 21,189  | 
|2012       |  |   | 21,189  | 
|2013       |  |   | 8,829   | 
|Thereafter |  |   |        | 
|           |  |   |         | 
|           |  | $ | 663,255 | 
|           |  |   |         | 

Note 5  Line of Credit and Other Debt

The Company
executed a loan agreement with Sun West Bank on February 8, 2008, totaling $4.5
million (the Loan). The Company used $3.0 million of the proceeds to
refinance its existing debt loan of $3.0 million with Sun West Bank. The
remaining $1.5 million was available but had been fully drawn to $4,500,000 as
of September 30, 2008. Monthly interest payments were not current as of
September 30, 2008 but through discussions, Sun West Bank has allowed for an
additional 60 days in order to cure the late interest payment. The Loan matured
on August 8, 2008, and the Company extended the Loan for a fee of $11,500 at
the Companys option for an additional six months until February 8, 2009. The
initial interest rate is 7.75% and will vary with the Sun West Banks index
rate plus 2.5 percentage points over the index. The interest rate was 7.75% as
of September 30, 2008. 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.

The Company
holds a line of credit loan for $100,000 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 $100,000 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 September 30, 2008 was 8.25%. The interest on the line of
credit is paid monthly. The line of credit is guaranteed by a shareholder and
officer of the Company.

On August
27, 2008, the Company, through the independent members of its board, issued
subordinated secured notes in the aggregate amount of $718,557 (of a total
authorized $1,000,000) to certain of its present investors and senior
management to fund the immediate working capital obligations and to allow the
Company time to arrange for longer term financing or pursue other strategic
options. An additional $121,052 was issued during September 2008. The notes
bear interest at 17% per annum and mature on the earlier to occur of January
29, 2009 or a change of control (which includes the merger), among other
things. Three percent of the amount of the subordinated secured notes was
retained by the investors in the form of a closing payment. The following
Company officers and directors held at September 30, 2008 the principal amount
of subordinated secured notes as related parties: Jerome Snyder - $103,093;
Jonathan Snyder - $335,052 and Jason Lazar - $128,866.

The Company
had the following long term debt at September 30, 2008 and December 31, 2007:

10

---



|                                                                                                                                                                          |  |           |          |            |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | -------- | ---------- | - | -------- | -
|                                                                                                                                                                          |  | 9/30/2008 |          | 12/31/2007 |  
|                                                                                                                                                                          |  |           |          |            |   |          |  
|A series of 17.0% subordinated secured
 notes payable maturing from November 2008 or January 2009, dependent upon the
 status of certain negotiations                     |  | $         | 272,598  |            | $ |         |  
|One
 5.0% notes payable maturing from October 3rd to October 9, 2008, with
 interest payable at maturity.                                                                 |  |           | 20,000   |            |   |         |  
|One
 non-interest bearing note payable to an entity for professional services.                                                                                            |  |           | 121,737  |            |   | 121,737  |  
|One
 7.8% note payable to American National Bank maturing April 2011 for the
 purchase of vans.                                                                           |  |           | 55,502   |            |   | 69,959   |  
|Two
 separate 9.1% notes payable to GMAC maturing August 2010 for the purchase of
 two trucks.                                                                            |  |           | 19,197   |            |   | 26,514   |  
|Two
 unsecured, non-interest bearing notes payable to two separate entities
 maturing from June 2009 to November 2009 resulting from the conversion of
 accounts payable. |  |           | 58,827   |            |   |         |  
|                                                                                                                                                                          |  |           |          |            |   |          |  
|Total long term debt                                                                                                                                                      |  |           | 547,861  |            |   | 218,210  |  
|Less current maturities                                                                                                                                                   |  |           | (501,918 | )          |   | (149,685 | )
|                                                                                                                                                                          |  |           |          |            |   |          |  
|                                                                                                                                                                          |  |           |          |            |   |          |  
|Total long term debt less current maturities                                                                                                                              |  | $         | 45,943   |            | $ | 68,525   |  
|                                                                                                                                                                          |  |           |          |            |   |          |  

Future minimum
payments on the notes payable, which are stated at their principal amounts with
initial or remaining terms of one year or more consist of the following as of
September 30, 2008:

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 $174,168 in
the three months ended September 30, 2008 and an additional $898,811 in the
nine months ended September 30, 2008. On September 22, 2008, the Company
entered into an Amendment of a certain Master Equipment Lease Agreement with
Data Sales Co., Inc. (the Lender) (the Amendment), pursuant to which the
Lender agreed to restructure certain lease schedules, payment and purchase
terms arising under that certain Master Equipment Lease Agreement executed by
the Company and the Lender on December 13, 2007 (the Master Lease). The
Lender agreed to suspend all rental payments due and owing by the Company for
the months of September, October and November 2008. The Lender also has agreed
to extend and restructure the payments due and owing under the Master Lease
such that in December 2008, we will begin to make reduced payments for the
first of 24 scheduled monthly payments. Restricted stock shares of 333,333
valued at $200,000 were issued as part of the amended agreement with the
Lender.

11

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In
addition, the related entities lease tower and roof-top space under operating
leases with terms that are typically for 5 years and contain automatic renewals
for 2 or 3 additional 5 year terms. Finally, several also have various
operating leases for office space, equipment, and vehicles that generally are
for 3 to 5 year terms. The total amount of fixed assets capitalized through
leasing is $3,489,059 as of September 30, 2008.

Future
minimum lease payments under the capital leases, which are stated at their
principal amounts with initial or remaining terms of one year or more consist
of the following as of September 30, 2008:

|                                     |  |   |           |  
|------------------------------------ |  | - | --------- | -
|2008                                 |  | $ | 208,481   |  
|2009                                 |  |   | 872,244   |  
|2010                                 |  |   | 636,957   |  
|2011                                 |  |   | 459,815   |  
|2012                                 |  |   |          |  
|                                     |  |   |           |  
|Total
 minimum lease payments        |  |   | 2,177,497 |  
|Less amounts
 representing interest  |  |   | (604,580  | )
|                                     |  |   |           |  
|                                     |  |   | 1,572,917 |  
|                                     |  |   |           |  
|Less current
 portion                |  |   | (585,538  | )
|                                     |  |   |           |  
|                                     |  |   |           |  
|Long term
 capital lease obligations |  | $ | 987,379   |  
|                                     |  |   |           |  

Future
minimum lease payments under the operating leases with initial or remaining
terms of one year or more consist of the following at September 30, 2008:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2008       |  | $ | 205,184   | 
|2009       |  |   | 658,000   | 
|2010       |  |   | 478,194   | 
|2011       |  |   | 341,393   | 
|2012       |  |   | 217,187   | 
|2013       |  |   | 54,135    | 
|Thereafter |  |   | 19,919    | 
|           |  |   |           | 
|           |  |   |           | 
|Total      |  | $ | 1,974,012 | 
|           |  |   |           | 

The total
rental expense included in operating expenses for operating leases included
above is $315,038 and $267,629 for the three months ended September 30, 2008
and 2007, respectively. For the nine months ended September 30, 2008 and 2007,
the total rental expense included in operating expenses for operating leases
was $947,103 and $759,322, 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 September 30, 2008 and
December 31, 2007 are the following:

12

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|                                                                    |  |           |           |            |   |           | 
|------------------------------------------------------------------- |  | --------- | --------- | ---------- | - | --------- | 
|                                                                    |  | 9/30/2008 |           | 12/31/2007 |  
|                                                                    |  |           |           |            |  
|Term loan
 payable - related party (see also Note 5)                |  | $         | 4,500,000 |            | $ | 3,000,000 | 
|Revolving
 line of credit - related party (see also Note 5)         |  |           | 100,000   |            |   | 100,000   | 
|Current
 portion of notes payable - related party (see also Note 5) |  |           | 567,011   |            |   |          | 
|                                                                    |  |           |           |            |   |           | 
|                                                                    |  | $         | 5,167,011 |            | $ | 3,100,000 | 
|                                                                    |  |           |           |            |   |           | 

Note 8 - Business Combinations

On January
31, 2007, through a wholly owned subsidiary, KeyOn SpeedNet LLC (SpeedNet LLC)
purchased the assets of SpeedNet Services, Inc. (SpeedNet), including
subscriber contracts, accounts, and fixed assets, and assumed certain operating
liabilities for $3,458,255 in cash, with certain adjustments to the purchase
price for working capital, deferred revenue and the assumption of certain
capital lease obligations. Also, On October 22, 2007, the Company acquired
substantially all of the assets and assumed certain liabilities of MicroLnk,
LLC, a Nebraska limited liability company, (MicroLnk), pursuant to an Asset
Purchase Agreement. As consideration for these acquired assets, the Company
paid MicroLnk $659,981 in cash.

The financial
results for the three month period ended September 30, 2007 for KeyOn
Communications Holdings, Inc. do not include operations for the MicroLnk fourth
quarter 2007 acquisition. These financial results reflected on a pro forma
basis (unaudited) by adding in the July, August and September, 2007 of MicroLnk
financial results are reported as follows:

KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)

|                                  |  |                    |            |          |   |             |   |                |        |  |   |            |  
|--------------------------------- |  | ------------------ | ---------- | -------- | - | ----------- | - | -------------- | ------ |  | - | ---------- | -
|                                  |  | Keyon as
 Reported |            | MicroLnk |   | Adjustments |   | 2007 pro forma |       
|                                 
|TOTAL REVENUES                    |  | $                  | 1,863,422  |          | $ | 173,989     | a | $              | 75,652 |  | $ | 2,113,063  |  
|                                  |  |                    |            |          |   |             |   |                |        |  |   |            |  
|OPERATING COSTS AND EXPENSES:     |  |                    |            |          |   |             |   |                |        |  |   |            |  
|Depreciation and amortization     |  |                    | 668,354    |          |   | 26,026      |   |                |       |  |   | 694,380    |  
|                                  |  |                    |            |          |   |             |   |                |        |  |   |            |  
|TOTAL OPERATING COSTS AND EXPENSE |  |                    | 4,593,357  |          |   | 235,098     | a |                | 75,652 |  |   | 4,904,107  |  
|                                  |  |                    |            |          |   |             |   |                |        |  |   |            |  
|LOSS FROM OPERATIONS              |  |                    | (2,729,935 | )        |   | (79,895     | ) |                |       |  |   | (2,791,044 | )
|TOTAL OTHER INCOME (EXPENSE):     |  |                    | (136,621   | )        |   | (223        | ) |                |       |  |   | (136,844   | )
|                                  |  |                    |            |          |   |             |   |                |        |  |   |            |  
|NET LOSS                          |  | $                  | (2,866,556 | )        | $ | (80,118     | ) | $              |       |  | $ | (2,927,888 | )
|                                  |  |                    |            |          |   |             |   |                |        |  |   |            |  

|   |                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|a. | Approximately $76,000,
 Service credits and promotional credits added back to revenue and reflected
 as marketing and network expenses

The
financial results for the nine month period ended September 30, 2007 for KeyOn
Communications Holdings, Inc. include eight months of operations from SpeedNet
LLC, and no operations for the MicroLnk fourth quarter 2007 acquisition. These
financial results reflected on a pro forma basis (unaudited) by adding in the
January 2007 SpeedNet Services, Inc. and January through September 2007 of
MicroLnk financial results are reported as follows:

13

---



KEYON COMMUNICATIONS HOLDINGS INC. AND RELATED ENTITIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)

|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|--------------------------------- |  | ------------------ | ---------- | ---------------------------- | - | -------- | - | ----------- | -------- | -------------- | - | -------- | - | - | ---------- | -
|                                  |  | Keyon as
 Reported |            | Jan 2007
 SpeedNet
 Services |   | MicroLnk |   | Adjustments |          | 2007 pro forma |  
|REVENUES:                         |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|TOTAL REVENUES                    |  | $                  | 5,216,976  |                              | $ | 482,435  |   | $           | 539,911  | e              | $ | 189,389  |   | $ | 6,428,711  |  
|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|OPERATING COSTS AND EXPENSES:     |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|Depreciation and amortization     |  |                    | 1,862,646  |                              |   | 170,567  |   |             | 77,681   | b              |   | (50,228  | ) |   | 2,060,666  |  
|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|TOTAL OPERATING COSTS AND EXPENSE |  |                    | 9,641,820  |                              |   | 710,670  |   |             | 676,782  | a,b,c,e        |   | (158,099 | ) |   | 10,871,172 |  
|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|LOSS FROM OPERATIONS              |  |                    | (4,424,844 | )                            |   | (228,235 | ) |             | (136,870 | )              |   | 347,488  |   |   | (4,442,461 | )
|TOTAL OTHER INCOME (EXPENSE):     |  |                    | (429,520   | )                            |   | (18,869  | ) |             | (662     | ) d            |   | 14,651   |   |   | (434,401   | )
|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  
|NET LOSS                          |  | $                  | (4,854,364 | )                            | $ | (247,104 | ) | $           | (137,532 | )              | $ | 362,139  |   | $ | (4,876,862 | )
|                                  |  |                    |            |                              |   |          |   |             |          |                |   |          |   |   |            |  

|   |                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | Approximately $265,000,
 Elimination of retention bonuses (plus payroll taxes) paid to top employees
 to stay during sale of business plus elimiation of duplicative headcount
 salaries
|   |                                                                                                                                                                                         
|b. | Approximately $50,000,
 Depreciation adjustment for January for new fair market valuation of assets                                                                                     
|   |                                                                                                                                                                                         
|c. | Approximately $32,000,
 Adjustment for one quarter rent due to relocation into a smaller facility in
 Q2 2007                                                                           
|   |                                                                                                                                                                                         
|d. | Approximately $15,000,
 Adjustment of interest charged on SpeedNet Services other debt that is not a
 liability under KeyOn SpeedNet                                                    
|   |                                                                                                                                                                                         
|e. | Approximately $189,000,
 Service credits and promotional credits added back to revenue and reflected
 as marketing and network expenses                                                 

Note 9 - 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. (Grant),
a holding company with no operating business (the Merger). 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 were listed on the OTC Bulletin Board
under the symbol KYCS. On October 26, 2007, KeyOn Holdings effected a 1-for-2
reverse stock split of the Companys common stock, par value $0.001 per share
and the Companys ticker symbol was changed to KEYO (Reverse Split) All
common share, option and warrant amounts have been adjusted to reflect the
Reverse Split.

Concurrent
with the Merger, KeyOn Holdings raised $2,088,500 (net of $118,500 in offering
costs) with the sale of 551,750 shares of common stock in an equity offering.
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

The Company
is authorized to issue up to 95,000,000 shares of common stock with a par value
of $.001 for each share. As of December 31, 2007, 8,249,106 shares were issued
and outstanding. During the three and nine month periods ended September 30,
2008, 383,703 and 385,739 shares of common stock were issued, respectively.
Stock was issued in the three months ended September 30, 2008 as follows:
333,333 shares of stock valued at $200,000 were issued as part of the amended
lease agreement with Data Sales, Inc. 20,000 shares of stock valued at $60,000
were issued as part of the restricted stock agreement with Sid Ganju. 30,370
shares of stock valued at $39,414 were issued as payment for prior period
professional services rendered. Additionally, during three months ended June
30, 2008, 2,036 shares were issued as part of a contractual agreement for
professional services rendered. As of September 30, 2008, 8,634,845 shares were
issued and outstanding.

14

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The Company
entered into an agreement with a current employee on January 10, 2008, for the
issuance of 100,000 shares of restricted common stock. The agreement calls for
the shares to be issued over a two year period beginning July 10, 2008. The
Company is recording compensation expense monthly over the life of the
agreement. For the three and nine month periods ended September 30, 2008,
compensation expense totaled $37,500 and $112,500, respectively.

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
September 30, 2008, no shares of preferred stock were issued and outstanding.

Warrants

The Company
has 1,723,675 common stock warrants outstanding and exercisable as of September
30, 2008 with a warrant strike price ranging from $3.31 to $8.00 and an average
price of $5.27 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,
2007, a total of 473,675 warrants to purchase shares of our common stock were
outstanding and exercisable. No warrants were issued in during the three months
ended September 30, 2008. 1,250,000 warrants were issued during the nine months
ended September 30, 2008. The Company recorded compensation expense for the
warrants granted in 2008 of $340,417 and $2,042,500 for the three and nine
months ended September 30, 2008, respectively. No warrants were forfeited or
exercised during the three and nine months ended September 30, 2008. The amount
expensed to interest expense for the amortization of the debt issuance costs
during the three and nine months ended September 30, 2008, was $18,603 and
$25,982, 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, 2007, 612,867 options were outstanding. During the three and nine
months ended September 30, 2008, the Company granted options to purchase a
total of 304,162 and 590,826 shares of common stock, respectively, pursuant to
the 2007 Plan. For the three and nine months ended September 30, 2008, 60,333
and 67,889 options were forfeited, respectively. No options were exercised in
the three and nine month period ending September 30, 2008. As of September 30,
2008, 1,135,804 options were outstanding.

Compensation
expense recorded on stock options for the three and nine months ended September
30, 2008, totaled $159,378 and $943,126, respectively. The range of strike
price per outstanding option is $0.25 to $5.00 and the weighted average strike
price is $2.11 per share. Compensation expense recorded on restricted stock
options for the three and nine months ended September 30, 2008, totaled $37,500
and $112,500, respectively.

Note 10  Subsequent Events

The Company raised an additional $193,795 through the issuance of
additional Notes to accredited investors as of December 2, 2008. KeyOn has
raised a total of $1,033,375 through the Notes.

15

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

Recent Events

Prior to
August 9, 2007, we were a public shell company, as defined by the Securities
and Exchange Commission, without material assets or activities. On August 9,
2007, we completed a reverse merger, pursuant to which a wholly-owned
subsidiary of ours merged with and into a private company, KeyOn Communications
Inc., with such private company being the surviving company. In connection with
this reverse merger, we discontinued our former business and succeeded to the
business of KeyOn Communications Inc. as our sole line of business. For
financial reporting purposes, KeyOn Communications Inc., and not us, is
considered the accounting acquiror. Accordingly, the historical financial
statements presented and the discussion of financial condition and results of
operations herein are those of KeyOn Communications Inc. and do not include our
historical financial results.

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. In January 2007, we acquired substantially all of the
assets of SpeedNet Services, Inc., (SpeedNet) a leading provider of fixed
wireless broadband services to non-metropolitan communities and rural areas in
the central United States. 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. In October 2007, we acquired substantially all of the assets of
MicroLnk, LLC, (MicroLnk) a provider of wireless broadband services to rural
communities in Nebraska, headquartered in Lincoln. We currently operate the
MicroLnk assets under the SpeedNet brand. Our results for the quarter ended
September 30, 2007 do not include any operational results for MicroLnk as
compared to the three months of financial results for the quarter ended
September 30, 2008. Our results for the year to date ended September 30, 2007
include only eight months of operations of SpeedNet and no operations for
MicroLnk as compared to the financial results for the year to date ended
September 30, 2008.

Characteristics of Our Revenues and Operating
Costs and Expenses

We offer
our services under annual or two-year service agreements. These services are
generally billed monthly, quarterly, semiannually or annually in advance.
Payments received in advance for subscriptions are deferred and recognized as
the services are provided. Service initiation fees are recognized at the time
of installation. In 2008, we began offering video satellite services as a DISH
retailer and receive revenues for DISH installations and DISH equipment sales.
These revenues are recognized upon installation.

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

Network
operating costs are comprised of costs directly associated with providing our
services including tower rent, circuits to transport data to the Internet
termination point and Internet termination bandwidth. Marketing and advertising
expenses primarily consist of direct marketing and advertising costs.
Professional fees relate to legal, accounting and consulting and recruiting
resources that we utilize periodically in the 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. DISH inventory costs consist of the cost of the equipment
purchased from DISH network in support of our DISH offering.

16

---



Results of Operations

Three-Month Period Ended September 30, 2008
as Compared to the Three-Month Period Ended September 30, 2007

Revenues.
During the three-month period ended September 30, 2008, we recognized revenues
of $1,878,737, as compared to revenues of $1,863,422 during the three-month
period ended September 30, 2007, representing an increase of approximately
1.0%. This increase was the result of the additional revenue from our fourth
quarter 2007 acquisition of MicroLnk and organic subscriber growth. The
revenues in the third quarter of 2008 include three months of revenue from
MicroLnk as compared to the third quarter of 2007 which contains no revenues
from MicroLnk. As the Companys GAAP financials display revenues and marketing
and advertising both net of promotions and/or service credits, adjusting for
these items, revenues for the three month period ended September 30, 2008 were
$2.0 million.

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, professional fees and stock based compensation totaled
$3,152,294 for the three-month period ended September 30, 2008, as compared to
$4,593,357 for the three-month period ended September 30, 2007, representing a
decrease of approximately 31.3%. A majority of this decrease, 55.3%, was due to
the incurrence of only $537,294 of non-cash stock-based and warrant
compensation expenses during the three-month period ended September 30, 2008,
as compared to $1,335,306 incurred in the three-month period ended September
30, 2007. Another contributing factor, accounting for 26.3% of the decrease,
was the reduction of one-time charges in professional fees and general and
administrative expenses that were incurred in support of our reverse merger
into a public company during the three-month period ended September 30, 2007 as
compared to the elimination of these expenses during the three-month period
ended September 30, 2008. The remaining decrease in operating expenses, or
18.4%, was the reduction of marketing and payroll expenses that were the result
of our expense savings initiatives during the three month period ended
September 30, 2008 as compared to September 30, 2007. Without the non-cash
stock compensation expenses, normalized operating expenses would have been
$2,615,000 for the three-month period ended September 30, 2008 as compared to
$3,258,051 for the three-month period ended September 30, 2007, representing a
decrease of 19.7% in operating expenses. Our actual operating loss margin
improved by 79 percentage points from a total operating loss $1,273,557 for the
three-month period ended September 30, 2008 as compared to a loss of $2,729,935
for the three-month period ended September 30, 2007. By removing non-cash
expenses of $537,294 and $1,335,306, respectively, our normalized operating
loss margin improved by 36 percentage points from a total normalized operating
loss $736,263 for the three-month period ended September 30, 2008 as compared
to a loss of $1,394,629 for the three-month period ended September 30, 2007.

Payroll,
Bonuses and Taxes. Payroll bonuses and taxes totaled
$868,733 for the three-month period ended September 30, 2008, as compared to
$914,045 for the three-month period ended September 30, 2007, representing a
decrease of approximately 5.0%. This decrease was primarily due to our efforts
to improve our internal processes which resulted in our ability to reduce
headcount.

Depreciation
and Amortization. Depreciation and amortization
expenses totaled $669,935 for the three-month period ended September 30, 2008,
as compared to $668,354 for the three-month period ended September 30, 2007,
representing an increase of approximately 0.2%. This modest increase was
primarily due to the additional network footprint and customer premise
equipment acquired in connection with the fourth quarter 2007 acquisition of
MicroLnk.

Other
General and Administrative Expenses. Other general and
administrative expenses totaled $248,116 for the three-month period ended
September 30, 2008, as compared to $391,025 for the three-month period ended
September 30, 2007, representing a decrease of approximately 36.5%. This
decrease was due to the elimination of one-time costs incurred in support of
our reverse merger into a public company during the three-month period ended
September 30, 2007 as compared to the three month period ended September 30,
2008.

Network
Operating Costs. Network operating costs, which
consist of tower rent, Internet transport costs and Internet termination
expense, totaled $639,517 for the three-month period ended September 30, 2008,
as

17

---



compared to $673,478 for the three-month period ended September 30, 2007,
representing a decrease of approximately 5.0%. The decrease was primarily due
to our efforts to reduce costs by improving our service call processes. We have
been able to reduce network operating costs even in the presence of our
additional network footprint and increased customer base associated with
MicroLnk in the fourth quarter of 2008.

Marketing
and Advertising Expenses. Marketing and advertising
expenses totaled $13,950 for the three-month period ended September 30, 2008,
as compared to $166,958 for the three-month period ended September 30, 2007,
representing a decrease of approximately 91.6%. This decrease related to our
concentration on certain target markets as we refined our marketing strategy
during the three months ended September 30, 2008 as compared to the more
broad-based marketing plan we employed during the three months ended September
30, 2007. Our marketing costs were 0.7% of revenue for the three-month period
ended September 30, 2008 and 9.0% for the three-month ended September 30, 2007.
This 8 percentage point reduction in marketing expenses as a percentage of
revenue was a direct result of our focused marketing efforts combined with our
expense reduction initiatives.

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 $99,519 for the three-month period ended September 30, 2008, as
compared to $124,850 for the three-month period ended September 30, 2007,
representing a decrease of approximately 20.3%. Installation volumes decreased
by 40.3% for the three-month period ended September 30, 2008 as compared to the
three-month period ended September 30, 2007. Installation supply expense and
automobile repairs also declined during the three-month period ended September
30, 2008 as compared to the three-month period ended September 30, 2007, but
was offset by the increase in fuel costs over prior period.

Professional
Fees. Professional fees, which consist of legal,
accounting, and other related expenses, totaled $75,230 for the three-month
period ended September 30, 2008, as compared to $319,341 for the three-month
period ended September 30, 2007, representing a decrease of approximately
76.4%. Accounting, legal and advisory fees account for all of the decrease in
professional fees as we eliminated the one-time expenses incurred in support of
the company becoming a publicly traded company during the three months ended
September 30, 2007.

Stock-Based
and Warrant Compensation. Stock-based and warrant
compensation of $537,294 was expensed for the three-month period ended
September 30, 2008, as compared to $1,335,306 for the three-month period ended
September 30, 2007. The expense for warrants granted as compensation to those
who guaranteed our term note with Sun West Bank was $340,417 during the
three-month period ended September 30, 2008 and was $901,566 during the
three-month period ended September 30, 2007. Stock-based compensation for stock
options issued under our option plan totaled $159,378 for the three-month
period ended September 30, 2008 as compared to $433,740 for the three-month
period ended September 30, 2007. Stock-based compensation for restricted stock
was $37,500 for the three-month period ended September 30, 2008.

Other
Income and Expense. We incurred other income and
expense of $216,047 for the three-month period ended September 30, 2008, as
compared to $136,621 for the three-month period ended September 30, 2007,
representing an increase of 58.1%. The primary reason for the increase, 48.8%,
resulted from the interest and loan fees on our subordinated secured notes
issued during the three month period ended September 30, 2008. The interest on
our lease financing in support of the organic growth of our customer base
accounted for 22.3% of the increase. Finally, 28.9% of the increase was due to
the fact that we had negligible interest income during the three-month period
ended September 30, 2008 as compared to $23,025 of interest income earned
during the three-month period ended September 30, 2007.

Net
Loss. We had a net loss of $1,489,604 for the
three-month period ended September 30, 2008, as compared to a net loss of
$2,866,556 for the three-month period ended September 30, 2007, representing an
improvement of approximately 48.0%. The major contributing factor of the
improved net loss was the incurrence of only $537,294 of non-cash stock-based
and warrant compensation expenses for the three month period ended September
30, 2008 as compared to $1,335,306 for the three month period ended September
30, 2007, which accounted for 57.9% of the improvement. Another contributing
factor, accounting for 28.1% of the improvement in the net loss, was the
elimination of one-time charges in professional fees and general and
administrative expenses that were incurred in support of our reverse merger
into a public company during the three-month period ended

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September 30, 2007, as compared to the three month period ended
September 30, 2008. The remaining improvement, or 14.0%, was the result of
focused cost savings initiatives in marketing and payroll costs, partially
offset by an increase in interest expenses during the three-month period ended
September 30, 2008 as compared to September 30, 2007. Normalized net loss
without the non-cash compensation expenses would have been $952,310 for the
three-month period ended September 30, 2008 as compared to $1,531,250 for the
three-month period ended September 30, 2007, representing an improvement of
37.8%. This improvement was the result of our cost reduction initiatives,
including the elimination of duplicative costs and improvements in efficiencies
due to economies of scale with our acquisition of MicroLnk in the fourth
quarter of 2007 as well as the elimination of one-time expenses incurred in
support of our merger into a public entity for the three-month period ended
September 30, 2007. Our net loss margin improved by 75 percentage points from a
net loss $1,489,604 for the three-month period ended September 30, 2008 as
compared to a net loss of $2,866,556 for the three-month period ended September
30, 2007. After removing the non-cash compensation expenses of $537,294 and
$1,335,306, respectively, our normalized net loss margin improved by 32
percentage points from a total normalized net loss $952,310 for the three-month
period ended September 30, 2008 as compared to a net loss of $1,531,250 for the
three-month period ended September 30, 2007.

Nine-Month Period Ended September 30, 2008 as
Compared to the Nine-Month Period Ended September 30, 2007

Revenues.
During the nine-month period ended September 30, 2008, we recognized revenues
of $5,911,056, as compared to revenues of $5,216,976 during the nine-month
period ended September 30, 2007, representing an increase of approximately
13.3%. This increase was the result of the additional revenue from our
acquisitions made in 2007 and modest organic subscriber growth. The revenues in
the first nine months of 2008 include nine months of revenue from MicroLnk and
nine months of revenue from SpeedNet as compared to the first nine months ended
September 30, 2007 which included no revenue from MicroLnk and only eight
months of revenue from SpeedNet. As the Companys GAAP financials display
revenues and marketing and advertising both net of promotions and/or service
credits, adjusting for these items, revenues for the nine months ended
September 30, 2008 were $6.1 million.

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, professional fees and stock based compensation totaled
$12,125,945 for the nine-month period ended September 30, 2008, as compared to
$9,641,820 for the nine-month period ended September 30, 2007, representing an
increase of approximately 25.7%. A majority of this increase, or 70.7%, was due
to the incurrence of $3,098,126 of non-cash stock-based and warrant
compensation expenses for the nine months ended September 30, 2008 as compared
to $1,339,891 the nine months ended September 30, 2007. The balance of the
increase in the operating loss, which accounted for 29.3%, was due to the cost
increases associated with the larger customer base, including the acquisitions
of SpeedNet and MicroLnk, and the resulting increased costs associated with
running the expanded operations. Without the non-cash stock compensation
expense, normalized operating expenses would have been $9,027,819 for the
nine-month period ended September 30, 2008, as compared to $8,301,929 for the
nine-month period ended September 30, 2007, representing an increase of only 8.7%.
Our actual operating loss margin increased by 20 percentage points from a total
operating loss $6,214,889 of the nine-month period ended September 30, 2008 as
compared to a loss of $4,424,844 for the nine-month period ended September 30,
2007. By removing non-cash stock compensation expense, our normalized operating
loss margin improved by 6 percentage points from a total normalized operating
loss $3,116,763 for the nine-month period ended September 30, 2008 as compared
to a loss of $3,084,953 for the nine-month period ended September 30, 2007.

Payroll,
Bonuses and Taxes. Payroll bonuses and taxes totaled
$2,914,329 for the nine-month period ended September 30, 2008, as compared to
$2,403,899 for the nine-month period ended September 30, 2007, representing an
increase of approximately 21.2%. This increase was primarily due to the
incremental variable staff additions, such as customer service representatives
and installers that are needed to service the expanded customer base with our
acquisitions of SpeedNet and MicroLnk in 2007.

Depreciation
and Amortization. Depreciation and amortization
expenses totaled $2,069,249 for the nine-month period ended September 30, 2008,
as compared to $1,862,646 for the nine-month period ended September 30, 2007,
representing an increase of approximately 11.1%. This increase was primarily
due to the additional network

19

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footprint and customer premise equipment acquired in connection with
our acquisitions of SpeedNet and MicroLnk in 2007.

Other
General and Administrative Expenses. Other general and
administrative expenses totaled $924,997 for the nine-month period ended
September 30, 2008, as compared to $1,246,083 for the nine-month period ended
September 30, 2007, representing a decrease of approximately 25.8%. A large
portion of this decrease, 44.5%, was due to the elimination of one-time costs
incurred in support of our reverse merger into a public company during the
nine-month period ended September 30, 2008 as compared to the nine-month period
ended September 30, 2007. The balance of the decrease, or 55.5%, was due to our
efforts to reduce and control overall operating costs.

Network
Operating Costs. Network operating costs, which
consist of tower rent, Internet transport costs and Internet termination
expense, totaled $2,109,791 for the nine-month period ended September 30, 2008,
as compared to $1,662,310 for the nine-month period ended September 30, 2007,
representing an increase of approximately 26.9%. The additional network footprint
and increased customer bases associated with our acquisitions of SpeedNet and
MicroLnk and our organic growth account for the majority of the increase. The
balance of the increase is related to higher than expected tower repair costs
and service credits due to severe weather in our Midwestern markets during the
second quarter of 2008.

Marketing
and Advertising Expenses. Marketing and advertising
expenses totaled $315,030 for the nine-month period ended September 30, 2008,
as compared to $397,593 for the nine-month period ended September 30, 2007,
representing a decrease of approximately 20.8%. This decrease was attributed to
our concentration on certain target markets as we continued to refine our
marketing strategy during the nine months ended September 30, 2008 as compared
to the more broad-based marketing plan we employed during the nine months ended
September 30, 2007. Our marketing costs were 5.3% of revenue for the nine-month
period ended September 30, 2008 and 7.6% for the nine-month period ended
September 30, 2007, representing a 2 percentage point decrease.

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 $342,940 for the nine-month period ended September 30,
2008, as compared to $299,407 for the nine-month period ended September 30,
2007, representing an increase of approximately 14.5%. Installation volumes
increased by 2.3% for the nine-month period ended September 30, 2008 as
compared to the nine-month period ended September 30, 2007 which accounted for
15.9% of the cost increase. Fuel costs increased approximately 30% during the
nine-month period ended September 30, 2008 as compared to September 30, 2007
which accounted for 84.1% of the cost increase.

Professional
Fees. Professional fees, which consist of legal,
accounting, and other related expenses, totaled $320,370 for the nine-month
period ended September 30, 2008, as compared to $429,991 for the nine-month
period ended September 30, 2007, representing a decrease of approximately
25.4%. Accounting, legal and advisory fees account for all of the decrease as
we eliminated one-time additional expenses incurred during the nine months
ended September 30, 2007 in support of the company becoming a publicly traded
company.

Stock-Based
and Warrant Compensation. Stock-based and warrant
compensation of $3,098,126 was expensed for the nine-month period ended
September 30, 2008, as compared to $1,339,891 for the nine-month period ended
September 30, 2007. The expense for warrants granted as compensation to those
who guaranteed our term note with Sun West Bank was $2,042,500 during the nine-month
period ended September 30, 2008 and $901,566 during the nine-month period ended
September 30, 2007. Stock-based compensation for stock options issued under our
option plan totaled $943,126 for the nine-month period ended September 30,
2008, as compared to stock option expense for the nine-month period ended
September 30, 2007 totaling $438,325. Stock-based compensation for restricted
stock was $112,500 for the nine-month period ended September 30, 2008.

Cost
of DISH Inventory. Cost of DISH inventory of $31,113
was expensed for the nine-month period ended September 30, 2008, as compared to
no cost for the nine-month period ended September 30, 2007. The expense for
DISH inventory is recognized immediately after installation. We began installations
as a DISH retailer in January 2008.

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Other
Income and Expense. We incurred other income and
expense of $578,502 for the nine-month period ended September 30, 2008, as
compared to $429,520 for the nine-month period ended September 30, 2007,
representing an increase of 34.6%. We had negligible interest income during the
nine-month period ended September 30, 2008 as compared to $51,765 of interest
income earned during the nine-month period ended September 30, 2007, accounting
for 34.7% of the increase in this expense category. The interest and loan fees
on the subordinated secured notes originating during the nine-month period
ended September 30, 2008 accounted for 26.8% of the increase. Finally, the
remaining 38.5% of the increase, was due to the increased interest expense
incurred in connection with lease financing in support of our continued organic
growth of our customer base and increased interest incurred on our term loan.

Net
Loss. We had a net loss of $6,793,391 for the nine-month
period ended September 30, 2008, as compared to a net loss of $4,854,364 for
the nine-month period ended September 30, 2007, representing an increase of
approximately 40.0%. The major contributing factor of the increased net loss,
accounting for 90.6% of the difference, was the incurrence of $3,098,126 for
non-cash stock-based and warrant compensation expenses for the nine months
ended September 2008, as compared to $1,339,891 incurred for the nine months
ended September 2007. The increased costs associated with running the expanded
operations of SpeedNet and MicroLnk contributed the remaining amount, or 9.4%,
of the increase. Normalized net loss without the non-cash stock compensation
expense would have been $3,695,265 for the nine-month period ended September
30, 2008 as compared to $3,514,473 for the nine-month period ended September
30, 2007, representing an increase of only 5.1%. Our net loss margin increased
by 22 percentage points from a net loss $6,793,391 for the nine-month period
ended September 30, 2008 as compared to a net loss of $4,854,364 for the
nine-month period ended September 30, 2007. However, after removing the
non-cash stock compensation expense of $3,098,126 for the nine months ended
September 2008 and $1,339,891 for the nine months ended September 2007, our
normalized net loss margin improved by 5 percentage points from a total
normalized net loss $3,695,265 for the nine-month period ended September 30,
2008 as compared to a net loss of $3,514,473 for the nine-month period ended September
30, 2007.

Liquidity and Capital Resources

General

As of
September 30, 2008 and September 30, 2007, we had cash of $51,220 and
$1,569,403, respectively.

Net
Cash Used by Operating Activities. Net cash used in
operating activities totaled $1,659,438 for the nine-month period ended
September 30, 2008, as compared to net cash used from operating activities of
$707,486 for the nine-month period ended September 30, 2007. The change in cash
used in operating activities is primarily attributed to a concentrated effort
to reduce our current liabilities. In addition we incurred additional network
operating costs during 2007 with the acquisitions of SpeedNet and MicroLnk.
These increased costs were partially offset due to our focused cost reduction
initiatives during the nine month period ended September 30, 2008,

Net
Cash Used in Investing Activities. Net cash used in
investing activities totaled $109,118 for the nine-month period ended September
30, 2008, as compared to $3,797,299 for the nine-month period ended September
30, 2007. In the nine-month period ended September 30, 2007, we completed the
asset purchase of SpeedNet for net cash of $3,458,255.

Net
Cash Provided By Financing Activities. Net cash
provided by financing activities totaled $1,502,777 for the nine-month period
ended September 30, 2008, as compared to $6,069,498 for the nine-month period
ended September 30, 2007. During the nine-month period ended September 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 that was entered into
during the nine-month period ending September 30, 2007. The company drew down
$1,500,000 of the remaining amount on the loan balance for use in operations.
Also during the nine-month period ended September 30, 2008, the company entered
into several subordinated secured note agreements with the proceeds totaling
$839,609. Other issuances of notes contributed proceeds of $98,187. $736,095
was used during the first nine months of 2008 to pay down the balance on the
operations financing leases. Proceeds from the sale of stock for the nine-month
period ended September 30, 2007 totaled $3,706,292.

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Working
Capital. As of September 30, 2008, we had negative
working capital of $8,689,435. This amount includes $4,500,000 of term debt,
$839,609 for the secured subordinated notes, $585,538 for capital leases, and
$350,979 for deferred revenue. Additionally, the Company is in the process of obtaining
additional secured loans from existing shareholders and certain related parties
as indicated in the Notes to the Financial Statements. 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.

|         |                         
|-------- | ------------------------
|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 (September 30, 2008), 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, 2008.

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


22

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SIGNATURES

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

|                        |                                      |                                       
|----------------------- | ------------------------------------ | --------------------------------------
|                        | KEYON
 COMMUNICATIONS HOLDINGS, INC.
|                        |                                      |                                       
|Date:
 December 2, 2008 | By:                                  | /s/ Jonathan Snyder                   
|                        |                                      |                                       
|                        |                                      | Jonathan
 Snyder                      
|                        |                                      | President
 and Chief Executive Officer
|                        |                                      | (Principal
 Executive Officer)        
|                        |                                      |                                       
|Date:
 December 2, 2008 | By:                                  | /s/ Annette Eggert                    
|                        |                                      |                                       
|                        |                                      | Annette
 Eggert                       
|                        |                                      | Chief
 Financial Officer              
|                        |                                      | (Principal
 Financial Officer)        

23

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EXHIBIT INDEX

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



---

* Filed herewith


24

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