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**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 Circle                    Omaha, Nebraska 68164 |   | 68164      |   |
|   |                                                                 |   |            |   |
|   | (Address of Principal Executive Offices)                        |   | (Zip Code) |   |

|   |                                                                               |   |
|--------|------------------------------------------------------------------------------------|--------|
|   | (402) 998-4000                                                                     |   |
|   |                                                                                    |   |
|   | (Registrant’s Telephone Number, Including Area Code)                         |   |
|   |                                                                               |   |
|   |                                                                                    |   |
|   | (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |   |

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

          Indicate by check mark whether the registrant 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

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**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

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**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

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          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

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          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

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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

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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

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|       |   |   |    |   |
|------------|--------|--------|---------|--------|
| 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

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|                                                                                                                                                                                                 |   |          |     |           |   |     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|----------|----------------|--------|----------|--------|
|                                                                                                                                                                                                 |   | **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:

| 2008   | $ | 145,152         |  |
|--------|---|-----------------|--|
| 2009   |   | 932,853         |  |
| 2010   |   | 29,025          |  |
| 2011   |   | 7,842           |  |
|   |   |                 |  |
|        | $ |  1,114,872 |  |
|   |   |                 |  |

 

**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:

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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:

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**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.

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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. Of this amount $20,000 was the conversion of the 5% note to a subordinated secured note.  KeyOn has raised a total of $1,033,375 through the Notes.

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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

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**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

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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

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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 |

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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)         |

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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 |

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