Filing Compare · Wave2Wave Communications, Inc.

As filed with the Securities and Exchange Commission on ~~February~~December 815, 2010

Registration No. 333-[•]

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

WAVE2WAVE COMMUNICATIONS, INC.(Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)


Delaware	4899	113521535
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification No.)

433 Hackensack Avenue
Hackensack, New Jersey 07601
(201) 968-9797
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

~~Steven~~Aaron ~~Asman~~Dobrinsky, ~~PresidentWave2Wave~~Chief Executive OfficerWave2Wave Communications, Inc.433 Hackensack AvenueHackensack, New Jersey 07601(201) 968-9797(Name, address, including zip code, and telephone number, includingarea code, of agent for service)


With copies to:
Ivan K. Blumenthal, Esq. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 666 Third Avenue New York, NY 10017 (212) 935-3000		Thomas Rose, Esq. Sichenzia Ross Friedman Ference, LLP 61 Broadway Avenue, 32^nd Floor New York, NY 10006 (212) 930-9700

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. £

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. £________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. £________

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.

Large accelerated filer £ Accelerated filer £ Non-accelerated filer S£ (Do not check if a smaller reporting company) Smaller reporting company £S

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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

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CALCULATION OF REGISTRATION FEE

Title of Each Classof Securities to be Registered	Proposed ~~Maximum~~MaximumAggregate ~~AggregateOffering~~Offering Price (1)			Amount ofRegistration Fee (2)
Common Stock, $0.0001 par value per share (3)		$	94,875,000		$	6,764.59
Units, each consisting of one share of Common Stock, $.0001 par value, and one Warrant(3)		$	8,308,750		$	592.41
Representative’s Common Stock Purchase Option		$	—		$	—	(4)
Shares of Common Stock included as part of the Units			—	(4)
Shares of Common Stock underlying Representative’s Common Stock Purchase Option		$	4,743,750		$	338.23
Warrants included as part of the Units			—	(4)
Total Registration Fee		$	99,618,750		$	7,102.82
Shares of Common Stock issuable upon exercise of the Warrants included in the Units(5)		$	8,602,000		$	613.32
Representative’s Common Stock Purchase Warrant(4)			—	(4)
Shares of Common Stock underlying Representative’s Common Stock Purchase Warrant		$	340,170		$	24.25
Total Registration Fee		$	17,250,920		$	1,229.99	(6)

(1)				Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act.
(2)				Calculated pursuant to Rule 457(ao) based on an estimate of the proposed maximum aggregate offering price.
(3)				Includes ~~shares~~up to 255,000 units the underwriters have the option to purchase to cover over-allotments, if any.
(4)				No registration fee required pursuant to Rule 457(g) under the Securities Act.
(5)				Pursuant to Rule 416, there are also being registered such indeterminable additional securities as may be issued to prevent dilution as a result of stock splits, stock dividends or similar transactions.
(6)				The registrant registered $99,618,750 pursuant to Registration Statement No. 333-164791 initially filed on February 8, 2010, for which a filing fee of $7,102.82 was paid therewith. Pursuant to Rule 457(p) of the Securities Act, the amount of $1,229.99 of this unused filing fee has been applied against the filing fee due in connection with this registration statement and no filing fee paid herewith.

The information in this prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED ~~FEBRUARY~~DECEMBER 815, 2010

~~[•]~~1,700,000 ~~Shares~~Units

~~This~~Common isStock ~~a firm commitment initial public offering of [•] shares of our common stock at a price we anticipate will be between $[•]~~ and $[•] per share. No public market currently exists for our shares. We intend to apply to list our common stock on the [•] under the symbol “[•]”. No assurance can be given that our application will be approved.Warrants

~~Investing~~This inis ~~our~~a ~~securities~~firm ~~involves~~commitment ~~certain~~initial ~~risks.~~public ~~See~~offering ~~“Risk~~of ~~Factors”~~1,700,000 ~~beginning~~units onat ~~page~~a 13public offering price of ~~this~~$4.25 ~~prospectus~~per ~~for~~unit. aEach ~~discussion~~unit consists of ~~information~~(i) ~~that~~one ~~should~~share beof ~~considered~~our incommon ~~connection~~stock ~~with~~and an(ii) ~~investment~~one inwarrant to purchase one share of our ~~securities~~common stock at an exercise price of $4.40 per share. The common stock and warrants are immediately separable and will be issued separately.

Currently no public market exists for our securities. Our shares of common stock have been approved for listing on the NYSE Amex under the symbol “WAV”. We will apply to have the warrants included in the units sold in this offering to be listed on the NYSE Amex under the symbol “WAV.WS”. No assurance can be given that our application will be accepted or that we will be able to maintain our listing on the NYSE Amex subsequent to the offering.

Investing in our securities involves certain risks. See “Risk Factors” beginning on page 12 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per share			Total
	Per unit			Total
Public offering price		$	4.25		$	7,225,000
Underwriting discounts and commissions (1)		$	0.34		$	578,000
Proceeds, before expenses, to us (2)		$	3.91		$	6,647,000

(1)				Does not include a non-accountable expense allowance equal to 12% of the gross proceeds of this offering and an expense allowance of $250,000 for fees and expenses (including the fees and expenses of counsel to the underwriters) payable to ~~Rodman~~Aegis &Capital ~~Renshaw~~Corp., ~~LLC,~~ the representative of the underwriters.
(2)				We estimate that the total expenses of this offering, excluding the underwriters’ discount and non-accountable expenses allowance, will be approximately $~~[•]~~828,000.

We have granted a 45-day option to the representative of the underwriters, to purchase up to ~~[•]~~255,000 additional ~~shares~~units ~~of common stock~~ solely to cover over-allotments, if any. The ~~shares~~units, issuable upon exercise of the underwriter over-allotment option are identical to those offered by this prospectus and have been registered under the registration statement of which this prospectus forms a part.

In connection with this offering, we have also agreed to sell to ~~Rodman~~Aegis &Capital ~~Renshaw~~Corp., ~~LLC,~~ the underwriter representative, ana ~~option~~warrant to purchase up to 53% of the shares of common stock included in the units sold, for $100. If the underwriter representative exercises this ~~option~~warrant, each share of common stock may be purchased at $~~[•]~~5.80 per share ~~((125)% of the price of the shares sold in the offering)~~.

The underwriters expect to deliver our shares to purchasers in the offering on or about December [•], 2010.

Aegis Capital Corp. Rodman & Renshaw, LLC

The date of this prospectus is December [•], 2010

inside front cover

Until [*], 2010, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS

	Page
Prospectus Summary		1
Risk Factors		1312
Information Concerning One of Our Founders, Managing Director and Head of Business Development		3130
Special Note Regarding Forward-Looking Statements		3332
Use of Proceeds		3433
Dividend Policy		35
Capitalization		3635
Dilution		3736
Unaudited Pro Forma Consolidated Financial Data		39
Selected Historical Financial Data		39
Selected Historical Financial Data		44
Management’s Discussion and Analysis of Financial Condition and Results of Operations		41
Management’s Discussion and Analysis of Financial Condition and Results of Operations		46
Business		74
Information About Winncom		74
Management		99
Business		80
Executive Compensation		105
Management		103
Certain Relationships and Related Person Transactions		121
Executive Compensation		110
Principal Stockholders		124
Certain Relationships and Related Person Transactions		123
Description of Capital Stock		126
Principal Stockholders		125
Description of Capital Stock		127
Shares Eligible for Future Sale		130
Material U.S. Federal Tax Consequences For Non-U.S. Holders		132
Underwriting		135
Underwriting and Plan of Distribution		135
Legal Matters		~~143~~140
Experts		~~143~~140
Where You Can Find More Information		143
Where You Can Find Additional Information		140
Index to Financial Statements		F-1

You should rely only on the information contained in this prospectus in deciding whether to purchase our ~~common stock~~units. We have not authorized anyone to provide you with information different from that contained in this prospectus. Under no circumstances should the delivery to you of this prospectus or any sale made pursuant to this prospectus create any implication that the information contained in this prospectus is correct as of any time after the date of this prospectus. To the extent that any facts or events arising after the date of this prospectus, individually or in the aggregate, represent a fundamental change in the information presented in this prospectus, this prospectus will be updated to the extent required by law.

We obtained statistical data, market data and other industry data and forecasts used throughout this prospectus from market research, publicly available information and industry publications. Industry publications generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy and completeness of the information. Nevertheless, we are responsible for the accuracy and completeness of the historical information presented in this prospectus, as of the date of the prospectus.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and may not contain all of the information that may be important to you in making an investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors” beginning on page 1312.

Unless otherwise stated or the context requires otherwise, references in this prospectus to “Wave2Wave,” “we,” “us” and “our” refer to Wave2Wave Communications, Inc. and its subsidiaries.

Our Company

Founded in 1999, Wave2Wave Communications, Inc. provides communication services to small to mid-sized businesses in the northeast and midwest United States with a complete package of integrated products that includes wired and wireless broadband Internet access services, Voice over Internet Protocol, or VoIP, data, email hosting, point-to point connections, managed network services, collocation, virtual private networks, or VPNs, and web hosting. We are currently in the process of testing our fourth generation, or 4G, based Hybrid Fiber-Wireless, or HFW, in-building network, which will allow us to add mobile phone service to voice and data capabilities. Through our wholly-owned subsidiary RNK Inc., d/b/a RNK Communications, or RNK, we provide wholesale and retail services,. ~~offering~~These offerings include a range of voice and data “carrier class products” to other communications companies and to other larger-scale purchasers of network capacity, as well as services and prepaid long distance calling services. Specifically, we offer domestic and international ~~terminations~~ access services, domestic ~~origination with~~ local ~~access,~~exchanges and long distance services, collocation, “~~800~~8XX” toll free ~~origination~~service, conference calling services ~~capabilities~~ and prepaid long distance calling services.

We sell our services to individuals and businesses primarily through a direct sales force, channel partners and telemarketing. WeWhile we market our services to many customer segments, we focus on selling to customers in multi-tenant office buildings (in-building) and to remote locations (stand-alone buildings). We currently have approximately 425 active Building Service Agreements, or BSAs, with building owners throughout New York, New Jersey, Illinois (Chicago), Connecticut and Pennsylvania (Philadelphia). Under these BSAs, we either pay the building owners monthly rent or a revenue share to allow us to sell throughout their buildings. The term of these BSAs are typically five to ten years in length, with automatic renewals. We have found that revenue share agreements give the building owners an incentive to promote our company to new tenants, and will help us increase penetration rates in terms of the number of tenants per building. This helps us to differentiate ourselves from our competition and creates a mutually beneficial relationship between us, the building owners and tenants. We also utilize a ~~wholesale~~sales model in which we sell our services through a direct sales force, agents, independent company relationships, and contractual buy sell arrangements. RNK, as a Competitive Local Exchange Carrier, or CLEC, and interexchange carrier, or IXC, is able to provide ~~various~~a variety of local and long distance telecommunication services ~~under~~pursuant to our ~~multiple~~ state and federal tariffs and customer contracts. We currently process approximately one billion minutes per month through our network of interconnected switches.

WeExecutive ~~have~~Officers ~~successfully implemented~~ and ~~sold~~Board ~~fixed wireless broadband solutions in the northeast United States since our inception. Through our January 2006 acquisition~~ of certain assets of Intellispace, Inc., or Intellispace, a wireline manage service provider and the 2007 acquisition of our wholly- owned subsidiary RNK, which has been operating in various jurisdictions since 1997, we significantly expanded our footprint and product offerings.Directors

~~Proposed~~On ~~Acquisition~~September 21, 2010, Aaron Dobrinsky became our Chief Executive Officer, and following the consummation of this offering will become a member of our board of directors. Steven Asman is currently our President. Based on Mr. Dobrinsky’s qualifications and experience, we believe that he will be better equipped than Mr. Asman to run a large organization that will be a public company. Additionally, following the consummation of this offering, five new directors will be appointed to our board of directors. We believe that, in light of our business and structure and given that we will be a public company, based on the experience, qualifications, attributes and skills of each of these individuals, they will be valuable members of our board of directors.

On February 4, 2010, we entered into a stock purchase agreement to acquire privately-held Winncom Technologies Holding Limited, a company incorporated under Irish law. Unless otherwise stated or the context requires otherwise, references in this prospectus to “Winncom” refer to Winncom Technologies Holding Limited and its subsidiaries and affiliates. Pursuant to the stock purchase agreement, we will acquire 100% of the issued share capital of Winncom from the stockholders of Winncom, for a payment, including the retirement of debt, of approximately $25 million and approximately 4,714,038 shares of our common stock, which number of shares represents

approximately 7.5% of our issued and outstanding shares of common stock on a fully-diluted basis as of the date of this prospectus, subject to certain working capital adjustments to be determined within 120 days following the closing of the acquisition. We intend to consummate the acquisition immediately upon the closing of this offering. Concurrently with the consummation of this offering and the closing of the acquisition of Winncom, Gregory Raskin, the President and Chief Executive Officer of Winncom, will become our Chief Executive Officer. Our proposed acquisition of Winncom is subject to the consummation of this offering and the satisfaction of customary closing conditions. In addition, the stock purchase agreement is subject to termination by either party under certain circumstances if the closing has not occurred on or before May 30, 2010. We cannot assure you that we will consummate the Winncom acquisition on favorable terms or at all. We intend to use a portion of the proceeds of this offering to acquire Winncom.

Winncom, headquartered in Solon, Ohio, and with a registered office in Dublin, Ireland, is a worldwide distributor and provider of complete networking solutions, wireless and wired. Winncom’s reseller network has reached over 8,000 and serves over 90 markets worldwide. Winncom also has local offices in Hungary, Cyprus, Russia, Ukraine, Ireland, Uzbekistan and Kazakhstan with trained sales and technical professionals. Winncom’s subsidiary ServiceAero, or SA, is a service provider located in Moscow, Russia. SA provides internet and telephony services for the majority of companies located in Russia’s third largest airport Vnukovo. These companies include major Russian and international airlines, business aviation companies, air cargo companies, airline support and many others. SA offers domestic and international terminations, domestic origination with local access, long distance services, collocation, video conferencing, video surveillance, and conference calling capabilities, prepaid calling services, Wi-Fi hot spots, DSL services and fiber-to-the-building lease lines. SA potentially is a point of presence and starting point for a 4G based HFW rollout of in-building networks in Moscow and other large cities in the Commonwealth of Independent States.

Winncom has expertise in broadband wireless networking products and a full range of network infrastructure and access products by the leading industry manufacturers, allowing it to sell the products and provide complete solutions for various markets and applications. We believe that Winncom’s extensive experience and engineering resources makes it possible for the company to identify, design and implement the most effective and economical turnkey solutions based on a combination of the latest technologies, which will give us the ability to manage and roll out our new 4G based HFW networks. With its world-wide presence, Winncom is able to provide pre-sale consulting and post-sale engineering support to its customers. It has a portfolio of successful wireless and networking deployments in countries located in North America, Eastern Europe, Commonwealth of Independent States, Far East and Central Asia. Winncom’s international presence will allow us the opportunity to expand our 4G based HFW network roll out worldwide and give our telephone business access to international markets, which would include interconnection agreements. Through Winncom’s relationships (both domestic and international), we believe that we will also be well positioned to capitalize on opportunities for our current product offerings and services.

Our Competitive Advantages

~~Through~~We ~~our~~are ~~Strategic~~in ~~Partnership~~advanced ~~Agreement~~discussions with ~~incNetworks®~~MotorolaÒ, ~~we are deploying 4G based Hybrid Fiber-Wireless, or HFW, networks within two multi-tenant buildings in New York, New York~~Inc. ~~The first building, the Lincoln Building (60 East 42nd Street, New York, New York) is expected~~ to bedevelop ~~live by~~a ~~the~~strategic ~~end~~partnership ofwhereby ~~the~~together ~~first quarter of 2010 (currently testing), along~~ with ~~the~~MotorolaÒ ~~second~~and ~~building~~other ~~(230~~integration ~~Park~~partners ~~Avenue).~~and ~~Upon~~technology ~~the completion of this first phase of deployments~~vendors, we ~~intend~~plan to deploy ~~additional~~ 4G based Hybrid Fiber-Wireless, or HFW, networks within ~~hundreds~~two of multi-tenant buildings in ~~major~~New ~~metropolitan~~York, ~~areas over the course of the next several years.~~

~~Following this offering and the completion of the proposed acquisition of Winncom:~~1

•New WeYork. ~~believe~~The ~~that~~first webuilding ~~will~~(450 bePark ~~well~~Avenue, ~~positioned~~New York, NY) is set to ~~launch~~begin ~~our~~testing ~~next~~during ~~generation~~the ~~HFW~~first ~~network~~quarter ~~services~~of ~~using~~2011. ~~fourth-generation~~Upon the completion of this first phase of deployments, orwe intend to deploy 4G, ~~technology.~~based ByHFW ~~overlaying~~networks within hundreds of multi-tenant buildings in major metropolitan areas over the course 4Gof ~~technology~~the onnext ~~our~~several ~~current~~years. ~~network~~However, in the event that we ~~intend~~are unable to ~~leverage~~enter ~~our~~into ~~existing~~an ~~infrastructure,~~agreement ~~provisioning~~with MotorolaÒ in the near term or at all, ~~customer~~our planned deployment of 4G based HFW networks in multi-tenant buildings will be delayed until we enter into such agreement with MotorolaÒ or enter into a relationship with a different third party integration partner and technology vendor.

2Following this offering:

• We believe that we will be well positioned to launch our next generation HFW network services using fourth-generation, or 4G, technology. By overlaying the 4G technology on our current network, we intend to leverage our existing infrastructure, provisioning, customer service center, network operations center, or NOCs, telephone switches and back office processes that we already have in place. We also intend to take advantage of the hundreds of ~~BSAs~~buildings for which we have BSAs in place ~~with~~in ~~building owners throughout~~ New York, New Jersey, Pennsylvania (Philadelphia), Connecticut and Illinois (Chicago). • We believe that we will be one of the first companies in the United States to ~~offer~~focus ~~this~~on deploying in-building 4GHFW ~~based~~networks ~~HFW~~in ~~network~~commercial ~~technology~~buildings. ~~This~~These ~~technology~~next ~~will~~generation ~~enable~~networks ussupport ~~to provide~~ in-building carrier-grade broadband wired and wireless network services, in-building data services and voice services, VoIP, high speed Internet access, WiFi, HDTV applications, multi-user video conferencing and more. • Since our planned 4G networks will be a fully IP-based integrated ~~system~~systems, wired and wireless technologies ~~are~~will ~~allowed~~be able to converge and will be capable of providing between 100 Mbit/s and 1 Gbit/s Virtual Private LAN Services, or VPLS, supporting high definition, or HD, video services, high quality voice and high speed symmetrical data services with the latest security technology. We expect that this will provide both wired and mobile users with symmetrical broadband capabilities (both ways), providing an average upload and download bandwidth of 10mb/s per subscriber. • During Phase 1 of our roll-out, by deploying wireless nodes on every floor within a building, we intend to be able to provide our in-building customers with ~~mobile~~ data and voice services when they are inside the building, which will help increase customer penetration rates within existing buildings. During Phase 2, we intend to enable wireless carriers (currently working on towards establishing agreements with carriers) to use our network so they can improve their coverage, increase available bandwidth within the building and free up their valuable network resources by downloading their traffic onto our network. •Once ~~Following~~wireless ~~the~~carriers ~~completion~~are ofable ~~the~~to ~~proposed~~use ~~acquisition~~our ~~of Winncom~~network, we ~~intend~~expect this to ~~take~~be ~~advantage~~a ofsignificant ~~Winncom’s~~generator ~~international~~of ~~relationships~~revenue, ~~thereby~~as ~~providing~~carriers usroam onto the ~~opportunity to expand our in-building wireless~~ 4G based HFW ~~services~~network ~~worldwide~~within ~~and~~the ~~further~~buildings ~~expand~~we ~~RNK’s international telephone services~~operate.

Our Business Strategy

As an established company in the telecommunications sector, we believe that we are well-positioned to upgrade our network with state-of-the-art technology and deploy next generation in-building network technology to take advantage of market trends. We believe that these trends include significant growth in Internet usage, an increased demand for bandwidth based on new applications and devices such as the ~~IPhone®~~IPhoneÒ, and the demand for increased mobility. We believe the roll out of our in-building 4G based HFW network will address all of these issues. By investing in sophisticated in-building wired and wireless networks, we believe that we will be in a position to take advantage of the growth expected in this sector. According to Cisco Systems, from 1997 to 2007 Internet traffic went from 3 petabytes (30 million gigabytes) per month to 6,600 petabytes per month. By 2012, Cisco Systems forecasts monthly Internet traffic to surpass 43,000 petabytes per month for a compound annual growth rate of roughly 46% from 2007 to 2012. It is expected that roughly 50% of consumer Internet traffic in 2012 will consist of internet video. Globally, according to Plunkett Research, the telecommunications industry is a $3.7 trillion sector in 2009 including about $1.2 trillion in annual revenues in the United States. Mobile communications, including mobile entertainment, remains one of the most robust sectors in the telecommunications market. According to Plunkett Research, there were an estimated 3.3 billion global cellular telephone subscribers by the beginning of 2009, including more than 270 million in the United States alone. According to the CTIA Wireless Association, advanced services, such as text messaging, Internet access and access to entertainment, including videos, make up a growing portion of a consumer’s monthly bill. These advanced services, particularly video, require more and more bandwidth. Recent research from ABI Research projects growth of In-Building Wireless, or IBW, systems from $5.5 billion in 2009 to $15.4 billion by 2014.

Our business strategy is two-fold: Phase 1 of our business strategy will be the deployment of the next generation based HFW network throughout the buildings and the sale of bundled communication services to current and future business customers within the buildings, which will help increase customer penetration rates within existing buildings. Phase 2 of our business strategy is to provide wholesale wireless access to other mobile carriers (our in building network will act as a small cell tower for the carriers) and, once developed, bring new 4G services within the building to our existing customers, and, we believe, generate significant revenue for us.

communication services to current and future business customers within the buildings. Phase 2 of our business strategy is to provide wholesale wireless access to other mobile carriers (our in building network will act as a small cell tower for the carriers) and, once developed, bring new 4G services within the building to our existing customers.

Business Strategy: Phase 1

Build A Superior Network—We offer a differentiated carrier-grade 4G based Hybrid Fiber-Wireless (HFW) network solution that enables immediate, converged voice/video/data services on a single broadband symmetrical IP wireless networking platform. This high voice-quality solution has the capability to meet the growing demand for wireless video and business application services. We will initially bring in 1 gigabyte of capacity into each building, pull fiber to each floor and provide wireless nodes throughout a building. This will allow us the ability to enable any type of hardwire and/or wireless services to any customer within a building.

Offer Bundled Communication Services—We will seek to provide our customers with bundled service offerings (e.g., data, VoIP, video, and WiFi) either at their desk and/or on a laptop computer, all invoiced through a single bill. Approximately 90% of our monthly revenue in our retail business is generated from data (Internet) services. The upgraded 4G based HFW network will allow us to not only improve the quality of our service, but provide bundled services to our existing customers, including VoIP, video conferencing, WiFi and others. As a result, we believe we will be able to up sell our existing customer base and generate high-margin incremental revenue from them.

Rapid Deployment—We will seek to rapidly deploy our network within commercial buildings. We already have infrastructure, management, a redundant network built with state-of-the-art technology, expertise in back office processes, a robust customer service department, BSAs with the management companies of those buildings in which 4G based Hybrid Fiber-Wireless (HFW) network services will be offered, and an existing customer base in place within approximately 750 buildings (approximately 425 buildings have BSAs in place and approximately 325 are remote locations with current Wave2Wave customers but without BSAs) concentrated in major metropolitan markets including New York, Chicago, New Jersey, Connecticut and Philadelphia. We believe that having an advanced technology and an existing infrastructure gives us a time to market advantage.

Increase Penetration Rate In Existing Buildings—Our sales and marketing efforts will be focused on increasing penetration rates in our existing buildings along with up-selling existing customers. Once our new upgraded network is deployed in each building (initially at least 1 gigabyte of bandwidth), we expect to be able to supply customers with all of their telecommunication and broadband mobility needs. Additionally, many customers require network redundancy capability, which we will also be able to supply since our network will be completely separate from other providers in the building.

International Expansion—Through our acquisition of Winncom, we believe that we will be well positioned to capitalize on Winncom’s existing relationships to expand our next generation network services internationally. We also expect to be able to take advantage of Winncom’s relationships in the telecommunications industry to create opportunities for RNK, including, but not limited to, more favorable call origination and termination rates.

Provide Quality Customer Care—We believe that customer loyalty can only be developed by providing a high degree of care and attention. To foster customer loyalty, we provide 24-hour technical support and customer care via phone, secure online chat and email. We also believe in cost effective and customer friendly approaches to customer self help, and offer online support with features like account management, knowledge base support and customer forums. Our network is monitored 24 hours per day, seven days per week by our two geographically redundant NOCs.

Business Strategy: Phase 2

Next generation cellular services, which require very low latency and packet-based switching, will require a near-complete overhaul of existing infrastructures, and place tremendous burdens on

service providers as they increase capital budgets and attempt to keep up with their expanding backhaul needs. Wave2Wave plans to address these increasing demands and cost pressures in two ways. First, our infrastructure will allow wireless carriers to off-load bandwidth intensive data applications from their spectrum-based networks onto our networks. Second, our network architecture will allow carriers to rely on us for backhaul for communications initiated at one of our sites. Our in-building HFW network will be fully backwards compatible and have the capacity to be a “small cell” to wireless carriers. This will enable the off-loading of high bandwidth data wireless services, such as wireless video and voice services from traditional public wireless network infrastructure onto the in-building 4G broadband wireless networks, leveraging the proprietary technology that has been developed by our strategic partner incNetworks®. This design approach is based on what now has become known as the Long Term Evolution, or LTE, Standard. Unlike WiMax, our approach is fully backwards compatible with existing wide area 2G (GSM), 3G (UMTS) standards and Wi-Fi. Our solution is also backwards- compatible with the existing, Wi-Fi, massive 2G—3G infrastructure investment and user bases. The network will use software defined radio and cognitive radio technologies that enable it to appear as another 4G LTE Micro Radio Tower to the outside 3G and 4G macro radio tower network, thus enabling superior radio coverage within these New York City buildings.

Once our 4G based HFW networks are built at a particular site, we plan to lease available bandwidth in the buildings to cellular carriers for a fee to help meet their customers increased data demands. Through our access points, the in-building network can broadcast Wi-Fi, 4G, 3G, and 2G cellular signals throughout our contracted buildings. This will allow carriers to improve coverage, increase available bandwidth within the buildings, and free up valuable network resources by taking the users off the carriers’ current network while they are in our contracted buildings. The backhaul of data traffic, like the offloading of data traffic from the carrier’s network generally, will be increasingly important as mobile devices are used to provide data services.

As the use of cellular and mobile communications continues to expand, increasing consumer demand for data and video intensive applications will continue to drive bandwidth consumption. In fact, AT&T, Inc. recently acknowledged at a UBS Securities investor conference that AT&T was studying the problem of how to address heavy consumption of video and audio content by smartphone users.

We will offer network infrastructure products and services, as well as backhaul solutions that will effectively allow mobile operators to meet their wireless backhaul challenges. The primary driver for these challenges is the expansion of cellular services beyond traditional voice and text messaging. Increasingly, cellular offerings will need to provide a broader, more flexible combination blend of voice, data, video, and other high density applications. As mobile users become increasingly accustomed to richer data and video experiences, they will soon begin to demand the same content on their mobile devices as they are able to receive from their wired broadband services at home or in their offices. Emerging next generation handsets will deliver similar content to cell phones and PDAs, requiring wireless providers to address the need for substantially more bandwidth—with increased packet management capabilities—than current infrastructures allow. We expect to be able to offer individually customized target marketing opportunities, allowing merchants to advertise based on real-time relevance to the subscriber’s demographic profile (e.g., age, interests and income). This, we believe will, in turn, result in a more focused audience, improving merchants’ advertising success rate.

In fact, according to a report by ADC Telecommunications, Inc, wireless carriers estimate that leased line backhaul costs will increase to greater than 25% of wireless carrier operational expenditure with the rollout of new data services. Any future migrations to 4G standards, with the potential of 100 Mbits per mobile connection, will only further expand the need for even greater data backhaul capabilities.

As increasing numbers of cellular users demand access to more bandwidth-intensive content, existing backhaul infrastructures require new solutions. To remain competitive as 3G and 4G applications arrive, we will be well positioned to provide services that optimize existing wireless

networks, allow for migration toward a robust, next generation network capable of handling tomorrow’s higher-volume IP-based traffic while maintaining the capital investments already made by the wireless carriers.

As a global player in the design and deployment of next-generation network infrastructures, we will offer end-to-end network infrastructure solutions for in-building and wireless deployments. In Phase 2 of our business strategy, we expect that our solutions will support “quadruple-play” services of video, data, voice and wireless that global carriers require to retain subscribers and generate new revenue.

We expect to be positioned as a leader in providing network infrastructure products and services that enable the profitable delivery of high-speed Internet, video, data, and voice services to business and mobile subscribers worldwide, and be well positioned to meet the demand for unlimited access, scalable bandwidth and robust, reliable connectivity.

Enter into Strategic ~~Partnerships~~Relationships—We ~~have~~expect ~~entered~~that ~~into~~our astrategic ~~partnership~~relationships ~~agreement~~ with ~~incNetworks®~~MotorolaÒ, Inc. (“MotorolaÒ”) and ~~have~~Winncom aTechnologies ~~working~~Holding ~~relationship~~Limited (“Winncom”) will, in conjunction with ~~AVC~~other ~~Global~~integration ~~Services~~partners ~~Group~~and ~~for~~technology ~~the~~vendors, 4Genable ~~based~~us to rapidly deploy our HFW ~~network~~networks ~~build~~in ~~out~~our commercial buildings. We ~~expect~~intend ~~that~~to ~~following~~source ~~the~~equipment, ~~acquisition~~services, ofexpertise ~~Winncom,~~and ~~Winncom~~experience ~~will~~from ~~also~~MotorolaÒ beand ~~able~~will towork ~~build- out~~with ~~the~~Winncom 4Gfor ~~based~~design ~~HFW~~and ~~network~~implementation efforts.

~~incNetworks®,~~We ~~Inc.~~also ~~incNetworks®~~have ~~has~~a ~~developed~~working anrelationship ~~innovative next generation multi-megabit broadband wireless network architecture and technology that incorporates all specifications required for the next generation 4G technology~~ with anAVC ~~ability~~Global toServices ~~interoperate~~Group, ~~with both 2G and 3G Wide Area Wireless Networks via a roaming~~ or ~~access~~AVC, ~~agreement~~which ~~with~~is ~~a cellular carrier. Just as 2G cellular enabled universal mobility for voice and 3G enabled universal mobility for~~ the ~~Internet~~United ~~and/or~~States-based ~~new~~affiliate ~~innovative~~of ~~data~~AVC ~~services~~Europe, ~~4G with its broadband symmetric transmission channels will enable next generation mobility services such as voice~~Ltd., ~~high~~an ~~speed~~ISO ~~symmetric~~9002-registered ~~broadband~~professional ~~data~~ services ascompany ~~well~~based asin ~~enabling~~the ~~universal~~United ~~mobility for broadband video services~~Kingdom. ~~This~~AVC ~~new~~provides ~~capability~~telecommunications ~~will enable faster downloads~~ and ~~uploads~~information technologies solutions to ~~occur~~service ~~with~~providers, ~~the same high bandwidths~~enterprises, soand ~~that~~equipment ~~video in both directions can be as common as voice~~manufacturers. We ~~have~~believe ~~formed~~that aAVC ~~strategic~~has ~~partnership~~the ~~with~~ability ~~incNetworks® pursuant~~ to ~~which~~roll-out weour ~~were~~planned ~~granted an exclusive license to use, sell, and market~~ HFW networks ~~and~~on ~~services~~a ~~incorporating incNetworks® proprietary underlying CelluLAN® technology, within an expansive list of multi~~large-~~tenant~~scale ~~buildings~~basis ~~to be identified by the parties~~worldwide.

AVC Global Services Group. AVC Global Services Group, or AVC, is the United States-based affiliate of AVC Europe, Ltd., an ISO 9002-registered professional services company based in the United Kingdom. With a nationwide presence throughout the United States, AVC has established a solid services portfolio, providing telecommunications and information technologies solutions to service providers, enterprises, and equipment manufacturers. AVC is currently deploying our technology in two office buildings in New York, New York and has the ability to roll-out our product on a large-scale basis worldwide.

Market Opportunity

We are seeking to capitalize on the convergence of wireless, video, and content-based service models, and the coinciding need for wireless providers to increase cellular coverage penetration within buildings and to off-load bandwidth from their existing networks and find alternative backhaul solutions for low latency, packet-based data and video applications. Growth in new applications in wireless voice and multimedia services, increasing demand for high quality mobile voice and high definition video entertainment services, and the desire of cellular carriers to efficiently manage valuable spectrum, drive the underlying demand for our wireless broadband products and systems. We believe that existing networks and technologies cannot fulfill this demand.

4G technology combines high speed broadband technology, with wireless mobility inside customers’ offices and office buildings, compatibility with legacy wireless data systems (and voice systems, pending the completion of agreements with wireless carriers), and efficient use of spectrum. Furthermore, it is adaptable to any application that communicates information over radio spectrum, including Internet, HDTV, cellular, industrial and emergency/military needs. 4G technology can provide seamless broadband wireless networks for both multi-tenant buildings and campuses/communities. As cellular providers continue to capture landline customers, in-building solutions will play a larger role in carrier networks.

provide seamless broadband wireless networks for both multi-tenant buildings and campuses/communities. As cellular providers continue to capture landline customers, in-building solutions will play a larger role in carrier networks.

According to a recent study from ABI Research, worldwide deployment revenues from in-building wireless systems are expected to grow from $3.8 billion in 2007 to more than $15 billion in 2013. Drivers for this tremendous growth include consumers’ growing dependence on wireless voice and messaging communications. According to TMT’s (Deloitte’s Technology, Media and Telecommunications Industry Group) Telecommunications Trends Report for 2007, 70% of mobile calls are being made indoors during the course of a year. Mobile data use has also moved indoors, a trend expected to continue.

Related Party Ownership

Following the consummation of this offering, our directors and executive officers, together with their affiliates and related persons, and stockholders owning more than 10% of our common stock will beneficially own, in the aggregate, approximately 66% of our outstanding common stock. As a result, these stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership may harm the market price of our common stock by delaying or preventing a change in corporate control or may result in the entrenchment of management or our board of directors.

Verizon Litigation

On August 22, 2008 Verizon New England, Inc. (“Verizon”) filed a complaint in the United States District Court, District of Massachusetts against RNK, Inc., our wholly owned subsidiary,

relating to the parties’ Interconnection Agreements in New York, Massachusetts and Rhode Island. Specifically, Verizon alleges breach of contract and contends that RNK owes $10,797,896.53 for Virtual Foreign Exchange (“VFX”) traffic, plus applicable late payment charges as of the date of the complaint, seeks declaratory judgments that Verizon does not owe RNK certain invoiced amounts related to reciprocal compensation and access charges, and requests that the court reset the presumptive percentage of VFX which governs the parties’ agreements. RNK filed its answer on November 11, 2008. RNK denied the claims proffered by Verizon and asserted defenses and counter claims for breach of contract and violation of the Massachusetts Consumer Protection Statute. RNK’s counter claims seeks $25,361,434 in compensatory damages as of the date of the complaint, declaratory relief and statutory damages under the Massachusetts Consumer Protection Statute. Verizon answered RNK’s counterclaims on December 22, 2008 and simultaneously filed, but subsequently withdrew, a motion to dismiss certain of RNK’s counterclaims. The parties have completed fact discovery and, on September 2, 2010, Verizon filed its Motion for Partial Summary Judgment. Verizon’s motion sought summary judgment on several of its claims and those filed by RNK in its favor.

On October 4, 2010, RNK filed its own motion for summary judgment and reply to Verizon’s motion. RNK’s motion seeks summary judgment on the bulk of its claims. The motions are currently pending before the court. RNK’s management has instructed counsel to vigorously defend against Verizon’s motion and press RNK’s claims. If Verizon were to prevail on its claims as to the rate for or percentage of VFX traffic that should govern the parties’ agreements, RNK could incur substantial costs which may have a material adverse effect on our business and our liquidity, including paying at a higher rate and percentage of VFX traffic. Because we are unable to predict what an adverse decision would result in, we are unable to quantify how it would affect our financial positions, operating results and cash flows.

On December 10, 2010, Verizon provided RNK with notice that it intended to place the vast majority of the monthly payments owed by Verizon to RNK into an escrow account toward an alleged balance of $4,085,469.85 owed by RNK related to virtual foreign exchange (“VFX”) charges. Verizon determined this amount by unilaterally calculating a new VFX presumption related to RNK’s traffic other than the agreed upon 20%. The parties are currently litigating the issue of the VFX presumption recalculation and RNK has not determined the propriety of Verizon’s actions at this point. Should Verizon continue withholding RNK’s monthly payments, this action may have a negative impact on cash flow as Verizon accounted for 11% of operating revenues in 2010. Further, if Verizon were correct regarding the over payment, such charges could have a material adverse impact of our revenues or operations.

Recent Operations

For the years ended December 31, 2009, 2008 and 2007, we have experienced operating losses of approximately $21.5 million, $1.2 million and net earnings of $1.9 million, respectively. For the nine months ended September 30, 2010, we experienced operating losses of approximately $10.5 million and as of September 30, 2010, we had an accumulated deficit of approximately $44.4 million. As of November 30, 2010, we had outstanding debt obligations of approximately $37.6 million with a weighted average interest rate of 12.7%. We intend to use approximately $2.0 million of the proceeds of this offering to partially retire debt which currently carries a weighted average interest rate of approximately 36.0%.

Use of Proceeds

We intend to use the net proceeds of this offering in the order of priority as follows: approximately (i) $2.0 million (or up to $2.7 million if the underwriter’s over-allotment option is exercised) to repay the senior secured notes held by Victory Park; and (ii) the balance to be used to pay for the costs of the offering and as working capital or deployed at the discretion of management. See the sections of this prospectus entitled “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity—Sources of Liquidity” for further information.

Corporate Information

We were incorporated in Delaware in November 1999. Our principal executive offices are located at 433 Hackensack Avenue, Hackensack, New Jersey 07601, and our main telephone number is (201) 968-9797. Our subsidiary, RNK, has its main offices at 333 Elm Street, Dedham, Massachusetts. ~~Winncom~~ ~~is headquartered at 30700 Carter Street, Suite A, Solon, OH 44139.~~ Our website address is www.wave2wave.com. The information on our website is not part of this prospectus. We have included our website address as a factual reference and do not intend it to be an active link to our website.

The Offering

Common stock offered by us		[•] shares
Securities offered		1,700,000 units, each unit consisting of (i) one share of our common stock and (ii) one warrant to purchase one share of our common stock.
Number of shares issued on the date of effectiveness of this registration statement		[•] shares
Offering price		$4.25 per unit
Number of shares outstanding after this offering		[•] shares ([•] shares if the over-allotment option is exercised in full by the underwriter)
Number of shares issued on the date of effectiveness of this registration statement		8,886,620 shares
Offering price		$[•] per share
Number of shares outstanding after this offering		10,586,620 shares
Use of proceeds		We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $[•], based on an assumed initial public offering price of $ [•] per share, the mid-point of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We plan to use approximately $25 million of the net proceeds of this offering to acquire Winncom Technologies Holding Limited and to retire certain of its outstanding debt, $20.6 million of the net proceeds of this offering to repay our outstanding 6% secured promissory notes held by former owners of RNK, $9.3 million of the net proceeds of this offering to repay a bridge loan from Victory Park, $2.0 million to fund the rollout of our 4G based HFW network and the remainder to fund continued development of our technology and for general corporate purposes, such as general research and development, general and administrative expenses, capital expenditures, working capital needs and the potential acquisition of, or investment in, other technologies, products or companies that complement our business. For a more complete description of our intended use of the proceeds from this offering, see “Use of Proceeds.”
Number of warrants outstanding before this offering		386,403
Proposed [•] symbol		“[•]”
Number of warrants outstanding after this offering		2,086,403
Risk Factors		The securities offered by this prospectus are speculative and involve a high degree of risk and investors purchasing securities should not purchase the securities unless they can afford the loss of their entire investment. See “Risk Factors” beginning on page 13.
Exercisability of warrants offered in this offering		Each warrant included within the unit is excercisable for one share of common stock
Representative’s Common Stock Purchase Option		In connection with this offering, we have also agreed to sell to the underwriter representative an option for $100 to purchase up to 5% of the shares of common stock sold. If this option is exercised, each share may be purchased by the underwriters’ representative at $[•] per share (125% of the price of the shares sold in the offering).
Exercise Price of warrants offered in this offering		$4.40

8Redemption

We may redeem the warrants sold in this offering at any time after [ ], 2011 [six months from the date of this prospectus]:

•

in whole and not in part,

•

at a price of $.01 per warrant any time after the warrants become exercisable,

•

upon a minimum of 30 days’ prior written notice of redemption, and

•

if, and only if, the last sales price of our common stock equals or exceeds $7.00 per share for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption.

In addition, we may not redeem the warrants unless the warrants included in the units sold in this offering and the shares of common stock issuable upon exercise of those warrants are covered by an effective registration statement and a current prospectus is available throughout the 30-day notice of redemption period.

If the foregoing conditions are satisfied and we call the warrants for redemption, each warrant holder shall then be entitled to exercise his, her or its warrants prior to the date scheduled for redemption.

The redemption provisions for our warrants have been established at a price which is intended to provide the warrant holders with a premium to the market price as compared to the initial exercise price. There can be no assurance, however, that the price of the common


		stock will exceed either the redemption trigger price of $7.00 or the warrant exercise price of $4.40 after we call the warrants for redemption.

Use of proceeds		We estimate that our net proceeds from the sale of units in this offering will be approximately $6.5 million, based on an initial public offering price of $4.25 per unit after deducting underwriting discounts and commissions. We plan to use approximately $2.0 million (or up to $2.7 million if the underwriter’s over-allotment option is exercised) of the net proceeds of this offering to partially repay a bridge loan from Victory Park, and the remainder to be used to help fund the first phase of our planned 4G based HFW network roll- out, general and administrative expenses, capital expenditures, working capital and other general corporate purposes.

Proposed NYSE Amex symbols for the common stock and warrants, respectively		“WAV” and “WAV.WS”

Risk Factors		The securities offered by this prospectus are speculative and involve a high degree of risk and investors purchasing securities should not purchase the securities unless they can afford the loss of their entire investment. See “Risk Factors” beginning on page 12.

Representative’s Warrant		In connection with this offering, we have also agreed to sell to the underwriter representative a warrant for $100 to purchase up to 3% of the shares of common stock included in the units sold. If this warrant is exercised, each share may be purchased by the underwriters’ representative at $5.80 per share.

General Information About This Prospectus

Unless otherwise noted, throughout this prospectus the number of shares of our common stock to be outstanding following this offering is based on shares of our common stock outstanding as of ~~February~~December 810, 2010 and excludes:

• 5,448,990 shares of common stock issuable upon the exercise of stock options outstanding as of February 8, 2010 at a weighted average exercise price of $0.12 per share; • 2,941,172 shares of common stock issuable upon the exercise of warrants outstanding as of February 8, 2010 at a weighted average exercise price of $0.60 per share; and • additional shares reserved for future issuance under our stock plans.

~~Unless otherwise indicated~~656,124 ~~all~~shares ~~information~~of incommon ~~this~~stock ~~prospectus~~issuable ~~assumes~~upon ~~that~~ the ~~underwriters do not~~ exercise ~~their over-allotment option to purchase [•] shares~~ of ~~our common~~ stock inoptions ~~this~~outstanding ~~offering~~as ~~and~~of ~~excludes~~December 8, ~~shares~~2010 ~~underlying~~at ~~the~~a ~~underwriter~~weighted ~~representative’s~~average ~~common~~exercise ~~stock~~price ~~purchase~~of ~~option~~$0.94 per share;

9•

~~SUMMARY~~386,403 ~~HISTORICAL~~shares ~~CONSOLIDATED~~of ~~FINANCIAL~~common ~~DATA~~stock ~~ANDPRO~~issuable ~~FORMA~~upon ~~FINANCIAL~~the ~~DATA~~exercise of warrants outstanding as of December 8, 2010 at a weighted average exercise price of $6.22 per share;

The following tables set forth our summary consolidated financial data for the periods ended and as of the dates indicated below. We have derived the summary consolidated financial data as of and for the years ended December 31, 2008, 2007, and 2006 and as of December 31, 2007 and 2008 from our consolidated financial statements which have been audited by RBSM LLP, our independent registered public accounting firm and are included elsewhere in this prospectus. We have derived the summary consolidated financial data for the nine months ended September 30, 2009 and 2008 and as of September 30, 2009 from our unaudited consolidated financial statements included elsewhere herein. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. The historical results included here and elsewhere in this prospectus are not necessarily indicative of future performance or results of operations.•

~~The summarized unaudited pro forma financial data as of September 30, 2009 has been prepared to give pro forma as adjusted effect to (1) the proposed Winncom acquisition, (2) the sale of~~ shares ~~in this offering, and (3) application~~ of ~~the~~common ~~net~~stock ~~proceeds~~underlying ~~from this offering as if~~ the ~~transactions~~underwriters’ ~~took place~~representative’s ascommon ofstock ~~January~~purchase 1,option; ~~2008 for the year ended December 31, 2008~~ and the nine months ended September 30, 2009, and as of September 30, 2009 for the balance sheet data. This data is subject, and gives effect, to the assumptions and adjustments described in the notes accompanying the unaudited pro forma financial statements included elsewhere in this prospectus. The summary unaudited pro forma financial data is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Winncom acquisition and this offering been consummated on the dates indicated, and do not purport to be indicative of balance sheet data or results of operations as of any future date or for any future period.

The information set forth below should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Historical Financial Data,” “Unaudited Pro Forma Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements including the notes thereto incorporated by reference in this prospectus.•

additional shares reserved for future issuance under our stock plans.

Unless otherwise indicated, all information in this prospectus:

•

reflects a 1-for-2 reverse stock split of our common stock effected on March 22, 2010 and an additional 1-for-4 reverse stock split of our common stock effected on September 30, 2010;

•

assumes that the underwriters do not exercise their over-allotment option to purchase 255,000 units in this offering; and

•

assumes the filing of our second amended and restated certificate of incorporation and the adoption of our second amended and restated bylaws upon the completion of this offering.

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth our summary consolidated financial data for the periods ended and as of the dates indicated below. We have derived the summary consolidated financial data for the years ended December 31, 2009, 2008, and 2007 and as of December 31, 2009 and 2008 from our consolidated financial statements which have been audited by RBSM LLP, our independent registered public accounting firm, and are included elsewhere in this prospectus. We have derived the summary consolidated financial data for the nine months ended September 30, 2010 and 2009 and as of September 30, 2010 from our unaudited condensed consolidated financial statements included elsewhere herein. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. The historical results included here and elsewhere in this prospectus are not necessarily indicative of future performance or results of operations.

The information set forth below should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements including the notes thereto incorporated by reference in this prospectus.

All financial data presented in thousands except whereas noted.

	Nine months ended September 30,													Year Ending December 31,
		(Unaudited)Nine Months EndedSeptember 30,								Year Ended December 31,
		2009				2009				2008					2008				2008				2007			2006
		2010				2009				2009					2008				2007
		Pro Forma				(unaudited)				(unaudited)					Pro Forma
						(restated)
Net revenues				102,171				61,693				67,856					148,661				78,455			35,403			18,552
Operating revenues			$	53,265			$	61,693			$	79,871				$	78,455			$	35,403
Costs of goods sold				70,796				37,829				31,183					101,655				43,205			22,143			11,996
Operating expenses:
Gross profit				31,375				23,864				36,673					47,006				35,250			13,260			6,556
Costs of goods sold (exclusive of depreciation show separately below)				36,353				39,039				51,588					43,205				22,143
Operating expenses:
Depreciation and amortization				5,066				5,243				6,983					6,658				1,986
Depreciation and amortization				8,713				5,243				6,014					11,267				6,658			1,986			1,047
Selling, general, and administrative expenses				18,367				15,239				37,925					20,795				14,199
Selling, general, and administrative expenses				23,032				15,239				15,367					31,954				20,795			14,199			6,958
Total operating expenses:				59,786				59,521				96,496					70,658				38,328
Total operating expenses:				31,745				20,482				21,381					43,221				27,453			16,185			8,005
(Losses) income from operations				(6,521	)			2,172				(16,625	)				7,797				(2,925	)
Income (loss) from operations				(370	)			3,382				15,292					3,785				7,797			(2,925	)		(1,449	)
Interest expense, net				8,315				4,429				7,231					7,009				2,306
Interest expense, net				3,308				4,429				5,072					5,916				7,009			2,306			871
Other (expense) income				—				(940	)			(769	)				312				3,496
Other income (expense)				(977	)			(940	)			660					703				312			3,495			(131	)
Net interest expense and other income				8,315				5,369				8,000					6,697				(1,190	)
Net interest expense and other income				4,285				5,369				4,412					5,213				6,697			(1,189	)		1,002
(Loss) income before income taxes				(14,836	)			(3,198	)			(24,625	)				1,100				(1,735	)
(Loss) income before income taxes				(4,655	)			(1,987	)			10,880					(1,428	)			1,100			(1,736	)		(2,451	)
Provision for income taxes				(4,383	)			(1,311	)			(3,089	)				2,309				(3,629	)
Provision for income taxes & minority interest				(1,517	)			(875	)			5,361					1,771				2,309			(3,630	)		—
Net (loss) income				(10,453	)			(1,887	)			(21,536	)				(1,209	)			1,894
Net (loss) income				(3,138	)			(1,112	)			5,519					(3,199	)			(1,209	)		(1,894	)		(2,451	)
Diluted EPS				($1.46	)			($0.33	)			($3.53	)				($0.22	)		$	0.35
Adjusted EBITDA*			$	~~12,832~~195				117,~~916~~732				208,~~829~~071					258,~~260~~546				231,~~065~~937			~~2,255~~			~~(389~~	)

109

	At September 30, 2009								Year Ended December 31,
		Pro Forma			Reported					2008				2007				2006
		(unaudited)			(unaudited)
Balance Sheet Data:
Cash and cash equivalents			$	27,479		$	2,642				$	1,598			$	1,111			$	256
Working capital				43,884			(10,939	)				(59,561	)			(51,064	)			(2,239	)
Total assets				194,233			94,491					90,885				90,430				9,170
Stockholders’ equity			$	100,692		$	1,342				$	1,401			$	339			$	(8,321	)

All financial data presented in thousands.


	September 30, 2010				Year Ended December 31,
	September 30, 2010				2009				2008				2007				2006
	(unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	483			$	1,995			$	1,598			$	1,111			$	256
Working capital			(24,800	)			(25,794	)			(59,561	)			(51,064	)			(2,239	)
Total assets			94,121				95,232				90,885				90,430				9,241
Stockholders’ (deficit) equity		$	23,147			$	(1,681	)		$	1,401			$	339			$	(8,321	)

We define Adjusted EBITDA as operating income (loss) before interest, taxes, depreciation and amortization expenses, excluding stock-based compensation expense, write-off of public offering costs, gain recognized on troubled debt restructuring, gain or loss on asset dispositions and other non- operating income or expense. We use Adjusted EBITDA in our business operations to, among other things, evaluate the performance of our business, develop forecasts and measure our performance against those forecasts.

We believe that analysts and investors use Adjusted EBITDA as a supplementary measure to evaluate a company’s overall operating performance. However, Adjusted EBITDA has material limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation, or as a substitute for analysis of our results as reported under GAAP. We believe that, with a full understanding of its limitations, adjusted EBITDA provides useful information regarding how our management views our business. In addition, it allows analysts, investors and other interested parties in the telecommunications industry to facilitate company to company comparisons because it eliminates many differences caused by variations in capital structures (affecting interest expense), taxation, the life-cycle stage and “book basis” depreciation expense of facilities and equipment, as well as non- operating and one-time charges to earnings.

Adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments. Our calculation of Adjusted EBITDA is not directly comparable to EBIT (earnings before interest and taxes) or EBITDA. In addition, Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; our interest expense, or the cash requirements necessary to service interest or principal payments our outstanding debt; any cash requirements for the replacement of assets being depreciated or amortized, which will often have to be replaced in the future, even though depreciation and amortization are non-cash charges; and the fact that other companies in our industry may calculate adjusted EBITDA differently than we do which limits its usefulness as a comparative measure. Adjusted EBITDA is not intended to replace operating income, net income and other measures of financial performance reported in accordance with GAAP. Rather, Adjusted EBITDA is a measure of operating performance that you may consider in addition to those measures. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA as a supplementary measure. We define “Working Capital” as current assets in excess of current liabilities.

1110

Set forth below is a reconciliation of net (loss) income to EBITDA to Adjusted EBITDA for the periods presented.

~~Reconciliation~~All offinancial ~~net~~data ~~(loss)~~presented ~~incometo~~in ~~EBITDA to Adjusted EBITDA~~thousands.

Nine ~~months~~Months ~~ended~~EndedSeptember ~~September~~ 30,

Year ~~ended~~Ended December 31,

2010

2009

2008

2008

2007

Reconciliation of net (loss) income to EBITDA to ~~2006~~Adjusted EBITDA

Pro Forma*

Pro Forma

Net (loss) income

~~(3,138~~$

(10,453

)

~~(1,112~~$

(1,887

)

~~5,519~~$

(321,~~199~~536

)

(1,209

)

1,894

~~(2,451~~Provision for income taxes

(4,383

)

~~Provision for income taxes & minority interest~~ (1,311

(1,517

)

(~~875~~3,089

)

5,361

1,771

2,309

(3,~~630~~629

)

Other (expense) income

—

Other income (expense)

977

940

~~(660~~769

)

(703

)

(312

)

(3,~~495~~496

)

131

Interest expense, net

38,~~308~~315

4,429

57,~~072~~231

5,916

7,009

2,306

871

Depreciation and amortization

85,~~713~~066

5,243

6,~~014~~983

11,267

6,658

1,986

1,047

EBITDA

8(1,~~343~~455

~~8,625~~ )

217,~~306~~414

15(9,~~052~~642

)

14,455

(939

)

~~(402~~Non-cash compensation

) 1,650

~~Non-cash compensation and accretion~~ 318

117,~~518~~713

~~320~~664

2,~~379~~876

~~2,586~~Gain on change in estimate for VFX

988

3,194

Non-recurring items

2,971

(2,856

)

7,622

—

(6,573

)(1)

—

Adjusted EBITDA

~~12,832~~195

117,~~916~~732

208,~~829~~071

258,~~260~~546

231,~~065~~937

$(1) A one-time favorable adjustment recorded pursuant to a rate change for calculating liabilities for virtual foreign exchange traffic processed by other carriers through existing interconnection agreements, as amended.

~~2,255~~11

(389

)

RISK FACTORS

An investment in our common stock and warrants involves a high degree of risk. You should carefully read and consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including the financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock and warrants. If any of these risks actually occur, our business, business prospects, financial condition, results of operations or cash flows could be materially harmed. In any such case, the trading price of our common stock and warrants could decline, and you could lose all or part of your investment.

Risks Related to Our Business

Business and Competitive Risks

We have substantial indebtedness and may be unable to service our debt. Our substantial indebtedness could adversely affect our financial position, limit our available cash and our access to additional capital and prevent us from growing our business.

As of ~~February~~November 430, 2010 we ~~have~~had outstanding debt of approximately $7037.6 million, of which $3018.0 million is short-term in nature. Our long-term debt of approximately $3819.76 million matures on October 7, 2013 and is held by anWilmington ~~affiliate~~Trust ofCompany aand ~~related~~G. ~~party~~Jeff ~~who~~Mennen, isor ~~also~~Wilmington Trust, a principal ~~beneficial~~stockholder ~~owner~~and ofa ~~more~~future ~~than~~member 5%of our ~~total~~ ~~common~~board ~~stock~~of ~~outstanding~~directors upon consummation of this offering, as co-trustees of a trust of which John Henry Mennen, G. ~~This~~Jeff ~~related~~Mennen’s ~~party~~brother, is the beneficiary. Wilmington Trust has given us term extensions in the past. There can be no assurance that Wilmington ~~this~~Trust ~~party~~ will continue to do so. The weighted average interest of our debt is approximately 612.7%. We have had to extend the maturity dates of a significant portion of our debt and have negotiated multiple amendments and modifications, specifically in connection towith subordinated promissory notes held by the former owners of RNK. In order to secure modifications and amendments from various debt holders, we have issued additional consideration in the form of shares of our common stock and warrants to purchase shares of our common stock as an inducement for more favorable terms. We have not always been ~~successfully~~successful in servicing our debt and have been issued default notices; although subsequently we have been able to negotiate forbearances. From the proceeds of this offering, we have designated for ~~retirement~~partial ~~approximately~~repayment up to $302.7 million of our ~~debt,~~bridge ~~consisting~~loan offrom ~~approximately~~Victory ~~$20~~Park.6 ~~million~~The RNK ~~for~~notes ~~repayment~~become ofdue ~~subordinated~~on ~~promissory~~July ~~notes~~13, ~~held~~2011. byWe ~~the~~will ~~former~~need ~~owners~~to ofobtain ~~RNK~~additional ~~and~~financing ato ~~bridge~~repay ~~loan~~the remainder of ~~approximately~~the ~~$9.3~~bridge ~~million~~loan ~~held~~from by Victory Park ~~Capital~~and asthe ~~use~~RNK ofnotes ~~proceeds.~~or ~~The~~agree ~~RNK~~to ~~notes~~another ~~become due~~extension inwith ~~April~~Victory ~~2010~~Park and the holders of the RNK notes. The loans from Victory Park become due on the earlier of ~~May 8~~June 13, ~~2010~~2011 or ~~the~~upon ~~consummation~~a ofdefault ~~our~~under ~~proposed~~the ~~offering~~Victory Park credit agreement. If we are unable to ~~raise~~obtain aadditional ~~certain amount of proceeds from this offering~~financing, we will be unable to retire the debt designated above and we may be in default in the repayment of such debt which would have a material adverse effect on our financial position, results of operations and related cash flows.

The level of our indebtedness could have important consequences, including:

•

a substantial portion of our cash flow from operations will be dedicated to debt service and may not be available for other purposes;

•

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•

limiting our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes, including acquisitions, and may impede our ability to secure favorable lease terms;

•

making us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures; and

•

placing us at a competitive disadvantage compared to our competitors with less indebtedness.

~~We could cease to be profitable and incur significant losses.~~12

WeThe ~~have~~terms ~~experienced~~of ~~significant losses in the past at times when we have not been able to generate sufficient cash flow from operations to fund~~ our ~~expenses.~~credit Wefacilities ~~could~~contain ~~cease~~restrictions ~~to be profitable~~ and ~~can~~limitations ~~give no assurance~~ that wecould ~~will~~significantly ~~not~~impact ~~incur~~our ~~significant~~ability ~~losses~~to inoperate ~~the~~our ~~future~~business. ~~We experienced~~

We are required to maintain compliance with certain financial covenants and our credit facilities contain certain restrictions and limitations that could significantly limit our ability to operate our business. In the absence of any required waiver or consent, these restrictions may limit our ability to:

•

incur or guarantee additional indebtedness;

•

create liens on our assets;

•

make investments;

•

engage in mergers and acquisitions;

•

redeem capital stock;

•

make capital expenditures; and

•

sell any of our assets.

Therefore, we will need to seek permission from our lenders in order to engage in some corporate and commercial actions that we believe would be in the best interest of our business, and a denial of permission may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. Our lenders’ interests may be different from our interests or the interests of the holders of our securities, and we cannot guarantee that we will be able to obtain our lenders’ permission when needed. This may prevent us from taking actions that are in our best interest. Any future credit facility agreement may include similar or more restrictive restrictions.

Our ability to comply with the covenants and restrictions contained in our credit facilities may be affected by economic, financial and industry conditions and other factors beyond our control. Any default under the agreements governing our indebtedness, that is not waived by the required lenders could substantially decrease the market value of our securities. If we are unable to repay indebtedness, the lenders under our credit facilities could proceed against the collateral securing that indebtedness. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent. Our ability to comply with these covenants in future periods will also depend substantially on the value of our assets, our success at keeping our costs low and our ability to successfully implement our overall business strategy. Any future credit agreement or amendment or debt instrument may contain similar or more restrictive covenants.

For more information about our existing credit facilities, please refer to the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sources of Liquidity.”

We are highly leveraged and may incur substantial additional debt, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and make debt service payments.

We are highly leveraged. We may also increase the amount of our indebtedness in the future. Our high level of indebtedness could have important consequences to stockholders.

Because we are highly leveraged:

•

our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or general corporate purposes may be impaired in the future;

•

if new debt is added to our debt levels, the related risks that we now face would increase and we may not be able to meet all of our debt obligations;

•

a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for

~~annual~~other ~~net~~purposes, ~~losses~~and ofthere ~~$1.6~~can ~~million,~~be ~~$1.3~~no ~~million,~~assurance ~~and~~that ~~$2.5~~our ~~million~~operations inwill ~~2004,~~generate ~~2005,~~sufficient ~~and~~cash ~~2006,~~flow ~~respectively~~to ~~with~~service athis ~~stockholders’~~indebtedness; ~~deficit~~• aswe ofwill ~~December~~be ~~31,~~exposed ~~2006~~to the risk of ~~$6.5~~increased ~~million.~~interest Werates ~~benefited~~because ~~from~~our ~~the~~borrowings ~~acquisition~~under facility agreements will be at variable rates of ~~RNK~~interest; in• ~~2007,~~it ~~including~~may abe ~~non-recurring~~more ~~tax~~difficult ~~benefit~~for ~~related~~us to ~~historical~~satisfy ~~net~~our ~~operating~~obligations ~~losses~~to ofour ~~$4.5 million.~~lenders, Weresulting ~~experienced~~in apossible ~~net~~defaults ~~profit~~on and acceleration of ~~$1.9~~such ~~million~~indebtedness; in• ~~2007~~we may be more vulnerable to general adverse economic and industry conditions; • we may be at a ~~net~~competitive ~~loss~~disadvantage ofcompared ~~$1.2~~to ~~million~~our incompetitors ~~2008.~~with ~~For~~less debt or comparable debt at more favorable interest rates; • our ability to refinance indebtedness may be limited or the ~~nine~~associated ~~months~~costs ~~ending~~may ~~September~~increase; ~~30,~~and ~~2009~~• our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited, or we ~~experienced~~may abe ~~net~~prevented ~~loss~~from ofcarrying ~~$1.1~~out ~~million~~capital ~~with~~spending anthat ~~accumulated~~is ~~deficit~~necessary ofor ~~$13.5~~important ~~million~~to our growth strategy and efforts to improve operating margins or our business.

Highly leveraged companies are significantly more vulnerable to unanticipated downturns and set backs, whether directly related to their business or flowing from a general economic or industry condition, and therefore are more vulnerable to a business failure or bankruptcy.

We could continue to incur significant losses.

We have experienced significant losses in the past; at times we have been unable to generate sufficient cash flow from operations to fund our expenses. We can give no assurance that we will not continue to incur significant losses in the future. We experienced annual net losses of $1.6 million, $1.3 million, and $2.5 million in 2004, 2005, and 2006, respectively with a stockholders’ deficit as of December 31, 2006 of $8.4 million. We benefited from the acquisition of RNK in 2007, including a non-recurring tax benefit related to historical net operating losses of $4.5 million. We experienced a net profit of $1.9 million in 2007 and a net loss of $1.2 million in 2008. For the year ended December 31, 2009, we incurred a net loss of approximately $21.5 million and had a stockholders’ deficit of approximately $1.7 million. For the nine months ended September 30, 2010, we incurred a net loss of approximately $10.5 million and had a stockholders’ equity of approximately $23.1 million.

Our market is extremely competitive and we face intense competition from other providers of communications services that have significantly greater resources than we do.

The market for broadband and related services is highly competitive and we compete with several other companies within each of our markets. We face competition from several different sources including wireless carriers, competitive local exchange carriers, incumbent local exchange carriers, cable operators and Internet service providers. Many of these operators have substantially greater resources and greater brand recognition than we do. Further, there is no guarantee that they will not enter the wireless Internet connectivity market and compete directly with us for our subscriber base, which could have a material adverse affect on our operations.

Our current or future competitors may provide services comparable or superior to those provided by us, or at lower prices, or adapt more quickly to evolving industry trends or changing market requirements.

Many providers of communications services have competitive advantages over us, including substantially greater financial, personnel and other resources, better access to capital, brand name recognition and long-standing relationships with customers. These resources may place us at a competitive disadvantage in our current markets and limit our ability to expand into new markets. Because of their greater financial resources, some of our competitors can also better afford to reduce prices for their services and engage in aggressive promotional activities. Such tactics could have a negative impact on our business. For example, some of our competitors have adopted pricing plans such that the rates that they charge are not always substantially higher, and in some cases are lower, than the rates that we charge for similar services. In addition, other providers are offering unlimited or nearly unlimited use of some of their services for an attractive monthly rate in conjunction with attractive “win-back” promotions. Due to these and other competitive pricing pressures, we currently expect average monthly revenue per customer location to remain relatively flat or decline in the foreseeable future. Any of the foregoing factors could require us to reduce our prices to remain competitive or cause us to lose customers, resulting in a decrease in our revenue.

We derived a significant portion of our total net revenues, approximately 10%, from services provided to a telecommunications provider that has advised us that it intends to terminate our agreement. Our revenues and results of operations will be adversely affected, possibly materially, if we are unable to replace the lost sales or a renegotiate a replacement agreement upon favorable terms.

We have arrangements with several telecommunications providers to provide them services. Under these arrangements, RNK receives compensation for the termination of traffic originating with such telecommunications provider and terminating on RNK’s network. On August 27, 2009, one such provider, T-Mobile USA, Inc., provided RNK with notice of termination of the interconnection agreement between the parties, with an effective termination date of November 30, 2009. Pursuant to the terms of the interconnection agreement, RNK may request renegotiations at any time prior to the proposed termination date. Upon receiving such notice for negotiations, the terms and conditions of the terminated agreement, including the obligation to pay for traffic exchanged between the parties, will continue until a new agreement is executed or the applicable timeframes, plus any extensions of such timeframes, for negotiations under the Telecommunications Act of 1996 are exhausted. On November 16, 2009, RNK requested renegotiation of the agreement prior to the proposed termination date. As of January 22, 2010, T-Mobile has not recognized RNK’s request as valid and has indicated that it will not pay for traffic exchanged between the parties after November 30, 2009. Notwithstanding T-Mobile’s position, the parties are currently in negotiations to replace the

~~prior~~lower, ~~agreement.~~than ~~RNK~~the ~~expects~~rates that ~~the~~we ~~negotiations~~charge ~~will~~for ~~result~~similar inservices. aDue ~~reasonable~~to ~~but~~these ~~lower~~and ~~compensation~~other ~~rate~~competitive ~~within~~pricing ~~five~~pressures, ~~months~~we ofcurrently ~~the~~expect ~~termination~~average ~~date,~~monthly ~~although~~revenue ~~there~~per ~~can~~customer belocation noto ~~assurance~~remain ~~that~~relatively anflat ~~agreement~~or ~~can~~decline bein ~~reached.~~the ~~RNK~~foreseeable ~~also~~future. ~~expects~~Any ~~that~~of ~~T-Mobile~~the ~~will~~foregoing ~~not~~factors ~~pay~~could ~~for~~require ~~any~~us ~~traffic~~to ~~exchanged~~reduce ~~between~~our ~~the~~prices ~~parties~~to ~~after~~remain ~~November~~competitive ~~30,~~or ~~2009~~cause ~~and~~us ~~that~~to ~~this~~lose ~~will~~customers, ~~have~~resulting ~~a material adverse affect on our revenues~~ in ~~the~~a ~~short~~decrease ~~term and possibly~~ in ~~the~~our ~~long term depending on the final rate in any new agreement~~revenue.

We are relying on ~~incNetworks®~~third asparty aequipment ~~key~~vendors ~~vendor~~and integration partners. If ~~for~~we ~~any~~are ~~reason~~unable ~~our~~to ~~relationship~~enter into agreements or arrangements with ~~incNetworks®~~such ~~changes~~equipment vendors or isintegration ~~terminated~~partners or if the equipment provided or services performed by such equipment vendors or integration partners do not perform as expected, itthis ~~will~~could impair our ability to deploy 4G based HFW networks ~~and could result in incNetworks® competing against us~~.

We ~~entered~~are ~~into~~relying aon ~~strategic~~various ~~partnership~~equipment ~~master~~vendors ~~agreement~~and ~~with~~integration ~~incNetworks®~~partners onto ~~August~~provide ~~11,~~us ~~2006,~~with orequipment ~~the~~and ~~incNetworks~~services ~~Agreement,~~to ~~which~~deploy ~~was~~our ~~amended~~4G onbased ~~November~~HFW ~~24,~~networks. ~~2009~~We toare ~~grant~~in usadvanced andiscussions ~~exclusive~~with ~~license~~MotorolaÒ to ~~use,~~develop ~~sell~~a ~~and~~strategic ~~market~~partnership ~~incNetworks®~~whereby 4Gwe ~~technology~~will ~~and~~deploy ~~services~~4G inbased ~~designated~~HFW ~~buildings~~networks towithin bemulti- ~~identified~~tenant bybuildings. ~~the~~However, ~~parties.~~in ~~incNetworks®~~the ~~may~~event ~~provide~~that ~~its~~we 4Gare ~~technology~~unable to ~~other~~enter ~~providers,~~into ~~potentially~~an ~~our~~agreement ~~competitors,~~with ~~outside~~MotorolaÒ ofin ~~these~~the ~~designated~~near ~~buildings.~~term ~~The~~or ~~incNetworks~~at ~~Agreement~~all, ~~may~~our beplanned ~~terminated~~deployment byof ~~either~~4G ~~party~~based HFW networks in ~~the~~multi-tenant ~~event~~buildings ~~the~~will ~~initial~~be ~~public~~delayed ~~offering~~until iswe ~~not~~enter ~~completed~~into bysuch ~~March~~agreement ~~31,~~with ~~2010.~~MotorolaÒ ~~Further,~~or enter into a relationship ~~the~~with ~~incNetworks~~a ~~Agreement~~different ~~will~~third ~~terminate~~party byintegration ~~its~~partner ~~terms~~and ontechnology ~~September~~vendor. ~~10,~~We ~~2010~~cannot ifassure ~~the~~you ~~parties~~that ~~fail~~we will be able to enter into an ~~amendment~~agreement towith ~~the~~MotorolaÒ ~~incNetworks~~or ~~Agreement~~a bycomparable ~~August~~third ~~11,~~party ~~2010,~~integration ~~unless~~partner ~~the~~and ~~parties~~technology ~~mutually~~vendor ~~agree~~that towill ~~extend~~enable ~~the~~us ~~amendment~~to ~~negotiation~~rollout ~~period.~~4G ~~The~~based ~~incNetworks~~HFW ~~Agreement~~networks ~~also~~as ~~provides~~planned. ~~for~~The ~~other~~failure ~~grounds for termination, including but not limited~~ to ~~breach~~do onso ~~the~~would ~~part~~have of a ~~party~~material ~~which~~adverse ~~remains~~effect ~~uncured~~on ~~following~~our ~~notice~~business ofand ~~the~~operating ~~breach~~results. ~~While~~To the ~~license~~extent ~~grant~~that ~~survives~~the ~~any~~equipment ~~termination~~provided or ~~expiration of~~ the ~~incNetworks~~services ~~Agreement,~~performed weby ~~are~~such ~~relying~~equipment ~~solely~~vendors onor ~~incNetworks®~~integration aspartners ~~a vendor of 4G technology and~~ do not ~~have~~perform ~~control~~as ~~over them. Therefore~~expected, ifor our relationship with ~~incNetworks®~~any ~~changes~~of orthese isvendors ~~terminated,~~ or ~~incNetworks®~~partners changes ~~fails~~ or ~~cannot~~is ~~perform their duties for any reason~~terminated, itthis ~~will~~could adversely affect our ability to deploy our 4G based HFW network build-out plan and negatively impact our business strategy.

The “Wholesale or “Neutral Host” model may require capital expenditures without having agreements from customers.

Our ability to profitably capture mobile wireless data users in each building is predicated on being able to secure sufficient “wholesale” revenue from wireless carriers who wish to off-load bandwidth from their “out-of-building” networks. We will have to scout locations and enter into wholesale agreements with significant wireless carriers to make the wholesale model work. It is likely that we will have to expend substantial capital to deploy our in-building wireless networks before we have commitments from wireless carriers to purchase our wholesale services.

WeOur ~~have~~industry, including us, has experienced difficulties in collecting our accounts receivables. If we do not maintain adequate processes and systems for collecting our accounts receivable, or if we are otherwise unable to collect material amounts of our accounts receivables, our cash flow and profitability will be negatively affected.

WeOur ~~have~~industry, including us, has experienced difficulties in the recent past in collecting accounts receivable from telecommunications providers due to the complexity involved in billing and the uncertainty with regard to certain regulatory matters. If we do not maintain adequate processes and systems for collecting our accounts receivable, or if we are otherwise unable to collect material amounts of our accounts receivables, our cash flow and profitability will be negatively affected.

We face considerable uncertainty in the estimation of revenues, related costs of services and their subsequent settlement

Our revenues and the related cost of sales are often earned and incurred with the same group of carriers who can be our vendors, suppliers and customers simultaneously. These revenues and their related costs may be based on estimated amounts accrued for pending disputes with other carriers, the contractual rates charged by our service providers, as well as sometimes contentious interpretations of existing tariffs and regulations. Subsequent adjustments to these estimates may occur after the bills are received/tendered for the actual costs incurred and revenues earned, and these adjustments can often be material to our operating results. We routinely dispute charges that we feel have been billed in error or incorrectly; these disputed balances are recorded in accounts payable in our consolidated balance sheets. Some of these disputed amounts have been granted by

~~these adjustments can often be material to~~ our operating results. We routinely dispute charges that we feel have been billed in error or incorrectly; these disputed balances are recorded in accounts payable in our consolidated balance sheets. Some of these disputed amounts have been granted by our providers in the form of credits subsequent to the periods in which they were incurred. In some cases we enter into settlements with customers and issue credits against outstanding amounts owed in return for long-term agreements. These credits can be material to our results and are charged directly against revenues in periods subsequent to where the revenues/costs of services were initially measured. Judgment is required in estimating the ultimate outcome of the dispute resolution process, as well as any other amounts that may be incurred to conclude the negotiations. Actual results can differ from estimates, and such differences could be material.

Potential effects of litigation between our wholly-owned subsidiary RNK and Verizon New England, Inc. could have a material adverse effect on our revenues and operations.

On August 22, 2008 Verizon New England, Inc. (“Verizon”) filed a complaint in the United States District Court, District of Massachusetts against RNK, Inc., our wholly owned subsidiary, relating to a billing dispute between the parties in New York, Massachusetts and Rhode Island arising under certain interconnection agreements. These disputes concerned the payment of reciprocal compensation charges and access charges in such states. Verizon alleges several counts for breach of contract and seeks compensation for Virtual Foreign Exchange (“VFX”) traffic as it is defined in the agreements. Verizon also requested that the court stop RNK from billing Verizon a certain rate for reciprocal compensation traffic in Massachusetts and Rhode Island. Verizon has also asked the court to reset the presumptive percentage of Virtual ~~foreign~~Foreign ~~exchange~~Exchange traffic. Verizon seeks $10,797,896.53 in damages as of the date of the complaint.

RNK filed its answer on November 11, 2008. RNK denied the claims proffered by Verizon and asserted defenses and counter claims for breach of contract and violation of the Massachusetts Consumer Protection Statute. RNK’s counter claims seek $25,361,434 in compensatory damages as of the date of the complaint, declaratory relief and statuary damages under the Massachusetts Consumer Protection Statute. RNK has asked the court to treble its damages due to Verizon’s willful violation of the statute. Verizon filed a motion to dismiss RNK’s counter claims regarding breach of the Rhode Island agreement and answered RNK’s counter claim on December 22, 2008. RNK filed its opposition on January 15, ~~2009~~2008. Verizon has since withdrawn its motion to dismiss on January 22, ~~2009~~2008. The parties have ~~agreed~~completed tofact a discovery ~~schedule~~and, ~~with~~on ~~discovery~~September to2, ~~end~~2010, Verizon filed its Motion for Partial Summary Judgment. Verizon’s motion sought summary judgment on ~~July,~~several ~~2010~~of its claims and those filed by RNK in its favor.

IfOn itOctober is4, ~~determined~~2010, ~~that~~RNK filed its own motion for summary judgment and reply to Verizon’s ~~allegations~~motion. ~~regarding~~RNK’s motion seeks summary judgment on the ~~percentage~~bulk of ~~VFX~~its ~~traffic~~claims. ~~were~~The ~~true~~motions orare ~~that~~currently pending before the ~~percentage~~court. ~~should~~RNK’s bemanagement ~~increased~~has ~~above~~instructed ~~its~~counsel ~~current~~to ~~levels,~~vigorously ~~the~~defend ~~costs~~against Verizon’s tomotion ~~RNK~~and ~~could~~press beRNK’s ~~substantial~~claims. ~~Further,~~If ifVerizon ~~the~~were ~~court~~to ~~accepts~~prevail ~~Verizon’s~~on ~~positions~~its ~~with~~claims ~~regard~~as to the ~~rates~~rate ~~that~~for ~~should~~or bepercentage ~~charged for~~of VFX traffic, ~~RNK~~that should govern the parties’s ~~cost~~agreements, RNK could ~~increase~~incur ~~substantially~~substantial ascosts ~~well.~~which Ifmay ~~any~~have a material adverse effect on our business and our liquidity, including paying at a higher rate and percentage of ~~the~~VFX ~~foregoing~~traffic. ~~were~~Because we are unable to ~~occur~~predict what an adverse decision would result in, we are unable to quantify how it would ~~have~~affect aour ~~material~~financial ~~adverse~~positions, ~~effect~~operating onresults ~~our~~and ~~business~~cash flows.

IfOn weDecember 10, do2010, ~~not~~Verizon ~~prevail~~provided inRNK ~~intellectual~~with ~~property~~notice ~~infringement~~that ~~claims~~it ~~against~~intended ~~us,~~to ~~our~~place ~~business~~the vast majority of the monthly payments owed by Verizon to RNK into an escrow account toward an alleged balance of $4,085,469.85 ~~financial~~owed ~~condition~~by RNK related to virtual foreign exchange (“VFX”) charges. Verizon determined this amount by unilaterally calculating a new VFX presumption related to RNK’s traffic other than the agreed upon 20%. The parties are currently litigating the issue of the VFX presumption recalculation and RNK has not determined the propriety of Verizon’s actions at this point. Should Verizon continue withholding RNK’s monthly payments, this action may have a negative impact on cash flow as Verizon accounted for 11% of operating ~~results~~revenues in 2010. Further, if Verizon were correct regarding the over payment, such charges could behave ~~harmed~~a material adverse impact of our revenues or operations.

Patent positions in the telecommunications industry are uncertain and involve complex legal, scientific and factual questions and often conflicting claims. The industry has in the past been characterized by a substantial amount of litigation and related administrative proceedings regarding patents and intellectual property rights. In addition, established companies have used litigation against emerging growth companies and new technologies as a means of gaining a competitive advantage. Third parties may claim we are infringing their patents, copyrights, trademarks or other intellectual property and may go to court to attempt to stop us from engaging in our ongoing operations and activities. These lawsuits can be expensive to defend and conduct and may divert the time and attention of management.

~~court~~Intellectual ~~could~~property ~~also~~infringement ~~order~~claims usare tocommon ~~pay~~in ~~damages for~~ the ~~infringement~~industry, ~~which~~and ~~could~~should such claims be ~~substantial.~~made ~~Any~~against ~~order~~us, orand ~~damage~~if ~~award~~we ~~could~~do ~~harm~~not prevail, our business, financial condition and operating results could be harmed.

Third parties may claim that our products and technologies infringe patents, copyrights, trademarks and other intellectual property held by such third parties. If a third-party successfully asserts an infringement claim against us, a court could order us to cease the infringing activity. The court could also order us to pay damages for the infringement, which could be substantial. Any order or damage award could harm our business, financial condition and operating results.

In addition, we may be required to participate in interference proceedings in the United States Patent and Trademark Office to determine the relative priorities of our inventions and third parties’ inventions. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties.

If we were unable to obtain any necessary license following an adverse determination in litigation or in interference or other administrative proceedings, we would have to redesign our products to avoid infringing a third-party’s patent and could temporarily or permanently have to discontinue manufacturing and selling the infringing products. If this were to occur, it would negatively impact future sales and could harm our business, financial condition and operating results.

Our business activities ~~might~~will require additional financing that might not be obtainable on acceptable terms, if at all, which could have a material adverse effect on our financial condition, liquidity and our ability to operate going forward.

We believe that the net proceeds from this offering, available capital lease financing and cash flow from operations will be sufficient to meet our working capital, capital expenditure and other cash needs ~~indefinitely.~~for ~~However,~~the ifnext wesix domonths. ~~not~~We ~~meet~~will ~~our business plan targets, we might~~ need to raise additional capital from public or private equity or debt sources in order to finance future growth, including the deployment of 4G based HFW networks and the expansion of service within existing markets and to new markets, which can be capital intensive, as well as unanticipated working capital needs and capital expenditure requirements.

The actual amount of capital required to fund our operations and development may vary materially from our estimates. IfIn ~~our~~order ~~operations fail~~ to ~~generate the cash that we expect, we may have to seek additional capital to fund our business. If we are required to~~ obtain additional funding in the future, we may have to sell assets, seek debt financing or obtain additional equity capital. In addition, any indebtedness we incur in the future could subject us to restrictive covenants limiting our flexibility in planning for, or reacting to changes in, our business. If we do not comply with such covenants, our lenders could accelerate repayment of our debt or restrict our access to further borrowings. If we raise funds by selling more stock, your ownership in us will be diluted, and we may grant future investors rights superior to those of the common stock that you are purchasing. If we are unable to obtain additional capital when needed, we ~~may~~will have to delay, modify or abandon some of our expansion plans, including, but not limited to, the deployment of 4G based HFW networks. This could slow our growth, negatively affect our ability to compete in our industry and adversely affect our financial condition.

The long distance telecommunications industry is highly competitive which may adversely affect our performance.

The long distance telecommunications industry is intensely competitive and is significantly influenced by the marketing and pricing decisions of the larger industry participants. In most countries, the industry has relatively limited barriers to entry with numerous entities competing for the same customers. Customers frequently change long distance providers in response to the offering of lower rates or promotional incentives by competitors. Generally, our customers can switch carriers at any time. We believe that competition in all of our markets is likely to increase and that competition in non- United States markets is likely to become more similar to competition in the United States market over time as such non-United States markets continue to experience deregulatory influences. In each of our targeted regions, we compete primarily on the basis of price (particularly with respect to our sales to other carriers), and also on the basis of customer service and our ability to provide a variety of telecommunications products and services. There can be no assurance that we will be able to compete successfully in the future.

Many of our competitors are significantly larger, have substantially greater financial, technical and marketing resources and larger networks than us and a broader portfolio of services, control transmission lines and have strong name recognition and loyalty, long-standing relationships with our target customers, and economies of scale which can result in a lower cost structure for transmission and related costs. These competitors include, among others, AT&T, Verizon Business, Sprint and Verizon in the United States. We also compete with numerous other long distance providers, some of which focus their efforts on the same customers targeted by us. Increased competition in the United States as a result of the foregoing, and other competitive developments could have an adverse effect on our business, results of operations and financial condition.

and related costs. These competitors include, among others, AT&T, Verizon Business, Sprint and Verizon in the United States. We also compete with numerous other long distance providers, some of which focus their efforts on the same customers targeted by us. Increased competition in the United States as a result of the foregoing, and other competitive developments could have an adverse effect on our business, results of operations and financial condition.

We are susceptible to risks associated with operating in international markets, and there can be no assurance that we will be able to obtain the requisite permits and licenses required to operate in those markets.

In many international markets, the existing carrier will control access to the local networks, enjoy better brand recognition and brand and customer loyalty, and have significant operational economies, including a larger backbone network and correspondent agreements with Post Telegraph and Telephones, or PTTs. Moreover, the incumbent may take many months to allow competitors, including us, to interconnect to its switches within the target market. Pursuit of international growth opportunities may require significant investments for an extended period before returns, if any, on such investments are realized. In addition, there can be no assurance that we will be able to obtain the permits and operating licenses required for us to operate, obtain access to local transmission facilities or to market, sell and deliver competitive services in these markets.

Our relationships with other telecommunications companies are material to our operations and their financial difficulties or failure to pay may negatively affect our business.

We originate and terminate calls for long distance carriers, interexchange carriers and other local exchange carriers over our network and for that service we receive payments called access charges. Some of the carriers that pay us these access charges are our largest customers in terms of revenues. In the past, several of such carriers have declared bankruptcy or are experienced substantial financial difficulties (e.g., MCI WorldCom and Global Crossing). Our inability to collect access charges from financially distressed carriers has had a negative effect on our financial results and cash flows, as would any subsequent bankruptcies or disruptions in the businesses of these or other interexchange carriers. Our ability to collect past due amounts of access billings from carriers is hampered by federal and state regulations governing these business relationships.

We use many vendors and suppliers that derive significant amounts of business from customers in the telecommunications business. Associated with the difficulties facing many service providers, some of these vendors and suppliers recently have experienced substantial financial difficulties, in some cases leading to bankruptcies and liquidations. Any disruptions experienced by these vendors and suppliers as a result of their own financial difficulties may affect their ability to deliver products or services to us, and delays in such deliveries could have an adverse affect on our business.

Furthermore, due to the complex and at times unclear regulatory environment, disputes between carriers for intercarrier compensation and other services are common. During the pendency of such disputes, carriers frequently withhold payment. These disputes can take years to settle or litigate and can substantially disrupt payments. As such, disputes of this nature can have a material adverse impact on us.

Our relationships with vendors, suppliers and customers are material to our operations and many of our contracts with such entities are out of term and in renewal terms.

We contract with many vendors, suppliers and customers that account for significant portions of our revenues or infrastructure. Many of these contracts are “out of term” (i.e., the original term of the contract has expired) and are in renewal terms (i.e., the contract is extended for some period of time depending on its terms) or “evergreen” (i.e., the terms of the former agreement continue while the parties renegotiate the agreement) while the parties negotiate replacement terms. Termination or renegotiation requests associated with these agreements may come at any time and negotiations, especially in the case of complex agreements, such as telecommunications interconnection agreements, can be extended. Any disruptions experienced by these vendors, suppliers and customers as a result of these negotiations or the sudden termination of an agreement may affect our ability to deliver products or services and impact our revenues and could have an adverse affect on our business.

If third-party vendors fail to deliver equipment or deploy our in-building network, we may be unable to execute our business strategy.

Our success will depend on third parties who we do not control to deliver equipment and deploy our in-building network. We cannot be certain that third parties will be successful in their development and deployment efforts. Even if these parties are successful, the delivery and deployment process could be lengthy and subject to delays. If these delays occur, we will be unable to deploy our 4G based HFW network in a timely manner, negatively impacting our business plan and our prospects and results could be harmed.

We depend on third-party providers who we do not control to install our integrated access devices at customer locations. We must maintain relationships with efficient installation service providers in our current cities and identify similar providers as we enter new markets in order to maintain quality in our operations.

in our current cities and identify similar providers as we enter new markets in order to maintain quality in our operations.

The installation of integrated access devices at customer locations is an essential step that enables our customers to obtain our service. We outsource the installation of integrated access devices to a number of different installation vendors in each market. We must insure that these vendors adhere to the timelines and quality that we require to provide our customers with a positive installation experience. In addition, we must obtain these installation services at reasonable prices. If we are unable to continue maintaining a sufficient number of installation vendors in our markets who provide high quality service at reasonable prices to us, we may have to use our own employees to perform installations of integrated access devices. We may not be able to manage such installations effectively using our own employees with the quality we desire and at reasonable costs.

We depend on local telephone companies for the installation and maintenance of our customers’ access lines and other network elements and facilities.

Our customers’ access lines are sometimes installed and maintained by local telephone companies in each of our markets. If the local telephone company does not perform the installation properly or in a timely manner, our customers could experience disruption in service and delays in obtaining our services. Since inception, we have experienced routine delays in the installation of access lines by the local telephone companies to our customers in each of our markets, although these delays have not yet resulted in any material impact to our ability to compete and add customers in our markets. Any work stoppage action by employees of a local telephone company that provides us services in one of our markets could result in substantial delays in activating new customers’ lines and could materially harm our operations. Furthermore, we are also dependent on traditional local telephone companies for access to their collocation facilities and we utilize certain of their network elements. Failure of these elements or damage to a local telephone company’s collocation facility would cause disruptions in our service.

traditional local telephone companies for access to their collocation facilities and we utilize certain of their network elements. Failure of these elements or damage to a local telephone company’s collocation facility would cause disruptions in our service.

We depend upon our suppliers and have limited sources of supply for key products and services.

We rely on other companies to lease or sell to us telecommunications equipment, computer hardware and software, networking equipment and related services that are critical to the maintenance and operation of our network. We have one major supplier, Verizon, that accounted for 22%, 35% and 28% of our costs of services for the years ended December 31, 2009, 2008 and 2007, respectively. In addition, Verizon accounted for 24% and 24% of our costs of services for the nine months ended September 30, 2010 and 2009, respectively. We have no other major supplier that accounts for more than 10% of our costs of services. Despite working with major, reputable vendors, we do not carry substantial inventories of these products and cannot be assured that we will be able to lease the products and services that we need in a timely basis, or in sufficient quantities. If we are unable to obtain critical services and products in the quantities required by us and on a timely basis, our business, financial condition and results of operations may be materially adversely affected.

We depend on third-party vendors for information systems. If these vendors discontinue support for the systems we use or fail to maintain quality in future software releases, we could sustain a negative impact on the quality of our services to customers, the development of new services and features, and the quality of information needed to manage our business.

We have entered into agreements with vendors that provide for the development and operation of back office systems such as ordering, provisioning and billing systems. We also rely on vendors to provide the systems for monitoring the performance and condition of our network. The failure of those vendors to perform their services in a timely and effective manner at acceptable costs could materially harm our growth and our ability to monitor costs, bill customers, provision customer orders, maintain the network and achieve operating efficiencies. Such a failure could also negatively impact our ability to retain existing customers or to attract new customers.

We are dependent on key personnel and our ability to hire and retain sufficient numbers of qualified personnel.

Our success depends to a significant degree, upon the continued contributions of senior management. Despite choosing a management team believed to be very loyal to us, the loss of services of any of these employees could negatively impact our performance. Competition in the industry for qualified employees, especially technical personnel, is intense. Further, our success depends upon our ability to attract and retain additionally qualified personnel. Failure to hire qualified personnel and to retain our current personnel may impact our performance. As set forth in this prospectus, the term of the employment agreement of the President of RNK (Richard Koch) expires on the date that the RNK Notes are paid in full. Additionally, as set forth under the section of this prospectus entitled “Information Concerning One of Our Founders, Managing Director and Head of Business Development,” there is a risk that some third parties might not do business with us, that some prospective investors might not purchase our securities or that some customers may be concerned about signing up for service with us as a result of Andrew Bressman’s background. If any of these risks were to be realized among a sizeable number of prospective investors, vendors or customers, there could be a material adverse affect on our business or the market price of our common stock and warrants.

19If our new Chief Executive Officer and the five new members of our board of directors do not effectively transition as our new management of the company following the consummation of this offering, we may not be able to execute our business strategy effectively, which may result in a decline in our stock price.

~~depends~~On ~~upon~~September ~~our~~21, ~~ability~~2010, toAaron ~~attract~~Dobrinsky ~~and~~became ~~retain~~our ~~additionally~~Chief ~~qualified~~Executive ~~personnel.~~Officer ~~Failure to hire qualified personnel~~ and tofollowing ~~retain out current personnel may impact our performance. As set forth in this prospectus,~~ the ~~term~~consummation of ~~the~~this ~~employment~~offering ~~agreement~~will ofbecome ~~the~~a ~~President~~member of ~~RNK~~our ~~(Richard~~board ~~Koch) expires on the earlier~~ of ~~June 30, 2010 and the date that the RNK Notes are paid in full~~directors. ~~Mr.~~Steven ~~Koch~~Asman ~~will~~is ~~become an at-will employee upon the expiration of his employment agreement.~~

currently our President. Based on Mr. Dobrinsky’s qualifications and experience, we believe that he is better equipped than Mr. Asman to run a large organization that will be a public company. Additionally, following the consummation of this offering, five new directors will be appointed to our board of directors. We believe that, in light of our business and structure and given that we will be a public company, based on the experience, qualifications, attributes and skills of each of these individuals, they will be valuable members of our board of directors. We believe that our new Chief Executive Officer and directors will make a successful transition as our new management, and will quickly become familiar with our operations. However, in the event that they fail to transition effectively, we may not be able to execute our business strategy effectively, and as a result our stock and warrant price may decline.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock and warrants.

Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal controls over financial reporting, and attestation of our assessment by our independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, the attestation process by our independent registered public accounting firm is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accounting firm. In the event that our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares and warrants will be affected; ~~however~~as such, we believe that there is a risk that investor confidence and share value may be negatively impacted. We estimate the costs of completing the implementation of compliance with Section 404 of the Sarbanes-Oxley Act and the assessment of internal controls at approximately $300,000. We estimate the costs associated with our compliance with Section 404 of the Sarbanes-Oxley Act to be approximately $75,000 per year, and we estimate the costs of audit fees related to the attestation of internal controls to be approximately $140,000 per year.

Regulatory Risks

Federal or state regulators may take actions that materially reduce the amounts we can collect from other carriers.

RNK obtains a substantial portion of its revenue from the fees it is allowed to charge other carriers for sending traffic onto our network. These fees, generally referred to as intercarrier compensation, accounted for approximately 5554% of our total revenues in ~~2008~~2009 and 41% of our total revenues for the nine month period ending September 30, 2010. Intercarrier compensation usually falls into two categories, access charges for long distance calls and reciprocal compensation for local calls. The Federal Communications Commission, or the FCC, regulates the amount we can charge other carriers for using our network to originate or terminate interstate calls. The FCC is considering rules that could substantially reduce the amount of intercarrier compensation we could assess other carriers. State utility commissions regulate the access charges we can assess other carriers for originating or terminating in-state long distance calls. These intrastate access charges are typically higher than interstate access charges, and in some cases we may charge more for access than our primary incumbent carrier competitors. State commissions may reduce the level of intrastate access charges we can impose to interstate levels or the level of the incumbent carriers. A number of states have already taken such steps and additional states where we provide service, are in the process of considering reducing intrastate access charges. Any of these regulatory actions, if taken, could materially reduce our revenues. For example, in 2009, the Massachusetts Department of Telecommunications and Cable (DTC) ruled that CLEC intrastate access charges should be capped at Verizon’s substantially lower rates unless a CLEC cost justifies a higher rate. CLECs are allowed to cost justify a higher rate by filing a cost study with the DTC. Such a filing would require a full adjudicatory proceeding. At this point, RNK has not determined what rate it could support. As a result of the order, our July 2010 intrastate Massachusetts access revenues were decreased by approximately $574,000 in comparison to the same period in the previous year. Similarly, the New Jersey Board of Public Utilities recently reviewed local exchange carrier access charges, including those charged by CLECs. On February 1, 2010, the New Jersey Board of Public Utilities ordered LECs to decrease intrastate access charges over three years. Further, the Board ordered CLECs to, within 20 days of the date of the order, reduce intrastate access charges to the composite rate charged by the applicable incumbent local exchange carrier. If the order remains unchanged and/or unsuccessful, the initial reduction rate is 54% below the historic rate with further reductions to the final interstate rate forthcoming. Several parties, including Verizon New Jersey, United Telephone Company of New Jersey, Inc. d/b/a Century Link f/d/b/a Embarq and the Joint CLEC parties (including RNK) have appealed the order in New Jersey courts. These appeals are currently pending. These proceedings will have the effect of materially reducing the revenue that RNK receives from intrastate access charges if we are unable to replace the lost revenue. See section entitled “Government Regulation” for a further discussion of intercarrier compensation.

The FCC is considering rules that could substantially reduce the amount of intercarrier compensation we could assess other carriers. State utility commissions regulate the access charges we can assess other carriers for originating or terminating in-state long distance calls. These intrastate access charges are typically higher than interstate access charges, and in some cases we may charge more for access than our primary incumbent carrier competitors. State commissions may reduce the level of intrastate access charges we can impose to interstate levels or the level of the incumbent carriers. A number of states have already taken such steps and additional states where we provide service, are in the process of considering reducing intrastate access charges. Any of these regulatory actions, if taken, could materially reduce our revenues. For example, the Massachusetts regulatory body has ordered a reduction in access charges that could reduce our revenues by 7% if we are unable to justify higher rates or replace these revenue streams. Similarly, on February 1, 2010, the New Jersey Board of Public Utilities by order reduced intrastate switched access charges. The New Jersey Board reduced all LEC intrastate switched access rates to a rate equal to the interstate rate charged by the incumbent over 36 months in steps. Further, the Board ordered CLECs to, within 20 days of the date of the order, reduce intrastate access charges to the composite rate charged by the applicable incumbent local exchange carrier. Thereafter, rates would be reduced to the interstate rate annually in equal installments. If the final order remains unchanged and is not appealed, our consolidated revenues would decrease by 5% over 36 months with an immediate reduction of approximately 4% in our consolidated revenues 20 days following the effective date of the order if we are unable to replace the lost revenue with new sources. On February 3, 2010 Verizon requested an emergency stay of the order by the New Jersey Board of Public Utilities in anticipation of a judicial appeal. Verizon also indicated that if the New Jersey Board did not grant its request it would seek an injunction. United Telephone Company of New Jersey, Inc. d/b/a Century Link f/d/b/a Embarq also filed a request for a stay on February 5, 2010. See section entitled “Government Regulation” for a further discussion of intercarrier compensation.

Our inability to secure roaming agreements with wireless carriers may affect our ability to provide “single device” services.

We anticipate offering commercial wireless carriers the ability to “roam” onto the 4G based HFW network within the buildings we operate, initially with respect to the data services provide by those commercial carriers and later with respect to the voice services those providers offer. This will permit those carriers’ customers to transmit and receive data (and later voice) by connecting to the building’s wireless network, instead of the carrier’s network. However, our ability to offer these services to the customers of commercial carriers will depend on our ability to enter into “roaming” agreements with CMRS carriers. We also ultimately plan to offer single devices that will operate voice and data services on our 4G based HFW network while in buildings we cover, and on the networks of other carriers when users leave those buildings. Our ability to have customers use these “single device” services will depend on our ability to secure roaming agreements with other carriers.

The wireless portion of the HFW Network we are using operates in the unlicensed frequency band, which means other operators can operate in the same frequency and there is a risk of interference with our wireless signal.22

~~Because~~The wewireless ~~operate~~portion ~~our~~of ~~in-building~~the 4G based HFW network inwe ~~unlicensed~~plan ~~spectrum, other devices are allowed~~ to ~~operate~~use operates in the ~~same~~unlicensed frequency band, ~~in the same geographic areas in~~ which wemeans ~~will operate. Users of unlicensed spectrum are not entitled to protection from~~ other ~~users~~operators ofcan ~~that~~operate ~~spectrum. Therefore,~~in ~~use~~the ofsame ~~unlicensed~~frequency ~~spectrum~~and ~~is inherently subject to interference from third parties. While several precautions have been taken to avoid interference,~~ there is noa ~~guarantee~~risk ~~that we will not experience interference on the wireless portion~~ of ~~our network. If we do experience~~ interference, ~~it could cause customers to be dissatisfied~~ with our wireless ~~services, resulting in customers cancelling this portion of services or cancelling all of our services~~signal. ~~This could greatly impair our ability to retain and or generate new customers in any building that has interference issues.~~

21Because we plan to operate our in-building 4G based HFW network in unlicensed spectrum, other devices are allowed to operate in the same frequency band in the same geographic areas in which we will operate. Users of unlicensed spectrum are not entitled to protection from other users of that spectrum. Therefore, use of unlicensed spectrum is inherently subject to interference from third parties. While several precautions have been taken to avoid interference, there is no guarantee that we will not experience interference on the wireless portion of our network. If we do experience interference, it could cause customers to be dissatisfied with our wireless services, resulting in customers cancelling this portion of services or cancelling all of our services. This could greatly impair our ability to retain and or generate new customers in any building that has interference issues.

Regulatory decisions could materially increase our costs of leasing last-mile facilities.

In order to reach our end user customers, we must often lease lines from incumbent carriers, who are also our competitors. The extent to which the incumbent carrier must provide these facilities to us at low rates is dependent on federal and state regulatory actions. To date, we are still able to lease these facilities at low rates in most of our markets. Incumbent carriers are, however, allowed to escape this requirement in discrete geographic areas, typically in major urban centers, where there is substantial competitive deployment of facilities by other carriers. Additionally, incumbent carriers have been employing a statutorily authorized process called regulatory forbearance in an effort to lift these requirements over much larger areas. To the extent that the incumbents are successful in these actions in markets where we operate, our costs of obtaining these facilities could materially increase, adversely affecting our margins.

The FCC is reexamining its policies towards VoIP and telecommunications in general and changes in regulation could subject us to additional fees or increase the competition we face.

Voice over Internet Protocol, or VoIP, can be used to carry user-to-user voice communications over dial-up or broadband service. The FCC has ruled that some VoIP arrangements are not regulated as telecommunications services, but that a conventional telephone service that uses Internet protocol in its backbone is a telecommunications service. The FCC has initiated a proceeding to review the regulatory status of VoIP services and the possible application of various regulatory requirements, including the payment of access charges, which are not required at the present time. Expanded use of VoIP technology could reduce the access revenues received by local exchange carriers like us while carriers dispute our charges during the FCC’s review of the issue. We cannot predict whether or when VoIP providers may be required to pay or be entitled to receive access charges, or the extent to which users will substitute VoIP calls for traditional wireline communications. Furthermore, if, as planned in Phase 2 of our business strategy, we carry wireless carrier originated voice traffic over the 4G based HFW network, this traffic may be considered interconnected VoIP traffic under the FCC’s rules and may be subject to separate regulatory requirements for us and the wireless carriers.

Prepaid calling card services may be subject to additional disclosure requirements and access charge disputes.

One of our lines of business is to provide prepaid calling card services. New prepaid calling card disclosure requirements may be adopted that could increase our cost of doing business. Moreover, the FCC ruled in 2006 that certain prepaid calling card providers are subject to access charges for long distance calls using their cards. Some local exchange companies, incumbent carriers in particular, may claim that we or other prepaid calling card providers have not paid access charges on traffic that should be subject to such charges. These disputes, if resolved against prepaid calling card providers, could materially increase our costs of providing prepaid calling card services.

As a local exchange carrier, we also provide local access services for other prepaid calling card providers. In conjunction with the FCC’s 2006 ruling, the FCC has been asked to clarify which carrier, the local exchange carrier or the prepaid calling card provider, is responsible for paying access charges, if applicable, when local access is used to originate a prepaid calling card call. A ruling regarding which local exchange carrier can charge access charges on such calls or that the local exchange carrier terminating such calls could be liable for access charges on prepaid calling card interexchange calls could impose additional costs on us and adversely impact our revenues.

~~We are subject to complex and sometimes unpredictable government regulations. If we fail to comply with these regulations, we could incur significant fines and penalties.~~ 23

Ascarrier, athe ~~provider~~local ofexchange ~~telecommunications~~carrier ~~services,~~or wethe ~~are~~prepaid ~~subject~~calling tocard ~~extensive~~provider, ~~and~~is ~~frequently~~responsible ~~changing~~for ~~federal~~paying access charges, ~~state~~if ~~and~~applicable, when local ~~laws~~access ~~and~~is ~~regulations~~used ~~governing~~to ~~various~~originate ~~aspects~~a ofprepaid ~~our~~calling ~~business~~card call. InA ~~particular,~~ruling weregarding ~~are~~which ~~subject~~local toexchange ~~Universal~~carrier ~~Service~~can ~~Fund,~~charge ~~Consumer~~access ~~Proprietary~~charges ~~Network~~on ~~Information, Communications~~such ~~Assistance~~calls ~~With~~or ~~Law~~that ~~Enforcement~~the ~~Act~~local ~~and~~exchange carrier ~~various~~terminating ~~reporting~~such ~~requirements.~~calls Wecould ~~incur~~be ~~various~~liable ~~costs~~for inaccess ~~complying~~charges ~~and~~on ~~overseeing~~prepaid ~~compliance~~calling ~~with~~card ~~these~~interexchange ~~laws~~calls ~~and~~could ~~regulations~~impose ~~and~~additional ~~new~~costs ~~requirements~~on asus ~~they~~and ~~become~~adversely ~~effective~~impact our revenues.

22We are subject to complex and sometimes unpredictable government regulations. Changes to such regulations could have a material adverse impact on our business operations or, if we fail to comply with these regulations, we could incur significant fines and penalties.

Our domestic operations are subject to regulation by the FCC and other federal, state and local agencies, and our international operations are regulated by various foreign governments and international bodies. These regulatory regimes frequently restrict our ability to operate in or provide specified products or services in designated areas, require that we maintain licenses for our operations and conduct our operations in accordance with prescribed standards. These requirements are frequently changing and impact various aspects of our business. We are frequently involved in regulatory proceedings related to the application of these requirements. It is impossible to predict with any certainty the outcome of pending federal and state regulatory proceedings relating to our provision of retail or wholesale services, or the reviews by federal or state courts of regulatory rulings. Unless we are able to obtain appropriate relief, existing laws and regulations may inhibit our ability to expand our business and introduce new products and services. In particular, we are subject to Universal Service Fund, Consumer Propietary Network Information, Communications Assistance With Law Enforcement Act and various reporting requirements. We incur various costs in complying and overseeing compliance with these laws and regulations and new requirements as they become effective.

The adoption of new laws or regulations or changes to the existing regulatory framework at the federal or state level could also adversely affect our business plans. New regulations could restrict the ways in which we can manage our wireline and wireless networks, impose additional costs, impair revenue opportunities, and potentially impede our ability to provide services in a manner that would be attractive to us and our customers. In addition, the FCC has several proceedings pending that are considering the imposition of additional requirements on wireline and wireless services. For instance, on October 22, 2009, the FCC initiated a proceeding in which it proposes to adopt so-called “net neutrality” rules that it describes as intended to preserve the openness of the Internet. The proposed rules would limit the ways that a broadband Internet access service provider could manage its network and the services it could provide over the network. The proposed rules would apply to all providers of broadband Internet access services, whether wireline or wireless. If final rules are adopted that limit our flexibility in managing our broadband networks and delivering broadband services, these rules could have an adverse effect on certain of our business operations and restrict our ability to compete in the marketplace.

We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future regarding our business or the telecommunications industry in general, or what effect such legislation or regulations may have on us. Federal or state governments may impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on us. If we fail to comply with any existing or future regulations, restrictions or interpretations, we could incur significant fines and penalties, including, but not limited to, loss of license or suspension of operating authority.

Judicial review and FCC decisions pursuant to the federal Telecommunications Act of 1996 may adversely affect our business.

The Telecommunications Act of 1996 provides for significant changes and increased competition in the telecommunications industry. This federal statute and its related regulations remain subject to judicial review and additional rulemakings of the FCC, thus making it difficult to predict what effect the legislation will have on us, our operations and our competitors. In addition to reviewing intercarrier compensation and access to last mile facilities, the FCC is also examining its universal service policies, including policies with respect to both contribution and disbursement that could have an effect on the amount and timing of our receipt of universal service funds for switching support. Changes in the universal fund could also increase the amount we must contribute to the fund. Further, many FCC telecommunications decisions are subject to substantial judicial review and delay. These delays and related litigation create uncertainty over federal policies and rules, and may affect our business plans, investments and operations.

have an effect on the amount and timing of our receipt of universal service funds for switching support. Changes in the universal fund could also increase the amount we must contribute to the fund. Further, many FCC telecommunications decisions are subject to substantial judicial review and delay. Changes to interconnection obligations between CLECs and other carriers (e.g. ILECs or wireless carriers) may impact our costs and revenues. These delays and related litigation create uncertainty over federal policies and rules, and may affect our business plans, investments and operations.

Our operational support systems and business processes may not be adequate to effectively manage our growth.

Our continued success depends on the scalability of our systems and processes. We cannot be certain that our systems and processes are adequate to support ongoing growth in customers. Failure to manage our future growth effectively could harm our quality of service and customer relationships, which could increase our customer churn, result in higher operating costs, write-offs or other accounting charges, and otherwise materially harm our financial condition and results of operations.

We may not be able to continue to grow our customer base at historic rates, which would result in a decrease in the rate of revenue growth.

Future growth in our existing markets may be more difficult than our growth has been to date due to increased or more effective competition in the future, difficulties in scaling our business systems and processes, or difficulty in maintaining sufficient numbers of qualified market management personnel, sales personnel and qualified integrated access device installation service providers to obtain and support additional customers. Failure to continue to grow our customer base at historic rates would result in a corresponding decrease in the rate of our revenue growth.

We must keep up with rapid technology change and evolving industry standards in order to be successful. Our competitors may be better positioned than we are to adapt to rapid changes in technology, and we could lose customers.

The markets for our services are characterized by rapidly changing technology and evolving industry standards. Our future success will depend, in part, on our ability to effectively identify and implement leading technologies, develop technical expertise and influence and respond to emerging industry standards and other technology changes.

All this must be accomplished in a timely and cost-effective manner. We cannot assure you that we will be successful in effectively identifying or implementing new technologies, developing new services or enhancing our existing services in a timely fashion. Some of our competitors, including the local telephone companies, have a much longer operating history, more experience in making upgrades to their networks and greater financial resources than we do. We cannot assure you that we will obtain access to new technologies as quickly or on the same terms as our competitors, or that we will be able to apply new technologies to our existing networks without incurring significant costs or at all. In addition, responding to demand for new technologies would require us to increase our capital expenditures, which may require additional financing in order to fund. Further, our competitors, in particular the larger incumbent providers, enjoy greater economies of scale in regard to equipment acquisition and vendor relationships. As a result of those factors, we would lose customers and our financial results could be harmed. If we fail to identify and implement new technologies or services, our business, financial condition and results of operations could be materially adversely affected.

costs or at all. In addition, responding to demand for new technologies would require us to increase our capital expenditures, which may require additional financing in order to fund. Further, our competitors, in particular the larger incumbent providers, enjoy greater economies of scale in regard to equipment acquisition and vendor relationships. As a result of those factors, we would lose customers and our financial results could be harmed. If we fail to identify and implement new technologies or services, our business, financial condition and results of operations could be materially adversely affected.

Our systems may experience security breaches which could negatively impact our business.

Despite the implementation of network security including firewalls, encryption for the radio frequency signal and user authentication measures, the core of our infrastructure is vulnerable to computer viruses, break-ins and similar disruptive problems. Computer viruses or other problems caused by third parties could lead to significant interruptions or delays in service to customers. We may face liability associated with such breaches and may lose potential customers. While we will attempt to reduce the risk of such losses through warranty disclaimers and liability limitation clauses in our license agreements and by maintaining product liability insurance, there can be no assurances that such measures will be effective in limiting our liability for such damages or avoiding government sanctions.

If we cannot negotiate new (or extensions of existing) interconnection agreements with local telephone companies on acceptable terms, it will be more difficult and costly for us to provide service to our existing customers and to expand our business.25

Weattempt ~~have~~to ~~agreements~~reduce ~~for~~ the ~~interconnection~~risk of ~~our~~such ~~network~~losses ~~with~~through ~~the~~warranty ~~networks~~disclaimers ofand ~~the~~liability ~~local~~limitation ~~telephone~~clauses ~~companies covering each market~~ in ~~which~~our welicense ~~operate. These~~ agreements ~~also~~and ~~provide~~by ~~the~~maintaining ~~framework~~product ~~for~~liability ~~service~~insurance, tothere ~~our~~can ~~customers~~be ~~when~~no ~~other~~assurances ~~local~~that ~~carriers~~such ~~are~~measures ~~involved. We~~ will be ~~required~~effective ~~to negotiate new interconnection agreements to enter new markets~~ in ~~the~~limiting ~~future. In addition, we will need to negotiate extension or replacement agreements as~~ our ~~existing~~liability ~~interconnection~~for agreements expire. Most of our interconnection agreements have terms of three years, with automatic renewal terms of at least 30 days until terminated by a party, although the parties may mutually decide to amend the terms of such ~~agreements.~~damages ~~Should an agreement be terminated, if we cannot negotiate new favorable interconnection agreements, adopt an existing agreement, renew our existing interconnection agreements on favorable terms~~ or atavoiding all, we may invoke binding arbitration by state regulatory agencies. The arbitration process is expensive and time-consuming, and the results of arbitration may be unfavorable to us. If we are unable to obtain favorable interconnection terms, it would harm our existinggovernment ~~operations and opportunities to grow our business in our current and new markets~~sanctions.

If we cannot negotiate new (or extensions of existing) interconnection agreements with local telephone companies and wireless carriers on acceptable terms, it will be more difficult and costly for us to provide service to our existing customers and to expand our business, and may negatively impact our revenues.

We have agreements for the interconnection of our network with the networks of the local telephone companies and wireless carriers covering each market in which we operate. These agreements also provide the framework for service to our customers when other local carriers are involved and provide for mutual compensation for traffic. We will be required to negotiate new interconnection agreements to enter new markets in the future. In addition, we will need to negotiate extension or replacement agreements as our existing interconnection agreements expire. Most of our interconnection agreements have terms of three years, with automatic renewal terms of at least 30 days until terminated by a party, although the parties may mutually decide to amend the terms of such agreements. Should an agreement be terminated, if we cannot negotiate new favorable interconnection agreements, adopt an existing agreement, renew our existing interconnection agreements on favorable terms or at all, we may invoke binding arbitration by state regulatory agencies in the case of ILECs. The arbitration process is expensive and time-consuming, and the results of arbitration may be unfavorable to us. If we are unable to obtain favorable interconnection terms, it would harm our existing operations, revenues and opportunities to grow our business in our current and new markets.

System disruptions could cause delays or interruptions of our service, which could cause us to lose customers or incur additional expenses.

Our success depends on our ability to provide reliable service. Although we have designed our network service to minimize the possibility of service disruptions or other outages, our service may be disrupted by problems on our system, such as malfunctions in our software or other facilities, overloading of our network and problems with the systems of competitors with which we interconnect, such as physical damage to telephone lines and power surges and outages. Although we have experienced isolated power disruptions and other outages for short time periods, we have not had any system disruptions of a sufficient duration or magnitude that would have a significant impact to our customers or our business. Any significant disruption in our network could cause us to lose customers and incur additional expenses.

WeRisks ~~may~~Related beto ~~unsuccessful~~Our inCapital ~~integrating~~Structure ~~future acquisitions, which may decrease our profitability~~ and ~~make~~this ~~it more difficult for us to grow our business.~~Offering

Our Ifstock weand dowarrant ~~not~~price ~~properly~~is ~~integrate~~subject ~~and~~to ~~consolidate~~volatility ~~future~~and ~~acquisitions,~~trends ~~including~~in the ~~proposed~~communications ~~Winncom~~industry ~~acquisition~~in general, ~~it could hurt our performance~~ and ~~profitability.~~the ~~Some~~market price of ~~the~~our ~~pro~~common ~~forma~~stock ~~financial~~and ~~data~~warrants ~~contained~~after in this ~~prospectus~~offering ~~relates~~may todrop below the ~~proposed~~price ~~Winncom~~you ~~acquisition and may not~~ pay.

24You should consider an investment in our common stock and warrants as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Prior to this offering, there was no public market for our stock or warrants. We will negotiate and determine the initial public offering price with the representatives of the underwriters based on several factors. This price will likely vary from the market price of our common stock and warrants after this offering. Prices for the common stock and warrants will be determined in the marketplace and may be influenced by many factors, including variations in our financial results, changes in earnings estimates by industry research analysts, investors’ perceptions of us and general economic, industry and market conditions. Many of these factors are beyond our control. You may be unable to sell your shares of common stock or warrants at or above the initial offering price due to fluctuations in the market price of our common stock and warrants arising from changes in our operating performance or prospects. In addition, the stock market has recently experienced

be indicative of future financial or operating results. Any significant diversion of management’s attention or any major difficulties encountered in the integration of the businesses could have a material adverse effect on our business, financial condition or results of operation, which could decrease our profitability and make it more difficult for us to grow our business.

Risks Relating to the Proposed Winncom Acquisition

If we do not consummate the Winncom acquisition our expected results of operations in the future may be adversely affected.

We have entered into an agreement to acquire Winncom. The closing of this acquisition is subject to the receipt of financing and the satisfaction of customary closing conditions. In addition, the stock purchase agreement is subject to termination by either party under certain circumstances if the closing has not occurred on or before May 30, 2010. We cannot assure you that we will consummate the Winncom acquisition on favorable terms, or at all. If we do not complete the Winncom acquisition, our expected results of operations in the future may be adversely affected, and we will have a large portion of the proceeds of this offering available to us for general corporate purposes.

If we consummate the Winncom acquisition, we may not be able to successfully integrate the acquired business or achieve expected results.

We may experience difficulties in successfully operating in this new market and new line of business for us, the re-selling of networking equipment, and in integrating Winncom’s business with our own, which could increase our costs or adversely impact our ability to operate our business. In addition, our due diligence with respect to Winncom has not yet been completed so we cannot be certain of the value, if any, this acquisition will bring to the company and its investors. Further, we cannot assure you that the information underlying our expected results of operations or the pro forma information presented elsewhere in this prospectus (including the related assumptions and adjustments) is sufficient or accurate. You should not consider the pro forma financial data to be indicative of actual results had the Winncom acquisition been consummated on the dates indicated, or indicative of our future operating results or financial position. If we cannot successfully integrate Winncom’s business with our own, our future prospects may be affected.

Winncom’s reliance on information technology requires significant expenditures and entails risk.

Winncom relies on a variety of information systems in its operations. Winncom’s success is dependent in large part on the accuracy and proper use of its information systems. To manage its growth, Winncom continually evaluates the adequacy of its existing systems and procedures. We anticipate that we will regularly need to make capital expenditures to upgrade and modify Winncom’s management information systems, including software and hardware, as we grow and the needs of our business change. The occurrence of a significant system failure, electrical or telecommunications outages or our failure to expand or successfully implement new systems could have a material adverse effect on our results of operations.

Winncom’s information systems networks, including its web sites and applications could be adversely affected by viruses or worms and may be vulnerable to malicious acts such as hacking. Although we take preventive measures, these procedures may not be sufficient to avoid harm to our operations, which could have an adverse effect on our results of operations.

Winncom is dependent on third-party suppliers, and the interruption or termination of its relationships with these suppliers, or the loss of or interruption of supply from its key suppliers, could materially adversely affect our business.

Winncom purchases substantially all of its products from major manufacturers such as Motorola, Proxim Wireless, Cisco Systems and Alvarion, who may deliver those products directly to its customers. These relationships will enable us to make available to our customers a wide selection of products without having to maintain significantly larger amounts of inventory. The termination or

interruption of our relationships with any of these suppliers could materially adversely affect our business.

Winncom’s products contain electronic components, subassemblies and software that in some cases are supplied through sole or limited source third-party suppliers, some of which are located outside of the United States. Although we do not anticipate any problems procuring supplies in the near-term, there is no assurance that parts and supplies will be available in a timely manner and at reasonable prices. Any loss of, or interruption of, supply from key suppliers may require Winncom to find new suppliers. This could result in shipping and distribution delays while new suppliers are located, which could substantially impair operating results. If the availability of these or other components used in the manufacture of Winncom’s products was to decrease, or if the prices for these components were to increase significantly, operating costs and expenses could be adversely affected.

Winncom purchases a number of its products from vendors outside of the United States. Difficulties encountered by one or several of these suppliers could halt or disrupt completion or cause the cancellation of Winncom’s orders. Delays or interruptions in the transportation network could result in loss or delay of timely receipt of product required to fulfill customer orders.

Winncom has substantial international operations and is exposed to fluctuations in currency exchange rates and political uncertainties.

Winncom operates internationally and as a result, we are subject to risks associated with doing business globally. Risks inherent to operating overseas include:

• Changes in a country’s economic or political conditions; • Changes in foreign currency exchange rates; and • Unexpected changes in regulatory requirements.

With respect to foreign currency exchange rate risks, Winncom currently has operations located in numerous countries outside the United States including Cyprus, Hungary, Ireland, Russia, Kazakhstan and Uzbekistan. To the extent the United States dollar strengthens against foreign currencies, our foreign revenues and profits will be reduced when translated into United States dollars. Of the countries previously mentioned, the non-European countries saw their currencies weaken against the dollar an average of 17% when comparing their respective exchange rates at September 30, 2009 to September 30, 2008. Whenever possible, Winncom attempts to denominate material contracts and agreements in United States dollars so as to minimize our exposure. This is not always possible or practical. In addition as we operate in multiple foreign jurisdictions we face uncertainty with respect to changing tax laws and the regulatory environment therein.

Winncom is exposed to various inventory related risk primarily but not limited to obsolescence.

A substantial portion of Winncom’s inventory is subject to risk due to technological change and changes in market demand for particular products. If Winncom fails to manage its inventory of older products we may have excess or obsolete inventory. Winncom may have limited rights to return purchases to certain suppliers and we may not be able to obtain price protection on these items. The elimination of purchase return privileges and lack of availability of price protection could lower our gross margin or result in inventory write-downs.

Winncom also takes advantage of attractive product pricing by making opportunistic bulk inventory purchases; any resulting excess and/or obsolete inventory that it is not able to re-sell could have an adverse impact on our results of operations. Any inability to make such bulk inventory purchases may significantly impact our sales and profitability.

Winncom currently has multiple distribution agreements with all of its suppliers. A typical distribution agreement contains a stock rotation clause that allows it to exchange an agreed-upon percentage of inventory at original cost in return for an offsetting purchase of similar value merchandise. This percentage can range from 10-20%. All material distribution agreements also contain “discontinuance” clauses that allow Winncom to exchange discontinued equipment for non-discontinued equipment at equivalent value. Suppliers with agreements are required to give 30 calendar days notice regarding discontinuance of any equipment sold to Winncom. These clauses

~~within~~significant ~~Winncom’s~~volatility. ~~agreements~~The ~~allow~~volatility ~~Winncom~~of tothe ~~partially~~stock ~~mitigate~~of such companies often does not relate to the ~~risk~~operating performance of ~~inventory~~the ~~obsolescence~~companies represented by the stock. Some of the factors that may cause the market price of our common stock and warrants to fluctuate include:

~~Restrictions~~• introduction of technological innovations or new commercial products by us or our competitors; • regulatory developments or enforcement in the United States and ~~covenants~~foreign countries; • developments or disputes concerning patents or other proprietary rights; • changes in ~~Winncom’s~~estimates ~~credit~~or ~~facility~~recommendations ~~may~~by ~~limit~~securities ~~its~~analysts, ~~ability~~if any covering our common stock; • litigation; • future sales of our common stock or warrants; • general market conditions; • economic, political and other external factors or other disasters or crises; • period-to-period ~~enter~~fluctuations ~~into~~in ~~certain~~our ~~transactions~~financial results; and • overall fluctuations in U.S. equity markets.

~~Winncom’s~~These ~~combined~~and ~~revolving~~other ~~credit~~external ~~agreement~~factors ~~contains~~may ~~covenants~~cause ~~restricting~~the ormarket ~~limiting~~price ~~its~~and ~~ability~~demand for our common stock and warrants to fluctuate substantially, ~~among~~which ~~other~~may ~~things:~~limit or prevent investors from readily selling their shares of common stock or warrants and may otherwise negatively affect the liquidity of our common stock and warrants. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders or warrantholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management.

•An ~~create~~active, orliquid ~~permit~~trading ~~liens~~market onfor ~~assets;~~our •common ~~make~~stock ~~capital~~and ~~expenditures~~warrants may not develop or ~~investments;~~be ~~and~~sustained •after ~~pay~~this ~~dividends~~offering.

IfThere ~~Winncom~~is ~~fails~~currently tono ~~comply~~trading ~~with~~market ~~the~~for ~~covenants~~our ~~and~~common ~~other~~stock ~~requirements~~or ~~set~~warrants. ~~forth~~Although inwe intend to have our common stock and warrants listed on the ~~credit~~NYSE ~~agreement~~Amex, itthere ~~would~~is beno inguarantee ~~default~~that ~~and~~an ~~would~~active ~~need~~trading tomarket ~~negotiate~~for aour ~~waiver~~common ~~agreement~~stock ~~with~~and ~~the~~warrants ~~lenders.~~will ~~Failure~~develop toor ~~agree~~be sustained after this offering on the ~~such~~NYSE Amex. If a ~~waiver~~trading ~~could~~market ~~result~~does innot ~~the~~develop ~~lenders~~or ~~terminating~~is ~~the~~not ~~credit~~maintained, ~~agreement~~you ~~and demanding~~may ~~repayment,~~experience ~~which~~difficulty ~~would~~in ~~adversely~~reselling ~~affect~~your ~~our~~shares ~~cash~~or ~~position~~warrants, ~~and~~or ~~adversely~~an ~~affect~~inability ~~the~~to ~~availability~~sell ofyour ~~financing~~shares toand ~~us,~~warrants ~~which~~quickly ~~could~~or ~~materially~~at ~~impact~~the ~~our~~latest ~~operations~~market price.

Winncom advertises manufacturers’ rebates on many of its products, and if the rebates are not processed satisfactorily, our reputation in the marketplace could be negatively impacted.

Similar to other companies in the technology products industry, Winncom advertises manufacturers’ rebates on many products it sells. These rebates are processed through third party vendors and in house. If these rebates are not processed in a timely and satisfactory manner by either third party vendors or our in house operations, our reputation in the marketplace could be negatively impacted.

Gross profit margins in both distribution and contract services are variable.

The industry is highly price competitive and gross profit margins typically exist in narrow range and are subject to some variability. Winncom’s ability to reduce prices in reaction to competitive pressure may be limited. Additionally, gross profit margins and operating margins are affected by changes in factors such as vendor pricing, vendor rebates and/or price protection programs, product return rights, and product mix. As there is a certain amount of transparency amongst all parties regarding the Manufacturer’s Suggested Retail Price of various equipments being resold through the use of listings and catalogs, resellers and distributors have limited flexibility with respect to pricing. Pricing pressure is always subject to significant decline in economic activity in the markets we serve and we expect this to continue during this or any period of sustained economic decline. Winncom may not be able to mitigate these pricing pressures and resultant declines in sales and gross profit margin with cost reductions in other areas or expansion into new product lines. If Winncom is unable to proportionately mitigate these conditions our operating results and financial condition may suffer.

Winncom may be liable for misuse, loss or theft of our customers’ private information.

In processing customer credit applications, purchase and sales orders, Winncom often collects sensitive private and credit card from its customers. Winncom has comprehensive privacy and data security policies in place which are designed to prevent security breaches, however, if a third party or a rogue employee(s) are able to bypass its network security or otherwise compromise its customers’ personal information or credit card information, Winncom could be subject to liability. This liability may include claims for identity theft, unauthorized purchases, claims alleging misrepresentation of our privacy and data security practices or other related claims.

Winncom’s success is dependent upon the availability of credit and financing.

Winncom requires significant levels of capital in its business to finance accounts receivable and inventory. Winncom maintains credit facilities in the United States and in Canada to finance increases in its working capital if available cash is insufficient. The amount of credit available to it at any point in time may be adversely affected by the quality or value of the assets collateralizing these credit lines. In addition, if Winncom is unable to renew or replace these facilities at maturity

our liquidity and capital resources may be adversely affected. However, we currently have no reason to believe that it will not be able to renew or replace its facilities when they reach maturity.

Winncom’s income tax rate and the value of its deferred tax assets are subject to change.

Changes in Winncom’s income tax expense due to changes in the mix of United States and non-United States revenues and profitability, changes in tax rates or exposure to additional income tax liabilities could affect our profitability. Winncom is subject to income taxes in the United States and various foreign jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws or by material audit assessments. The carrying value of Winncom’s deferred tax assets, which are primarily in the United States and Russia, is dependent on its ability to generate future taxable income in those jurisdictions. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a material assessment by a tax authority could affect our profitability.

Risks Related to Our Common Stock and this Offering

Our stock price is subject to volatility and trends in the communications industry in general, and the market price of our common stock after this offering may drop below the price you pay.

You should consider an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Prior to this offering, there was no public market for our stock. We will negotiate and determine the initial public offering price with the representatives of the underwriters based on several factors. This price will likely vary from the market price of our common stock after this offering. Prices for the common stock will be determined in the marketplace and may be influenced by many factors, including variations in our financial results, changes in earnings estimates by industry research analysts, investors’ perceptions of us and general economic, industry and market conditions. Many of these factors are beyond our control. You may be unable to sell your shares of common stock at or above the initial offering price due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. In addition, the stock market has recently experienced significant volatility. The volatility of the stock of such companies often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate include:

• introduction of technological innovations or new commercial products by us or our competitors; • regulatory developments or enforcement in the United States and foreign countries; • developments or disputes concerning patents or other proprietary rights; • changes in estimates or recommendations by securities analysts, if any covering our common stock; • litigation; • future sales of our common stock; • general market conditions; • economic, political and other external factors or other disasters or crises; • period-to-period fluctuations in our financial results; and • overall fluctuations in U.S. equity markets.

These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management.

An active, liquid trading market for our common stock may not develop or be sustained after this offering.

There is currently no trading market for our common stock. Although we have applied to have our common stock listed on the [•], there is no guarantee that an active trading market for our common stock will develop or be sustained after this offering on the [•]. If a trading market does not develop or is not maintained, you may experience difficulty in reselling your shares, or an inability to sell your shares quickly or at the latest market price.

Investors in this offering will pay a much higher price than the book value of our common stock and therefore you will incur immediate and substantial dilution of your investment.

If you purchase common stock in this offering, you will incur immediate and substantial dilution of $~~[•]~~7.25 per share, representing the difference between our pro forma as adjusted net tangible book value per share and the assumed initial public offering price of $~~[•]~~4.25 per share, ~~which~~included isin the ~~midpoint~~units sold ofin this offering, which is the price ~~range~~ listed on the cover page of this prospectus. In addition, investors purchasing common stock in this offering will contribute approximately ~~[•]~~45% of the total amount invested by stockholders since inception, but will only own approximately ~~[•]~~16.2% of the shares of common stock outstanding. In the past, we issued options and warrants to acquire common stock at prices significantly below the assumed initial public offering price. To the extent these outstanding options or warrants are ultimately exercised, you will sustain further dilution.

Insiders will continue to have substantial control over us which could delay or prevent a change in corporate control or result in the entrenchment of management or our board of directors.

After this offering, our directors and executive officers, together with their affiliates and related persons, and stockholders owning more than 10% of our common stock will beneficially own, in the aggregate, approximately ~~[•]~~66% of our outstanding common stock ~~(or [•]% including Gregory Raskin if the Winncom acquisition is consummated)~~. As a result, these stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership may harm the market price of our common stock by:

stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership may harm the market price of our common stock and warrants by:

•

delaying, deferring or preventing a change in control;

•

entrenching our management or our board of directors;

•

impeding a merger, consolidation, takeover or other business combination involving us; or

•

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

Future sales of common stock by our existing stockholders may cause our stock price to fall.

Sales of substantial numbers of shares of our common stock in the public market following this offering, or the perception that these sales may occur, could cause the market price of our common stock to decline. After this offering, we will have ~~[•]~~10,586,620 outstanding shares of common stock. This ~~includes~~ includes the ~~[•]~~1,700,000 shares included in the units that we are selling in this offering, which may be resold in the public market immediately. After the lock-up agreements pertaining to this offering expire, additional stockholders will be able to sell their shares in the public market, subject to legal restrictions on transfer. As soon as practicable upon completion of this offering, we also intend to file a registration statement covering shares of our common stock issued or reserved for issuance under our stock option plans. Following the expiration of the lock-up agreements, registration of these shares of our common stock would generally permit their sale into the market immediately after the registration statement was declared effective by the SEC. These registration rights of our stockholders could impair our ability to raise capital by depressing the price of our common stock. We may also sell additional shares of common stock in subsequent public offerings, which may adversely affect market prices for our common stock. See “Shares Eligible for Future Sale” for a more detailed description of sales of our common stock that may occur in the future.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Management will retain broad discretion over the use of the net proceeds from this offering. Stockholders may not agree with such uses, and our use of the proceeds may not yield a significant return or any return at all for our stockholders. We intend to use the proceeds from this offering to ~~fund the~~partially ~~acquisition of Winncom,~~ repay ~~our outstanding 6% secured promissory notes, repay~~ a bridge loan from Victory Park, to build our operating infrastructure, and for general and administrative expenses, working capital needs and other general corporate purposes. Because of the number and variability of factors that will determine our use of the proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could have a material adverse effect on our business. For a further description of our intended use of the proceeds of the offering, see “Use of Proceeds.”

We will need additional capital, and the sale of additional shares of common stock or other equity securities could result in additional dilution to our stockholders.

We believe that our current cash and cash equivalents, anticipated cash flow from operations and the net proceeds from this offering will be sufficient to meet our anticipated cash needs for a period of six months. We will, however, require additional cash resources in order to pay our indebtedness and to execute our business plan and we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities, or debt securities convertible into equity securities, could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations.

Provisions of our charter, bylaws, and Delaware law may make an acquisition of us or a change in our management more difficult.

Certain provisions of our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares or warrants. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock or warrants, thereby depressing the market price of our common stock and warrants. Stockholders who wish to participate in these transactions may not have the opportunity to do so.

Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions:

•

allow the authorized number of directors to be changed only by resolution of our board of directors;

•

authorize our board of directors to issue without stockholder approval blank check preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;

•

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit stockholder action by written consent;

•

establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings;

•

limit who may call stockholder meetings; and

•

require the approval of the holders of 75% of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of our restated certificate of incorporation and restated bylaws.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We have never declared or paid any cash dividend on our stock and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in shares of our common stock and warrants will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock and warrants will appreciate in value or even maintain the price at which our stockholders have purchased their shares or warrants.

3029

INFORMATION CONCERNING ONE OF OUR FOUNDERS, MANAGING DIRECTOR
AND HEAD OF BUSINESS DEVELOPMENT

You may want to consider the history of one of our founders, managing director and head of business development, Andrew E. Bressman, before investing in our company or purchasing our common stock and warrants. Immediately prior to the listing of our common stock on the NYSE Amex, Mr. Bressman will no longer be employed by the company. In connection with Mr. Bressman’s separation from the company, we have entered into a separation agreement with Mr. Bressman, which is discussed below.

Past proceedings against Mr. Bressman and others. Prior to joining our company, Mr. Bressman spent five and a half years, from January 1990 until July 1996, working on Wall Street. From January 1990 through August 1992, Mr. Bressman was a registered representative at D.H. Blair & Co., Inc., a registered broker-dealer. In August 1992, Mr. Bressman left D.H. Blair to become a registered representative and president of A.R. Baron & Co., Inc., which was also a registered broker-dealer. In February 1993, Mr. Bressman became a registered principal at A.R. Baron and in September 1993 he began serving as its chief executive officer. Mr. Bressman’s employment with A.R. Baron ended in July 1996 when the company was placed into liquidation pursuant to the Securities Investors Protection Act.

The SEC alleged that, during his association with D.H. Blair and A.R. Baron, Mr. Bressman and others engaged in a scheme to manipulate the market for the common stock of several public companies marketed by D.H. Blair and A.R. Baron and engaged in certain abusive sales practices. In November 1999, Mr. Bressman entered into a consent decree with the SEC which resolved all SEC allegations without Mr. Bressman admitting or denying them. As part of the settlement, Mr. Bressman agreed to the entry of an injunction enjoining him from committing future violations of the U.S. securities laws, including the antifraud provisions set forth in Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. Mr. Bressman also agreed to a permanent bar from associating with any securities broker or dealer. In addition, Mr. Bressman agreed to and paid monetary penalties and disgorgement of profits over a five-year period. Bear Stearns Securities Corp., A.R. Baron’s clearing house, agreed to contribute $30 million to a restitution fund for A.R. Baron’s investors and the Securities Investors Protection Corporation recovered sufficient money to permit it to reimburse the majority of A.R. Baron’s customers for their full out-of-pocket losses.

In December 1997, Mr. Bressman pled guilty to New York State charges of enterprise corruption and grand larceny based on some of the same conduct while employed at A.R. Baron for which he settled with the SEC. Mr. Bressman served 18 months of confinement in a New York State prison for these offenses commencing in November 2003, after which he was released to a work release program for the next 18 months; his term of parole supervision was terminated early.

On July 3, 1996, Mr. Bressman filed a voluntary Chapter 11 petition pursuant to Title 11 of the United States Code in the United States Bankruptcy Court for the District of New Jersey. This case was subsequently converted to a Chapter 7 Bankruptcy case. The case was closed on or after July 24, 2004.

Actions taken or to be taken by our company. Mr. Bressman is one of our original founders and has been one of our key employees since our company’s founding in November 1999 until November 2003 and from June 2005 to date. Mr. Bressman assumed the role of head of business development and was responsible for locating and developing all new strategic opportunities, including the Intellispace and RNK acquisitions. He was responsible for generating business and strategic relationships that took the company from seven employees to aan $~~100~~80 million company with over ~~200~~170 employees. Mr. Bressman is currently a senior executive officer of our company and serves as our managing director, responsible for overseeing the day-to-day operations and management of the company, and in a business development capacity, is primarily devoted to strategic acquisitions and dealing with technology partners and vendors. ~~Upon~~Immediately ~~completion~~prior ofto the ~~offering~~listing ~~and~~of ~~the~~our ~~acquisition~~common ofstock ~~Winncom~~on the NYSE Amex, Mr. Bressman will ~~assume~~relinquish ~~the~~his ~~new~~position ~~role~~as ofa ~~Chief~~senior ~~Strategist~~executive officer and our managing director. Mr. Bressman has never been a director of our company or any of its subsidiaries, has not had power to bind us and has never signed checks or contracts on our behalf.

Mr. Bressman has agreed to certain limitations on his role with the company and its subsidiaries, or the Group, following completion of this initial public offering. Mr. Bressman has agreed with us that he will not: (i) become a director or executive officer of any member of the 30

Immediately prior to the listing of our common stock on the NYSE Amex, Mr. Bressman and the company have agreed that Mr. Bressman will no longer be employed by the company. In connection with Mr. Bressman’s separation from the company, the company and Mr. Bressman have entered into a separation agreement pursuant to which, among other things, the company will make payments of $551,250 net of applicable taxes to Mr. Bressman on or prior to March 15, 2011 (with a minimum payment of $175,000 due on or before January 15, 2011), and an aggregate payment of $198,750 to be paid to Mr. Bressman in 12 equal monthly installments, in consideration for the receipt from Mr. Bressman of a release of the company and for the extension of Mr. Bressman’s non-competition obligations as set forth in the agreement. In addition, Mr. Bressman will be entitled to receive payment of his base salary, certain fringe benefits and coverage under the company’s health and other benefit plans for the remainder of the term of his existing employment agreement.

Mr. Bressman has also agreed to certain limitations on his role with the company and its subsidiaries, or the Group. Mr. Bressman has agreed with us that he will not: (i) become a director, executive officer, or employee of any member of the Group; (ii) be engaged as a consultant to any member of the Group; or (iii) make any public communications about the company or its securities or promote the trading of the company’s securities in any manner. In addition, we have agreed that, while our common stock is listed on NYSE Amex, no immediate family member of Mr. Bressman will serve as an officer or director of our company. Our board of directors will monitor these guidelines to ensure his and our compliance with them.

Finally, Mr. Bressman’s wife and minor children are beneficiaries of trusts which own in the aggregate approximately 18% of our common stock, prior to giving effect to this initial public offering. Mr. Bressman has agreed that neither he, nor any member of his immediate family or their affiliates, either directly or indirectly through the trusts, will purchase any shares of our common stock either from the company or in secondary market transactions. In addition, Mr. Bressman has agreed, on behalf of himself and his affiliates, that while our common stock is listed on NYSE Amex, neither Mr. Bressman nor any of his affiliates will own shares of our common stock outside of certain trusts that currently hold shares of our common stock. The trustees of the trusts have also agreed that the trusts will vote their shares of common stock in accordance with the majority of the votes cast by our stockholders on any matter presented to the stockholders on which such trusts are entitled to vote.

Potential risks. There is a risk that some third parties might not do business with us, that some prospective investors might not purchase our securities or that some customers may be concerned about signing up for service with us as a result of Mr. Bressman’s background. If any of these risks were to be realized among a sizeable number of prospective investors, vendors or customers, there could be a material adverse affect on our business or the market price of our common stock and warrants.

Group; (ii) participate in any financial reporting functions or accounting decisions; (iii) have the power to bind any member of the Group; (iv) have control over any policy making decisions; and (vi) have the ability to sign checks or contracts on our behalf. Our board of directors will monitor these guidelines to ensure his and our compliance with them.

Finally, Mr. Bressman’s wife and minor children are beneficiaries of trusts which own in the aggregate approximately 19% of our common stock, prior to giving effect to this initial public offering. Mr. Bressman has agreed that neither he, nor any member of his immediate family, either directly or indirectly through the trusts, will purchase any shares of our common stock on the open market. The trustees of the trusts have also agreed that the trusts will vote their shares of common stock in accordance with the majority of the votes cast by our stockholders on any matter presented to the stockholders on which such trusts are entitled to vote.

As a result of the foregoing agreements, Mr. Bressman will continue to provide services to our company as our Chief Strategist but will have no authority to control our company after completion of this offering.

Potential risks. There is a risk that some third parties might not do business with us, that some prospective investors might not purchase our securities or that some customers may be concerned about signing up for service with us as a result of Mr. Bressman’s background and continuing association with our company. If any of these risks were to be realized among a sizeable number of prospective investors, vendors or customers, there could be a material adverse affect on our business or the market price of our common stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” All statements, other than statements of historical facts, included in this prospectus regarding our strategy, future operations, future financial position, projected expenses, prospects and plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

• our inability to retire or renegotiate the terms of our outstanding debt; • our inability to deploy and maintain our competitive advantages; • failure to implement our business strategies; • expectations regarding our potential growth; • expectations regarding the size of our market; • our expectation regarding the future market demand for our services; • our financial performance; • our inability to achieve sustained profitability; • the establishment, development and maintenance of relationships with telecommunications carriers, vendors and customers; • our failure to obtain additional financing on acceptable terms, if necessary; • our inability to obtain the permits and licenses required to operate in international markets; • compliance with applicable laws and regulatory changes; • the outcome of the litigation that our wholly-owned subsidiary, RNK, is currently a party to; • changes in technology; • our inability to ~~consummate the acquisition of Winncom; • our expectations regarding the successful integration of our business with Winncom’s business; • our inability to~~ attract and retain additionally qualified key personnel and the loss of such key personnel; • general economic conditions; • the lack of a market for our securities; • our ability to raise additional capital; and • our liquidity.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we currently expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

This prospectus contains market data and industry forecasts that were obtained from industry publications. These publications generally indicate that this information has been obtained from sources believed to be reliable but do not guarantee the accuracy or completeness of this information. Although we believe that the reports are reliable, we have not independently verified any of this information.

3332

USE OF PROCEEDS

We estimate that our net proceeds from the sale of ~~[•]~~1,700,000 ~~shares~~units ~~of our common stock~~ in this offering will be approximately $~~[•]~~6.4 million, or approximately $~~[•]~~7.5 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $~~[•]~~4.25 per ~~share~~unit, the ~~midpoint~~price ~~of the range~~ listed on the cover page of this prospectus, and after deducting estimated underwriting discounts, ~~and~~ commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $~~[•]~~4.25 per ~~share~~unit would increase (decrease) the net proceeds to us from this offering by $~~[•]~~ 1.5 million, assuming that the number of ~~shares~~units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions ~~and estimated offering expenses payable by us~~.

We intend to use the net proceeds from this offering as follows in order of priority:

To fund the Winncom acquisition: $8 million of consideration and $17 million of Winncom debt repayment	$	25,000,000
Victory Park, partial repayment (36% per annum interest rate)	$	2,000,000
Repay the holders of the RNK Notes, estimated payout value on April 1, 2010		20,600,000
Additional proceeds to be used as working capital and at management’s discretion		4,397,000
Repay the Victory Park loan, estimated payout value on April 1, 2010		10,000,000
Capital raised	$	6,397,000
4G deployment		2,000,000

The principal purposes of this offering are to ~~fund the acquisition of Winncom~~, ~~repay~~net ~~the holders~~ of ~~the~~professional ~~RNK~~and ~~Notes,~~underwriter ~~repay~~fees ~~our~~incurred ~~$9.3~~directly ~~million~~in ~~bridge~~connection ~~loan~~with ~~from~~this ~~Victory Park~~offering, ~~obtain~~partially ~~additional~~repay ~~working~~our ~~capital~~senior tosecured ~~roll~~notes ~~out the 4G technology~~of, ~~fund any operating losses~~currently, ~~establish~~$8.1 amillion ~~public~~held ~~market~~by ~~for~~Victory ~~our common stock and facilitate future access to the public markets~~Park. We estimate that we will ~~use~~reserve ~~some of~~ the remaining proceeds of this offering to help fund the ~~continued~~first ~~development~~phase of our ~~technology,~~planned to4G-based ~~build~~HFW ~~our~~network ~~operating infrastructure~~roll-out, ~~and to fund~~ general ~~research~~ and ~~development, general and~~ administrative expenses, capital expenditures, working capital needs, and other general corporate purposes. We may also use a portion of the proceeds for the potential acquisition of, or investment in, other technologies, products, or companies that complement our business, although we have no current understandings, commitments, or agreements to do so other than as contemplated with respect to Winncom.

On ~~February~~October 412, ~~2010~~2007, we ~~entered~~issued ~~into~~the aRNK ~~stock~~Notes ~~purchase~~in ~~agreement~~the toaggregate ~~acquire~~original ~~privately-held~~principal ~~Winncom~~amount ~~Technologies~~of $30,666,939, to RNK Holding ~~Limited~~Company, aWellesley ~~company~~Leasing, ~~incorporated~~LLC ~~under~~and ~~Irish~~certain ~~law.~~of ~~Pursuant~~RNK’s toemployees ~~the~~(including ~~stock~~$27,899,026 ~~purchase~~to ~~agreement,~~RNK weHolding ~~will~~Company, ~~acquire~~an ~~100%~~affiliate of ~~the~~Richard ~~issued~~Koch, ~~share~~the ~~capital~~president of ~~Winncom~~RNK, ~~from the~~our ~~stockholders~~wholly-owned ~~of Winncom~~subsidiary), ~~for~~as apartial ~~payment,~~consideration ~~including~~in ~~the~~connection ~~retirement~~with ofour ~~debt,~~acquisition of ~~approximately~~the ~~$25~~issued ~~million~~ and ~~approximately~~outstanding ~~4,714,038~~common ~~shares~~stock of ~~our~~RNK. ~~common~~The ~~stock,~~RNK ~~which~~Notes ~~number~~originally ofbore ~~shares~~an ~~represents~~interest ~~approximately~~rate ~~7.5%~~ of ~~our~~6% ~~issued~~per annum and ~~outstanding~~originally ~~shares~~matured ofon ~~common~~November ~~stock~~10, on2009. aThe ~~fully-diluted~~outstanding ~~basis~~principal asbalance of the RNK ~~the~~Notes ~~date~~is $9,651,803, as of ~~this~~November 30, ~~prospectus~~2010, ~~subject~~plus toaccrued ~~certain~~interest ~~working~~currently ~~capital~~accruing ~~adjustments~~at toa berate ~~determined~~of ~~within~~6% ~~120~~per ~~days~~annum. ~~following~~We ~~the~~have ~~closing~~entered ofinto ~~the~~several ~~acquisition.~~modifications Weand ~~intend~~amendments to ~~consummate~~ the ~~acquisition~~original ~~immediately~~RNK ~~upon~~Notes. ~~the~~In ~~closing~~connection ofwith ~~this~~these ~~offering.~~amendments, Wewe ~~cannot~~have ~~assure~~issued ~~you~~75,000 ~~that~~shares weof ~~will~~our ~~consummate~~common ~~the~~stock ~~Winncom~~at a fair ~~acquisition~~value onof ~~favorable~~approximately ~~terms~~$300,000 orwhich atwe ~~all.~~reserved Weas ~~intend~~debt discount and amortized to ~~use~~interest aexpense ~~portion~~from the date of issuance to the ~~proceeds~~date of ~~this~~maturity ~~offering~~and towe ~~acquire~~have ~~Winncom~~issued ~~and~~24,070 ~~retire~~warrants ~~Winncom~~at ~~debt~~a asfair ~~described~~market ~~above.~~value ~~For~~of ~~additional~~approximately ~~information~~$260,000 ~~see~~which ~~“Business—Proposed~~were ~~Acquisition~~recorded as debt discount and amortized to interest expense from the date of issuance to the date of maturity.”

On ~~October~~September 128, ~~2007~~2009, we ~~issued~~entered ~~the~~into ~~RNK~~a ~~Notes in the aggregate original principal amount of~~ $309,~~666~~300,~~939,~~000 toSenior ~~RNK~~Secured ~~Holding~~Financing ~~Company,~~Agreement ~~Wellesley~~with ~~Leasing,~~Victory ~~LLC~~Park ~~and certain of RNK’s employees (including $27~~Management,~~899,026~~ ~~to RNK Holding Company~~LLC, anwith ~~affiliate~~proceeds ofused ~~Richard~~primarily ~~Koch,~~for ~~the~~debt ~~president of RNK~~repayment, ~~our wholly-owned~~debt ~~subsidiary),~~service ~~as partial consideration in connection with our acquisition of the issued~~ and ~~outstanding~~professional ~~common stock of RNK~~fees. ~~The~~This ~~RNK~~facility ~~Notes~~ originally bore an interest rate of 63% per ~~annum~~month and ~~originally~~ matured on ~~November 10, 2009. The holders of~~ the ~~RNK Notes have agreed to a~~ ~~temporary~~earlier ~~term extension in conjunction with this offering, with the requirement that the RNK Notes will be paid in full out~~ of ~~the~~(a) ~~offering~~May ~~proceeds. The outstanding principal balance of the RNK Notes is $19~~8,~~303,606,~~ ~~as of January 26,~~ 2010, ~~plus accrued interest currently accruing at a rate of 9% per annum. We have entered into several modifications~~ and ~~amendments~~(b) to the ~~original~~consummation ~~RNK Notes. In connection with these amendments, we have issued 192,500 warrants at a fair market value~~ of ~~approximately~~this ~~$260,000 which were recorded as debt discount and amortized to interest expense from the date of issuance to the date of maturity~~offering.

34On each of March 22, 2010, April 16, 2010, May 11, 2010, May 21, 2010 and July 1, 2010 each of the lenders and Victory Park Management LLC (“VPC”), as administrative and collateral agent, agreed to forbear from exercising their default-related rights and remedies, including acceleration and foreclosure, against us or the collateral securing our obligations under the Senior Secured Financing Agreement, with respect to the existing events of default for the agreed upon forbearance period, ending on August 16, 2010. As partial consideration for agreeing to forbear, we paid to VPC for the benefit of the lenders, certain forbearance fees. On September 21, 2010, each of the lenders and VPC agreed to continue to forbear from exercising certain of their rights and remedies against us or the collateral securing our obligations under the Senior Secured Financing Agreement, with respect to the existing events of default during the forbearance period, which ends on the earlier of January 4, 2011 and the occurrence of a forbearance default under the forbearance agreement. As conditions to the execution and delivery of the forbearance agreement, the maturity date of the RNK Notes was extended until February 28, 2011, and RNK Holding Company and Wilmington Trust Company and G. Jeff Mennen, the holders of our long-term debt, agreed to convert at least 50% of the aggregate principal balance outstanding under such notes, plus 50% of the accrued

On September 8, 2009, we entered into a $9,300,000 Senior Secured Financing Agreement with Victory Park Management, LLC, with proceeds used primarily for debt repayment, debt service and professional fees. This facility bears an interest rate of 3% per month and matures on the earlier of (a) May 8, 2010 and (b) the consummation of this offering.33

interest therein, into shares of common stock at a price per share equal to $20.00. Additionally, as a condition to the execution and delivery of the forbearance agreement, we agreed that Aaron Dobrinsky, our Chief Executive Officer, and Sanford McMurtry, Chief Operating Officer of RNK, would report to Jeff Hyland, who will act as strategic advisor to the company.

On December 13, 2010, each of the lenders and VPC agreed (the “7th Forbearance”) to continue to forbear from exercising certain of their rights and remedies against us or the collateral securing our obligations under the Senior Secured Financing Agreement, with respect to the existing events of default during the forbearance period, which ends on the earlier of June 13, 2011 and the occurrence of a forbearance default under the 7th Forbearance. An event of default under the 7th Forbearance includes, but is not limited to, the occurrence of an event of default other than the existing events of default, the failure to comply with any condition or covenant of the 7th Forbearance, the breach of any representation or warranty set forth in the 7th Forbearance, the breach by any holder of the RNK Notes of certain agreements made pursuant to the forbearance agreement of September 21, 2010 and the taking of certain actions by certain of our subordinated creditors. In consideration thereof, we paid to VPC an aggregate of $600,098.70, which amount was applied to reduce the principal balance and accrued interest of the loan. Additionally, we agreed to pay to VPC (i) out of the proceeds of this offering $2,000,000 (or up to $2,700,000 if the underwriter’s over-allotment option is exercised) to reduce the principal balance of the loan and (ii) on the first day of every month, commencing January 1, 2011, $200,000, to reduce the principal balance of the loan and an amount equal to the interest that will accrue on the loan during such month. As a condition to the execution and delivery of the 7th Forbearance, we agreed that, unless and until a default under the 7th Forbearance occurs, Aaron Dobrinsky and Sanford McMurtry shall no longer directly report to Jeff Hyland and will only consult with Mr. Hyland, as Mr. Hyland retained the position as strategic advisor to the company. Effective immediately upon the occurrence of a default under the 7th Forbearance, (i) Aaron Dobrinsky shall however report directly to Jeff Hyland and (ii) Jeff Hyland, as strategic advisor, would have full authority to direct, manage, perform, control, implement and make all decisions with respect to our financial, operational and managerial affairs, cost restructurings, personnel management, asset management and disposition, accounting function, bank and commercial relationship management, and all other aspects of the business; provided that, Mr. Hyland would not have the authority to dismiss Eric Mann or Andrew Bressman. Notwithstanding the foregoing, Mr. Hyland has not been involved with the preparation or review of any of the information contained in this prospectus, nor has he been involved with any of the company’s efforts to consummate this offering. Upon repayment of the VPC loan, Mr. Hyland will no longer have such authority or hold such position.

Immediately prior to the listing of our common stock on the NYSE Amex, Mr. Bressman and the company have agreed that Mr. Bressman will no longer be employed by the company. In connection with Mr. Bressman’s separation from the company, the company and Mr. Bressman have entered into a separation agreement pursuant to which, among other things, the company will make payments of $551,250 to Mr. Bressman on or prior to March 15, 2011 (with a minimum payment of $175,000 due on or before January 15, 2011), and an aggregate payment of $198,750 to be paid to Mr. Bressman in 12 equal monthly installments, in consideration for the receipt from Mr. Bressman of a release of the company and for the extension of Mr. Bressman’s non-competition obligations as set forth in the agreement. In addition, Mr. Bressman will be entitled to receive payment of his base salary, certain fringe benefits and coverage under the company’s health and other benefit plans for the remainder of the term of his existing employment agreement.

As of the date of this prospectus, we cannot predict with certainty all of the other uses for the proceeds from this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our research, development, and commercialization efforts, and our operating costs and expenditures. Accordingly, our management will have significant flexibility in applying the remaining net proceeds of this offering.

~~If we do not consummate the Winncom acquisition, we intend instead to use such portion of the net proceeds for general corporate purposes.~~ Pending use of the proceeds from this offering as described above or otherwise, we intend to invest the net proceeds in short-term interest-bearing, investment grade securities.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business, including potential acquisitions.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, ~~2009~~2010:

• on an actual basis; • on a pro forma as adjusted basis to give effect to our sale of __________ shares of common stock in this offering at an assumed initial public offering price of $____ per share, the midpoint of the range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us; and • on a pro forma as adjusted basis to give effect to the proposed Winncom acquisition and to the events described above, as if they all had occurred on September 30, 2009.

•

on an actual basis; and

•

on a pro forma as adjusted basis to give effect to our sale of 1,700,000 shares of common stock in this offering at an assumed initial public offering price of $4.25 per share, the price listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions whereby pro forma reflects capitalization immediately after the offering and pro forma as adjusted reflects capitalization after the offering and partial repayment.

This table should be read with “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

	As of September 30, 2009
	As of September 30, 2010
	Actual			Pro Forma			Pro FormaAs Adjusted
	(unaudited in thousands)
Cash and equivalents includes (includes restricted $754)		$	3,396		$	76,821		$	29,193
Cash and cash equivalents (includes restricted $740)		$	1,223		$	7,726		$	5,726
Debt:
Senior secured debt			9,300			9,300			—
Long-term debt			8,418			8,418			6,418
Related party debt			39,450			39,450			39,450
Related party note payable—Wilmington Trust			19,850			19,850			19,850
Subordinated promissory notes, including accrued interest			20,000			20,000			—
Related party note payable—RNK, including accrued interest			10,807			10,807			10,807
Capital leases, including current portions			32,~~471~~270			32,~~471~~270			32,~~471~~270
All other debt			—			—			~~7,388~~—
Total debt			7241,~~221~~344			7241,~~221~~344			5039,~~309~~344
Total stockholders’ equity			123,~~342~~147			7729,~~872~~650			~~100~~29,~~692~~650
Total capitalization		$	7364,~~563~~491		$	~~150~~70,~~093~~994		$	~~150~~68,~~001~~994

The outstanding share information excludes:

• 2656,~~516,000~~124 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, ~~2009~~2010 at a weighted average exercise price of $0.0194 per share; • 1386,~~921,172~~403 shares of common stock issuable upon the exercise of warrants outstanding as of September 30, ~~2009~~2010 at a weighted average exercise price of $06.0122 per share; and • ~~934~~836,~~000~~340 additional shares reserved for future issuance under our stock plans as of September 30, ~~2009~~2010.

3635

DILUTION

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the assumed initial offering price of $~~[•]~~4.25 per share of our common stock, which is the ~~midpoint~~price ~~of the range~~ listed on the cover page of this prospectus, and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our historical net tangible book value as of September 30, ~~2009~~2010 was $~~[•]~~(38.0) million, or ($~~[•]~~4.32) per share, based on ~~[•] shares of common stock outstanding as of September 30~~8, ~~2009. Our pro forma net tangible book value as of September 30~~811,620 2009 was $[•], or $[•] per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of September 30, 2009 and the acquisition of Winncom, assuming an initial public offering price of $[•] per share, the midpoint of the range listed on the cover page of this prospectus, and that the closing of this offering occurs on [•], 20092010. ~~See “Summary—General Information About This Prospectus.”~~

After giving effect to the sale by us of ~~[•]~~1,700,000 shares of common stock in this offering at an assumed initial public offering price of $~~[•]~~4.25 per share and after deducting underwriting discounts and commissions ~~and estimated offering expenses payable by us~~, our ~~pro~~increase ~~forma~~per asshare ~~adjusted~~attributable ~~net~~to ~~tangible~~the ~~book~~offering ~~value~~ as of September 30, ~~2009~~2010 would have been approximately $16.5 ~~[•]~~ million, or approximately $~~[•]~~1.32 per share. After giving effect to the foregoing ~~and also to the Winncom acquisition~~, our pro forma ~~as adjusted~~ net tangible book value at September 30, ~~2009~~2010 would have been approximately $(31.5) ~~[•]~~ million, or $(3.00) ~~[•]~~ per share. This amount represents an immediate increase in pro forma net tangible book value of $~~[•]~~1.32 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $~~[•]~~7.25 per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share					$
				Per Share
Historical net tangible book value per share as of September 30, 2009	$	0.01
Assumed initial public offering price per share					$	4.25
Pro forma net tangible book value per share as of September 30, 2009	$	1.00
Historical net tangible book value per share as of September 30, 2010	$	(4.32	)
Increase per share attributable to this offering		1.32
Decrease per share attributable to Winncom acquisition
Pro forma net tangible book value per share after this offering						(3.00	)
Pro forma as adjusted net tangible book value per share after this offering
Dilution per share to new investors in this offering					$	7.25
Dilution per share to new investors in this offering					$

A $1.00 increase (decrease) in the assumed initial public offering price of $~~[•]~~4.25 per share would increase (decrease) our pro forma as adjusted net tangible book value as of September 30, ~~2009~~2010 by approximately $~~[•]~~1.5 million, the pro forma as adjusted net tangible book value per share after this ~~offering~~ offering by $~~[•]~~0.15 and the dilution to new investors in this offering by $~~[•]~~0.85 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value per share after this offering would be $~~[•]~~(2.93) per share, the increase per share attributable to new investors would be $~~[•]~~1.27 per share and the dilution to new investors would be $~~[•]~~7.18 per share.

The following table summarizes, as of September 30, 2010, the differences between the number of shares purchased from us, the total consideration paid to us and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $4.25 per share, which is listed on the cover page of this prospectus, and before deducting underwriting discounts and commissions and estimated offering expenses that we must pay.


	Shares Purchased					Total Consideration						Average Price
	Number		Percent			Amount			Percent			Per Share
Existing Stockholders		8,811,620		83.8	%		$	8,853,000		55.1	%		$	1.00
New Investors		1,700,000		16.2	%			7,225,000		44.9	%			4.25

Total		10,511,620		100.0	%		$	16,078,000		100.0	%		$	1.53

A $1.00 increase (decrease) in the assumed initial public offering price of $4.25 per share would increase (decrease) total consideration paid to us by investors participating in this offering by approximately $1.5 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions.

Assuming the underwriters’ over-allotment option is exercised in full, sales by us in this offering will reduce the percentage of shares held by existing stockholders to 82% and will increase the number of shares held by new investors to 1,955,000, or 18%.

If all outstanding options under our equity incentive plans were exercised, then our existing stockholders, including the holders of these options, would own 85% and our new investors would own 15%, of the total number of shares of our common stock outstanding upon the closing of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $9.5 million, or 57% of the total consideration paid; new investors would tender $7.2 million, or 43%, the average price per share paid by our existing stockholders would be $1.00 and the average price per share paid by our new investors would be $4.25.

The following table summarizes, as of September 30, 2009, the differences between the number of shares purchased from us, the total consideration paid to us and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $[•] per share, which is the midpoint of the range listed on the cover page of this prospectus, and before deducting underwriting discounts and commissions and estimated offering expenses that we must pay.

	Shares Purchased					Total Consideration						AveragePricePer Share
	Number		Percent			Amount			Percent
Existing Stockholders		56,786,799					$	8,853,000					$	0.16
New Investors
Total				100.0	%		$			100.0	%		$

A $1.00 increase (decrease) in the assumed initial public offering price of $[•] per share would increase (decrease) total consideration paid to us by investors participating in this offering by approximately $[•] million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Assuming the underwriters’ over-allotment option is exercised in full, sales by us in this offering will reduce the percentage of shares held by existing stockholders to [•]% and will increase the number of shares held by new investors to [•], or [•]%.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma financial information for the year ended December 31, 2008 and for the nine months ended September 30, 2009 is derived from (1) our historical consolidated financial statements included elsewhere in this prospectus and (2) the historical consolidated financial statements of Winncom. The unaudited pro forma financial statements should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus, the consolidated financial statements of Winncom and related notes included elsewhere in this prospectus, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information appearing elsewhere in this prospectus. In the proposed Winncom acquisition, we would acquire 100% of the issued share capital of Winncom from the stockholders of Winncom, for a payment, including the retirement of debt, of approximately $25 million and approximately 4,714,038 shares of our common stock, which number of shares represents approximately 7.5% of our issued and outstanding shares of common stock on a fully-diluted basis as of the date of this prospectus, subject to certain working capital adjustments to be determined within 120 days following the closing of the acquisition.

The unaudited pro forma statement of operations data for the year ended December 31, 2008 and for the nine months ended September 30, 2009 and balance sheet data as of September 30, 2009 have been prepared to give pro forma effect to the sale of shares in this offering (excluding shares under the underwriters’ over-allotment option), and application of the net proceeds from this offering, in the case of the statement of operations data, as if they had occurred on January 1, 2008 and, in the case of the balance sheet data, as if they had occurred on September 30, 2009. The unaudited pro forma as adjusted statement of operations data for the year ended December 31, 2008 and for the nine months ended September 30, 2009 and balance sheet data as of September 30, 2009 have also been prepared to give pro forma as adjusted effect to the Winncom acquisition, as well as to the events described above, in the case of the statement of operations data, as if they occurred on January 1, 2008 and, in the case of the balance sheet data, as if they had occurred on September 30, 2009. We accounted for the acquisition of Winncom under the purchase method of accounting, subject to the assumptions and adjustments described in the accompanying notes. The unaudited pro forma financial statements presented below are based upon preliminary estimates of purchase price allocations and do not reflect any anticipated operating efficiencies or cost savings from the integration of Winncom into our business.

The unaudited pro forma consolidated financial statements reflect pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions we believe are reasonable, but are subject to change. We have made, in our opinion, all adjustments that are necessary to present fairly the pro forma financial data. The unaudited pro forma financial data is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Winncom acquisition and this offering been consummated on the dates indicated, and do not purport to be indicative of balance sheet data or results of operations as of any future date or for any future period.

Pro Forma Condensed Consolidated Balance Sheet At September 30, 2009

The following unaudited pro forma balance sheet assumes the following:

(a)

Receipt of $73.4 million of cash (Proceeds of $82.5M raised less total underwriter fees of approximately 8.0% of gross proceeds and 3% estimate of gross proceeds for legal, advisory and accounting fees expensed immediately) and related issuance of 21.2 million shares of common stock consisting of 15 million shares issued pursuant to the initial public offering, 4,714,038 shares for the acquisition of Winncom and 1.5 million shares to Gregory Raskin whose employment agreement goes effective upon consummation of the acquisition of Winncom.

(b)

Immediate repayment of Victory Park Loan in the amount of approximately $9.3 million and extinguishment of the RNK Notes in the amount of approximately $19.4 million with a

weighted average cost saving of $28.7 million x 6% = $1.722 million per annum of interest expense.

(c)

$25 million payment to Winncom stockholders as partial consideration in exchange for 100% of the ownership equity of Winncom and the issuance of 4,714,038 shares valued at the initial public offering price per share ($5.50, subject to change)

(d)

Winncom will extinguish Related Party Debt of approximately $17.0 million upon closing of the acquisition by us. Winncom will record a capital contribution equal to the $17.0 cash infusion marked for debt extinguishment. Winncom will record any gross up of the outstanding loan balance to the $17.0 million due by charging to retained earnings. Goodwill recorded by us will reflect purchase price consideration less Winncom net equity plus $17.0 million capital contribution less interest expense accrual.

	September 30, 2009
	Wave2Wave				Winncom				Adjustments				Pro FormaCombined
	(unaudited)				(unaudited)								(unaudited)
Current assets:
Cash and equivalents		$	2,642			$	5,712			$	19,125	a,b,c,d		$	27,479
Accounts receivable			25,230				14,644				—				39,874
Prepaids and inventory			2,644				11,412								14,056
Other current assets			781				3,289								4,070
			31,297				35,057				19,125				85,479
Property, plant and equipment, net:			8,239				1,087				—				9,326
All intangible assets			49,605				4,097				38,165				91,867
All other assets			5,351				2,210				—				7,561
Total Assets		$	94,492			$	42,451			$	57,290			$	194,233
Current liabilities:
Accounts payable		$	14,977			$	10,126							$	25,103
Deferred revenue & customer deposits			2,353				118								2,471
Line of credit and revolving credit			—				3,686								3,686
Related party notes			—				16,134				(16,134	)d			—
Current portion of long-term leases and debt			20,205				2,312				(20,402	)b			2,115
All other current liablities			4,704				5,151				(1,635	)d			8,220
All current liabilities			42,239				37,527				(38,171	)			41,595
Long-term liabilities			50,913				9,162				(8,129	)b			51,946
Total liabilities			93,152				46,689				(46,300	)			93,541
Stockholders’ equity
Preferrred Stock			—												—
Minority interest			—				37				(37	)			—
Common Stock			5				—				2	a			7
Additional paid-in capital			15,512				—				101,193	a			116,705
Note receivable related parties			(632	)			—				632	d			—
Accumulated deficit			(13,545	)			(4,275	)			1,800	a,c			(16,020	)
Total Stockholders’ Equity			1,340				(4,238	)			103,590				100,692
Total liabilities and stockholders’ equity		$	94,492			$	42,451			$	57,290			$	194,233

Pro Forma Condensed Consolidated Statements of Operations

The following unaudited pro forma statements of operations assume that the acquisition of Winncom has been accounted for as an exchange $25 million of cash consideration and 4,714,038 shares of our common stock for 100% of the ownership equity of Winncom in which we are the legal acquirer. Reference is made to a footnote describing additional amortization expense that the combined entity would make due to amortization of certain estimated definitive lived intangibles

that would be recognized upon consummation of the acquisition of Winncom as well as reduction of interest expense related to debt scheduled to be extinguished consistent with the “Use Of Proceeds.”

	Year Ended December 31, 2008
	Wave2Wave				Wincomm				Pro FormaAdjustments				Pro FormaCombined
Net revenues		$	78,455			$	70,206							$	148,661
Costs of goods sold			43,205				58,450								101,655
Gross Profit			35,250				11,756								47,006
Operating Expense:
Depreciation and amortization			6,658				1,429				3,180	a			11,267
Selling, general, and administrative expenses			20,795				9,561				1,598	c			31,954
Income from operations			7,797				766				(4,778	)			3,785
Interest expense			7,009				1,564				(2,657	)b			5,916
Other income			312				391								703
Net interest expense and other income			6,697				1,173				(2,657	)			5,213
Income before income taxes			1,100				(407	)			(2,121	)			(1,428	)
Provision for income taxes			2,309				191				(742	)			1,758
Net income (loss) before minority interest			(1,209	)			(598	)			(1,379	)			(3,186	)
Minority interest expense (income)			—				13				—				13
Net income (loss)		$	(1,209	)		$	(611	)		$	(1,379	)		$	(3,199	)

(a) We will record intangibles plus goodwill of approximately $37.0 million of which 50% is allocated to goodwill. Intangibles have an estimated useful of six years for an approximate annual amortization expense of $3.1 million and this is allocated pro rata for non-annual periods. (b) We record the gross up of related party notes to maturity value of $17.0 million for Winncom, and generates interest expense savings from retirement of $17.0 million of Winncom debt and $28.7 million of loans payable held by us as discussed in the “Use of Proceeds.” (c) We will record the fair value expense of the stock awards issued to Gregory Raskin pursuant to his employment agreement. These shares of restricted stock have a fair market value of approximately $3.2 million and vest ratably over two years.

	Nine Months Ended September 30, 2009
	Wave2Wave				Wincomm				Pro FormaAdjustments				Pro FormaCombined
Net revenues		$	61,693			$	40,478			$	—			$	102,171
Costs of goods sold			37,829				32,967				—				70,796
Gross Profit			23,864				7,511								31,375
Operating Expense:
Depreciation and amortization			5,243				1,085				2,385	a			8,713
Selling, general, and administrative expenses			15,239				6,595				1,198	c			23,032
Income from operations			3,382				(169	)			(3,583	)			(370	)
Interest expense			4,429				871				(1,992	)b			3,308
Other income			(940	)			(37	)							(977	)
Net interest expense and other income			5,369				908				(1,992	)			4,285
Income before income taxes			(1,987	)			(1,077	)			(1,591	)			(4,655	)
Provision for income taxes			(875	)			(78	)			(557	)			(1,510	)
Net income (loss) before minority interest			(1,112	)			(999	)			(1,034	)			(3,145	)
Minority interest expense (income)			—				7								(7	)
Net income (loss)		$	(1,112	)		$	(992	)		$	(1,034	)		$	(3,138	)

NON-GAAP FINANCIAL MEASURES

We use adjusted EBITDA as a principal indicator of the operating performance of our business as well as the relative performance of our operating segments. EBITDA represents net income before interest, taxes, depreciation and amortization. We define adjusted EBITDA as operating income (loss) before interest, taxes, depreciation and amortization expenses, excluding stock-based compensation expense, write-off of public offering costs, gain recognized on troubled debt restructuring, gain or loss on asset dispositions and other non-operating income or expense. In our presentation of segment financial results, adjusted EBITDA for a segment does not include corporate overhead expense and other centralized operating costs. We believe that adjusted EBITDA trends are a valuable indicator of our operating segments’ relative performance and of whether our operating segments are able to produce operating cash flow to fund working capital needs, to service debt obligations and to fund capital expenditures. Our management uses adjusted EBITDA as a measure of assessing our performance. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We believe that, with a full understanding of its limitations, adjusted EBITDA provides useful information regarding how our management views our business. In addition, it allows analysts, investors and other interested parties in the telecommunications industry to facilitate company to company comparisons because it eliminates many differences caused by variations in capital structures (affecting interest expense), taxation and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), as well as non-operating and one-time charges to earnings. As used in this prospectus, however, adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments. Our calculation of adjusted EBITDA is not directly comparable to EBIT (earnings before interest and taxes) or EBITDA. In addition, adjusted EBITDA does not reflect:

•

our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

•

changes in, or cash requirements for, our working capital needs;

•

our interest expense, or the cash requirements necessary to service interest or principal payments on our debts;

•

any cash requirements for the replacement of assets being depreciated and amortized, which will often have to be replaced in the future, even though depreciation and amortization are non-cash charges; and

•

the fact that other companies in our industry may calculate adjusted EBITDA differently than we do, which limits its usefulness as a comparative measure.

Adjusted EBITDA is not intended to replace operating income, net income and other measures of financial performance reported in accordance with GAAP. Rather, adjusted EBITDA is a measure of operating performance that you may consider in addition to those measures. Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only supplementally.

4338

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth our selected historical consolidated financial data as of the dates and for the dates periods indicated. The selected historical consolidated financial data as of and for the years ended December 31, 2006, 2007, 2008 and ~~2008~~2009 have been derived from our audited ~~consolidated~~ consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated financial data as of and for the ~~years~~year ended December 31, ~~2004 and~~ 2005 have been derived from our unaudited consolidated financial information not included elsewhere in this prospectus. Our historical ~~results~~ results are not necessarily indicative of future performance or results of operations. The selected historical consolidated financial data as of for the nine months ended September 30, ~~2009~~2010 and September 30, ~~2008~~2009 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements, and in the opinion of our management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. You should read the information presented below together with “Unaudited Pro Forma Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.

	Nine Months EndedSeptember 30,							Year Ended December 31,
	2009				2008			2008				2007				2006				2005				2004
	(unaudited)				(unaudited)															(unaudited)				(unaudited)
Net revenues			61,693				67,856			78,455				35,403				18,552				2,677				2,302
Costs of goods sold			37,829				31,183			43,205				22,143				11,996				991				692
Gross profit			23,864				36,673			35,250				13,260				6,556				1,687				1,610
Operating expenses:
Depreciation and amortization			5,243				6,014			6,658				1,986				1,047				450				200
Selling, general, and administrative expenses			15,239				15,367			20,795				14,199				6,958				2,182				2,985
Total operating expenses:			20,482				21,381			27,453				16,185				8,005				2,632				3,185
Income (loss) from operations			3,382				15,292			7,797				(2,925	)			(1,449	)			(946	)			(1,575	)
Interest expense, net			4,429				5,072			7,009				2,306				871				305				(0	)
Other income (expense)			(940	)			660			312				3,495				(131	)			—				—
Net interest expense and other income			5,369				4,412			6,697				(1,189	)			1,002				305				(0	)
(Loss) income before income taxes			(1,987	)			10,880			1,100				(1,736	)			(2,451	)			(1,251	)			(1,575	)
Provision for income taxes			(875	)			5,361			2,309				(3,630	)			—				—				—
Net (loss) income			(1,112	)			5,519			(1,209	)			1,894				(2,451	)			(1,251	)			(1,575	)
Adjusted EBITDA*		$	11,916			$	20,829		$	23,065			$	2,255			$	(389	)		$	(496	)		$	(1,375	)

All financial data presented in thousands except whereas noted.

	September 30,				Year Ended December 31,
	(Unaudited)Nine Months EndedSeptember 30,								Year Ended December 31,
	2009				2008				2007				2006				2005				2004
	2010				2009				2009				2008				2007				2006				2005
	(unaudited)																(unaudited)				(unaudited)
					(restated)
Balance Sheet Data:
Operating revenues		$	53,265			$	61,693			$	79,871			$	78,455			$	35,403			$	18,552			$	2,677
Cash and cash equivalents		$	2,642			$	1,598			$	1,111			$	256			$	42			$	372
Operating expenses:
Working capital			(10,939	)			(59,561	)			(51,064	)			(2,239	)			536				19,766
Costs of goods sold (exclusive of depreciation show separately below)			36,353				39,039				51,588				43,205				22,143				11,996				991
Total assets			94,491				90,885				90,430				9,170				3,491				4,145
Depreciation and amortization			5,066				5,243				6,983				6,658				1,986				1,047				450
Stockholders’ equity		$	1,342			$	1,401			$	339			$	(8,321	)		$	(3,264	)		$	(2,013	)
Selling, general, and administrative expenses			18,367				15,239				37,925				20,795				14,199				6,958				2,182
Total operating expenses:			59,786				59,521				96,496				70,658				38,328				20,001				3,623
(Losses) income from operations			(6,521	)			2,172				(16,625	)			7,797				(2,925	)			(1,449	)			(946	)
Interest expense, net			8,315				4,429				7,231				7,009				2,306				871				305
Other (expense) income			—				(940	)			(769	)			312				3,496				(131	)			—
Net interest expense and other income			8,315				5,369				8,000				6,697				(1,190	)			1,002				305
(Loss) income before income taxes			(14,836	)			(3,198	)			(24,625	)			1,100				(1,735	)			(2,451	)			(1,251	)
Provision for income taxes			(4,383	)			(1,311	)			(3,089	)			2,309				(3,629	)			—				—
Net (loss) income			(10,453	)			(1,887	)			(21,536	)			(1,209	)			1,894				(2,451	)			(1,251	)
Diluted EPS			($1.46	)			($0.33	)			($3.53	)			($0.22	)	$0.35						($0.46	)			($0.27	)
Adjusted EBITDA*			195				7,732				8,071				8,546				1,937				(389	)			(496	)


	September 30,				Year Ended December 31,
	2010				2009				2008				2007				2006				2005
																					(unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	483			$	1,995			$	1,598			$	1,111			$	256			$	42
Working capital			(24,800	)			(25,794	)			(59,561	)			(51,064	)			(2,239	)			536
Total assets			94,121				95,232				90,885				90,430				9,241				3,491
Stockholders’ equity		$	23,147			$	(1,681	)		$	1,401			$	339			$	(8,321	)		$	(3,264	)

Set forth below is a reconciliation of net (loss) income to EBITDA to Adjusted EBITDA for the periods presented.

~~Reconciliation~~All offinancial ~~net~~data ~~(loss)~~presented ~~incometo~~in ~~EBITDA to Adjusted EBITDA~~thousands.

~~Nine~~Reconciliation ~~months~~of ~~ended~~net ~~September~~(loss ~~30,~~) incometo EBITDA to Adjusted EBITDA

~~Year~~Nine ~~ended~~Months ~~December~~EndedSeptember 3130,

Year Ended December 31,

2010

2009

2008

2008

2007

2006

Pro Forma*2005

Pro Forma

Net (loss) income

~~(3,138~~$

(10,453

)

~~(1,112~~$

(1,887

)

~~5,519~~$

(321,~~199~~536

)

(1,209

)

1,894

(2,451

)

(1,251

)

Provision for income taxes & minority interest

(14,~~517~~383

)

(~~875~~1,311

)

5(3,~~361~~089

~~1,771~~ )

2,309

(3,~~630~~629

)

—

~~Other income (expense)~~ —

~~977~~Other (expense) income

—

940

~~(660~~769

)

(703

)

(312

)

(3,~~495~~496

)

131

—

Interest expense, net

38,~~308~~315

4,429

57,~~072~~231

5,916

7,009

2,306

871

305

Depreciation and amortization

85,~~713~~066

5,243

6,~~014~~983

11,267

6,658

1,986

1,047

450

EBITDA

8(1,~~343~~455

~~8,625~~ )

217,~~306~~414

15(9,~~052~~642

)

14,455

(939

)

(402

)

~~Non-cash compensation and accretion~~ (496

1,518

320

2,379

2,586

988

3,194

Non-recurring items

2,971

(2,856

)

~~7,622~~Non-cash compensation

71,~~622~~650

318

17,713

664

2,876

Gain on change in estimate for VFX

—

(6,573

)(1)

—

Adjusted EBITDA

~~12,832~~195

117,~~916~~732

208,~~829~~071

258,~~260~~546

231,~~065~~937

2,255

(389

)

45 $

(496

)

(1)

A one-time favorable adjustment recorded pursuant to a rate change for calculating liabilities for virtual foreign exchange

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

You should read the following discussion together with “Selected consolidated financial and operating data” and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those we currently anticipate as a result of many important factors, including the factors we describe under “Risk factors,” “Cautionary notice regarding forward-looking statements” and elsewhere in this prospectus.

Overview and Recent Developments

We were founded in 1999 and incorporated in the State of Delaware as Wave2Wave Communications, Inc. We provide communication services to small to mid-sized businesses in the northeast and midwest United States with a complete package of integrated products that includes wired and wireless broadband Internet access services, Voice over Internet Protocol, or VoIP, data, email hosting, point-to point connections, managed network services, collocation, virtual private networks, or VPNs, and web hosting. Through our wholly-owned subsidiary RNK Inc., d/b/a RNK Communications, or RNK, a competitive local exchange carrier (“CLEC”), which allows us to offer innovative and differentiated voice offerings, we provide wholesale services, offering a range of voice and data “carrier class products” to other communications companies and to larger-scale purchasers of network capacity. Specifically, we offer domestic and international terminations, domestic origination with local access, long distance services, collocation, “800” toll free origination, conference calling capabilities and prepaid calling services.

We are currently in the process of ~~testing~~installing our fourth generation, or 4G, based Hybrid Fiber-Wireless, or HFW, in-building network. We focus on selling to customers in multi-tenant office buildings (in-building) and to remote locations (stand-alone buildings). We currently have approximately 425 active Building Service Agreements, or BSAs, with building owners throughout New York, New Jersey, Illinois (Chicago), Connecticut and Pennsylvania (Philadelphia). Under these BSAs, we either pay the building owners monthly rent or a revenue share to allow us to sell throughout their buildings. The term of these BSAs are typically five to ten years in length, with automatic renewals.

On January 1, 2006, we acquired certain assets of Intellispace, expanding our footprint to nine states in the northeast United States. Intellispace provided a range of wired-based services to businesses via a fiber network.

On October 12, 2007, we acquired RNK Inc., d/b/a RNK Communications, providing us with the experience and capabilities of a fully regulated telephone company. Through this acquisition, we obtained a fully redundant telecommunications network and state-of-the-art switching facilities serving an expansive footprint.

With the acquisition of RNK and our January 2006 acquisition of the assets of Intellispace, Inc., we significantly expanded our suite of product offerings and service footprint making us a global full service communications provider.

OnFor ~~February~~the 4,years ~~2010,~~ended weDecember ~~entered~~31, ~~into~~2009, a2008 ~~stock~~and ~~purchase~~2007, ~~agreement~~we toexperienced ~~acquire~~operating ~~privately-held~~losses ~~Winncom~~of ~~Technologies~~approximately ~~Holding~~$21.5 ~~Limited~~million, ~~a company incorporated under Irish law~~$1.2 ~~Pursuant~~million toand ~~the~~net ~~stock~~earnings ~~purchase~~of ~~agreement~~$1.9 million, werespectively. ~~will~~For ~~acquire 100% of~~ the ~~issued~~nine ~~share~~months ~~capital~~ended ofSeptember ~~Winncom from the stockholders of Winncom~~30, ~~for a payment~~2010, ~~including~~we ~~the~~experienced ~~retirement~~operating oflosses ~~debt,~~ of approximately $2510.5 million. inAs ~~cash and approximately 4,714,038 shares~~ of ~~our~~September ~~common stock~~30, ~~which constitutes approximately 7.5% of our issued and outstanding shares of common stock on a fully-diluted basis as of the date of this prospectus~~2010, ~~subject~~we tohad ~~certain~~an ~~working~~accumulated ~~capital~~deficit ~~adjustments to be determined within 120 days following the closing~~ of ~~the~~approximately ~~acquisition~~$44.4 ~~We intend to consummate the acquisition immediately upon the closing of this offering~~million. ~~Our~~The ~~proposed~~net ~~acquisition~~losses ofover ~~Winncom is subject to~~ the ~~consummation~~past ofseveral ~~this offering~~years ~~and~~primarily ~~the~~reflect ~~satisfaction~~material ofnon-cash ~~customary~~charges ~~closing~~such ~~conditions.~~as Instock ~~addition~~compensation, ~~the~~amortization ~~acquisition~~expenses ~~agreement~~as iswell ~~subject~~as tointerest ~~termination~~expense bywhich ~~either~~had ~~party~~cash ~~under~~and ~~certain~~non-cash ~~circumstances if the~~ components.

46We have consummated two business combinations since 2007 (Intellispace and RNK), both of which were funded with debt. We have outstanding debt obligations of approximately $37.9 million, with a weighted average interest rate of 13%. Additionally, as a result of acquiring two service

closing has not occurred on or before May 30, 2010. We cannot assure you that we will consummate the Winncom acquisition on favorable terms or at all. We intend to use a portion of the proceeds of this offering to acquire Winncom.41

~~Winncom~~businesses, ~~headquartered~~we inhave ~~Solon,~~acquired ~~Ohio,~~material ~~and~~intangible ~~with~~assets awhich ~~registered~~have ~~office~~resulted in ~~Dublin,~~material ~~Ireland~~amortization, iswhich anwill ~~investment~~continue ~~holding~~over ~~company~~the ~~with~~next ~~active,~~several ~~wholly-owned~~years. ~~subsidiaries~~Over ~~operating in~~ the ~~United~~past ~~States,~~three ~~Cyprus~~years, ~~Hungary,~~we ~~Ireland,~~have ~~Kazakhstan,~~generated ~~Russia~~significant ~~and~~operating ~~Uzbekistan.~~losses ~~Winncom~~driven isprimarily aby ~~worldwide~~stock ~~distributor~~compensation ~~and provider~~expense of ~~complete~~$21.2 ~~networking solutions~~million, ~~and~~depreciation ~~specializes in the distribution of wired~~ and amortization ~~wireless~~expense ~~networking products as well as contract services that involve implementation and installation~~ of ~~wireless~~$15.6 ~~components~~million and ~~network~~net ~~solutions~~interest inexpense ~~support~~ of ~~both~~$16.5 ~~voice and data applications~~million. ~~Winncom~~For ~~has expertise~~the innine ~~broadband~~month ~~wireless~~period ~~networking~~ended ~~products~~September ~~and~~30, a2010 ~~full~~we ~~range~~recorded ofstock ~~network~~compensation, ~~infrastructure~~depreciation and ~~access products by the leading industry manufacturers~~amortization, ~~allowing it to sell the products~~ and ~~provide~~interest ~~complete~~expense ~~solutions~~of ~~for~~approximately ~~various markets and applications~~$1.7 ~~We believe that Winncom’s extensive experience and engineering resources will make it possible for us to identify~~million, ~~design~~$5.1 ~~and~~million ~~implement the most effective~~ and ~~economical~~$8.3 ~~turnkey solutions based on a combination of the latest technologies~~million, ~~which~~respectively. ~~will~~For ~~give us~~ the ~~ability to manage and roll out our new 4G based HFW networks globally. With its world-~~nine ~~wide~~month ~~presence,~~period ~~Winncom~~ended ~~is able to provide pre-sale consulting and post-sale engineering support to its customers. It has a portfolio of successful wireless and networking deployments in countries located in North America~~September 30, ~~Eastern Europe~~2009, ~~Commonwealth~~we ofrecorded ~~Independent~~stock ~~States~~compensation, ~~Far~~depreciation ~~East~~ and ~~Central~~amortization, ~~Asia. We expect that Winncom’s international presence will allow us the opportunity to expand our 4G based HFW network roll out worldwide~~ and ~~give~~interest ~~our~~expense ~~telephone~~of ~~business~~approximately ~~access~~$0.3 ~~to international markets~~million, ~~which would include interconnection agreements~~$5.2 ~~Through~~million ~~Winncom’s relationships (both domestic~~ and ~~international)~~$4.4 million, ~~we believe that we will also be well positioned to capitalize on opportunities for our current product offerings and services~~respectively.

WeOur ~~have~~net ~~entered~~losses ~~into~~are aprimarily ~~Strategic~~the ~~Partnership~~result ~~Master~~of ~~Agreement~~our ~~with~~efforts ~~incNetworks®,~~to ~~under~~grow ~~which~~the webusiness ~~were~~through ~~granted an exclusive license to use~~acquisitions, ~~sell~~which ~~and~~were ~~market~~primarily ~~HFW~~funded ~~networks~~by ~~and services incorporating incNetworks® proprietary underlying CelluLAN® technology~~debt, ~~within~~resulting anin ~~expansive~~significant ~~list~~amortization ofand ~~multi-tenant buildings~~interest toexpense ~~be identified by the parties~~charges. ~~incNetworks®~~We ~~has~~have ~~developed~~also ahad ~~next~~to ~~generation~~modify ~~multi-megabit~~our ~~broadband~~debt ~~Wireless~~obligations ~~Network~~numerous ~~Architecture~~times ~~that~~and ~~incorporates~~have ~~all~~had ~~specifications required for 4G Broadband Wireless Networks with an ability~~ to ~~interoperate~~issue ~~with both 2G and 3G Wide Area Wireless~~derivative ~~Networks~~securities (asuch ~~roaming~~as orwarrants ~~access~~and ~~agreement~~options ~~with~~to apurchase ~~mobile~~shares ~~carrier~~of ~~is needed, which we currently do not have) for a seamless handoff from within~~ our ~~building~~common tostock. ~~outside~~These ofissuances ~~our~~are ~~building).~~recorded ~~Just~~ as 1Gdebt ~~cellular~~discount ~~enabled symmetric or balanced transmission~~ and ~~reception~~amortized ofto ~~voice,~~interest 4Gexpense ~~enables symmetric transmission~~ and ~~reception~~have ofbeen HQmaterial ~~Voice,~~as ~~HD Video, and Broadband Data Services~~well.

~~Following~~We ~~the~~intend ~~completion~~to ofuse ~~this~~approximately ~~offering~~$2.0 ~~and~~million (or up to $2.7 million if the ~~acquisition~~underwriter’s ofover-allotment ~~Winncom,~~option weis ~~believe~~exercised) ~~that~~of wethe ~~will~~proceeds beof ~~well~~our ~~positioned~~proposed offering to ~~launch~~partially ~~next~~retire ~~generation~~our 4Gmost ~~capable~~expensive ~~wired~~debt ~~and~~that ~~wireless~~carries ~~broadband~~a ~~services.~~weighted ~~This~~average ~~will~~interest ~~enable~~rate usof to36%. ~~support~~There ~~in-building~~is ~~carrier-grade~~no ~~broadband~~assurance ~~wired~~that ~~and~~we ~~wireless~~will ~~services, including~~not ~~high~~continue ~~speed~~to ~~Internet~~generate ~~access,~~losses. ~~cell~~In ~~phone services~~addition, ~~VoIP,~~we ~~HDTV~~are ~~applications,~~seeking ~~two-way~~to ~~multi-session,~~“go ~~multi-party~~public.” ~~video~~This ~~conferencing~~process and ~~more.~~the Weongoing ~~believe~~costs ~~that~~of webeing ~~will~~a bepublic ~~one~~company ofwill ~~the~~drive ~~first~~our ~~companies~~selling, ingeneral ~~the~~and ~~United~~administrative ~~States~~expenses tohigher ~~offer~~on ~~in-building~~an ~~HFW~~absolute ~~networks~~and relative basis.

InWe anexpect ~~exclusive~~that ~~partnership~~our strategic relationships with ~~incNetworks®~~Motorola,Ò ~~our~~Inc. ~~management~~(“Motorola”) isand ~~committed~~Winncom toTechnologies ~~rolling~~Holding ~~out~~Limited ~~its~~(“Winncom”) ~~first~~will, 4Gin ~~based~~conjunction with other partners and technology vendors, enable us to rapidly deploy our HFW networks in ~~the~~our ~~United~~commercial ~~States~~buildings ~~during~~in ~~the~~anticipation ~~first~~of supporting ~~quarter~~4G ofservices. ~~2010~~We ~~and~~intend ~~expanding~~to ~~these~~source equipment, services, ~~into~~expertise ~~hundreds~~and ofexperience ~~our~~from ~~buildings~~Motorola ~~with~~and ~~which~~will wework ~~currently~~with ~~have~~Winncom ~~BSAs~~for ~~over~~design ~~the~~and ~~next~~implementation ~~several years~~efforts. ~~With~~However, ~~throughput~~in ~~speeds~~the ofevent upthat we are unable to 1enter ~~GBit~~into ~~per~~an ~~second,~~agreement ~~our~~with ~~network~~MotorolaÒ ~~will~~in bethe ~~able~~near toterm ~~support~~or ~~the~~at ~~delivery~~all, ofour ~~very~~planned deployment ~~high~~of ~~bandwidth~~4G ~~products~~based ~~such~~HFW asnetworks ~~high~~in multi-~~definition~~tenant ~~video,~~buildings ~~high~~will ~~quality~~be ~~voice,~~delayed ~~symmetrical~~until ~~data~~we ~~download~~enter ~~services,~~into ~~multi-user~~such ~~video~~agreement ~~conferencing,~~with ~~WiFi,~~MotorolaÒ ~~and~~or ~~HDTV.~~enter Weinto ~~refer~~a torelationship ~~this~~with ~~roll-out~~a ~~and implementation~~different asthird ~~Phase~~party 1integration partner and technology vendor.

~~Phase~~Following 2the ~~involves~~completion ~~our~~of ~~entering~~this ~~into~~offering, ~~roaming~~in ~~and~~combination ~~interconnection~~with ~~agreements~~our ~~with~~strategic ~~wireless~~partners and ~~wired~~technology ~~carriers~~vendors, ~~allowing~~we ~~their~~believe ~~wireless~~that ~~customers~~we towill ~~roam~~be ~~onto~~well ~~our~~positioned ~~network~~to ~~when~~launch ~~they~~next ~~enter~~generation ~~one~~HFW ofnetworks ~~our~~in ~~buildings~~anticipation ~~equipped~~of ~~with~~supporting a 4G ~~based~~wired ~~HFW~~and ~~network~~wireless broadband services. This ~~would~~will ~~allow~~enable ~~these~~us ~~wireless carriers~~ to ~~off~~support ~~load~~in- ~~their~~building ~~traffic~~carrier-grade ~~from~~broadband ~~their~~wired ~~networks~~and ~~which~~wireless ~~are~~services, inincluding ~~need~~high ofspeed ~~additional~~Internet ~~capacity.~~access, Incell ~~addition~~phone services, VoIP, HDTV applications, two-way multi-session, multi-party video conferencing and more. We believe that we will be one of the first companies in the United States to focus on deploying in-building HFW networks in commercial buildings.

47Our management is committed to rolling out its first 4G based HFW network in the United States and expanding these services into hundreds of our buildings with which we currently have BSAs over the next several years. With throughput speeds of up to 1 GBit per second, we expect our network will be able to support the delivery of very high bandwidth products such as high-definition video, high quality voice, symmetrical data download services, multi-user video conferencing, WiFi, and HDTV. We refer to this roll-out and implementation as Phase 1.

~~lessen~~Phase 2 involves our entering into roaming and interconnection agreements with wireless and wired carriers, allowing their wireless customers to roam onto our network when they enter one of our buildings equipped with a 4G based network. This would allow these wireless carriers to off load their traffic from their networks which are in need of additional capacity. In addition, to lessening traffic on wireless carriers’ networks, this would allow for targeted advertising and marketing opportunities to consumers within a specific area. Once wireless carriers are able to use our network, we expect this to be a significant generator of revenue as carriers “roam” onto the 4G based HFW network within the buildings we operate.

We intend to use a portion of the net proceeds of this offering, less payment of fees, ~~the cash consideration for the acquisition of Winncom~~ and the ~~retirement~~partial repayment of ~~all~~certain debt as described in our “Use Of Proceeds” section of this prospectus for the rollout of our 4G based HFW network. Currently, management estimates that a building, averaging 250,000 square feet, can be upgraded, or lit, to a 4G based HFW network in 90 to 120 days at an estimated cost of approximately $1.78 per square foot. Installation costs include all equipment and related labor, which would be depreciated over a composite useful life of five years. We believe that this estimate is accurate given the information available at this time; but we cannot assure you that the cost to implement per square foot will not increase going forward.

Our deployment of 4G based HFW networks may not be completely successful due to any number of reasons. We may be unable to secure roaming agreements with wireless carriers for our Phase 2 activities which would make it extremely difficult for us to implement our business plan. In addition, we may be unable to implement the technology successfully or find that the technology is not “as advertised” with respect to performance. We may find that the cost of implementation exceeds the breakeven point of costs versus projected revenue or that potential subscribers are unwilling to pay the projected rates. Also, in the event that our partnership with incNetworks® ends or is reset at less favorable terms, we may lose the right to incorporate incNetworks®’ CelluLAN® technology into our 4G based HFW networks.42

~~Our~~for ~~management~~the ~~expects~~initial ~~that~~rollout ~~implementation~~ of ~~HFW~~our ~~networks~~4G inbased ~~buildings~~HFW ~~will~~network. beCurrently, ~~rolled~~management ~~out~~estimates inthat ~~approximately~~a ~~ninety~~building, toaveraging ~~one~~250,000 ~~hundred~~square ~~twenty~~feet, ~~days~~can ~~with~~be anupgraded, ~~approximate~~or ~~all-in~~lit, ~~installation~~to ~~cost~~a of4G ~~$1.78~~based ~~per~~HFW ~~square~~network ~~foot.~~that Wewill ~~currently~~support ~~have~~4G ~~425~~services ~~buildings under existing service agreements, many of which have agreed,~~ in ~~principle,~~90 to be120 ~~up-sold~~days ~~services~~at ~~associated~~an ~~with~~estimated acost ~~HFW~~of ~~network~~approximately $1.10 ~~Upon~~per ~~full~~square ~~deployment,~~foot weper building. ~~expect~~Installation ~~gross~~costs ~~margin,~~include ~~defined~~all asequipment ~~revenues~~and ~~less~~related ~~direct costs of services~~labor, towhich would be atdepreciated orover ~~above~~a ~~approximately~~composite ~~50%,~~useful ~~although~~life ~~we cannot assure you~~ of ~~this~~five years. ~~Installation~~We ~~costs~~believe ~~will~~that bethis ~~capitalized~~estimate ~~and depreciated~~is ~~over~~accurate angiven ~~estimate~~the ~~composite~~information ~~useful~~available ~~life~~at ofthis ~~approximately~~time; ~~five~~but ~~years.~~we Wecannot ~~are~~assure ~~estimating~~you athat ~~payback~~the ~~period~~cost ofto ~~approximately~~implement ~~three~~per ~~years~~square onfoot ~~invested~~will ~~capital~~not increase ~~per~~going ~~building~~forward.

Our deployment of 4G based HFW networks may not be completely successful due to any number of reasons. We may be unable to secure roaming agreements with wireless carriers for our Phase 2 activities which would make it extremely difficult for us to implement our business plan. In addition, we may be unable to implement the technology successfully or find that the technology is not “as advertised”. Further we may find that the cost of implementation exceeds the breakeven point of costs versus projected revenue or that potential subscribers are unwilling to pay the projected rates.

Our management expects that implementation of HFW networks in a particular building can be rolled out in approximately ninety to one hundred twenty days with an approximate all-in installation cost of $1.10 per square foot per building. We currently have 425 buildings under existing service agreements, many of which have agreed, in principle, to be up-sold services associated with a HFW network. Installation costs will be capitalized and depreciated over an estimate composite useful life of approximately five years. We are estimating a payback period of approximately three years on invested capital per building.

Current Business and Planned Expanded Offerings

As a broadband internet service provider, or ISP, and a CLEC (through our wholly-owned subsidiary RNK), we currently derive the majority of our revenue from providing network, carrier and subscriber services, as well as prepaid calling card fees. During the past year, we have begun to sell VoIP services to our retail customers and are in the process of planning the marketing of this service to our existing customer base and new subscribers.

Sources of Revenues

Our revenues can be split into wholesale (the CLEC-based business) and retail (Broadband services). For the ~~year~~nine months ended ~~December~~September 3130, ~~2008~~2010 and 2009, revenue from ~~three~~two customers totaled 4211% and 26% of our ~~total~~operating revenues, respectively. ~~For~~The ~~the~~concentration ~~year~~of ~~ended~~these ~~December~~revenues ~~31,~~for ~~2007,~~the ~~revenue~~nine months ~~from~~ended ~~two~~September ~~customers~~30, ~~totaled~~2010 ~~50%~~and of2009 ~~our total~~were ~~revenues.~~distributed as follows:

CLEC Revenues (Wholesale)

Access. Approximately 5041% of our revenues ~~are~~for the nine months ended September 30, 2010 were carrier access charges (including reciprocal compensation) billed pursuant to various interconnection agreements and state and federal tariffs, which are generated by RNK, our wholly-owned subsidiary and a certified CLEC. We provide local access numbers, switching, and transport to major customers that have large volumes of inbound traffic. Each time we complete a call from a non-subscriber line to a subscriber line, we bill the originating carrier at the appropriate rate, based the jurisdiction of the call.

Carrier. We provide, on a wholesale basis, a variety of carrier services, including international termination utilizing third-party international carriers as vendors, collocation services, domestic toll-free and local origination, and point to point circuits. Carrier services allow other carriers to send and receive traffic utilizing our switching and operations centers, points of presence, and vendor

4843

~~and receive traffic utilizing our switching and operations centers, points of presence, and vendor~~ network. We believe that international and local termination fees are a growth area for our business and expect revenue growth and stable margins in our carrier revenues. Additionally, assuming our completion of the acquisition of Winncom, we believe that we will be able to leverage their relationships with several international carriers and give us an opportunity to handle some of their international phone traffic.

Prepaid. We offer our own prepaid products sold through convenience stores and national chain stores.

Although our CLEC business currently provides the bulk of our revenues, the competitive landscape of this particular business is undergoing change. We expect margins and revenues to decline in the foreseeable future due to increased rate regulation and less favorable traffic exchange agreement terms.

ISP Revenues (Retail)

Subscriber. Subscriber revenues are primarily derived from billing end user customers for data services. Currently, our data services include wired and to a lesser degree, fixed wireless broadband Internet access services, VoIP, email hosting, point-to point connections, managed network services, collocation, VPNs, and web hosting. Our broadband Internet access services currently provide the bulk of subscriber revenues, though recent reporting periods have shown a favorable shift towards higher margin services such as VoIP and SIP trunking, while also seeing revenues increase in the overall category.

We seek to expand our subscriber offerings to include higher margin services including, but not limited to 4G wireless connectivity, video, and video conferencing. In addition, we continue to focus on “up selling” our existing customer base to expand and/or switch to higher margin services that we currently offer such as VoIP. We are also increasing our focus to in-building sales, which tend to be more cost effective and generate higher margins as compared to remote sales. As subscriber revenues in general command higher margins and have better growth prospects, we will continue to attempt to increase subscriber revenues through more aggressive sales deployment, targeted marketing and potential joint ventures.

The two categories of our revenues are in different phases of the service life cycle, requiring different levels of investment and focus, and providing different contributions to the results of operations. We believe that growth in revenue from our broadband ISP business is critical to our long-term success. At the same time, we believe we must continue to effectively manage the positive cash flows and results of our CLEC business by maintaining cost controls, focusing on execution and vigorously monitoring the increasingly unfavorable regulatory environment.

Planned Expanded Offerings

In addition, we continue to expand our services offered by focusing on development of revenue streams that will leverage our existing CLEC infrastructure. Some of our current and potential product/service offerings include, but are not limited to:

NOC Services. Network Operations Centers (“NOCs”) are the locations from which we control/manage/monitor our telecommunications network. Our NOC facilities and personnel represent a significant ongoing investment that we maintain in order to continue to provide world-class service to our customers and other carriers. Opportunities exist generate significantly more collocation revenue, i.e. “co-locating” external carriers’ equipment within our NOC and providing additional service including network security, maintenance, emergency service as well as standard cooling and physical security.

~~MyTempNumber®~~MyTempNumberÒ. As people continue to rely more on mobile phones than landlines, the privacy of an individual’s mobile telephone number has become a major concern. Social networking sites have seen exponential growth and the consumer is concerned about safety and privacy. In 2008, we launched the ~~MyTempNumber®~~MyTempNumberÒ service. ~~MyTempNumber®~~MyTempNumberÒ gives users the ability to add an additional temporary phone number which forwards to their current mobile telephone. This temporary number allows users to have increased privacy and security while participating in social networking sites, signing up for dating sites, or placing classified ads. Currently this product is available on the iPhoneÒ App StoreÒ and can be downloaded through AppleÒ iTunesÒ and iPhone and iPod touchÒ devices. MyTempNumberÒ is also available in the NokiaÒ OVIÒ store and can be

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~~temporary~~downloaded ~~number~~on ~~allows~~Series ~~users~~60 to3rd ~~have~~edition ~~increased privacy~~ and ~~security~~5th ~~while~~edition ~~participating~~smart ~~in social networking sites, signing up for dating sites, or placing classified ads~~phones. ~~Currently~~We’ve ~~this~~also ~~product~~made isMyTempNumberÒ available onto ~~the~~wholesale ~~iPhone®~~customers ~~App~~who ~~Store®~~may ~~and~~bundle ~~can~~this beservice ~~downloaded through Apple® iTunes® and iPhone and iPod touch ® devices. MyTempNumber® is also available~~ in ~~the~~with ~~Nokia®~~mobile ~~OVI®~~applications ~~store~~for ~~and~~resale ~~can~~to betheir ~~downloaded~~end ~~on Series 60 3rd edition and 5th edition smart phones~~users. This application has had some success in winning subscribers, without a significant targeted marketing/advertising effort.

SMS DIDs (Simple Messaging Service through Direct Inward Dialing). We ~~are~~have ~~currently~~completed ~~exploring~~ an ~~opportunity~~agreement towith ~~enable~~an ~~our carrier DID’s to have~~ SMS ~~capability~~provider ~~with~~that ~~two~~enables ~~potential partners. This would give~~ us ~~the~~to ~~opportunity~~pair toour ~~compete~~DIDs with ~~mobile~~the ~~operators~~provider’s ~~by offering~~ SMS ~~capabilities~~messaging ~~via SMS enabled DIDs~~services. We ~~would~~are becurrently ~~able~~reselling tothese ~~sell~~services ~~SMS~~primarily ~~DIDs~~ to ~~current~~mobile ~~customers~~solutions atproviders in a standalone ~~premium~~or asbundled itfashion ~~would~~(the ~~embrace~~latter aincorporating ~~newer~~other ~~technology,~~in-house ~~with~~developed ~~still unnumbered~~ applications, ~~married~~such toas ~~a traditional and familiar plain old telephone service technology~~MyTempNumberÒ).

The product and service offerings which are not, at the moment, operational but are, rather, aspirational are 4G wireless connectivity and video.

Factors Impacting Our Operating Results

We believe that our business and operating results will be affected by the following factors:

Increase minute volume on our network. We must continue to increase the minute volume on our network at acceptable prices in order to realize our targets for anticipated revenue growth, cash flow, operating efficiencies and the cost benefits of our network. If we do not maintain or improve our current relationships with existing customers, vendors and suppliers and leverage the infrastructure in place, we may not be able to sustain acceptable margins, which would adversely affect our ability to become and/or remain profitable.

Develop effective business support systems. Our business depends on our ability to continue to develop effective business support systems. In certain cases, the development of these business support systems is required to realize our anticipated benefits from our acquisitions. This is a complicated undertaking requiring significant resources and expertise and support from third-party vendors.

Successful integration of acquired businesses. Our financial condition and growth depends upon the successful integration of our acquired or to be acquired businesses. ~~We may not be able to efficiently and effectively integrate acquired operations, and accordingly may not fully realize the anticipated benefits from such acquisitions as Winncom.~~ Achieving the anticipated benefits of ~~the~~ acquisitions that we have completed starting in January 2006 will depend in part upon whether we can continue to integrate our businesses in an efficient and effective manner.

General economic conditions and our ability to obtain financing or restructure our debt. We have historically relied on outside financing to fund our operations, capital expenditures and expansion. However, we may require additional capital from equity or debt financing in the future to fund our operations, or respond to competitive pressures or strategic opportunities. We may not be able to secure additional financing on favorable terms, or at all. The terms of additional financing may place limits on our financial and operating flexibility. The tightening credit markets have made available and attractively termed financing difficult to secure. We have approximately $7038 million in debt and have, in the past, required extensions or been served with default notices. If we are unable to generate the requisite cash flows to stay out of default and service our debt adequately, it could have a material adverse effect on our results of operations, financial position and cash flows from operations. In addition, the tightening of the capital markets may make it impossible for us to obtain debt or equity financing to refinance our existing debt on attractive terms, or at all.

Dependence on a limited number of suppliers. Our CLEC business currently leases its transport capacity from a limited number of suppliers and is dependent upon the availability of transmission facilities owned by such suppliers. We are vulnerable to the risk of renewing favorable supplier contracts and timeliness of the supplier in processing our orders for customers, and are at risk related to regulation and regulatory developments that govern the rates to be charged to us and, in some instances, whether certain facilities are required to be made available to us. We have one major supplier, Verizon, that accounted for 3524%, ~~28%,~~ and 3124% of our costs of services for the nine months ended September 30, 2010 and 2009, respectively. We have no other major supplier that accounts for more than 10% of ours costs of services.

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years ended December 31, 2008, 2007 and 2006, respectively. We have no other major supplier that accounts for more than 10% of ours costs of services.

Revenue Classifications

Access. ~~The~~Approximately ~~majority~~41% of our revenues are carrier access charges (including reciprocal compensation) billed pursuant to various interconnection agreements and state and federal tariffs, which are generated by RNK, our wholly-owned subsidiary and a certified CLEC. We provide local access ~~numbers,~~ numbers, switching, and transport to major prepaid calling card providers, conference call service providers, and other entities that have large volumes of inbound traffic. Each time we complete a call from a non- subscriber line to a subscriber line, we bill the originating carrier at the appropriate rate, based on geographical jurisdiction. Although our CLEC business currently provides ~~the~~a ~~bulk~~large portion of our revenues, the competitive landscape of this particular business is undergoing significant change. We expect margins and revenues to decline in the foreseeable future due to increased rate regulation and less favorable traffic exchange agreement terms.

Carrier. We provide, on a wholesale basis, a variety of carrier services, including international termination utilizing third-party international carriers as vendors, collocation services, domestic toll-free and local origination, and point to point circuits. Carrier services allow other carriers to send and receive traffic utilizing our switching and operations centers, points of presence, and vendor network. We believe that international and local termination fees are a growth area for our business and expect revenue growth and stable margins in our carrier revenues.

Subscriber. Subscriber revenues are primarily derived from billing end user customers for data services. Currently, our data services include wired and wireless broadband Internet access services, VoIP, data, email hosting, point-to point connections, managed network services, collocation, VPNs, and web hosting. Our broadband Internet access services currently provide the bulk of subscriber revenues. We seek to expand our subscriber offerings to include higher margin services including, but not limited to, 4G wireless connectivity, video, and video conferencing. In addition, we continue to focus on “up selling” our existing customer base to expand and/or switch to higher margin services that we currently offer such a VoIP and wireless Internet access.

Prepaid. In addition to providing services to major prepaid calling card providers, we also offer our own prepaid products sold through convenience stores and national chain stores.

Cost of Revenues Classifications

Network Usage. Network usage costs are direct variable per minute costs associated with terminating to or originating from third party networks for which we are the billed party.

Network Facilities. Network facilities costs are step-variable costs associated with leased circuits, collocation, bandwidth, and other components that connect our multiple switching sites to one another and to customers and vendors. These costs are typically monthly recurring amounts without a usage component.

Revenue Share. Revenue share costs represent two main items: the portion of access revenues shared with large customers to incentivize growth in traffic and amounts that represent the portion of subscriber revenues shared with building management companies for tenant access.

Salaries and Benefits. Direct salaries and benefits associated with production, including network engineering, provisioning, commissions and customer service are included in costs of goods sold. All other salaries and benefits are included in selling, general and administrative expenses.

Telecom Taxes and Fees. We collect and remit end-user telecom taxes and fees, including 911, state excise and sales taxes including Universal Service Funds, which are funds collected by the FCC used to support telecommunications services in rural and high cost areas and other rural programs, Telecommunications Relay Service fees (fully subsidized telephone services for hearing and speech disabled users) and other contributions and regulatory assessments.

Operating Expenses Classifications

Selling, General and Administrative Expenses. Our selling, general and administrative expenses include compensation, commissions, selling and marketing, customer service, billing, corporate administration, engineering personnel and other personnel costs. We have typically maintained our selling, general and administrative expenses as a percentage of revenues in the range between 20%-30%. However, there can be no assurance that we will be able to maintain this percentage given the additional costs that we will incur as a public company. As a public company, we will bear the expense of items including but not limited to: additional attestation costs related to quarterly reviews, quarterly reports, annual reports, proxy statements, and other SEC filings, as well as other costs related to compliance.

selling, general and administrative expenses, excluding non-cash items, as a percentage of revenues in the range between 20%-35%. However, there can be no assurance that we will be able to maintain this percentage given the additional costs that we will incur as a public company. As a public company, we will bear the expense of items including but not limited to: additional attestation costs related to quarterly reviews, quarterly reports, annual reports, proxy statements, and other SEC filings, as well as other costs related to compliance.

Interest Expense. Interest expenses consists of all material expenses that are recorded directly in connection with our various debt arrangements. These arrangements include: letters and lines of credit, term loans, related party notes, loan guarantees, bridge loans, short-term financing as well as routine bank services fees and finance charges. We incur additional interest cost as we have entered into multiple modifications of various loans and financing arrangements. In the course of seeking more favorable terms and/or extensions, we have issued additional consideration in the form of warrants to purchase shares of our common stock to induce creditors to enter into these amendments and modifications. These warrants issued in connection with debt modifications are recorded as additional debt discount and amortized to interest expense from the inception of the applicable amendment or modification until the maturity date (which may have been changed pursuant to an amendment) of the applicable financing arrangement.

Other Income. Other income consists of various non-recurring items that can vary in materiality with respect to their impact on our results of operations. Our largest other income item to date was a management fee that we charged to RNK during the year-to-date period ended October 12, 2007, the date of acquisition of RNK. This fee was settled as a positive purchase price adjustment for us. Otherwise, other income consists of miscellaneous credits or expenses that are not part of our routine operations.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, contingent liabilities, and revenues and expenses during the reporting periods. We evaluate our estimates on an ongoing basis based on historical experience and other assumptions we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The policies discussed below are considered by our management to be critical because they are not only important to the portrayal of our financial condition and results of operations but also because application and interpretation of these policies require both judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates. See the notes to our consolidated financial statements for a summary of our significant accounting policies.

Revenue Recognition

We are a CLEC (through our wholly-owned subsidiary RNK), and a broadband Internet Service Provider. As such, we derive revenue from sales of our network, carrier, subscriber services, and prepaid calling card fees. We derive the majority of our revenue from monthly recurring fees and usage- based fees that are generated principally by sales of our network, carrier and subscription services.

Monthly recurring fees include the fees paid by our network and carrier services customers for lines in service and additional features on those lines. We primarily bill monthly recurring fees in advance, and recognize the fees in the period in which the service is provided.

52Usage-based fees consist of fees paid by our network and carrier services customers for each call made, and fees paid by outside carriers when our switching facilities provide a connection between the outside carrier and the end user, i.e. “reciprocal compensation.” In addition, access fees are paid by outside carriers for long distance calls we originate or terminate for those outside

Usage-based fees consist of fees paid by our network and carrier services customers for each call made, and fees paid by outside carriers when our switching facilities provide a connection between the outside carrier and the end user, i.e. “reciprocal compensation.” In addition, access fees are paid by outside carriers for long distance calls we originate or terminate for those outside carriers. These fees are billed in arrears and recognized in the period in which the service is provided.47

carriers. These fees are billed in arrears and recognized in the period in which the service is provided.

Subscriber fees include monthly recurring fees paid by our end-user subscribers for lines in service, additional features on those lines, and usage-based per-call and per-minute fees. Subscriber fees also consist of provision of access to data, wireless, and VoIP services. These fees are billed in advance for monthly recurring items and in arrears for usage-based items, and revenues are recognized in the period in which service is provided.

Prepaid calling card fees are billed in advance based on the retail face value of the calling card, net of wholesale discounts, if applicable. Revenue is recognized as the card is used and service is provided to the end user.

Termination revenue is recognized when a customer discontinues service prior to the end of the contract period, for which we had previously received consideration. Termination revenue is also recognized when customers are required to make termination penalty payments to us to settle contractually committed purchase amounts that the customer no longer expects to meet or when a customer and we renegotiate a contract under which we are no longer obligated to provide services for consideration previously received.

We recognize revenue in accordance with GAAP, specifically ASC 605 “Revenue Recognition,” which requires satisfaction of the following four basic criteria before revenue can be recognized:

•

there is persuasive evidence that an arrangement exists;

•

delivery has occurred or services have been rendered;

•

the fee is fixed and determinable; and

•

collectability is reasonably assured.

We base our determination of the third and fourth criteria above on our judgment regarding the fixed nature of the fee we have charged for the services rendered and products delivered, and the prospects that those fees will be collected. If changes in conditions should cause us to determine that these criteria likely will not be met for some future transactions, revenue recognized for any reporting period could be materially adversely affected. Our management continually reviews and evaluates the collectability of revenues. For further information please see “Accounts Receivable and Allowance for Doubtful Accounts.”

Our management makes estimates of future customer credits and settlements, due to various disputes on pricing and other terms of the contracts, through the analysis of historical trends and known events. Provisions for customer credits and settlements are recorded as a reduction of revenue when incurred. Since any revenue allowances are recorded as an offset to revenue, any future increases or decreases in the allowances will positively or negatively affect revenue by the same amount.

As described in further detail in the “Revenue Recognition” subsection, our management makes estimates of future customer credits and settlements, due to various disputes on pricing and other terms of the contracts, through the analysis of historical trends and known events. Provisions for customer credits and settlements are recorded as a reduction of revenue when incurred. Since any revenue allowances are recorded as an offset to revenue, any future increases or decreases in the allowances will positively or negatively affect revenue by the same amount. Our wholly-owned subsidiary, RNK Communications, Inc. or RNK, recognized revenue with three customers and simultaneously reserved 80% of the amount of revenue recognized in accordance with the method described above. During the nine months ended September 30, 2010, RNK increased its reserve allowance for the customers mentioned above from 80% to 100% which resulted in a reduction of revenue of approximately $920,000 in the nine months ended September 30, 2010. In addition, during the nine month period ended September 30, 2010, RNK settled some previously disputed invoices which resulted in the recording of additional revenue in the amount of approximately $2 million. The Company did not recognize revenues related to these invoices in prior periods due to the great uncertainty of the collectability.

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to certain customers, based upon credit evaluations, in the normal course of business, primarily with 30-60 day terms. Our reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. Accounts are written off when they are deemed uncollectible. In some cases, we require deposits from our customers.

Our valuation allowance for uncollectible accounts receivable is designed to account for the expense associated with accounts receivable that we estimate will not be collected. We assess the adequacy of this allowance by evaluating general factors, such as the length of time individual receivables are past due, historical collection experience, and changes in the credit-worthiness of our customers. We assesses the ability of specific customers to meet their financial obligations to us and establish specific allowances based on the amount we expect to collect from these customers. If circumstances relating to specific customers change or economic conditions change such that our past collections experience and assessment of the economic environment are no longer appropriate, our estimate of the recoverability of our trade receivables could be impacted.

receivables are past due, historical collection experience, and changes in the credit-worthiness of our customers. We assesses the ability of specific customers to meet their financial obligations to us and establish specific allowances based on the amount we expect to collect from these customers. If circumstances relating to specific customers change or economic conditions change such that our past collections experience and assessment of the economic environment are no longer appropriate, our estimate of the recoverability of our trade receivables could be impacted.

Impairment of Long-lived Assets

In accordance with the ASC 360 “Property, Plant, and Equipment” (the “PP&E Topic”), long-lived assets are periodically evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In the event that periodic assessments reflect that the carrying amount of the asset exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the asset, we would recognize an impairment loss to the extent the carrying amount exceeded the fair value of the property. We estimate the fair value using available market information or other industry valuation techniques such as present value calculations. No impairment losses were recognized for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006 or the nine months ended September 30, 2009 and 2008~~2007.

We recognize goodwill and other non-amortizing intangible assets in accordance with the requirements of ASC 350 “Intangibles—Goodwill and Other” (the “Topic”). Under this Topic, goodwill is recorded at its carrying value and is tested for impairment at least annually or more frequently if impairment indicators exist, at a level of reporting referred to as a reporting unit. We recognize goodwill in accordance with the requirements of the Topic and test the carrying value for impairment during the fourth quarter of each year. The goodwill impairment analysis is a two-step process. The first step used to identify potential impairment involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. To estimate the fair value of its reporting units, we use a discounted cash flow model and market comparable data. Significant judgment is required by management in developing the assumptions for the discounted cash flow model. These assumptions include cash flow projections utilizing revenue growth rates, profit margin percentages, discount rates and market/economic conditions. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered to not be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. The second step of the process involves the calculation of an implied fair value of goodwill for each reporting unit for which step one indicated a potential impairment. The implied fair value of goodwill is determined by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated fair values of the individual assets, liabilities and identified intangibles. No impairment losses were recognized for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006 or the nine month periods ended September 30, 2009 and 2008~~2007.

For the years ended December 31, 2009, 2008, and 2007, we determined that the one reporting unit identified for purposes of goodwill impairment had a fair value that was substantially in excess of carrying value.

Goodwill and Other Identified Intangible Assets

Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying amount, such as a significant adverse change in the business climate. Determining whether an impairment has occurred requires valuation of the respective reporting unit, which we estimate using a discounted cash flow method. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. In applying this methodology, we rely on a number of factors, including actual operating results, future business plans, economic projections and market data.

Stock-Based Compensation

From time to time, we award employees of our company with equity awards pursuant to our equity incentive plans. These awards and their related cost are recognized over the period during which an employee is required to provide service in exchange for the award in accordance with ASC 718-10 “Stock Compensation” which we adopted effective January 1, 2006 under the modified prospective transition method.

which an employee is required to provide service in exchange for the award in accordance with ASC 718-10 “Stock Compensation” which we adopted effective January 1, 2006 under the modified prospective transition method.

Under ASC 718-10, stock based compensation cost will be recognized over the period during which an employee is required to provide service in exchange for the award. ASC 718-10 also requires an entity to calculate the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to adoption of ASC 718-10 (the “APIC pool”). We have evaluated our APIC pool and have determined that it was immaterial as of January 1, 2006. ASC 718-10 also amends ASC 230 “Cash Flows”, to require that excess tax benefits that had been reflected as operating cash flows be reflected as financing cash flows.

We also issue equity based instruments as non-employee compensation and as issuances related to various outstanding debt arrangements. These awards are measured at fair value in accordance with ASC 718-10 but recognized over different periods in accordance with ASC 505-50 “Equity—Equity- Based Payments to Non-Employees.”

The fair value of the common stock for the stock options granted during the years ended December 31, 2009, 2008, 2007 and 2006 were originally estimated by the board of directors, with input from management. We did not obtain contemporaneous valuations or an unrelated third-party specialist because, at the time of the issuances of stock options during this period, our efforts were focused on running the operations of the business and the financial and managerial resources for doing so were limited. In September of 2009 we engaged, for the first time, an independent third-party valuation specialist to assist us in measuring the fair value of our stock issued as compensation —on a retrospective basis for some stock issuances and contemporaneously for other stock issuances. This third-party specialist was engaged to value, retrospectively, our common stock at December 31 of 2008, 2007 and 2006. The third-party specialist also completed contemporaneous valuations with valuation dates of September 30, 2009. Subsequently, we reassessed the valuations of common stock relating to grants of options during the nine months ended September 30, 2009.

The 2008, 2007, and 2006 valuations were completed retrospectively and we believe that these valuations fall within “Level 2” of the fair value hierarchy. We believe that the ~~September 30, 2009 and~~ December 31, 2009 valuations also fall within “Level 2” of the hierarchy.

No stock options were granted during the nine months ended September 30, 2010.

Determining the fair value of our common stock requires making complex and subjective judgments. The approaches used to value our common stock included (i) discounted cash flow (DCF), (ii) guideline public company market approach and (iii) the guideline transaction (M&A) market approach. The DCF approach uses our estimates of revenue, driven by market growth rates and market participant expectations; and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimates that we use to manage our business. There is inherent uncertainty in making these estimates.

The independent, third-party valuations used the income and market approaches to estimate our enterprise value at each of the dates listed above. The income approach involves applying appropriate discount rates to estimated cash flows that are based on forecasts of revenue and costs. Our revenue forecasts are based on expected annual growth rates that were derived from our historical revenue growth, our internal forecasts and from market participant data. We also considered estimates of market growth published by certain independent market research organizations. In the income approach, we projected that our revenue would increase due to (i) the growth of our Intellispace business, (ii) the acquisition of RNK, (iii) expansion of our telephony services, and (iv) an increase in our market share. We also estimated that our costs would grow. There is inherent uncertainty in these estimates. The assumptions underlying the estimates are consistent with our business plan. The risks associated with achieving our forecasts were assessed in selecting the appropriate discount rates. If different discount rates had been used, the valuations would have been different. The estimates used in the income approach varied with each valuation date due to the changes in our business operations resulting from our RNK acquisition and due to changes in market participant data and changes within the telecommunications industry and the economy.

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~~The~~historical ~~valuation~~revenue ~~specialist~~growth, our internal forecasts and from market participant data. We also ~~utilized~~considered ~~the~~estimates of market ~~approach~~growth published by ~~utilizing~~certain independent market research organizations. In the ~~guideline~~income ~~public~~approach, ~~company~~we ~~method~~projected that our revenue would increase due to (i) the growth of our Intellispace business, (ii) the acquisition of RNK, (iii) expansion of our telephony services, and (iv) an increase in our market share. We also estimated that our costs would grow. There is inherent uncertainty in these estimates. The assumptions underlying the ~~guideline~~estimates ~~transaction~~are ~~method~~consistent with our business plan. The ~~These~~risks ~~methods~~associated ~~use~~with ~~direct~~achieving ~~comparisons~~our toforecasts ~~other~~were ~~enterprises~~assessed ~~and~~in ~~their~~selecting ~~equity~~the ~~securities~~appropriate todiscount ~~estimate~~rates. If different discount rates had been used, the ~~fair~~valuations ~~value~~would ofhave been different. The estimates used in the ~~common~~income ~~shares~~approach ofvaried ~~privately~~with ~~issued~~each valuation date due to the changes in our business ~~securities~~operations resulting from our RNK acquisition and due to changes in market participant data and changes within the telecommunications industry and the economy.

The valuation specialist also utilized the market approach by utilizing the guideline public company method and the guideline transaction method. These methods use direct comparisons to other enterprises and their equity securities to estimate the fair value of the common shares of privately issued securities and are described further below.

The market approach references actual transactions in the equity of the enterprise being valued or transactions in similar enterprises that are traded in the public markets. Third-party transactions in the equity of an enterprise generally represent the best estimate of fair market value if they are done at arm’s length. In using transactions from similar enterprises, there are two primary methods. The first, often referred to as the Guideline Transactions Method, involves determining valuation multiples from sales of enterprises with similar financial and operating characteristics and applying those multiples to the subject enterprise. The second, often referred to as the Guideline Public Company Method, involves identifying and selecting publicly traded enterprises with financial and operating characteristics similar to the enterprise being valued. Once publicly traded enterprises are identified, valuation multiples can be derived, adjusted for comparability, and then applied to the subject enterprise to estimate the value of its equity or invested capital.

As part of the Guideline Public Company Method, public companies were selected that were reasonably comparable to our company, and the valuation indications from these comparable companies’ market capitalization were analyzed. Based upon research of the relevant industry and management insights with respect to our competitors, the population of possible guideline companies was analyzed and those that were selected were considered to be the most comparable to us in terms of business operations, size, stage of development, prospects for growth, and risk. From the analysis of the guideline public companies, the value of invested capital and value of equity were calculated for each guideline company. Those metrics were then used to calculate various valuation multiples.

Some or all of these multiples were then applied to our results of operations, including operating revenues, EBITDA, EBIT and adjusted EBITDA (a non-GAAP measure for which reconciliations from GAAP measures are provided). In cases where we did not have positive results for EBITDA or EBIT, the analysis relied on projected results.

There is inherent uncertainty in making estimates of value by utilizing the Guideline Public Company Method. If different guideline public companies were chosen in the analysis, the valuation using this method would have been different. The guideline public companies used in each estimate varied with each valuation date due to the changes in our operations related to our RNK acquisition of 2007 and other changes to our enterprise and changes in the industry. These different choices in guideline public companies resulted in different multiples and different values. The relative size and growth of our company and the guideline public companies may render valuation multiples more or less useful, and the multiples may or may not require adjustment. Smaller companies generally have lower pricing multiples than larger ones. When comparing companies, higher growth rates tend to increase value. The analysis did include adjustments for size and growth and these adjustments did require making complex and subjective judgments. If different size and growth adjustments were made in the analysis or if no size and growth adjustments were made, the valuations using this method would have been different.

As part of the Guideline Transactions Method, an analysis was completed where reference was made to recent transactions in the marketplace for which there was relevant financial data available, and which could be considered reasonably comparable to us. In order to identify relevant market transactions that were reasonably comparable to us, the analysis entailed searching several databases and having multiple internal discussions. This analysis and search resulted in the selection of a number of specific transactions where the acquired company appeared to be somewhat comparable to us in terms of business operations, size, stage of development, prospects for growth, and risk. Valuation multiples were calculated for each of the transactions and then applied to our operating results and other financial metrics.

There is inherent uncertainty in making estimates of value by utilizing the Guideline Transaction Method. If different transactions were chosen in the analysis, the valuation using this method would have been different. The transactions used in each estimate varied with each valuation date due to the changes in the operations whether due to significant acquisitions, other changes to our enterprise, and the date of valuation. These different choices in transactions resulted in different multiples and different values. We are a unique company, and a guideline transaction of a precisely similar enterprise in the marketplace was not observable, which may render this method less reliable than another method as a result.

Enterprise value of the entire company, or enterprise, was determined as a weighted average of valuations derived from the following valuation approaches: 1) income approach, specifically discounted cash flows (“DCF”) and 2) market approaches.

DCF applies a discount rate to projected/estimated cash flows of the enterprise based on forecasts of revenues and costs. These forecasts incorporate management’s estimates and assumptions as well as available market participant data. Application of different discount rates or growth assumptions with respect to revenues and costs can result in materially different estimates of enterprise value.

When applying market approaches, we estimated enterprise value by using the “Guideline Public Company Method” (“Guideline Method”) and the “Merger and Acquisition Method” (“M&A Method”) The Guideline Method estimates valuation based on analysis of public companies that are similar to us and then applies pricing multiples on GAAP measures such as revenues, EBIT, EBITDA, other measures and/or some combination thereof to determine an estimated enterprise value. The M&A method uses a similar pricing multiple based approached but derives its “comparables” from recently effected merger/business combination transactions between business entities that are similar to us. Every enterprise is unique and often times application of these methods results in comparing companies that are similar but, of course, not identical.

We generated different enterprise values based on the DCF, Guideline and M&A methods. It then weighted each valuation based on management’s judgment as to which approach had more or less utility with respect to valuation of our enterprise and its underlying businesses. Accordingly, we weighted the enterprise value determined by our application of the DCF method heavier than the valuations derived with the market-based approaches when determining overall enterprise value.

The enterprise value was then allocated to our capital structure using the probability weighted expected return method. Under this method, the value of an enterprise’s common stock is estimated based upon an analysis of future values for the company assuming various possible future liquidity events: IPO, strategic sale or merger, dissolution, and private enterprise (no liquidity event).

The following table presents selected information about options granted in 2009 by grant date:


Grant Month	Shares Underlying Options Granted (#)		Exercise Price per Share ($)			Common Stock Fair Value per Share for Financial Reporting Purpose at Grant Date ($)			Intrinsic Value per share ($)
May-09		6,250		$	0.08		$	17.04		$	16.96
Nov-09		428,028			1.44			30.40			28.96

		434,278		$	1.42		$	30.21		$	28.79

The following table presents selected information about the intrinsic value of options outstanding, vested and unvested, as of September 30, 2010, based on the price of the offering, or $4.25 per share:


Shares Underlying Options Granted (#)		Exercise Price per Share ($)			Intrinsic Value per share ($)			Total Intrinsic Value ($)
	231,002		$	0.08		$	4.17		$	963,278
	11,462			0.24			4.01			45,963
	413,660			1.44			2.81			1,162,385

	656,124		$	0.94		$	3.31		$	2,171,626

Fair Value Measurements

ASC 820 “Fair Value Measurements and Disclosures”, (the “Fair Value Topic”) requires disclosure of fair value of financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. The Fair Value Topic defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. The fair value estimates are made at the end of each year based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider that tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

The Fair Value Topic establishes a framework for measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:

Level 1—defined as observable inputs such as quoted prices in active markets;

Level 2—inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and

Level 3—unobservable inputs that reflect our determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

We adopted the Fair Value Topic as of January 1, 2008 as it applies to financial instruments.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties under ASC 740-10-25-5 “Income Taxes—Overall—Recognition—Basis Recognition Threshold” (the “Tax Position Topic”). We review our tax positions annually and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax rates throughout the multiple state jurisdictions with which we have established nexus.

Differences between the financial statement and tax bases of assets and liabilities, together with net operating loss carry forwards and tax credits are recorded as deferred tax assets or liabilities on the consolidated balance sheets. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these ~~future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and~~

5653

future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-range business forecasts to provide insight. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

A valuation allowance is provided when it is considered more likely than not that deferred tax assets will not be realized. Due to our state tax filing position, we have provided a valuation allowance for a portion of the state tax deferred tax assets at December 31, 2009 and 2008. Due to the October 12, 2007 acquisition of RNK, we had released the federal valuation allowance on the deferred tax assets of approximately $4.0 million dollars as of December 31, 2007.

In forming this assessment, we considered the weight of available positive evidence, particularly that which was the most objectively verifiable, including the cumulative profits in recent years of RNK. The acquisition of this profitable business entity provided a source of taxable income that has triggered the realization of our federal deferred tax assets. This has been demonstrated by our ability in recent years to begin utilizing the net operating loss carryforwards generated by us. Although we incurred a consolidated pre-tax loss of $24.6 million for 2009, the taxable loss was only $4 million. A significant portion of the loss, approximately $17.7 million, was attributable to stock based compensation related to the executive employment agreements entered into prior to our proposed offering. For the nine months ended September 30, 2010, we generated a taxable loss of approximately $14.8 million. Based on the prior two years average of consolidated taxable income of approximately $2.2 million, we would utilize its net operating losses over five years based on historical trends.

In addition, management forecasts that with current business growth and future business strategies, our projected earnings will be sufficient enough to recover losses generated by us before they begin to expire. One of the key drivers to these projections is the anticipated revenue growth from the deployment of our 4G HFW in-building networks as well as continued growth in our subscriber revenue streams. A moderate, 3–5% increase in revenues, inclusive of a slight shift from the lower margin carrier and legacy subscriber businesses to provision of 4G based networking technologies would assure the ability to fully realize the existing NOLs. If we returned to 2008 or 2007 levels of taxable income, which management believes is more likely than not, we would still be able to generate sufficient taxable income to fully utilize existing NOLs estimated within five to seven years. Accordingly, management concluded that a valuation allowance against our federal deferred tax assets was no longer necessary.

Management forecasts that, based on historical trends, our future earnings will be sufficient enough to recover the losses generated by us before they begin to expire. Accordingly, management concluded that a valuation allowance against our federal deferred tax assets was no longer necessary.

At December 31, 2009 and 2008, we had federal net operating loss carryforwards of approximately $11.2 million and $7.0 million, respectively which begin to expire in 2022. At December 31, 2009 and 2008 we had state net operating loss carryforwards of approximately $33.0 million and $22.4 million, respectively, which begin to expire in 2019.

In 2007, we adopted the Tax Position Topic. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with ASC 740, “Income Taxes.” The Tax Position topic details how companies should recognize, measure, present and disclose uncertain tax positions that have or are expected to be taken. As such, financial statements will reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.

Business Combinations

We account for the purchase of a business pursuant to ASC 805 “Business Combinations” by allocating the purchase price to the assets acquired and the liabilities assumed in the transaction at their respective estimated fair values. The most difficult estimations of individual fair values are those involving long-lived assets, such as property and equipment and intangible assets. We use available information to make these fair value determinations such as estimated fair values using quoted market prices, when available, or using present values determined at appropriate current interest rates. When necessary we engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets. Because of the inherent subjectivity associated with estimating the fair value of long-lived assets, we believe that the recording of assets and liabilities acquired in conjunction with the acquisition of a business is a critical accounting policy. Consideration not in the form of cash is measured based upon the fair value of the consideration given.

those involving long-lived assets, such as property and equipment and intangible assets. We use available information to make these fair value determinations such as estimated fair values using quoted market prices, when available, or using present values determined at appropriate current interest rates. When necessary we engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets. Because of the inherent subjectivity associated with estimating the fair value of long-lived assets, we believe that the recording of assets and liabilities acquired in conjunction with the acquisition of a business is a critical accounting policy. Consideration not in the form of cash is measured based upon the fair value of the consideration given.

Results of Operations

Within this “Results of Operations” section, we disclose results of operations on both an “as reported” and a “pro forma” basis. The reported results are not necessarily representative of our ongoing operations as RNK’s results are included only for the period of time after the October 12, 2007 closing date of the acquisition of RNK. Prior to that date, the reported results reflect only the results of Wave2Wave prior to the acquisition of RNK. Therefore, to facilitate an understanding of our trends and on-going performance, we have presented pro forma results in addition to the reported results. The ~~unaudited~~ pro forma ~~combined statements of operations were prepared in accordance with Article 11—Pro forma Financial Information of Securities and Exchange Commission Regulation S-X. The pro forma~~ results include the RNK operations for 2007 and 2006, as adjusted for certain pro forma purchase accounting adjustments and other non-recurring charges, and give effect to the transactions as though the closing had occurred as of January 1, 2007. A comparison of the RNK results of operations for 2007 and 2006 as a standalone entity follows the pro forma results within this “Results of Operations” section. Finally, a reconciliation of pro forma amounts to reported amounts has been included under the heading “Pro Forma Reconciliation.”

As Reported Results—Nine months ended September 30, 2010 compared to nine months ended
September 30, 2009


	Nine Months Ended September 30,														2010 vs 2009
	2010				% of Net revenues			2009				% of Net revenues			$ Change			% Change
Operating revenues			53,265			100.0	%			61,693			100.0	%		(8,428	)		-13.7	%
Operating expenses:
Costs of goods sold (exluding depreciation shown separately below)			36,353			68.2	%			39,039			63.3	%		(2,687	)		-6.9	%
Depreciation and amortization			5,066			9.5	%			5,243			8.5	%		(177	)		-3.4	%
Selling, general, and administrative expenses			18,367			34.5	%			15,239			24.7	%		3,128			20.5	%

Total operating expenses			59,786			112.2	%			59,521			96.5	%		265			0.4	%

Income (loss) from operations			(6,521	)		-12.2	%			2,172			3.5	%		(8,694	)		400	%
Interest expense			8,315			15.6	%			4,429			7.2	%		3,886			87.7	%
Other (expense) income						0.0	%			(940	)		-1.5	%		940			100	%

Net interest expense and other income			8,315			15.6	%			5,369			8.7	%		2,946			54.9	%
(Loss) income before income taxes			(14,836	)		-27.9	%			(3,198	)		-5.2	%		(11,639	)		364	%
Provision for income taxes			(4,383	)		-8.2	%			(1,311	)		-2.1	%		3,073			234	%

Net (loss) income			(10,453	)		-19.6	%			(1,887	)		-3.1	%		(8,566	)		721	%

Adjusted EBITDA		$	195						$	7,732

Revenue. Our revenues decreased $8.4 million, or 13.7%, to $53.3 million for the nine months ended September 30, 2010 from $61.7 million for the nine months ended September 30, 2009 due primarily to the loss of revenues from a major customer that terminated their contract with us,

although we are trying to negotiate a new, less favorable contract, and the deterioration in our access revenues driven by lower per-minute rates.

Costs Of Goods Sold. Our costs of goods sold decreased $2.6 million, or 6.9%, to $36.4 million for the nine months ended September 30, 2010 from $39.0 million for the nine months ended September 30, 2009 due primarily to the reduction in sales, partially offset by the fact that we continued to incur costs of services to certain non-paying carriers that terminate traffic to our network. The most significant was the customer that terminated their contract, but continued to pass traffic as we re-negotiate their contract.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $0.2 million, or 3.4%, to $5.1 million for the nine months ended September 30, 2010 from $5.2 million for the nine months ended September 30, 2009 primarily due to lower capital expenditures. Depreciation and amortization are recorded on a straight-line basis.

Selling, General, and Administrative Expenses. Our selling, general and administrative expenses increased $3.1 million, or 20.5%, to $18.4 million for the nine months ended September 30, 2010 from $15.2 million for the nine months ended September 30, 2009 primarily due to higher compensation, stock-based compensation, outside commissions and external professional fees associated with increased professional audit fees and higher legal fees associated with the ongoing Verizon litigation. We expect selling, general and administrative costs to increase on a relative and absolute basis going forward, partially due to the ongoing recurring costs associated with being a public company.

Interest Expense. Interest expense increased $3.9 million or 87.7% for the nine months ended September 30, 2010 from $4.4 million for the nine months ended September 30, 2009 due primarily to a higher effective interest rate on a weighted average basis of our debt obligation as well as the amortization of discount due to several debt modifications and modifications to extend maturities. We expect interest expense to decrease significantly as we expect to partially retire debt with a principal carrying value of approximately $8 million with a weighted average interest rate of as of September 30, 2010 of 36.0%.

Other Income. Other expense decreased $0.9 million, to $0.0 for the nine months ended September 30, 2010 from $0.9 million for the nine months ended September 30, 2009. The decrease in other expense was driven primarily by various items that individually are non-recurring in nature and were immaterial to our results of operations.

Income Taxes. Income tax benefit increased to $4.4 million for the nine months ended September 30, 2010 from an income tax benefit of $1.3 million for the nine months ended September 30, 2009 due primarily to higher taxable losses.

As Reported Results—Year ended December 31, 2009 compared to year ended December 31, 2008


	Year Ended December 31,														2009 vs 2008
	2009				% of Net revenues			2008				% of Net revenues			$ Change			% Change
Operating revenues			79,871			100.0	%			78,455			100.0	%		1,416			1.8	%
Operating expenses:
Costs of goods sold (exclusive of depreciation shown separately below)			51,588			64.6	%			43,205			55.1	%		8,383			19.4	%
Depreciation and amortization			6,983			8.7	%			6,658			8.5	%		325			4.9	%
Selling, general, and administrative expenses			37,925			47.5	%			20,795			26.5	%		17,130			82.4	%

Total operating expenses			96,496			120.8	%			70,658			90.1	%		25,838			36.6	%

Income (loss) from operations			(16,625	)		-20.8	%			7,797			9.9	%		(24,422	)		-313.2	%
Interest expense, net			7,231			9.1	%			7,009			8.9	%		222			3.2	%
Other income (expense)			(769	)		-1.0	%			312			0.4	%		(1,081	)		-346.5	%

Net interest expense and other income			8,000			10.0	%			6,697			8.5	%		1,303			19.5	%
(Loss) income before income taxes			(24,625	)		-30.8	%			1,100			1.4	%		(25,725	)		-2,338.6	%
Provision for income taxes			(3,089	)		-3.9	%			2,309			2.9	%		(5,398	)		-233.8	%

Net (loss) income			(21,536	)		-27.0	%			(1,209	)		-1.5	%		(20,327	)

Adjusted EBITDA		$	8,071						$	8,546

Revenue. Our revenues increased $1.4 million or 1.8% to $79.9 million for the year ended December 31, 2009, from $78.5 million for the year end December 31, 2008, due primarily to a modest increase in subscriber revenue and higher minute volume, partially offset by lower per-minute rates. In 2009, in accordance with GAAP, we also recorded against revenue an adverse settlement with a customer over disputed prior period revenues/billings. This settlement of approximately $3.0 million is non-recurring in nature. Subscriber revenues increased moderately, although our revenue mix shifted favorably away from lower margin broadband services to higher margin VoIP and in-building services and other revenues typically related to activation.

In previous periods our wholly-owned subsidiary, RNK, a CLEC, charged higher per minute rates to originating carriers through its reciprocal compensation agreements and state and federal tariffs (access revenues) than it has been able to obtain in more recent periods. The majority of the rate reductions have been related to wireless and intrastate long-distance calling. Excluding the effect of the non-recurring charge of $3.0 million noted above, we believe that revenues and gross margins related to the access revenues of the CLEC business will continue to decline for the foreseeable future. We had several favorable adjustments during 2008 that were non-recurring in nature and presented margins that were unsustainable. We believe that our 2009 results of operations (normalized for the impact of the $3.0 million charge to revenues) presents an unsustainable view of our margins going for our CLEC business. We expect margins and revenues to decline in the foreseeable future due to increased rate regulation and less favorable traffic exchange agreement terms.

Costs Of Goods Sold. Our costs of goods sold increased $8.4 million, or 19.4%, to $51.6 million for the year ended December 31, 2009, from $43.2 million for the year ended December 31, 2008, due primarily to a favorable non-recurring adjustment to our results in fiscal year 2008 in accrued expenses related to our VFX liability, which increased 2008 gross margins above previous levels. In 2009, we continued to incur costs of services to certain non-paying carriers that terminate traffic to our network. We are unable to disconnect these carriers due to the prevailing public policy concerns related to the ubiquity of the national telephone network. Such considerations, as detailed by the FCC, substantially prevent common carriers from blocking communications between telephone customers as a result of intercarrier billing disputes between two carriers. Carriers that resort to

~~Nine~~“self-help” ~~months~~and ~~ended~~block ~~September~~traffic ~~30,~~as ~~2009~~a ~~compared~~result toof ~~nine~~payment ~~months~~disputes ~~ended~~do ~~September~~so ~~30,~~at ~~2008~~their own risk and may face regulatory sanctions and legal action.

	Nine Months Ended September 30,													2009 vs 2008
	2009				% of Netrevenues			2008			% of Netrevenues			$ Change			% Change
	(unaudited)							(unaudited)
Revenues, net			61,693			100.0	%			67,856		100.0	%		(6,163	)		-9.1	%
Costs of goods sold			37,829			61.3	%			31,183		46.0	%		6,646			21.3	%
Gross profit			23,864			38.7	%			36,673		54.0	%		(12,809	)		-34.9	%
Operating expenses:
Depreciation and amortization			5,243			8.5	%			6,014		8.9	%		(771	)		-12.8	%
Selling, general, and administrative expenses			15,239			24.7	%			15,367		22.6	%		(128	)		-0.8	%
Total operating expenses			20,482			33.2	%			21,381		31.5	%		(899	)		-4.2	%
Income (loss) from operations			3,382			5.5	%			15,292		22.5	%		(11,910	)		-77.9	%
Interest expense, net			4,429			7.2	%			5,072		7.5	%		(643	)		-12.7	%
Other income (expense)			(940	)		-1.5	%			660		1.0	%		(1,600	)		-242.4	%
Net interest expense and other income			5,369			8.7	%			4,412		6.5	%		957			21.7	%
(Loss) income before income taxes			(1,987	)		-3.2	%			10,880		16.0	%		(12,867	)		-118.3	%
Provision for income taxes			(875	)		-1.4	%			5,361		7.9	%		(6,236	)		-116.3	%
Net (loss) income			(1,112	)		-1.8	%			5,519		8.1	%		(6,631	)		-120.1	%
Adjusted EBITDA		$	11,916						$	20,829

Depreciation and Amortization Expense. Depreciation and amortization expense increased $0.3 million, or 4.9%, to $7.0 million for the year ended December 31, 2009, from $6.7 million for the year ended December 31, 2008, due primarily to the amortization of loan closing costs offset partially by lower intangibles amortization. Depreciation and amortization consists mainly of depreciation of fixed assets and amortization of definite lived intangibles that were recognized pursuant to the acquisitions of Intellispace and RNK in 2006 and 2007, respectively. We amortize these intangibles over their estimated useful life and test for impairment on annual basis. We record depreciation and amortization of all definite lived assets on a straight-line basis

~~Revenue.~~Selling, ~~Our~~General, ~~revenues~~and ~~decreased~~Administrative $6Expenses.2 ~~million~~Our selling, orgeneral 9and administrative expenses increased $17.1%, million to $6137.79 million or 82.4% for the ~~nine~~year ~~months~~ ended ~~September~~December 3031, ~~2008~~2009, from $6720.8 million for the ~~nine~~year ~~months~~ ended ~~September~~December 3031, ~~2009~~2008, due primarily to ~~the~~$17.7 ~~deterioration~~million infor ~~our access revenues driven by lower minute volume and lower per~~stock-~~minute~~based ~~rates.~~compensation Inexpense ~~2009,~~as inwell ~~accordance~~as ~~with~~increases ~~GAAP,~~in weprofessional ~~also~~fees. ~~recorded~~Stock-based ~~against~~compensation ~~revenue~~expense anwas ~~adverse~~driven ~~settlement~~primarily ~~with~~by aaccelerated ~~customer~~vests ~~over~~on ~~disputed~~various ~~prior period revenues/billings~~grants. ~~This~~We ~~settlement~~expect ~~of approximately $2.7 million is non~~stock-~~recurring~~based incompensation ~~nature.~~expense ~~Subscriber revenues remained flat overall, although our revenue mix shifted favorably away from lower margin broadband services~~ to ~~higher~~decrease ~~margin~~considerably ~~VoIP~~going ~~and in-building services and other revenues typically related to activation~~forward.

InWe ~~previous~~believe, ~~periods~~with ~~our~~the ~~wholly~~exception of stock-~~owned~~based ~~subsidiary~~compensation, ~~RNK,~~that ~~a CLEC~~selling, ~~charged~~general ~~higher~~and ~~per~~administrative ~~minute~~expenses ~~rates~~will toincrease ~~originating~~on ~~carriers~~an ~~through~~absolute ~~its~~and ~~reciprocal~~relative ~~compensation~~basis ~~agreements~~due ~~and~~to ~~state~~our ~~and~~increased ~~federal~~size ~~tariffs~~after ~~(Access~~the ~~revenues)~~successful ~~than~~consummation itof ~~has~~the ~~been~~offering ~~able~~and toan ~~obtain~~increase in ~~more~~costs ~~recent~~due ~~periods.~~to ~~The~~being ~~majority~~a ofpublic ~~the~~company. ~~rate~~We also ~~reductions~~expect ~~have been related~~ to ~~wireless~~incur ~~and~~material ~~intrastate long-distance calling. Excluding the effect of the~~ non-recurring ~~charge~~costs ofwith ~~$2.7~~respect ~~million~~to ~~noted~~post-acquisition ~~above,~~integration ~~we believe that revenues~~ and ~~gross margins related to~~ the ~~access~~direct ~~revenues~~expensing of ~~the~~substantially ~~CLEC~~all ~~business~~professional ~~will~~fees ~~continue~~related to ~~decline for~~ the ~~foreseeable future~~offering. ~~We had several favorable adjustments during 2008 that were non-recurring in nature and presented margins that were unsustainable.~~

~~Costs~~On Ofan ~~Goods~~ongoing ~~Sold. Our costs of goods sold increased $6.6 million~~basis, orwe ~~21.3%,~~expect to ~~$37.8~~incur ~~million~~costs ~~for~~associated ~~the~~with ~~nine~~being ~~months~~a ~~ended~~public ~~September~~company 30including, ~~2009~~but ~~from~~not ~~$31.1~~limited ~~million~~to, ~~for~~implementation ~~the~~and ~~nine~~maintenance ~~months~~of ~~ended~~Section ~~September~~404 ~~30,~~of ~~2008~~the ~~due primarily to a favorable non~~Sarbanes-~~recurring~~Oxley ~~adjustment~~Act toof ~~our results in fiscal year 2008 in accrued expenses related to VFX liability~~2002, ~~which~~directors ~~increased~~and ~~2008~~officers ~~gross margins above our previous levels. In 2009~~insurance, wethe ~~continued~~cost ~~to incur costs~~ of ~~services~~Securities toand ~~certain~~Exchange ~~non-paying~~Commission ~~carriers~~filings ~~that terminate traffic to our network. We are unable to disconnect these carriers due to the prevailing public policy~~including ~~concerns~~Forms ~~related~~10-K, to10-Q, ~~the~~8-K, ~~ubiquity~~proxy ofstatements ~~the~~and ~~national~~others ~~telephone network. Such considerations,~~ as ~~detailed~~well byinvestor ~~the FCC~~relations, ~~substantially~~annual ~~prevent~~meetings ~~common carriers from blocking communications between telephone customers as a result~~ of ~~intercarrier~~shareholders, ~~billing~~listing ~~disputes between two carriers. Carriers that resort to “self- help”~~ and ~~block~~other ~~traffic~~exchange asrelated afees, ~~result~~board of ~~payment~~directors ~~disputes~~compensation ~~do so at their own risk~~ and ~~may~~potentially ~~face~~higher ~~regulatory sanctions and legal action~~headcount.

With respect to compliance with Section 404 of the Sarbanes-Oxley Act (“SOX 404”), we estimate the costs of the assessment of internal controls and implementation and remediation of internal controls thereof at approximately $300,000. We estimate ongoing maintenance, improvement, documentation and testing of our internal controls through the use of internal resources and external consultants to be approximately $75,000 on per annum. Ongoing integrated audit fees specifically related to attestation of internal controls we estimate to be roughly $140,000 on annual basis. There can be no guarantee that the cost of implementing and maintain compliance with SOX 404 will not be materially higher.

We estimate that the incremental burden of costs associated with being a public company and that of company traded on a national exchange to be on average approximately $1.9 million per annum. There can be no guarantee that the cost will not be materially higher.

Interest Expense. Interest expense increased $0.3 million or 3.2% for the year end December 31, 2009, from $7.0 million for the year end December 31, 2008, primarily due to a higher effective interest rate on a weighted average basis of our debt obligations, high debt discount amortization which were partially offset by the recognition of a deferred gain on a favorable debt modification with respect to our notes held by the former owners of RNK, our wholly-owned subsidiary. We expect interest expense to decrease significantly as we expect to retire debt with a principal carrying value of $29 million with a weighted average interest rate of 20%.

Other Income. Other income decreased $1.1 million to a loss of $ 0.8 million for the year ended December 31, 2009 from the year ended December 31, 2008. The decrease was driven primarily by a loss on extinguishment of debt whereupon we wrote down $1.1 million of debt discount upon the assignment of $38.7 million of notes payable by us from one creditor, Greystone, to another, the Wilmington Trust Company and G. Jeff Mennen, a related party.

Income Taxes. Income tax benefit of $3.1 million increased $5.4 million for the year ended December 31, 2009, from an income tax expense of $2.3 million for the year ended December 31,

~~Depreciation and Amortization Expense~~2008. ~~Depreciation~~The ~~and~~income ~~amortization~~tax ~~expense~~benefit ~~decreased~~resulted ~~$0.8 million, or 13%, to $5.2 million for the nine months ended September 30, 2009~~ from ~~$6.3 million for~~ the ~~nine~~recognition ~~months ended September 30, 2008 due primarily to lower capital expenditures. Depreciation and amortization consists mainly~~ of ~~depreciation~~deferred oftax ~~fixed~~ assets ~~and~~related ~~amortization of definite lived intangibles that were recognized pursuant~~ to the acquisition of ~~Intellispace and~~ RNK inoffset ~~2006~~against ~~and~~our ~~2007,~~net ~~respectively.~~operating Welosses ~~amortize~~carried ~~these intangibles over their estimated useful life and test for impairment on annual basis~~forward. WeThis ~~record~~benefit ~~depreciation~~was ~~on a straight~~non-~~line~~recurring ~~basis~~in nature.

Selling, General, and Administrative Expenses. Our selling, general and administrative expenses remained mostly flat decreasing to $15.2 million for the nine months ended September 30, 2009 from $15.4 million for the nine months ended September 30, 2008 due primarily to modest headcount reductions offset by higher external consulting fees for legal, accounting and attestation services. Selling, general and administrative expenses will increase on an absolute and relative basis due to our increased size after the successful consummation of the offering and the subsequent acquisition of Winncom. In addition, we expect to incur considerable non-recurring costs with respect to post-acquisition integration and the direct expensing of most legal, accounting, audit and advisory costs related to the offering as well as ongoing recurring costs associated with being a public company.

Interest Expense. Interest expense decreased $0.6 million, or 12.7%, to $4.4 million for the nine months ended September 30, 2009 from $5.1 million for the nine months ended September 30, 2008 primarily due to lower interest expense on outstanding debt and lower amortization of debt discount that is charged to interest expense. We expect interest expense to decrease significantly as we expect to retire material amounts of debt with cash raised in our initial public offering. In 2008, we had increased debt modification activity as we sought amendments to various debt arrangements. In order to seek more favorable terms, we induced creditors with issuances of warrants to purchase shares of our common stock. These equity securities are recognized as “debt discount” costs and amortized over the period beginning at the date of inception and the expected, amended maturity date.

Other Income. Other Income decreased $1.6 million to expense of $0.9 million for the nine months ended September 30, 2009 from income of $660,000 for the nine months ended September 30, 2008. The decrease was driven primarily by various items that individually are non-recurring in nature and were immaterial to our results of operations and a non-recurring loss on debt extinguishment pursuant to assignment of third party notes to a related party.

Income Taxes. Income tax expense increased to $0.9 million for the nine months ended September 30, 2009 from an income tax benefit of $5.4 million for the nine months ended September 30, 2008. The income tax benefit resulted from the recognition of deferred tax assets related to the acquisition of RNK offset against our net operating losses carried forward. This benefit was non-recurring in nature.

As Reported Results—Year ended December 31, 2008 compared to year ended December 31, 2007

	Year Ended December 31,														2008 vs 2007
	2008				% of Netrevenues			2007				% of Netrevenues			$ Change			% Change
Net revenues			78,455			100.0	%			35,403			100.0	%		43,052			121.6	%
Operating revenues			78,455			100.0	%			35,403			100.0	%		43,052			121.6	%
Costs of goods sold			43,205			55.1	%			22,143			62.5	%		21,062			95.1	%
Gross profit			35,250			44.9	%			13,260			37.5	%		21,990			165.8	%
Operating expenses:
Costs of goods sold (exclusive of depreciation shown separately below)			43,205			55.1	%			22,143			62.5	%		21,062			95.1	%
Depreciation and amortization			6,658			8.5	%			1,986			5.6	%		4,672			235.2	%
Selling, general, and administrative expenses			20,795			26.5	%			14,199			40.1	%		6,596			46.5	%
Total operating expenses			2770,~~453~~658			3590.01	%			1638,~~185~~328			45.7	%		1132,~~268~~330			6984.64	%
Income (loss) from operations			7,797			9.9	%			(2,925	)		-854.3	%		10,722			(366.6	)%
Interest expense			7,009			8.9	%			2,306			6.5	%		4,703			203.9	%
Other (expense) income			312			0.4	%			3,~~495~~496			9.9	%		(3,~~183~~184	)		-91.1	%
Net interest expense and other income			6,697			8.5	%			(1,~~189~~190	)		-3.4	%		7,~~886~~887
(Loss) income before income taxes			1,100			1.4	%			(1,~~736~~735	)		-457.96	%		2,~~836~~835			(163.4	)%
Provision for income taxes			2,309			2.9	%			(3,~~630~~629	)		-10.3	%		5,~~939~~938
Net (loss) income			(1,209	)		-1.5	%			1,894			567.39	%		(3,103	)		-(163.8	)%
Adjusted EBITDA		$	238,~~065~~546						$	21,~~255~~937

Revenue. Our revenues increased $43.1 million, or 121.6%, to $78.5 million for the year ended December 31, 2008 from $35.4 million for the year ended December 31, 2007 due primarily to the full year effect of the acquisition of RNK and to a lesser degree, stronger overall subscriber revenue associated with higher broadband and VoIP sales. This increase was partially offset by lower fixed wireless activity.

Costs Of Goods Sold. Our costs of goods sold increased $21.1 million, or 95.1%, to $43.2 million for the year ended December 31, 2008 from $22.1 million for the year ended December 31, 2007 due primarily to the acquisition of RNK. We recorded favorable adjustments in 2008 related to VFX which were non-recurring in nature and temporarily increased our gross margins. These margins will moderate to lower and more sustainable levels going forward. Excluding the effect of non-recurring adjustments related to VFX, gross margins would have been 36.6% compared to 37.5% with respect to the same period in 2007. Subscriber revenue related costs of services were more favorable compared to the prior period as revenues shifted to a more favorable mix of services with respect to higher margins.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $4.7 million, or 235.2%, to $6.7 million for the year ended December 31, 2008 from $2.0 million for the year ended December 31, 2007 primarily due to the full year effect of the acquisition of RNK and the related increased base of depreciable assets. Depreciation and amortization are recorded on a straight-line basis.

Selling, General, and Administrative Expenses. Our selling, general and administrative expense increased $6.6 million, or 46.5%, to $20.8 million for the year ended December 31, 2008 from $14.2 million for the year ended December 31, 2007 primarily due to the full year effect of the acquisition of RNK. We continue to optimize post-acquisition integration with respect to controlling professional fees, eliminating redundancies with respect to headcount, and note that our selling, general and ~~administrative expense for 2008 is a lower, but not necessarily more sustainable percentage of gross revenues than from the same period in 2007.~~

~~Interest Expense. Interest expense increased 203.9% to approximately $7.0 million for the year ended December 31, 2008 compared to the same period ended 2007. The increase in interest~~ 59

60administrative expense for 2008 is a lower, but not necessarily more sustainable percentage of gross revenues than from the same period in 2007.

Interest Expense. Interest expense increased 203.9% to approximately $7.0 million for the year ended December 31, 2008 compared to the same period ended 2007. The increase in interest expense was due primarily to a full year of debt service on new borrowings made in connection with the purchase of RNK on October 12, 2007.

Other Income. Other income decreased $3.2 million, or 91.1%, to $0.3 million for the year ended December 31, 2008 from $3.5 million for the year ended December 31, 2007. The decrease in other income was due to the non-recurring nature of a one-time management fee that we charged to RNK pre-acquisition. This management fee was realized as a favorable purchase price adjustment upon consummation of the acquisition on October 12, 2007.

Income Taxes. Income tax expense increased to $2.3 million for the year ended December 31, 2008 from an income tax benefit of $3.6 million for the year ended December 31, 2007. The benefit from 2007 resulted from recognition of a deferred tax asset upon acquiring RNK related to our net operating losses carried forward. This benefit was non-recurring in nature.

As Reported Results—Year ended December 31, 2007 compared to year ended December 31, 2006

	Year Ended December 31,														2007 vs 2006
	2007				% of Netrevenues			2006				% of Netrevenues			$ Change			% Change
Net revenues			35,403			100.0	%			18,552			100.0	%		16,851			90.8	%
Operating revenues			35,403			100.0	%			18,552			100.0	%		16,851			90.8	%
Costs of goods sold			22,143			62.5	%			11,996			64.7	%		10,147			84.6	%
Gross profit			13,260			37.5	%			6,556			35.3	%		6,704			102.3	%
Operating expenses:
Costs of goods sold (exclusive of depreciation shown separately below)			22,143			62.5	%			11,996			64.7	%		10,147			84.6	%
Depreciation and amortization			1,986			5.6	%			1,047			5.6	%		939			89.7	%
Selling, general, and administrative expenses			14,199			40.1	%			6,958			37.5	%		7,241			104.1	%
Total operating expenses			1638,~~185~~328			45108.73	%			820,~~005~~001			43107.18	%		818,~~180~~327			~~102~~91.26	%
Income (loss) from operations			(2,925	)		-8.3	%			(1,449	)		-7.8	%		(1,476	)
Interest expense			2,306			6.5	%			871			4.7	%		1,435			164.8	%
Other income (expense)			3,~~495~~496			9.9	%			(131	)		-0.7	%		3,~~626~~627
Net interest expense and other income			(1,~~189~~190	)		-3.4	%			1,002			5.4	%		(2,~~191~~192	)		-218.78	%
(Loss) income before income taxes			(1,~~736~~735	)		-4.9	%			(2,451	)		-13.2	%		~~715~~716
Provision for income taxes			(3,~~630~~629	)		-10.3	%			—			0.0	%		(3,~~630~~629	)
Net (loss) income			1,894			5.3	%			(2,451	)		-13.2	%		4,345
Adjusted EBITDA		$	21,~~255~~937						$	(389	)

Revenue. Our revenues increased $16.8 million, or 90.8%, to $35.4 million for the year ended December 31, 2007 from $18.6 million for the year ended December 31, 2006 due primarily to the acquisition of RNK and to growth in access and subscriber revenues.

Costs Of Goods Sold. Our costs of goods sold increased $10.1 million, or 84.6%, to $22.1 million for the year ended December 31, 2007 from $12.0 million for the year ended December 31, 2006 due primarily to the acquisition of RNK which was effective October 12, 2007. The cost of services to provide subscription services increased as a percentage of sales but was more than offset by the higher margin CLEC results generated by RNK acquired on October 12, 2007.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $1 million, or 89.7%, to $2.0 million for the year ended December 31, 2007 from $1.0 million for the year ended December 31, 2006 primarily due to the effect of recording depreciation for RNK, amortization expense related to definite lived intangibles acquired pursuant to the acquisition of ~~RNK which were partially offset by lower depreciation expense recorded due to our lower capital expenditures. Depreciation and amortization are recorded on a straight-line basis.~~

~~Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $7.2 million, or 104.1%, to $14.2 million for the year ended December 31, 2007 from $7.0~~ 60

61RNK which were partially offset by lower depreciation expense recorded due to our lower capital expenditures. Depreciation and amortization are recorded on a straight-line basis.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $7.2 million, or 104.1%, to $14.2 million for the year ended December 31, 2007 from $7.0 million for the year ended December 31, 2006 due to the acquisition of RNK and higher compensation and professional fees primarily associated with the acquisition of RNK.

Interest Expense. Interest expense increased 164.8% to $2.3 million for the year ended December 31, 2007 from $0.9 million for the year ended December 31, 2006 as a result of increased debt related to the acquisition of RNK, higher capital lease obligations and debt discount amortization related to equity issuances made in connection with new debt issued by us.

Other Expense (Income). Other income increased to $3.6 million for the year ended December 31, 2007 from an expense of $0.1 million for the year ended December 31, 2006 due to management fees assessed to RNK pre-acquisition. These management fees were non-recurring in nature and were settled through a favorable purchase price adjustment upon acquisition of RNK.

Income Taxes. Income benefit increased to $3.6 million for the year ended December 31, 2007 from $-0- for the year ended December 31, 2006. The increase in income tax benefit resulted from the recognition of deferred tax assets related to the acquisition of RNK offset against our operating losses carried forward. This benefit was non-recurring in nature.

Pro Forma Results—Year ended December 31, 2008 compared to year ended December 31, 2007 (as adjusted)

The unaudited pro forma combined statements of operations that follows is presented for informational purposes only and is not intended to represent or be indicative of the combined results of operations that would have been reported had the acquisition of RNK been completed as of January 1, 2007 and should not be taken as representative of the future consolidated results of operations of our company.

The following unaudited pro forma combined statements of operations for the year ended December 31, 2007 were prepared ~~under Article 11—Pro forma Financial Information of Securities and Exchange Commission Regulation S-X~~ using (1) the audited consolidated financial statements of Wave2Wave for the year ended December 31, 2007 and (2) the audited consolidated financial statements of RNK for the year-to-date period ended October 12, 2007. The unaudited pro forma combined statements of operations should be read in conjunction with these separate historical financial statements and accompanying notes thereto. A reconciliation of pro forma amounts to reported amounts has been included under the heading “Pro Forma Reconciliation.”

6261

	Year Ended December 31,														2008 vs 2007
	2008				% of Netrevenues			2007				% of Netrevenues			$ Change			% Change
								(unaudited)
Net revenues			78,455			100.0	%			78,638			100.0	%		(183	)		-0.2	%
Operating revenues			78,455			100.0	%			78,638			100.0	%		(183	)		-0.2	%
Costs of goods sold			43,205			55.1	%			50,295			64.0	%		(7,090	)		-14.1	%
Gross profit			35,250			44.9	%			28,343			36.0	%		6,907			24.4	%
Operating expenses:
Depreciation and amortization			6,658			8.5	%			3,339			4.2	%		3,319			99.4	%
Costs of goods sold (exclusive of depreciation shown separately below)			43,205			55.1	%			50,295			64.0	%		(7,090	)		-14.1	%
Depreciation and amortization			6,658			8.5	%			4,560			5.8	%		2,098			46.0	%
Selling, general, and administrative expenses			20,795			26.5	%			22,494			28.6	%		(1,699	)		-7.6	%
Total operating expenses			27,453			35.0	%			25,833			32.9	%		1,620			6.3	%
Total operating expenses:			70,658			90.1	%			77,349			98.4	%		(6,691	)		-8.7	%
Income (loss) from operations			7,797			9.9	%			21,~~510~~289			31.26	%		56,~~287~~508			~~210~~504.69	%
Interest expense			(7,009	)		8.9	%			(6,683	)		8.5	%		326			4.9	%
Other (expense) income			312			0.4	%			3,~~481~~482			4.4	%		(3,~~169~~170	)		-91.0	%
Net interest expense and other income			(6,697	)		8.5	%			(3,~~202~~201	)		(4.1	)%		3,~~495~~496			109.2	%
(Loss) income before income taxes			1,100			1.4	%			(~~692~~1,912	)		-02.94	%		13,~~792~~012			~~109.2~~	%
Provision for income taxes			(2,309	)		2.9	%			(3,~~459~~458	)		-4.4	%		5,~~768~~767
Net (loss) income			(1,209	)		-1.5	%			21,~~767~~546			32.50	%		(32,~~976~~755	)		-~~143~~178.72	%
Adjusted EBITDA		$	238,~~065~~546						$	128,~~524~~725

Revenue. Our revenues decreased $0.2 million, or 0.2%, to $78.4 million for the year ended December 31, 2008 from $78.6 million for the year ended December 31, 2007 due to a decrease in access revenues primarily driven by lower per-minute rates mostly offset by higher minutes volume. Subscriber revenues were mostly flat, though subscriber revenues saw a shift to a more favorable mix of services, specifically, higher in-building activity and VoIP.

Costs Of Goods Sold. Costs of goods sold decreased $7.1 million, or 14.1%, to $43.2 million for the year ended December 31, 2008 from $50.3 million for the year ended December 31, 2007 due to minute volume increases and lower costs of services as a percentage within the subscriber revenue stream. In addition, in 2008 we recorded a favorable non-recurring adjustment with respect to Virtual Foreign Exchange (“VFX”) traffic on the CLEC side of our business. The favorable VFX adjustment lowered the overall costs of services but is primarily related to our access revenues. These favorable adjustments and increased network economies of scale resulted in a gross margin of 45% which we do not feel is sustainable due to the non-recurring nature of such adjustments.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $32.31 million, or 9946%, to $6.7 million for the year ended December 31, 2008 from $3.4.6 million for the year ended December 31, 2007 primarily reflecting revised estimates with respect to amortization and significantly higher capital expenditure. Depreciation and amortization are recorded on a straight-line basis.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased $1.7 million, or 7.6%, to $20.8 million for the year ended December 31, 2008 from $22.5 million for the year ended December 31, 2007 due to lower legal and accounting fees as well as modest headcount reductions.

Interest Expense. Interest expense increased $0.3 million, or 5%, to $7.0 million for the year ended December 31, 2008 from $6.7 million for the year ended December 31, 2007 as a result of increased debt borrowings, loan modifications that included equity issuances that were recorded as additional debt discount and amortized to interest expense.

Other Expense (Income). Other income decreased to $0.3 million for the year ended December 31, 2008 from approximately $3.5 million for the year ended December 31, 2007 due to non-

6362

recurring items which primarily consisted of a management fee that we charged RNK prior to acquisition and which was realized as a favorable purchase price adjustment.

Income Taxes. Income tax expense increased to $2.3 million for the year ended December 31, 2008 from an income tax benefit of $3.5 million for the year ended December 31, 2007. The benefit from 2007 resulted from recognition of a deferred tax asset upon acquiring RNK related to our net operating losses carried forward. This benefit was non-recurring in nature.

Pro Forma Results—Year Ended December 31, 2007 compared to year ended December 31, 2006 (as adjusted)

The unaudited pro forma combined statements of operations that follows is presented for informational purposes only and is not intended to represent or be indicative of the combined results of operations that would have been reported had the acquisition of RNK been completed as of January 1, 2006 and should not be taken as representative of the future consolidated results of operations of our company.

The following unaudited pro forma combined statements of operations for the year ended December 31, 2007 and 2006 were prepared ~~under Article 11—Pro forma Financial Information of Securities and Exchange Commission Regulation S-X~~ using (1) the audited consolidated financial statements of Wave2Wave for the years ended December 31, 2007 and 2006; and (2) the audited consolidated financial statements of RNK for the year-to-date period ended October 12, 2007 and the year ended December 31, 2006. The unaudited pro forma combined statements of operations should be read in conjunction with these separate historical financial statements and accompanying notes thereto. A reconciliation of pro forma amounts to reported amounts and a comparison of the RNK results of operations for the year-to-date period ended October 12, 2007 and the year ended December 31, 2006 have been included under the heading “Pro Forma Reconciliation.”

	Year Ended December 31,														2007 vs 2006
	2007				% of Netrevenues			2006				% of Netrevenues			$ Change			% Change
	(unaudited)							(unaudited)
Net revenues			78,638			100.0	%			58,839			100.0	%		19,799			33.6	%
Operating revenues			78,638			100.0	%			58,839			100.0	%		19,799			33.6	%
Costs of goods sold			50,295			64.0	%			42,315			71.9	%		7,980			18.9	%
Gross profit			28,343			36.0	%			16,524			28.1	%		11,819			71.5	%
Operating expenses:
Depreciation and amortization			3,339			4.2	%			4,560			7.7	%		(1,221	)		-26.8	%
Costs of goods sold (exclusive of depreciation shown separately below)			50,295			64.0	%			42,315			71.9	%		7,980			18.9	%
Depreciation and amortization			4,560			5.8	%			4,560			7.7	%		—			0.0	%
Selling, general, and administrative expenses			22,494			28.6	%			14,087			23.9	%		8,407			59.7	%
Total operating expenses			25,833			32.9	%			18,647			31.7	%		7,186			38.5	%
Total operating expenses:			77,349			98.4	%			60,962			103.6	%		16,387			26.9	%
Income (loss) from operations			21,~~510~~289			31.26	%			(2,123	)		-3.6	%		43,~~633~~412
Interest expense			6,683			8.5	%			6,100			10.4	%		583			9.6	%
Other (expense) income			3,~~481~~482			4.4	%			(223	)		-0.4	%		3,~~704~~705
Net interest expense and other income			3,~~202~~201			4.1	%			6,323			10.7	%		(3,~~121~~122	)		-49.4	%
(Loss) income before income taxes			(~~692~~1,912	)		-02.94	%			(8,446	)		-14.4	%		76,~~754~~534
Provision for income taxes			(3,~~459~~458	)		-4.4	%			67			0.1	%		(3,~~526~~525	)		-5,~~262~~261.72	%
Net (loss) income			21,~~767~~546			32.50	%			(8,513	)		-14.5	%		1110,~~280~~059
Adjusted EBITDA		$	128,~~524~~725						$	2,~~227~~450

Revenue. Our revenues increased $19.8 million, or 33.6%, to $78.6 million for the year ended December 31, 2007 from $58.8 million for the year ended December 31, 2006 due primarily to growth in access and subscriber revenues.

64Costs Of Goods Sold. Costs of goods sold increased $7.9 million, or 18.9%, to $50.3 million for the year ended December 31, 2007 from $42.3 million for the year ended December 31, 2006 due

Costs Of Goods Sold. Costs of goods sold increased $7.9 million, or 18.9%, to $50.3 million for the year ended December 31, 2007 from $42.3 million for the year ended December 31, 2006 due primarily to minute volume increases related to growth of access revenues which were partially offset by increased network economies of scale, resulting in higher gross margin percentages.63

~~Depreciation~~primarily ~~and~~to ~~Amortization~~minute ~~Expense.~~volume ~~Depreciation~~increases ~~and~~related ~~amortization expense decreased $1.2 million, or 26.8%,~~ to ~~$3.3~~growth ~~million~~of ~~for~~access ~~the~~revenues ~~year~~which ~~ended~~were ~~December~~partially ~~31,~~offset ~~2007~~by ~~from~~increased ~~$4.6~~network ~~million~~economies ~~for~~of ~~the year ended December 31~~scale, ~~2006~~resulting ~~primarily~~in ~~due to~~ higher ~~intangibles~~gross ~~related~~margin ~~amortization~~percentages. ~~Depreciation and amortization are recorded on a straight-line basis.~~

Depreciation and Amortization Expense. Depreciation and amortization expense for the year ended December 31, 2007 remained unchanged from the $4.6 million for the year ended December 31, 2006.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $8.4 million, or 59.7%, to $22.5 million from $14.1 million for the year ended December 31, 2006 due to higher compensation and higher consulting fees incurred in connection with the acquisition of RNK.

Interest Expense. Interest expense increased $0.6 million, or 9.6%, to $6.7 million for the year ended December 31, 2007 from $6.1 million for the year ended December 31, 2006 as a result of increased interest on short-term debt, capital lease obligations in addition to interest on additional debt taken on in 2007.

Other Expense (Income). Other income increased to $3.5 million for the year ended December 31, 2007 from an expense of $0.2 million for the year ended December 31, 2006 due to miscellaneous non-recurring items including a one time management fee paid to us that resulted in a favorable purchase price adjustment.

Income Taxes. Income tax benefit increased to $3.5 million for the year ended December 31, 2007 from an expense of $67,000 for the year ended December 31, 2006. The increase in 2007 is due primarily to the application of net operating loss carryfowards.

RNK Results of Operations—Period Ended October 12, 2007 compared to year ended December 31, 2006

	Year-to-date period ending														2007 vs 2006
	October 12,2007				% of Netrevenues			December 31,2006				% of Netrevenues			$ Change			% Change
Net revenues			43,235			100.0	%			40,287			100.0	%		2,948			7.3	%
Operating revenues			43,235			100.0	%			40,287			100.0	%		2,948			7.3	%
Costs of goods sold			28,152			65.1	%			30,319			75.3	%		(2,167	)		-7.1	%
Gross profit			15,083			34.9	%			9,968			24.7	%		5,115			51.3	%
Operating expenses:
Costs of goods sold (exclusive of depreciation shown separately below)			28,152			65.1	%			30,319			75.3	%		(2,167	)		-7.1	%
Depreciation and amortization			1,353			3.1	%			1,174			2.9	%		179			15.2	%
Selling, general, and administrative expenses			8,295			19.2	%			7,129			17.7	%		1,166			16.4	%
Total operating expenses			9,648			22.3	%			8,303			20.6	%		1,345			16.2	%
Total operating expenses:			37,800			87.4	%			38,622			95.9	%		(822	)		-2.1	%
Income (loss) from operations			5,435			12.6	%			1,665			4.1	%		3,770			226.4	%
Interest expense			746			1.7	%			579			1.4	%		167			28.8	%
Other (expense) income			(14	)		0.0	%			(92	)		-0.2	%		78
Net interest expense and other income			760			1.8	%			671			1.7	%		89			13.3	%
(Loss) income before income taxes			4,675			10.8	%			994			2.5	%		3,681			370.3	%
Provision for income taxes			171			0.4	%			67			0.2	%		104			155.2	%
Net (loss) income			4,504			10.4	%			927			2.3	%		3,577			385.9	%
Adjusted EBITDA		$	96,~~167~~802						$	2,~~839~~931

Revenue. RNK’s revenues increased $2.9 million, or 7.3%, to $43.2 million for the period ended October 12, 2007 from $40.3 million for the year ended December 31, 2006 due primarily to increasing minute volume and corresponding access revenues.

Costs of Goods Sold. Costs of goods sold decreased $2.2 million, or 7.1%, to $28.1 million for the period ended October 12, 2007 from $30.3 million for the year ended December 31, 2006 due primarily to full year versus short year comparison. Gross margin on incremental revenues increased as a result of increased network efficiency and ongoing cost reduction initiatives.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $0.2 million, or 15.2%, to $1.4 million for the period ended October 12, 2007 from $1.2 million for the year ended December 31, 2006 due to increases in capital expenditures.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased $1.2 million, or 16.4%, to $8.3 million for the period ended October 12, 2007 from $7.1 million for the year ended December 31, 2006 due primarily to increased headcount and use of outside professional services.

Interest Expense. Interest expense increased to $0.7 million for the period ended October 12, 2007 from $0.6 million for the year ended December 31, 2006 as a result of increased interest on short-term debt, capital lease obligations and finance charges on late payment.

Other Expense (Income). Other expense for the periods reported were not material to the results of our operations.

Income Taxes. Income tax expense increased to $0.2 million from $.01 million. For the periods reported income tax expense was not material to the results of operations.

Pro Forma Reconciliation

The following table provides a reconciliation from the as reported results to the pro forma results presented above for the years ended December 31, 2007 and 2006 (in thousands). The following unaudited pro forma statement of operations has been derived from our audited statement of operations for the years ended December 31, 2007 and 2006 and the audited statement of operations of RNK for the year-to-date period ended October 12, 2007 and the year ended December 31, 2006. These statements give effect to the acquisition of RNK as if the transaction occurred at the beginning of the respective periods. The actual date of acquisition of RNK was October 12, 2007.

The pro forma adjustments to the financial information presented below for the years ended December 31, 2007 and 2006, respectively, are needed to reflect the full year effect of the RNK acquisition consummated on October 12, 2007.

Adjustments to depreciation and amortization assume a full year of increases in amortization expense related to acquired intangible assets, as well as a full year of incremental decreases in depreciation expense resulting from the new lowered cost basis of acquired fixed assets.

Interest expense is adjusted to reflect a full year of interest expense on debt issued to facilitate the acquisition. Adjustments to the provision for income taxes reflect the tax effects of the depreciation, amortization and interest expense adjustments, as well as the non-recurring loss carry forward tax benefit resulting from the acquisition.


	Year Ended December 31, 2006
		Wave2Wave				RNK				Pro Forma Adjustments				Pro Forma Combined
														(unaudited)
Operating revenues			$	18,552			$	40,287				—			$	58,839
Operating Expense:
Costs of goods sold (exclusive of depreciation shown separately below)				11,996				30,319				—				42,315
Depreciation and amortization				1,047				1,174				2,339	(a)			4,560
Selling, general, and administrative expenses				6,958				7,129				—				14,087

Total operating expenses				20,001				38,622				2,339				60,962

Income from operations				(1,449	)			1,665				(2,339	)			(2,123	)
Interest expense				871				579				4,650	(b)			6,100
Other (expense) income				(131	)			(92	)			—				(223	)

Net interest expense and other income				1,002				671				4,650				6,323
Income before income taxes				(2,451	)			994				(6,989	)			(8,446	)
Provision for income taxes				—				67				—				67
Net income (loss) before minority interest				(2,451	)			927				(6,989	)			(8,513	)

Minority interest expense (income)				—				—				—				—

Net income (loss)			$	(2,451	)		$	927			$	(6,989	)		$	(8,513	)

(a)

Depreciation and amortization expense adjusted to reflect the full year effect of the amortization of acquired intangibles and additional depreciation expense for fixed assets. acquired, albeit at a lower cost basis than that of the acquiree’s original basis.

(b)

Additional interest expense recorded for the full year on approximately $66 million of additional debt financing acquired to facilitate the acquisition of RNK at a weighted average interest rate of 7.6%.


	Year Ended December 31, 2007
		Wave2Wave				RNK				Pro Forma Adjustments				Pro Forma Combined
														(unaudited)
Operating revenues			$	35,403			$	43,235				—			$	78,638
Operating expenses:
Costs of goods sold (exclusive of depreciation shown separately below)				22,143				28,152				—				50,295
Depreciation and amortization				1,986				1,353				1,221	(a)			4,560
Selling, general, and administrative expenses				14,199				8,295				—				22,494

Total operating expenses:				38,328				37,800				1,221				77,349

Income from operations				(2,925	)			5,435				(1,221	)			1,289
Interest expense				2,306				746				3,631	(b)			6,683
Other income				3,496				(14	)			—				3,482

Net interest expense and other income				(1,190	)			760				3,631				3,201

Income before income taxes				(1,735	)			4,675				(4,852	)			(1,912	)
Provision for income taxes				(3,629	)			171				—				(3,458	)

Net income (loss) before minority interest				1,894				4,504				(4,852	)			1,546
Minority interest expense (income)				—				—				—				—

Net income (loss)			$	1,894			$	4,504			$	(4,852	)		$	1,546

(a)

Depreciation and amortization expense adjusted to reflect the full year effect of the amortization of acquired intangibles and additional depreciation expense for fixed assets.

	Year Ended December 31, 2007
	Wave2Wave				RNK				Pro FormaAdjustments				Pro FormaCombined
													(unaudited)
Net revenues		$	35,403			$	43,235				—			$	78,638
Costs of goods sold			22,143				28,152				—				50,295
Gross Profit			13,260				15,083				—				28,343
Operating Expense:
Depreciation and amortization			1,986				1,353				1,221				3,339
Selling, general, and administrative expenses			14,199				8,295				—				22,494
Income from operations			(2,925	)			5,435				(1,221	)			2,510
Interest expense			2,306				746				3,631				6,683
Other income			3,495				(14	)			—				3,481
Net interest expense and other income			(1,189	)			760				3,631				3,202
Income before income taxes			(1,736	)			4,675				(4,852	)			(692	)
Provision for income taxes			(3,630	)			171				—				(3,459	)
Net income (loss) before minority interest			1,894				4,504				(4,852	)			2,767
Minority interest expense (income)			—				—				—				—
Net income (loss)		$	1,894			$	4,504			$	(4,852	)		$	2,767

(b)

Additional interest expense recorded for the period from January 1, 2007 through October 12, 2007, the effective date of acquisition on approximately $66 million of additional debt financing acquired to facilitate the acquisition of RNK at a weighted average interest rate of 7.6%

~~(a)~~Liquidity The pro forma adjustments are derived entirely from the audited statement of operations of RNK for the year-to-date period ending October 12, 2007. These results of operations were adjusted additionally additional interest and ~~amortization~~Capital ~~expense.~~Resources

~~Year~~The ~~Ended~~following ~~December~~table 31sets for the major sources and uses of cash, ~~2006~~in thousands, for the periods set forth below:

Nine Months ~~Wave2Wave~~ EndedSeptember 30,

~~RNK~~Year Ended December 31,

~~Pro FormaAdjustments~~2010

~~Pro FormaCombined~~2009

~~(unaudited)~~2009

~~Net revenues~~ 2008

2007

Net cash provided by (used in)
Operating activities

~~18,552~~780

401,~~287~~220

—

582,~~839~~509

~~Costs of goods sold~~ $

11 4,~~996~~012

~~30,319~~$

— (2,646

42,315

Gross Profit

6,556

9,968

—

16,524

Operating Expense:

Depreciation and amortization

1,047

1,174

2,339

4,560

Selling, general, and administrative expenses

6,958

7,129

—

14,087

Income from operations

(1,449

)

~~1,665~~Investing activities

(~~2,339~~199

)

(~~2,123~~696

)

~~Interest expense~~ (859

871

579

4,650

6,100

Other (expense) income

(131

)

(921,227

)

—(18,026

(223

)

~~Net~~Financing ~~interest expense and other income~~activities

1(2,~~002~~093

671

4,650

6,323

Income before income taxes

(2,451

)

~~994~~521

(61,~~989~~252

)

(82,~~446~~298

)

~~Provision for income taxes~~ 21,527

—Net increase (decrease) in cash and cash equivalents

67(1,512

—

Net income (loss) before minority interest

(2,451

)

~~927~~1,045

~~(6,989~~398

) 487

~~(8,513~~855

)Cash and cash equivalents, at the beginning of the period

~~Minority interest expense (income)~~ 1,995

—1,598

—1,111

—256

~~Net~~Cash ~~income~~and ~~(loss)~~cash equivalents, at the end of the period

~~(2,451~~483

)

~~927~~2,642

(61,~~989~~995

)

(81,~~513~~598

) $

67 1,111

Liquidity and Capital Resources

The following table sets forth the major sources and uses of cash, in thousands, for the periods set forth below:

	Nine Months EndedSeptember 30,								Year Ended December 31,
	2009				2008				2008				2007				2006
	(unaudited)				(unaudited)
Net cash provided by (used in)
Operating activities		$	1,220			$	4,143			$	4,013			$	(2,647	)		$	(82	)
Investing activities			(696	)			(1,227	)			(1,227	)			(18,026	)			(7,628	)
Financing activities			521				(2,738	)			(2,299	)			21,528				7,924
Net increase (decrease) in cash and cash equivalents			1,044				178				487				855				214
Cash and cash equivalents, at the beginning of the period			1,598				1,111				1,111				256				42
Cash and cash equivalents, at the end of the period		$	2,642			$	1,289			$	1,598			$	1,111			$	256

Sources of Liquidity

We have incurred net losses during the majority of our reported periods but have been ~~Adjusted~~adjusted EBITDA positive since the year ended 2007 though not for the nine months ended September 30, 2010. We have sought growth to our revenues through active re-investment into our infrastructure as well as aggressively pursuing acquisitions. In 2006, we acquired substantially all of the assets of Intellispace, Inc. and in 2007 we acquired RNK. Although these acquisitions were not immediately accretive to our results, eliminating for the effect of amortization of acquisition related intangibles, ~~amortization~~ and other related non-cash charges, these acquisitions have been cash flow positive.

In order to fund growth and working capital needs as they arise, we have more aggressively managed our purchases to payables cycle as well as our receivables to cash cycles. In addition, we have sought a variety of financing arrangements which are described more fully below.

In October 2007, we entered into multiple financing arrangements with Greystone Capital, specifically its wholly-owned subsidiary GBC Funding, LLC (“GBC”). On October 12, 2007, we entered into a loan for approximately $34.0 million which was further increased to $35.7 million by the end of 2007. In January 2008, we entered into an accounts receivable, or AR, Facility, for $12.0 million that was collateralized by the accounts receivable of our CLEC business (i.e. RNK). The arrangement was further modified in June 2008, whereby $3.0 million of the AR Facility was converted into a term ~~loan~~ loan maturing on June 25, 2011,; leaving the AR Facility with a new limit of $9.0 million. As we negotiated and amended our various debt arrangements, from time to time, we have issued additional consideration such as warrants to purchase shares of our common stock to debt holders. For the various amendments entered into by GBC and us, we have issued, effectively, 1128,~~028,550~~569 warrants to purchase the equivalent amount of shares of common stock. These warrants are recognized at fair value, recorded as debt discount and amortized as an additional component of interest expense through the relevant ~~relevant~~ maturity date, June 25, 2011.

On October 12, 2007, we entered into a series of notes (the “Notes”) payable to eight distinct individuals and entities (the “Noteholders”) in connection with the acquisition of RNK. A significant number of the Noteholders are currently employed by RNK, as such these notes are classified as related party debt. The Noteholders’, in aggregate, were issued notes for the amount of $30,666,939 to be repaid in eight equal quarterly payments consisting of principal and interest with the first quarterly payment due on February 10, 2008. The Notes carried an annual interest rate of 6% to be calculated ~~monthly.~~ monthly. Should we go into default for any reason, the Noteholders have the right to step-up the interest rate to 12%. Through the date of this prospectus, we have amended the original Notes agreements several times, resulting in the issuance of, in the aggregate, warrants to purchase 192,500 shares of common stock. On January 10, 2009, we did not remit the payment due per an extension entered into on December 15, 2009. On April 23, 2009, a default notification was issued and the interest rate was increased to 12%. On September 8, 2009, an extension was granted through

step-up the interest rate to 12%. Through the date of this prospectus, we have amended the original Notes several times, resulting in the issuance of, in the aggregate, 75,000 shares of our common stock and warrants to purchase 24,062 shares of common stock.

On January 10, 2009, we did not remit the payment due pursuant to an extension entered into on December 15, 2008. On April 23, 2009, a default notification was issued and the interest rate was increased to 12%. On September 8, 2009, an extension was granted through January 31, 2010 with a rate decrease to 9% and a $4,303,606 discount on the principal if settled in full by January 31, 2010. In return for the extension we issued the Noteholders 21,875 shares of our common stock. Currently, including accrued interest, the payoff value of the Notes is approximately $10.8 million.

On December 14, 2010, the holders of the RNK Notes agreed that no offering proceeds will be used to pay down the RNK Notes and that the RNK Notes will remain payable until the earlier of July 13, 2011 or our next financing following this offering. In addition, in consideration for the agreement to extend the maturity of the RNK Notes, we agreed to issue to the holders of the RNK Notes an aggregate of 75,000 shares of our common stock, which shares have been granted piggy-back registration rights. We also agreed (i) that the RNK Notes would bear interest at a rate of 12% per annum from December 15, 2010, (ii) that, following our repayment in full to VPC, if we have not repaid the RNK Notes, we will (a) on the first day of each month thereafter, pay to the holders of the RNK Notes $100,000 plus monthly compound interest on the outstanding principal balance and (b) use the proceeds from any financing to repay the RNK Notes.

On March 18, 2009, we assigned, without recourse, all debt outstanding with GBC to Wilmington Trust Company and G. Jeff Mennen (the “Lender”), a related party. The face value of the debt was approximately $38,700,000 and consisted of two pieces. The first was $35,700,000 that originally expired on October 9, 2009, and carried monthly interest at 3.25% + prime. The second, is a $3,000,000 term loan that carries a 5.75% + prime per annum interest rate payable monthly that is due in full on January 25, 2011. The assignment maintains all terms with the exception of maturity date which is now set for October 8, 2010 as well as assigning a fixed interest rate of 6% to entirety of the amount loaned, superseding the terms of the loan and security agreements with GBC. Subsequent to December 31, 2009, the maturity of this debt was extended to October 8, 2011. The extension was not negotiated with any additional consideration.

On September 8, 2009, we entered into a $9,300,000 Senior Secured Financing Agreement (Bridge Loan) with Victory Park Management, LLC, (“VPC”) with proceeds used primarily for debt repayment, debt service and professional fees. This facility bears an interest rate of 3% per month and matures on the earlier of (a) May 8, 2010, (b) the consummation of the proposed offering, and (c) such earlier date as the unpaid principal balance of all outstanding notes become due and payable pursuant to the terms of this agreement and the notes.

We are currently in default of certain covenants set forth in the Senior Secured Financing Agreement that we entered into with VPC (the “Agreement”). On each of March 22, 2010, April 16, 2010, May 11, 2010, May 21, 2010 and July 1, 2010, each of the lenders and VPC, as administrative and collateral agent, agreed to forbear from exercising their default-related rights and remedies, including acceleration and foreclosure, against us or the collateral securing our obligations under the Agreement, with respect to the existing events of default for the agreed upon forbearance period, ending on August 16, 2010. As partial consideration for agreeing to so forbear, we paid to VPC, for the benefit of the lenders certain forbearance fees. On September 21, 2010, each of the lenders and VPC agreed to continue to forbear from exercising certain of their rights and remedies against us or the collateral securing our obligations under the Senior Secured Financing Agreement, with respect to the existing events of default during the forbearance period, which ends on the earlier of January 4, 2011 and the occurrence of a forbearance default under the forbearance agreement. As conditions to the execution and delivery of the forbearance agreement, the maturity date of the RNK Notes was extended until February 28, 2011, and RNK Holding Company and Wilmington Trust Company and G. Jeff Mennen, the holders of our long-term debt, agreed to convert at least 50% of the aggregate principal balance outstanding under such notes, plus 50% of the accrued interest therein, into shares of common stock at a price per share equal to $20. Additionally, as a condition to the execution and delivery of the forbearance agreement, we agreed

~~January~~that ~~31,~~Aaron ~~2010 with a rate decrease to 9% and a $4~~Dobrinsky,~~303,606~~ ~~discount~~our onChief ~~the~~Executive ~~principal if settled in full by January 31~~Officer, ~~2010.~~and ~~Currently,~~Sanford ~~including accrued interest~~McMurtry, ~~the~~Chief ~~paydown~~Operating ~~value~~Officer of ~~the~~RNK, ~~Notes~~would isreport ~~approximately $20 million. Pursuant~~ to ~~the~~Jeff ~~aforementioned extension we issued 175~~Hyland,~~000~~ ~~shares~~who ofwill ~~common stock~~act ~~to the Noteholders. These shares were recorded~~ as ~~debt~~strategic ~~discount~~advisor ~~and will be amortized~~ to ~~interest expense from~~ the ~~date of issuance through the date of maturity of the Notes~~company. ~~Concurrently a $1,000,000 payment was made to be applied to accrued interest.~~

On ~~March~~December 1813, ~~2009~~2010, weeach ~~assigned,~~of ~~without~~the ~~recourse,~~lenders ~~all~~and ~~debt~~VPC ~~outstanding~~agreed (the “7th Forbearance”) to continue to forbear from exercising certain of their rights and remedies against us or the collateral securing our obligations under the Senior Secured Financing Agreement, with ~~GBC~~respect to ~~Wilmington~~the ~~Trust~~existing ~~Company~~events of default during the forbearance period, which ends on the earlier of June 13, 2011 and the occurrence of a ~~related~~forbearance ~~party~~default under the 7th Forbearance. ~~The~~An ~~face~~event ~~value~~of default under the 7th Forbearance includes, but is not limited to, the occurrence of an event of default other than the ~~debt~~existing ~~was~~events ~~approximately~~of default, ~~$38~~the failure to comply with any condition or covenant of the 7th Forbearance,~~700~~ the breach of any representation or warranty set forth in the 7th Forbearance,~~000~~ the breach by any holder of the RNK Notes of certain agreements made pursuant to the forbearance agreement of September 21, 2010 and the ~~consisted~~taking of ~~two~~certain ~~pieces~~actions by certain of our subordinated creditors. ~~The~~In ~~first~~consideration ~~piece~~thereof, ~~was~~we paid to VPC an aggregate of $35600,~~700~~098.70,~~000~~ ~~that~~which ~~originally~~amount ~~expired~~was onapplied ~~October~~to 9,reduce ~~2009~~the principal balance and ~~carried~~ ~~monthly~~accrued interest atof 3the loan.~~25%~~ +Additionally, ~~prime.~~we ~~The~~agreed ~~second~~to ~~piece~~pay isto aVPC (i) out of the proceeds of this offering $32,000,000 ~~term~~(or ~~loan~~up ~~that~~to ~~carries~~$2,700,000 aif ~~5.75%~~the +underwriter’s ~~prime~~over-allotment ~~per~~option ~~annum~~is ~~interest~~exercised) ~~rate~~to ~~payable~~reduce ~~monthly~~the ~~that~~principal isbalance ~~due~~of inthe ~~full~~loan and (ii) on the first day of every month, commencing January 251, 2011., ~~The~~$200,000, ~~assignment~~to ~~maintains~~reduce ~~all~~the ~~terms~~principal ~~with~~balance of the ~~exception~~loan and an amount equal to the interest that will accrue on the loan during such month. As a condition to the execution and delivery of ~~maturity~~the ~~date~~7th ~~which~~Forbearance, iswe ~~now~~agreed ~~set~~that, ~~for~~unless ~~October~~and 8until a default under the 7th Forbearance occurs, Aaron Dobrinsky and Sanford McMurtry shall no longer directly report to Jeff Hyland and will only consult with ~~2010~~Mr. ~~Subsequent~~Hyland, as Mr. Hyland retained the position as strategic advisor to ~~September~~the ~~30,~~company. ~~2009,~~Effective immediately upon the ~~maturity~~occurrence of ~~this~~a ~~debt~~default ~~was~~under ~~extended~~the 7th Forbearance, (i) Aaron Dobrinsky shall however report directly to ~~October~~Jeff 7Hyland and (ii) Jeff Hyland, ~~2013.~~as Westrategic ~~issued~~advisor, ~~warrants~~would have full authority to direct, ~~acquire~~manage, ~~800~~perform,~~000~~ ~~shares~~control, ofimplement and make all decisions with respect to our ~~common~~financial, ~~stock~~operational and managerial affairs, atcost anrestructurings, ~~exercise~~personnel ~~price~~management, asset management and disposition, accounting function, bank and commercial relationship management, and all other aspects of the $2business; provided that, Mr.13 ~~per~~Hyland ~~share~~would not have the authority to dismiss Eric Mann or Andrew Bressman. Notwithstanding the foregoing, asMr. ~~consideration~~Hyland ~~for~~has not been involved with the ~~extension~~preparation or review of any of the information contained in this prospectus, nor has he been involved with any of the company’s efforts to consummate this offering. Upon repayment of the VPC loan, Mr. Hyland will no longer have such authority or hold such position.

On ~~September~~January 826, ~~2009~~2010, weSteven Asman entered into aan ~~$9,300,000~~agreement ~~Senior~~to ~~Secured~~extinguish ~~Financing~~an ~~Agreement~~outstanding note owed to us (~~Bridge~~the ~~Loan~~“Asman Note”) ~~with~~that ~~Victory~~had ~~Park~~been ~~Management,~~held ~~LLC~~between 2006 and 2009. The Asman Note’s principal and accrued interest amounted to approximately $96,000 (the “~~VPC~~Asman Payoff Amount”) ~~with~~as ~~proceeds~~of December ~~used~~31, ~~primarily~~2009. ~~for~~The ~~debt~~Asman ~~repayment,~~Payoff ~~debt~~Amount ~~service~~has ~~and~~been ~~professional~~be ~~fees.~~settled ~~This~~by ~~facility~~Mr. ~~bears~~Asman antendering ~~interest~~without ~~rate~~restriction ofan 3%agreed-upon ~~per~~2,400 ~~month~~shares ~~and matures~~of onour ~~the~~common ~~earlier~~stock. ofWe ~~(a)~~have ~~May~~accepted 8,Mr. ~~2010~~Asman’s shares and ~~(b)~~consider the ~~consummation~~Asman ofNote ~~the~~paid ~~proposed~~in ~~offering~~full.

On January 26, 2010, ~~Steven~~Andrew ~~Asman~~Bressman entered into an agreement to extinguish an outstanding note owed to us (the “~~Asman~~Bressman Note”) that had been held between 2006 and ~~2009~~such date. The ~~Asman~~Bressman Note’s principal and accrued interest amounted to approximately $96686,~~000~~712 (the “~~Asman~~Bressman Payoff Amount”) as of ~~December~~ 31January 26, ~~2009~~2010. The ~~Asman~~Bressman Payoff Amount of $16,625 has been be settled by Mr. ~~Asman~~Bressman tendering without restriction an agreed-upon 1966,~~200~~600 shares of our common stock, which was gifted to him by his wife from a trust of which she is a beneficiary. We have accepted Mr. ~~Asman~~Bressman’s shares and consider the ~~Asman~~Bressman Note paid in full.

On January 2627, 2010, ~~Andrew~~the ~~Bressman~~Company ~~entered~~issued ~~into~~the anLender ~~agreement~~warrants to ~~extinguish~~purchase an100,000 ~~outstanding~~shares ~~note~~of ~~owed to us (~~the ~~“Bressman~~common ~~Note”)~~stock ~~that~~of ~~had~~the ~~been~~Company ~~held~~with ~~between~~an ~~2006~~exercise ~~and~~price ~~such~~of ~~date~~$17.04 ~~The~~per ~~Bressman~~share ~~Note’s principal~~ and ~~accrued~~expiring ~~interest~~on ~~amounted~~October ~~to approximately $665~~7,~~000~~ 2013 (the “~~Bressman~~Maturity ~~Payoff Amount~~Date”) ~~as of January 26, 2010~~. The ~~Bressman~~warrants ~~Payoff~~were ~~Amount~~issued ~~has~~in ~~been~~order ~~settled~~to byinduce ~~Mr.~~the ~~Bressman~~Lender ~~tendering~~to ~~without~~extend ~~restriction~~the expiration andates ~~agreed-upon 133,200 shares~~ of ~~our~~the ~~common~~notes ~~stock,~~assigned ~~which was gifted~~ to ~~him~~October by7, ~~his wife from a trust of which she is a beneficiary~~2013. ~~We have accepted Mr. Bressman’s shares and consider the Bressman Note paid in full.~~

WeOn ~~continue~~February to1, ~~actively~~2010, ~~manage~~pursuant ~~our~~to ~~debt~~the ~~and~~terms ~~have~~of ~~had~~the toStock ~~negotiate~~Issuance ~~amendments~~ and ~~extensions~~Payment ~~with~~Agreement ~~various~~(the ~~debt~~“SIPA”) ~~holders~~entered ~~and~~into ~~have~~on ~~been~~September in8, ~~default~~2009, atwith ~~times.~~the Weholders ~~have~~of inthe ~~each~~Notes ~~case~~held ~~been~~by ~~issued~~former ~~default~~owners ~~forbearance~~of ~~notices and waivers. However~~RNK, itthe ~~cannot~~interest berate ~~assured~~on ~~that~~the wenotes ~~will~~was ~~not~~“stepped-up” gofrom ~~into~~9% ~~default~~per ~~of existing~~annum ~~covenants or be unable~~ to ~~adequately~~12% ~~service~~per ~~our existing debt obligations~~annum. Pursuant ~~Should~~to wethe ~~enter~~agreement ~~into~~the aninterest ~~event~~rate ofwould ~~default~~remain ~~with~~at ~~our~~9% ~~notes,~~per ~~the~~annum ~~effects~~through onJanuary ~~our financial position~~31, ~~operating cash flows and results of operations would be materially adverse.~~

We are currently seeking to consummate an initial public offering. The primary use of proceeds from such offering will be the extinguishment of our Notes entered into with the Noteholders as described above, the $9.3 million balance with VPC and the completion of the purchase of substantially all of the ownership equity of Winncom for approximately $25 million. The remainder of proceeds from the offering will be available for deployment per the discretion of management.

Anticipated Capital Expenditures

We expect to fund our 4G HFW network roll-out less any reserves deemed necessary for working capital after the use of proceeds described above related to our anticipated offering. The approximate cost per square foot to “light” a building, i.e. upgrade its network infrastructure from legacy standards to fully compliant 4G is estimated at $1.78 per square foot. We cannot be assured that the cost to implement, which includes networking equipment, network communications nodes and requisite installation labor, will not exceed our current estimate of cost per square foot. We believe that current operations can adequately generate the free cash flow required to fund ongoing

~~required capital expenditures to maintain our existing business~~2010. AsIf wethe ~~intend~~notes towere ~~retire~~not ~~approximately~~repaid ~~$30~~in ~~million~~full ofat ~~our~~that ~~debt which carries our highest interest rates~~time, ~~we believe~~ the new interest ~~expense~~rate ~~saved~~going ~~will~~forward ~~result~~would inbe ~~additional~~12% ~~cash~~per ~~being~~annum ~~generated by operations being available for re-investment into existing and future operations~~thereafter.

The potential effects of the ongoing litigation between our wholly-owned subsidiary, RNK, and Verizon New England, Inc. (“Verizon”) could have a material adverse effect on our business and liquidity. If Verizon were to prevail on its claims as to the rate for, or percentage of VFX traffic that should govern the parties’ agreements, we could incur substantial costs including paying at a higher rate and percentage of VFX traffic. As we are unable to predict what an adverse decision would result in, we are unable to quantify how it would affect our liquidity.

We continue to actively manage our debt and have had to negotiate amendments and extensions with various debt holders and have been in default at times. We have in each case been issued default forbearance notices and waivers. However, it cannot be assured that we will not go into default of existing covenants or be unable to adequately service our existing debt obligations. Should an event of default occur, the effects on our financial position, operating cash flows and results of operations would be materially adverse.

We are currently reporting a total stockholders’ deficit and have negative working capital as measured by total current assets less total current liabilities. We have, as of the balance sheet date, approximately $19 million of debt and related accrued interest due within three months. We do not have available cash reserves to repay the debt currently due nor do we expect cash flows from operations to provide sufficient funds. One of our lenders, Victory Park Capital (“VPC”) has agreed to forbear from exercising their default-related rights and remedies until June 13, 2011. As we are currently unable to satisfy these debt obligations, we are actively seeking sources of funding, in the form of private and public debt or equity, in order to avoid a default situation. In the event of a declaration of default without continued forbearance, we may be placed into involuntary liquidation by our lenders. We have a successful history of being able to negotiate mutually agreeable extensions on our past and present debt portfolio. Although we believe that we can either negotiate a mutually agreeable extension with respect to our currently outstanding debt due within six months, or secure financing in order to avoid a default situation, there can be no assurances that we will be successful.

We are currently seeking to consummate an initial public offering. The primary use of proceeds from such offering will be the partial repayment of the $8.2 million balance with VPC as of September 30, 2010. Pursuant to an exchange of shares for debt, the principal on the RNK Notes is $9,651,803 as of November 30, 2010. The remainder of proceeds from the offering will be available for deployment per the discretion of management. We believe that the net proceeds from this offering, available capital lease financing and cash flow from operations will be sufficient to meet our working capital, capital expenditure and other cash needs for the next six months. However, if we do not meet our business plan targets or are unable to repay the VPC or RNK notes in full, we will need to raise additional capital from public or private equity or debt sources in order to finance future growth, including the expansion of service within existing markets and into new markets, which can be capital intensive, as well as unanticipated working capital needs and capital expenditure requirements.

Anticipated Major Capital Expenditures

We expect to fund a portion of our 4G based HFW network roll-out less any reserves deemed necessary for working capital after the use of proceeds described above related to our anticipated offering. The approximate cost per square foot to “light” a building, i.e. upgrade its network infrastructure from legacy standards to fully compliant 4G is estimated at $1.10 per square foot. We cannot be assured that the cost to implement, which includes networking equipment, network communications nodes and requisite installation labor, will not exceed our current estimate of cost per square foot.

We believe that current operations can adequately generate the free cash flow required to fund ongoing required capital expenditures to maintain our existing business for the next six months. As we intend to repay up to $2.7 million of our debt which carries our highest interest rates, we believe

the interest expense saved will result in additional cash being generated by operations being available for re-investment into existing and future operations.

Cash Flows

Operating Activities

Cash provided by operating activities decreased by approximately $40.64 million to $10.28 million for the nine months ended September 30, ~~2009~~2010 compared to the same period in ~~2008~~2009. This was driven primarily by ~~very~~lower ~~strong~~negative adjusted EBITDA in ~~2008,~~2010 ~~increased~~partially offset by ~~favorable~~more ~~non-recurring~~aggressive ~~adjustments that positively~~cash ~~affected our gross margins~~management.

Cash provided by operating activities ~~increased~~decreased by $61.75 million to $42.05 million for the year ended December 31, ~~2008~~2009, compared to the same period in ~~2007~~2008. This was driven primarily by very strong adjusted EBITDA in 2008, increased by favorable non-recurring adjustments that positively affected our gross margins ~~as well as lower selling, general and administrative expenses as a percentage of revenues~~.

Cash ~~used~~provided by operating activities increased by $26.6 million to $24.60 million for the year ended December 31, ~~2007~~2008, compared to the same period in ~~2006~~2007. This was driven primarily by ~~large~~very ~~increases~~strong inadjusted ~~trade~~EBITDA ~~receivables~~in ~~driven~~2008, increased by ~~the~~favorable ~~effect~~non-recurring ofadjustments ~~the~~that ~~acquisition~~positively ofaffected gross ~~RNK.~~margins ~~These~~as ~~receivables~~well ~~were~~as ~~collected~~lower selling, general and ~~settled~~ ~~throughout~~administrative ~~2008~~expenses ~~and~~as ~~2009~~a percentage of revenues.

Investing Activities

Cash used by investing activities ~~decreased~~was by $0.52 million ~~to $0.7 million~~ for the nine months ended September 30, ~~2009~~2010 compared to ~~the same period in 2008~~$0.7 ~~This~~million ~~was~~for ~~driven primarily lower capital expenditures required to maintain~~ the ~~existing~~same ~~infrastructure,~~period ~~particularly~~in ~~that required by our CLEC business~~2009.

Cash used by investing activities decreased by $160.83 million to $10.39 million for the year ended December 31, ~~2008~~2009, compared to the same period in ~~2007~~2008. This was driven primarily by ~~the~~lower ~~lack~~capital ofexpenditures ~~acquisition~~required ~~activity~~to inmaintain ~~2008.~~the ~~Our~~existing ~~two~~infrastructure, ~~major~~particularly ~~lines~~that ofrequired ~~business~~by ~~are~~ our CLEC ~~business and our ISP business.~~ ~~The former~~ business ~~is in the mature phase of its lifecycle and requires minimal investment for maintenance and gradual upgrades~~. Our ISP business is able to ramp up capacity and its serviceable subscriber base without considerable re-investment notwithstanding certain “critical mass” points at which increasing capacity would require “steps-ups” of capacity and significant backhaul costs, i.e. costs to create orders of magnitude larger connections to Internet traffic “backbones.”

Cash used by investing activities ~~increased~~decreased by $1016.48 million to $181.03 million for the year ended December 31, ~~2007~~2008, compared to the same period in ~~2006~~2007. This ~~increase~~ was driven primarily by the bylack ~~larger~~of ~~purchase~~acquisition ~~price~~activity ~~paid~~in ~~for~~2008. Our two major lines of business are our ~~2007~~CLEC ~~acquisition,~~business ~~RNK,~~and ~~compared~~our toISP business. The former business is in the ~~lower~~mature ~~purchase~~phase ~~price~~of ~~paid~~its lifecycle and requires minimal investment for maintenance and gradual upgrades. Our ISP business is able to ramp up capacity and its serviceable subscriber base without considerable re-investment notwithstanding certain “critical mass” points at which ~~our~~increasing ~~2006~~capacity ~~acquisition,~~would ~~Intellispace~~require “steps-ups” of capacity and significant backhaul costs, ~~Inc~~i.e. costs to create orders of magnitude larger connections to internet traffic “backbones.”

Financing Activities

Cash ~~provided~~used by financing activities ~~increased~~was byapproximately $52.01 million ~~to $0.5 million~~ for the nine months ended September 30, ~~2009~~2010, compared to ~~the~~cash ~~same~~provided ~~period~~by infinancing ~~2008.~~activities ~~This~~of ~~was~~approximately ~~driven~~$1.0 ~~primarily~~million byfor ~~favorable~~the ~~re-negotiations~~same ofperiod ~~existing~~in ~~debt~~2009. asThe ~~well~~cash asused ain ~~without~~financing ~~recourse~~activities ~~assignment~~during ofthe ~~much~~nine ofmonths ~~our existing~~ended ~~debt~~September 30, ~~portfolio~~2010 towas aprimarily ~~related~~attributable ~~party on very favorable terms. In addition, while continuing~~ to ~~service~~the ~~our~~repayment ~~accounts~~of ~~receivable~~long ~~facility~~term debt in ~~2009,~~the weamount ~~also~~of ~~received~~$1.1 ~~additional~~million ~~short-term~~and ~~financing~~principal ~~from~~payments ~~related~~on ~~parties,~~capital ~~who~~leases ~~were~~of ~~induced~~$1.0 tomillion doduring ~~so with~~ the ~~issuance~~current ~~of warrants~~period.

Cash used by financing activities ~~increased~~decreased by $241.0 million to $21.23 million ~~from cash provided by financing activities in 2008 of $21.7 million~~ for the ~~years~~year ended December 31, 2009, ~~and~~compared ~~2008,~~to ~~respectively.~~the ~~The~~same ~~change~~period in 2008. This was driven primarily ~~due~~by tofavorable re-negotiations of existing debt ~~being~~terms, ~~raised~~and ina ~~2007~~without ~~for~~recourse ~~partial~~assignment ~~financing~~of much of ~~the~~our existing debt ~~acquisition~~portfolio ofto ~~RNK~~a ~~and~~related ~~2008~~party ~~reflecting~~on ~~the~~very ~~full~~favorable ~~year~~terms. ~~effect~~In ofaddition, ~~debt~~while continuing to service onour ~~the~~accounts ~~approximately~~receivable ~~$70~~facility ~~million~~in of2009, ~~debt~~we ~~raised~~also ~~pursuant~~received additional short-term financing from related parties, who were induced to do so with the ~~RNK~~issuance ~~acquisition~~of warrants.

Cash used by financing activities increased by $24.0 million to $2.2 million from cash provided by financing activities in 2008 of $21.5 million for the years ended December 31, 2008, and 2007, respectively. The change was driven primarily due to debt being raised in 2007 for partial financing of the acquisition of RNK and 2008 reflecting the full year effect of debt service on the approximately $70.0 million of debt raised pursuant to the RNK acquisition.

Cash provided by financing activities increased by $13.6 million to $21.5 million from cash provided by financing activities for the year ended December 31, 2007 compared to the same period ended December 31, 2006. The increase was driven primarily due to more debt being raised in 2007 for financing of the acquisition of RNK of approximately $70.0 million as compared to debt raised, less repayments of borrowings in 2006 related to the acquisition of Intellispace and existing debt service.71

Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments, in thousands, at ~~September~~December 3031, 2009, as further described in our notes to our consolidated financial statements.

	Payments Due By Period
	Total			Less than1 Year			1-3 Years			3 - 5Years			More than5 Years
Long-term debt, non-related party		$	89,~~340~~300		$	—9,300		$	~~8,340~~—		$	—		$	—
Capital lease obligations			3,~~471~~045			1,~~340~~289			21,~~131~~756			—			—
Operating lease obligations			13,~~891~~249			~~915~~782			~~767~~2,094			~~209~~373			—
Related party obligations			58,~~681~~754			19,~~231~~554			~~39,450~~—			—39,200			—
Total		$	7274,~~383~~348		$	2130,~~486~~925		$	503,~~688~~850		$	~~209~~39,573		$	—

Our debt instruments contain certain covenants which, among other things, limit additional indebtedness, dividend payments, certain investments and transactions with affiliates. If we should fail to comply with these covenants, amounts due under the instruments may be accelerated at the note holder’s discretion after the declaration of an event of default.

Long-term debt obligations exclude issue discounts, premiums and fair value adjustments. These adjustments are amortized to interest expense from date of recognition through date of maturity of the applicable obligation.

All interest bearing obligations assume fixed rate interest rates notwithstanding rate adjustments in connection with loan covenant defaults. We have ~~been~~entered ~~issued~~into a forbearance ~~notices~~agreeement for any ~~default~~defaults ~~notices~~on ~~issued~~our debt obligations as of the date of this prospectus. We are not being assessed any “stepped-up” rates of interest on any of our debt obligations, related party or otherwise.

Purchase obligations represent all of our outstanding purchase order amounts as of ~~September~~December 3031, 2009. As per management’s judgment, we have no material purchase obligations or contractual commitments at this time.

The table above does not include other long-term liabilities, such as liabilities recorded for legal matters and income taxes that are not contractual obligations by nature. We cannot determine with any degree of certainty the years in which these liabilities might ultimately be paid.

OnImmediately ~~November~~prior ~~24,~~to ~~2009,~~the welisting ~~amended~~of our ~~August~~common 11stock on the NYSE Amex, ~~2006~~Mr. ~~Strategic~~Bressman ~~Partnership~~and ~~Master~~the ~~Agreement~~company (have agreed that Mr. Bressman will no longer be employed by the ~~“SPMA”)~~company. In connection with ~~incNetworks®~~Mr. ~~Pursuant~~Bressman’s toseparation from the ~~SPMA~~company, wethe ~~will~~company ~~become~~and Mr. Bressman have entered into a separation agreement pursuant to which, among other things, the ~~exclusive~~company ~~provider~~will make payments of ~~incNetworks’s®~~$551,250 ~~patented~~to 4GMr. ~~“small~~Bressman ~~cell”~~on ~~wireless~~or ~~technology~~prior into ~~certain~~March ~~buildings~~15, 2011 (with a minimum payment of $175,000 due on or before January 15, 2011), and an aggregate payment of $198,750 to be ~~identified~~paid byto ~~the~~Mr. Bressman ~~parties.~~in ~~This~~12 ~~technology~~equal ~~enables~~monthly installments, in consideration for the receipt from Mr. Bressman of a ~~broadband~~release ~~wireless~~of ~~network~~the tocompany ~~have~~and ~~throughput~~for ~~rates~~the ~~comparable~~extension of Mr. Bressman’s non-competition obligations as set forth in the agreement. In addition, Mr. Bressman will be entitled to ~~traditional~~receive ~~landline~~payment ~~based~~of ~~networks~~his base salary, certain fringe benefits and coverage under the company’s health and other benefit plans for the remainder of the term of his existing employment agreement.

incNetworks® must complete deployment of its 4G based HFW network in two “showcase buildings” no later than March 31, 2010 (the “Effective Date”). Further, upon the occurrence of a “funding event” (our proposed initial public offering qualifies as a funding event under the SPMA) by the Effective Date, Wave2Wave and incNetworks® will put a purchase order in place under which Wave2Wave will disburse $2 million as a 50% down payment. In exchange, incNetworks® will build out 4G load HFW networks in 12 buildings measured at 250,000 square feet each. This roll-out (the “Initial Roll-Out”) is to be completed within three months. Upon satisfactory completion of the Initial Roll-Out and Wave2Wave accepting the networks as fully operational, we will fund the remaining 50% due.

Subsequent to the successful Initial Roll-Out, we will pay $4 million to incNetworks® for each roll-out of twelve buildings at 250,000 square feet each, provided that each roll-out is completed

within three months and all networks are accepted by Wave2Wave as fully operational. We will fund up to three additional roll-outs following the Initial Roll-Out for a total possible contract value of $16 million.

On February 4, 2010 we entered into a stock purchase agreement for the acquisition of Winncom. In exchange for 100% of the ownership equity of Winncom, we will issue 4,714,038 shares of our common stock and pay $25.0 million cash (which includes $8.0 million purchase price and $17.0 million retirement of debt). This contractual commitment, however, is contingent upon successful consummation of our proposed initial public offering transaction and is therefore not a firm commitment and excluded from our table above.

Off-Balance Sheet Arrangements

We have not entered into off-balance sheet arrangements that have had, or are likely to have, a current or future material effect to our results of operations, financial position or operating cash flows.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are not subject to market risks arising from changes in interest rates and foreign exchange rates as we do not have any variable rate of interest loans. As of ~~September~~December 3031, 2009, we had borrowed a total of approximately $70.0 million primarily under a ~~senior~~related ~~secured~~party ~~term~~note ~~loan~~ due ~~2011~~in 2013, a senior secured financing arrangement maturing in May 2010 and subordinated secured promissory notes due May 2010, all which ~~have~~carry fixed rates of interest. The weighted average effective interest rate on these arrangements at ~~September~~December 3031, 2009, was approximately 612.01%. The weighted average

effective interest rate on these arrangements were 12.1% and 12.9% at June 30, and September 30 of 2010, respectively.

Foreign Currency Exchange Rate Risk

We do not conduct any portion of our business in foreign markets and as such have no exposure with respect to the fluctuation in foreign currency exchange rates. ~~If our acquisition of Winncom is consummated, we will be affected by actual fluctuations in foreign currency rates.~~

Following our acquisition of, we will conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which our consolidated financial statements are reported. Consequently, our operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar.

Recent Accounting Pronouncements

InASU ~~January 2010 the FASB issued Update~~ No. 2010-0611 ~~“Fair~~was ~~Value~~issued ~~Measurements~~in ~~and~~March ~~Disclosures–Improving Disclosures about Fair Value Measurements” (“~~2010~~-06”). 2010-06 requires new disclosures regarding significant transfers between Level 1 and Level 2 fair value measurements~~, and ~~disclosures regarding~~clarifies ~~purchases,~~that ~~sales,~~the ~~issuances~~transfer ~~and~~of ~~settlements,~~credit onrisk athat ~~gross~~is ~~basis,~~only ~~for~~in ~~Level~~the 3form ~~fair~~of ~~value~~subordination ~~measurements.~~of ~~2010-06~~one ~~also~~financial ~~calls~~instrument ~~for~~to ~~further~~another ~~disaggregation~~is ofan ~~all~~embedded ~~assets~~derivative ~~and~~feature ~~liabilities~~that ~~based~~should onnot ~~line~~be ~~items~~subject ~~shown~~to inpotential ~~the~~bifurcation ~~statement~~and ofseparate ~~financial position~~accounting. This ~~amendment~~ASU iswill be effective for the first fiscal ~~years~~quarter beginning after ~~December~~ June 15, 2010, ~~and~~with ~~interim~~early ~~periods~~adoption ~~within those fiscal years~~permitted. WeThe ~~are~~Company ~~currently~~does ~~evaluating~~not ~~whether~~expect ~~adoption~~the provisions of ~~this~~ASU ~~standard~~2010-11 ~~will~~to have a material ~~impact~~effect on ~~our~~the financial position, results of operations or cash flows of the company.

In ~~January~~April 2010, the FASB issued Accounting Standard Update No. 2010-0512. “~~Compensation–Stock~~Income ~~Compensation–Escrowed~~Taxes” ~~Share~~(Topic ~~Arrangements~~740). ~~and~~In ~~Presumption~~April of2010, ~~Compensation”~~the FASB (~~“2010-05”).~~Financial ~~2010-05~~Accounting ~~re-asserts~~Standards ~~that~~Board) ~~the~~issued ~~Staff~~Accounting ofStandards ~~the~~Update ~~Securities~~2010-12 ~~Exchange~~(ASU ~~Commission~~2010-12), ~~(the~~Income ~~“SEC~~Taxes ~~Staff”~~(Topic 740): ~~has~~Accounting ~~stated~~for ~~the~~Certain ~~presumption~~Tax ~~that~~Effects ~~for~~of ~~certain~~the ~~shareholders~~2010 ~~escrowed~~Health ~~shares~~Care ~~represent~~Reform aActs. ~~compensatory~~After ~~arrangement.~~consultation ~~2010-05~~with ~~further~~the ~~clarifies~~FASB, the ~~criteria~~SEC ~~required~~stated tothat beit ~~met~~“would tonot ~~establish~~object to a ~~position~~registrant ~~different~~incorporating ~~from~~ the ~~SEC~~effects ~~Staff’s~~of ~~position.~~the WeHealth doCare ~~not~~and ~~have~~Education ~~any~~Reconciliation ~~escrowed~~Act ~~shares~~of ~~held~~2010 atwhen ~~this~~accounting ~~time.~~for Asthe ~~such,~~Patient weProtection doand ~~not~~Affordable ~~believe~~Care ~~this~~Act”. ~~pronouncement~~The ~~will~~company does not expect the provisions of ASU 2010-12 to have ~~any~~a material ~~impact~~effect on ~~our~~the financial position, results of operations or cash flows of the company.

72ASU No. 2010-13 was issued in April 2010, and will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted. The company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the company.

In ~~January~~April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update ~~No.~~2010-17 (ASU 2010-0417), ~~“Accounting~~Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones ~~Various~~achieved ~~Topics–Technical~~in ~~Corrections~~fiscal toyears, ~~SEC~~and ~~Paragraphs”~~interim (“periods within those years, beginning on or after June 15, 2010~~-04”)~~. ~~2010-04~~Early ~~represents~~adoption ~~technical~~is ~~corrections~~permitted. toIf ~~SEC~~a ~~paragraphs~~vendor ~~within~~elects ~~various~~early ~~sections~~adoption and the period of adoption is not the ~~Codification.~~beginning Weof ~~are~~the ~~currently~~entity’s ~~evaluating~~fiscal ~~whether~~year, ~~these~~the ~~changes~~entity ~~will~~should apply the amendments retrospectively from the beginning of the year of adoption. The company does not expect the provisions of ASU 2010-17 to have ~~any~~a material ~~impact~~effect on ~~our~~the financial position, results of operations or cash flows of the company.

In ~~January~~April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-0218 “~~Accounting~~Receivables ~~and~~(Topic ~~Reporting~~310)—Effect ~~for Decreases in Ownership~~ of a ~~Subsidiary—a~~Loan ~~Scope~~Modification ~~Clarification”~~When ~~(“2010-02”)~~the anLoan ~~update~~is ofPart ~~ASC 810 “Consolidation.” 2010-02 clarifies the scope~~ of ~~ASC~~a ~~810~~Pool ~~with~~that ~~respect~~is toAccounted ~~decreases~~for inas ~~ownership~~a inSingle Asset—a ~~subsidiary~~consensus ~~to those~~ of a:the ~~subsidiary~~FASB orEmerging ~~group~~Issues ofTask Force.” ~~assets~~ASU ~~that~~2010-18 ~~are~~provides aguidance ~~business~~on oraccount ~~nonprofit,~~for aacquired ~~subsidiary~~loans that ishave ~~transferred~~evidence toof ancredit ~~equity~~deterioration ~~method~~upon ~~investee~~acquisition. orIt ~~joint~~allows ~~venture,~~acquired ~~and~~assets anwith ~~exchange~~common ofrisk acharacteristics ~~group~~to ofbe ~~assets~~accounted ~~that~~for ~~constitutes~~in athe ~~business~~aggregate oras ~~nonprofit~~a ~~activity~~pool. toASU ~~a non~~2010-~~controlling~~18 ~~interest~~is ~~including~~effective anfor ~~equity~~modifications ~~method~~of ~~investee~~loans oraccounted afor ~~joint~~within ~~venture.~~pools Weunder doSubtopic ~~not~~310-30 ~~expect~~in ~~adoption~~the offirst ~~this~~interim ~~standard~~or toannual ~~have~~reporting ~~any~~period ~~material~~ending ~~impact~~ on ~~our~~or ~~financial~~after ~~position~~July 15, ~~results~~2010. ofThe ~~operations~~company ordoes ~~operating~~not ~~cash~~expect ~~flows.~~ASU In2010-18 ~~addition~~to wehave doan ~~not~~impact ~~intend~~on ~~to decrease~~ its ~~ownership~~financial incondition, ~~any~~results of ~~our~~operations, ~~wholly-owned subsidiaries at this time~~ or ~~in the foreseeable future~~disclosures.

In ~~January~~May 2010, the FASB ~~issued~~(Financial ~~Update No. 2010-01 “~~Accounting ~~for~~Standards ~~Distributions~~Board) toissued ~~Shareholders~~Accounting ~~with~~Standards ~~Components~~Update of2010-19 ~~Stock~~(ASU ~~and~~2010-19), ~~Cash—a~~Foreign ~~consensus~~Currency of(Topic ~~the~~830): ~~FASB~~Foreign ~~Emerging~~Currency Issues: ~~Task~~Multiple ~~Force”~~Foreign ~~(“2010-03”)~~Currency anExchange ~~update~~Rates. ofThe ~~ASC~~amendments ~~505~~in ~~“Equity.”~~this ~~2010-03~~Update ~~clarifies~~are ~~the~~effective ~~treatment~~as of ~~stock~~the ~~distributions as~~announcement ~~dividends~~date ~~to shareholders and their affect on the computation~~ of ~~earnings~~March ~~per~~18, ~~shares~~2010. WeThe ~~have~~company ~~not~~does ~~and do~~ not ~~intend to declare dividends for preferred to common stock holders. We do not~~ expect ~~adoption~~the provisions of ~~this~~ASU ~~standard~~2010-19 to have ~~any~~a material ~~impact~~effect on ~~our~~the financial position, results of operations or ~~operating~~ cash flows of the company.

Other recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the company’s present or future consolidated financial statements.

INFORMATION ABOUT WINNCOM

Proposed Acquisition of Winncom

On February 4, 2010, we entered into a stock purchase agreement to acquire privately-held Winncom Technologies Holding Limited, a company incorporated under Irish law. Pursuant to the stock purchase agreement, we will acquire 100% of the issued share capital of Winncom from the stockholders of Winncom, for a payment, including the retirement of debt, of approximately $25 million and approximately 4,714,038 shares of our common stock, which number of shares represents approximately 7.5% of our issued and outstanding shares of common stock on a fully-diluted basis as of the date of this prospectus, subject to certain working capital adjustments to be determined within 120 days following the closing of the acquisition. We intend to consummate the acquisition immediately upon the closing of this offering. Concurrently with the consummation of this offering and the closing of the acquisition of Winncom, Gregory Raskin, the President and Chief Executive Officer of Winncom, will become our Chief Executive Officer. Our proposed acquisition of Winncom is subject to the consummation of this offering and the satisfaction of customary closing conditions. In addition, the stock purchase agreement is subject to termination by either party under certain circumstances if the closing has not occurred on or before May 30, 2010. We cannot assure you that we will consummate the Winncom acquisition on favorable terms or at all. We intend to use a portion of the proceeds of this offering to acquire Winncom.

Winncom’s Business

Winncom, headquartered in Solon, Ohio, and with a registered office in Dublin, Ireland, is an investment holding company with active, wholly-owned subsidiaries operating in the United States, Cyprus, Hungary, Ireland, Kazakhstan, Russia and Uzbekistan. Winncom is a worldwide distributor and provider of complete networking solutions, and specializes in the distribution of wired and wireless networking products as well as contract services that involve implementation and installation of wireless component and network solutions in support of both voice and data applications. Winncom also streamlines the process of buying and selling products for the purchase and installation of wireless/non-wireless networking products for non-U.S. customers. Although operations are organized primarily around distribution and contract based revenues the Cyprus operation focuses primarily on the active trading and management of Winncom’s investments. Winncom’s reseller network has reached 8,000 and serves over 90 markets worldwide. Winncom was founded in 1993. Its corporate headquarters are located at 30700 Carter Street, Suite A., Solon, Ohio.

Winncom distributes thousands of brand name products in the wireless and wired networking product category. Winncom endeavors to expand and keep current the breadth of its product offerings in order to fulfill the increasingly wide range of product needs of its customers. In addition Winncom enters into agreements with its major vendors to mitigate the risk of obsolescence. The products offered include but are not limited to: amplifiers, frequency converters, fiber optic supplies, solar power equipment, WAN/LAN point to multi-point systems, installation/diagnostic tools, Wi-Fi supplies and network and network management systems. Most of Winncom’s products to be resold are purchased from some of the premier manufacturers in the networking products space including but not limited to: Motorola, Cisco Systems, Proxim Wireless and Alvarion.

agreements. Through Winncom’s relationships (both domestic and international), we believe that we will also be well positioned to capitalize on opportunities for our current product offerings and services.

Winncom has had success in marketing itself as an end-to-end provider/implementer and installer of wireless networking solutions. Winncom recognizes its service/consulting revenues on a percentage-of-completion basis for projects whose expected lives are greater than one year. Winncom’s first major contract was entered into in 2005 by its United States subsidiary and was primarily for the delivery, installation and tuning of equipment to be completed in 2007. This contract helped establish Winncom’s acceptance within the marketplace. Winncom’s subsidiary in Kazakhstan assisted with this contract, including completion of run-off work in 2008. Winncom continues to seek and attract new service business/projects and expects this revenue stream to be, relatively, high margin in nature.

Competition

North America

Despite Winncom’s unique offering of complete wireless solutions and services, which differentiates Winncom from other North American distributors, Winncom’s major competitors in the wireless broadband area are Hutton Communications, Tessco Communications and Talley, Inc.. Tessco and Talley also have a diverse inventory of accessories such as cable, connectors, antennas, and tower equipment. In the networking infrastructure area, Winncom’s competitors are Tech Data Corporation, Ingram Micro Inc., Comstor (a business practice of Westcon Group, Inc.) and ScanSource, Inc., with Scan Source also offering services such as storage solutions and video security.

International

Winncom’s product offerings and solutions include turnkey installations. On a worldwide scale, Winncom’s main competitors that focus on product supply are Anixter International Inc., Comstor and Ingram Micro. In regional markets, the main competitors are local companies such as Verocom Communications in Poland, Technoserve in Russia, and IBS (a part of the IBS Group of Companies) in Kazakhstan.

Intellectual Property

To protect its proprietary rights, Winncom relies on a combination of trademark, copyright, patent, trade secret and other intellectual property laws, employment, confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements and protective contractual provisions with our partners, licensees and other third parties.

Winncom currently carries the Winncom Technologies® trade mark (distributorship services in the field of telecommunications and wireless communications technology equipment) for the following markets: USA, European Community, Hong Kong, Kazakhstan (pending), International, International China, International Russian Federation (pending), International Ukraine (pending), and International Uzbekistan (pending). All materials situated on www.winncom.com are subject to copyright protection. At the same time, trademarks and logotypes of the brand names mentioned on Winncom Technologies’ website are property of their respective owners, except for the products manufactured by Winncom Technologies or sold under OEM (Private Label) agreements between Winncom Technologies and the respective manufacturers. Winncom does not have any patents.

Employees

As of January 15, 2010, Winncom had a total of 152 full-time employees distributed by region as follows: 61 in Europe, 49 in Central Asia and 42 in the United States.

Properties

Winncom leases 24,000 square-feet of office space in Solon, Ohio, pursuant to a lease set to expire on December 31, 2010, for a monthly rent of $11,526.

Winncom Results of Operations

Nine Months Ended September 30, 2009 compared to nine months ended September 30, 2008

	Nine Months Ended September 30, 2009															2009 vs 2008
		2009				% of Totalrevenues			2008				% of Totalrevenues				$ Change			% Change
		(unaudited)							(unaudited)
Revenues:
Distribution sales, net				40,478			100.0	%			45,932			88.6	%			(5,454	)		-11.9	%
Contract revenue				—			0.0	%			5,922			11.4	%			(5,922	)		-100.0	%
Total revenues				40,478			100.0	%			51,854			100.0	%			(11,376	)		-21.9	%
Costs of sales:
Cost of sales—distribution				32,967			81.4	%			37,767			72.8	%			(4,800	)		-12.7	%
Cost of sales—contracts				—			0.0	%			5,651			10.9	%			(5,651	)		-100.0	%
Total cost of sales				32,967			81.4	%			43,418			83.7	%			(10,451	)		-24.1	%
Gross Profit				7,511			18.6	%			8,436			16.3	%			(925	)		-11.0	%
Operating expenses:
Depreciation and amortization				1,085			2.7	%			1,036			2.0	%			49			4.7	%
Selling, general, and administrative expenses				6,595			16.3	%			6,858			13.2	%			(263	)		-3.8	%
Total operating expenses				7,680			19.0	%			7,894			15.2	%			(214	)		-2.7	%
Income (loss) from operations				(169	)		-0.4	%			542			1.0	%			(711	)		-131.2	%
Interest expense				871			2.2	%			913			1.8	%			(42	)		-4.6	%
Other income				(37	)		-0.1	%			(16	)		0.0	%			(21	)
Interest expense and other income, net				908			2.2	%			929			1.8	%			(21	)		-2.3	%
(Loss) income before income taxes				(1,077	)		-2.7	%			(387	)		-0.7	%			(690	)
Provision for income taxes				(78	)		0.2	%			(88	)		0.2	%			10
Net (loss) income before minority interest				(999	)		2.5	%			(299	)		-0.6	%			(700	)
Minority interest income (expense)				7			0.0	%			(27	)		-0.1	%			34
Net (loss) income				(992	)		2.5	%			(326	)		-0.6	%			(666	)
Adjusted EBITDA			$	879						$	1,562

Revenues. Winncom’s recurring revenues related to its core distribution revenue business decreased 11.9% to $40.5 million from $45.9 million due primarily to the impact of foreign currency exchange rates which had a 7.2% negative impact. On a constant currency basis Winncom outperformed the general market seeing our distribution revenues decline 4.2%, markedly better than the median in Winncom’s industry, see the next paragraph for more detail. Winncom’s decrease in contract revenue was due to the completion of a large but lower margin contract that commenced in 2005, was essentially completed in 2007 but had some runoff in 2008. This is the only contract revenue item reported and is non-recurring in nature. Winncom’s constant currency decrease in distribution revenues was due primarily to general declines in global activity. Although revenues decreased approximately 22% to $40.5 million from $51.9 million, we note that that contract revenue decreases are non-recurring in nature as contract revenues from previous periods relate to one specific large and lower margin contract completed in 2008. Winncom’s core “distribution revenues” declined 12%, in comparison three of Winncom’s largest suppliers reported, on average, a decline of 33.3% for their year-to-date third quarter results. Winncom believes that its focus on execution, expansion have allowed for “better than industry” results of operations.

On a simple average basis, for the reported periods, the dollar strengthened an average of 24% against the Euro, Ruble, Tenge, Som and Forint. Foreign currency rates negatively impacted growth by 7.2%, meaning actual growth on a constant currency denominated basis was a contraction of 14.7% for an “as reported” decrease in revenues of 21.9%. Normalizing for non-recurring contract revenues, Winncom’s decrease in core distribution revenues was 4.7% on a constant currency basis.

Costs Of Goods Sold. Costs of goods sold decreased 24.1% to $33.0 million from $37.8 million due primarily to the concomitant decrease in contract revenue. Winncom had none in 2009 given the previously mentioned cessation of the one material contract that was the sole item reported as separate contract revenue. Through continuous optimization of manufacturer rebates, negotiation of more favorable terms with suppliers, better inventory management, Winncom was able to increase gross margins despite general declines in global activity.

Winncom’s overall gross profit declined 11% due to reduced economic activity directly attributable to the global economic slowdown. In addition, Winncom recorded a higher gross margin of 18.6% for the period in 2009 as compared to 16.3% for 2008. Winncom’s industry, in general, experienced declines in gross margins along with overall volume declines.

Depreciation and Amortization Expense. Depreciation and amortization expense increased 4.7% to $1.1 million from $1.0 million primarily due to slightly higher capital expenditures activity. Winncom has attempted to moderate its capital expenditures in order to maintain working capital given the current economic environment while continuing to expand its presence in Central Asia and Russia, where it has fully staffed offices/service centers

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased 3.8% to $6.6 million from $6.9 million due to flat compensation and overall attention to cost cutting with respect to its overhead expenses.

Interest Expense. Interest expense remained flat at approximately $0.9 million for both periods. Winncom continues to manage its debt and continues to shift its debt mix to debt with more favorable terms whenever possible. In connection with Winncom’s proposed acquisition by Wave 2 Wave Communications™, Inc., Winncom intends to extinguish a considerable portion of its outstanding debt. The major component of interest expense for Winncom is “imputed interest” that is calculated in accordance with GAAP. The interest is imputed on an on-demand, non-interesting bearing note with a face value of $17 million. This interest expense is non-cash in nature and part of Winncom’s reconciliation of net loss to EBITDA to adjusted EBITDA.

Other Expense (Income). Other income remained flat and continues to be immaterial to Winncom’s results of operations. In general, other income/expense is related to foreign currency translation gains and losses that arise in the normal course of operations.

Income Taxes. Income tax benefit decreased to $78,000 from $88,000. The expense and overall change in expense was immaterial to Winncom’s results.

Year Ended December 31, 2008 compared to year ended December 31, 2007

	Year Ended December 31,															2008 vs 2007
		2008				% of Totalrevenues			2007				% of Totalrevenues				$ Change			% Change
									(unaudited)
Revenues:
Distribution sales, net				63,738			90.8	%			46,338			67.0	%			17,400			37.6	%
Contract revenue				6,468			9.2	%			22,841			33.0	%			(16,373	)		-71.7	%
Total revenues				70,206			100.0	%			69,179			100.0	%			1,027			1.5	%
Costs of sales:
Cost of sales—distribution				52,456			74.7	%			39,234			56.7	%			13,222			33.7	%
Cost of sales—contracts				5,994			8.5	%			21,449			31.0	%			(15,455	)		-72.1	%
Total cost of sales				58,450			83.3	%			60,683			87.7	%			(2,233	)		-3.7	%
Gross Profit				11,756			16.7	%			8,496			12.3	%			3,260			38.4	%
Operating expenses:
Depreciation and amortization				1,429			2.0	%			1,321			1.9	%			108			8.2	%
Selling, general, and administrative expenses				9,561			13.6	%			7,022			10.2	%			2,539			36.2	%
Total operating expenses				10,990			15.7	%			8,343			12.1	%			2,647			31.7	%
Income (loss) from operations				766			1.1	%			153			0.2	%			613			400.7	%
Interest expense				1,564			2.2	%			1,015			1.5	%			549			54.1	%
Other income				391			0.6	%			271			0.4	%			120			44.3	%
Interest expense and other income, net				1,173			1.7	%			744			1.1	%			429			57.7	%
(Loss) income before income taxes				(408	)		-0.6	%			(591	)		-0.9	%			183
Provision for income taxes				191			0.9	%			(16	)		0.0	%			207			63.7	%
Net (loss) income before minority interest				(599	)		-0.9	%			(575	)		-0.8	%			(24	)
Minority interest income (expense)				(13	)		0.0	%			—			0.0	%			(13	)
Net (loss) income				(612	)		-1.0	%			(575	)		-0.8	%			(37	)
Adjusted EBITDA			$	2,585						$	1,745

Revenues. Revenues increased $1.0 million, or 1.5%, to $70.2 million for the year ended December 31, 2008 from $69.2 million for the year ended December 31, 2007 due primarily to significant increases in volume in Winncom’s distribution business. This was almost entirely offset by decreases in contract revenue. Contract revenue decreased significantly due to the completion of a very large contracted entered into in 2005, scheduled to be completed in 2007 with some minor “runoff” revenue in 2008.

On a simple average basis, the dollar strengthened an average of 18% against the Euro, Ruble, Tenge, Som and Forint. Foreign currency rates negatively impacted growth by 6.8%, meaning actual growth on a constant currency denominated basis was 8.3% for an “as reported” increase in revenues of 1.5%.

Although revenues increased approximately 1.5%, Winncom believes that contract revenue decreases are non-recurring in nature as contract revenues from previous periods relate to one specific large and lower margin contract completed primarily in 2007 with minor “runoff” in 2008.

Costs Of Goods Sold. Costs of goods sold decreased $2.2 million, or 3.7 %, to $58.5 million for the year ended December 31, 2008 from $60.7 million for the year ended December 31, 2007 due primarily to the concomitant decrease in contract revenue, partially offset by higher costs of sales related to Winncom’s distribution revenues. Through continuous optimization of manufacture rebates, negotiation of more favorable terms with suppliers, better inventory management gross margins compared favorably in 2008 for the same period in 2007.

Depreciation and Amortization Expense. Depreciation and amortization expense increased 8.2% to $1.4 million from $1.3 million primarily due to slightly higher capital expenditure activity, which has been driven by Winncom’s continued expansion into Russia and Central Asia.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased 36.2% to $9.6 million from $7.0 million due to higher compensation and other personnel related costs. These costs are driven by a significant and continuous investment Winncom is making in upgrading its operations, specifically in Russia and Central Asia. A key aspect of its strategy is to provide full service operations “on the ground” in these countries, with increased engineering personnel and support staff while leveraging its North America based credit facilities and revolving agreements.

Interest Expense. Interest expense increased 54.1% to $1.6 million from $1.0 million. The increase in interest expense is due primarily to imputed interest on a non-interest bearing note that is “on-demand” in nature and has face value of $17 million. During the year, Winncom also recorded debt service related to an export credit facility and a revolving credit agreement entered into to finance a specific project and general working capital requirements. Winncom’s imputed interest expense is non-cash in nature and a component of its reconciliation of net losses to EBITDA to adjusted EBITDA.

Other Expense (Income). Other income remained increased 44.3% to $0.4 million from $0.3 million and continues to be immaterial to Winncom’s results of operations. In general, other income/expense is related to foreign currency translation gains and losses that arise in the normal course of operations.

Income Taxes. Income tax expense increased to $0.2 million from a small benefit for the period ended in 2007. The increase in expense was due to changes in taxable income generated by Winncom in the current period.

BUSINESS

Our Company

Founded in 1999, we provide communication services to small to mid-sized businesses in the northeast and midwest United States with a complete package of integrated products that includes both wired and wireless broadband Internet access services, local and long distance voice, Voice over Internet Protocol, or VoIP, WiFi, data, email hosting, point-to point connections, managed network services, collocation, VPNs and web hosting. We are currently ~~testing~~installing our next generation wired and wireless broadband networks

Customer