Wave2Wave Communications, Inc. S-1/A

As filed with the Securities and Exchange Commission on January 12, 2011

Registration No. 333-171199

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Amendment No. 1
to

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

WAVE2WAVE COMMUNICATIONS, INC.
(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)

Aaron Dobrinsky, Chief Executive Officer
Wave2Wave Communications, Inc.
433 Hackensack Avenue
Hackensack, New Jersey 07601
(201) 968-9797
(Name, address, including zip code, and telephone number, including
area 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

Gregory Sichenzia, 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	£ (Do not check if a smaller reporting company)	Smaller reporting company	S

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.

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price⁽¹⁾			Amount of Registration Fee⁽²⁾

Units, each consisting of one share of Common Stock, $.0001 par value, and one Warrant⁽³⁾		$	16,128,750		$	1,872.55

Shares of Common Stock included as part of the Units			—	(4)

Warrants included as part of the Units			—	(4)

Shares of Common Stock issuable upon exercise of the Warrants included in the Units⁽⁵⁾		$	16,698,000		$	1,938.64

Representative’s Common Stock Purchase Warrant⁽⁴⁾			—	(4)

Shares of Common Stock underlying Representative’s Common Stock Purchase Warrant		$	660,330		$	76.66

Total Registration Fee		$	33,487,080		$	3,887.85	⁽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(o) based on an estimate of the proposed maximum aggregate offering price.

⁽³⁾

Includes up to 495,000 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 $3,887.85 of this unused filing fee has been applied against the filing fee due in connection with this registration statement and no filing fee is 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 JANUARY 12, 2011

3,300,000 Units

Common Stock and Warrants

This is a firm commitment initial public offering of 3,300,000 units at a public offering price of $4.25 per unit. Each unit consists of (i) one share of our common stock and (ii) one warrant to purchase one share of our 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. We have applied to have our shares of common stock listed 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 unit			Total
Public offering price		$	4.25		$	14,025,000
Underwriting discounts and commissions (1)		$	0.34		$	1,122,000
Proceeds, before expenses, to us (2)		$	3.91		$	12,903,000


(1)				Does not include a non-accountable expense allowance equal to 2% 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 Aegis Capital Corp., the representative of the underwriters. See “Underwriting and Plan of Distribution” for a complete description of compensation payable to 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 495,000 additional units solely to cover over-allotments, if any. The 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 Aegis Capital Corp., the underwriter representative, a warrant to purchase up to 3% of the shares of common stock included in the units sold, for $100. If the underwriter representative exercises this warrant, each share of common stock may be purchased at $5.80 per share.

The underwriters expect to deliver our shares to purchasers in the offering on or about [•], 2011.


Aegis Capital Corp.					Rodman & Renshaw, LLC

The date of this prospectus is January [•], 2011

Until [*], 2011, 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		12
Information Concerning One of Our Founders, Managing Director and Head of Business Development		31
Special Note Regarding Forward-Looking Statements		33
Use of Proceeds		34
Dividend Policy		36
Capitalization		36
Dilution		37
Selected Historical Financial Data		40
Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Business		75
Management		100
Executive Compensation		106
Certain Relationships and Related Person Transactions		122
Principal Stockholders		125
Description of Capital Stock		127
Shares Eligible for Future Sale		131
Material U.S. Federal Tax Consequences For Non-U.S. Holders		133
Underwriting and Plan of Distribution		136
Legal Matters		141
Experts		141
Where You Can Find Additional Information		141
Index to Financial Statements		F-1

You should rely only on the information contained in this prospectus in deciding whether to purchase our 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 12.

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. 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 access services, domestic local exchanges and long distance services, collocation, “8XX” toll free service, conference calling services and prepaid long distance calling services.

We sell our services to individuals and businesses primarily through a direct sales force, channel partners and telemarketing. While 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 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 a variety of local and long distance telecommunication services pursuant to our state and federal tariffs and customer contracts. We currently process approximately one billion minutes per month through our network of interconnected switches.

Executive Officers and Board of Directors

On 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.

Our Competitive Advantages

We are in advanced discussions with MotorolaÒ, Inc. to develop a strategic partnership whereby together with MotorolaÒ and other integration partners and technology vendors, we plan to deploy 4G based Hybrid Fiber-Wireless, or HFW, networks within two multi-tenant buildings in New York,

New York. The first building (450 Park Avenue, New York, NY) is set to begin testing during the first quarter of 2011. Upon the completion of this first phase of deployments, we intend to deploy 4G based HFW networks within hundreds of multi-tenant buildings in major metropolitan areas over the course of the next several years. However, in the event that we are unable to enter into an agreement with MotorolaÒ in the near term or at all, 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.

Following 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 buildings for which we have BSAs in place in 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 focus on deploying in-building HFW networks in commercial buildings. These next generation networks support 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 fully IP-based integrated systems, wired and wireless technologies will 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 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 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 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.

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 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.

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.

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 Relationships—We expect that our strategic relationships with MotorolaÒ, Inc. (“MotorolaÒ”) and Winncom Technologies Holding Limited (“Winncom”) will, in conjunction with other integration partners and technology vendors, enable us to rapidly deploy our HFW networks in our commercial buildings. We intend to source equipment, services, expertise and experience from MotorolaÒ and will work with Winncom for design and implementation efforts.

We also have a working relationship with AVC Global Services Group, or AVC, which is the United States-based affiliate of AVC Europe, Ltd., an ISO 9002-registered professional services company based in the United Kingdom. AVC provides telecommunications and information technologies solutions to service providers, enterprises, and equipment manufacturers. We believe that AVC has the ability to roll-out our planned HFW networks 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.

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 60% 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 $8.5 million of the proceeds of this offering to retire debt which currently carries a weighted average interest rate of approximately 33.2%.

Use of Proceeds

We intend to use the net proceeds of this offering in the order of priority as follows: approximately (i) $7.5 million to repay the senior secured notes held by Victory Park; (ii) $1.0 million to partially repay notes issued in connection with our acquisition of RNK and (iii) 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. 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


Securities offered		3,300,000 units, each unit consisting of (i) one share of our common stock and (ii) one warrant to purchase one share of our common stock.

Offering price		$4.25 per unit

Number of shares issued on the date of effectiveness of this registration statement		8,886,620 shares

Number of shares outstanding after this offering		12,186,620 shares

Number of warrants outstanding before this offering		636,403

Number of warrants outstanding after this offering		3,936,403

Exercisability of warrants offered in this offering		Each warrant included within the unit is excercisable for one share of common stock

Exercise Price of warrants offered in this offering		$4.40

Expiration date of warrants offered in this offering		, 2016 [five years from the date of this prospectus]

Redemption

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 $12.7 million, based on an initial public offering price of $4.25 per unit after deducting underwriting discounts and commissions. We plan to use approximately $7.5 million of the net proceeds of this offering to repay a bridge loan from Victory Park, $1.0 million to partially repay the notes issued in connection with our acquisition of RNK 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 January 12, 2011 and excludes:

•

656,124 shares of common stock issuable upon the exercise of stock options outstanding as of January 12, 2011 at a weighted average exercise price of $0.94 per share;

•

636,403 shares of common stock issuable upon the exercise of warrants outstanding as of January 12, 2011 at a weighted average exercise price of $3.77 per share;

•

shares of common stock underlying the underwriters’ representative’s common stock purchase option; and

•

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.


	(Unaudited) Nine Months Ended September 30,								Year Ended December 31,
	2010				2009				2009				2008				2007
					(restated)
Operating revenues		$	53,265			$	61,693			$	79,871			$	78,455			$	35,403
Operating expenses:
Costs of goods sold (exclusive of depreciation show separately below)			36,353				39,039				51,588				43,205				22,143
Depreciation and amortization			5,066				5,243				6,983				6,658				1,986
Selling, general, and administrative expenses			18,367				15,239				37,925				20,795				14,199

Total operating expenses:			59,786				59,521				96,496				70,658				38,328

(Losses) income from operations			(6,521	)			2,172				(16,625	)			7,797				(2,925	)
Interest expense, net			8,315				4,429				7,231				7,009				2,306
Other (expense) income			—				(940	)			(769	)			312				3,496

Net interest expense and other income			8,315				5,369				8,000				6,697				(1,190	)
(Loss) income before income taxes			(14,836	)			(3,198	)			(24,625	)			1,100				(1,735	)
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

Diluted EPS			($1.46	)			($0.33	)			($3.53	)			($0.22	)		$	0.35
Adjusted EBITDA*			195				7,732				8,071				8,546				1,937

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.

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

All financial data presented in thousands.

Nine Months Ended
September 30,

Year Ended December 31,

2010

2009

2008

2007

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

Net (loss) income

(10,453

)

(1,887

)

(21,536

)

(1,209

)

1,894

Provision for income taxes

(4,383

)

(1,311

)

(3,089

)

2,309

(3,629

)

Other (expense) income

—

940

769

(312

)

(3,496

)

Interest expense, net

8,315

4,429

7,231

7,009

2,306

Depreciation and amortization

5,066

5,243

6,983

6,658

1,986

EBITDA

(1,455

)

7,414

(9,642

)

14,455

(939

)

Non-cash compensation

1,650

318

17,713

664

2,876

Gain on change in estimate for VFX

—

(6,573

)(1)

—

Adjusted EBITDA

195

7,732

8,071

8,546

1,937

(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.

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 December 31, 2010 we had outstanding debt of approximately $37.3 million, of which $17.7 million is short-term in nature. Our long-term debt of approximately $19.6 million matures on October 7, 2013 and is held by Wilmington Trust Company and G. Jeff Mennen, or Wilmington Trust, a principal stockholder and a future member of our board of directors upon consummation of this offering, as co-trustees of a trust of which John Henry Mennen, G. Jeff Mennen’s brother, is the beneficiary. Wilmington Trust has given us term extensions in the past. There can be no assurance that Wilmington Trust will continue to do so. The weighted average interest of our debt is approximately 12.7%. 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 with 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 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 approximately $7.5 million for the repayment of our bridge loan from Victory Park and $1.0 million to partially repay the notes held by the RNK noteholders. Subject to the payment of the $1.0 million to the RNK noteholders on the closing of our initial public offering, the RNK notes will become due on March 31, 2012. We may need to obtain additional financing to repay the RNK notes or agree to another extension with the holders of the RNK notes. If we are unable to obtain additional financing, we may 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.

The terms of our credit facilities contain restrictions and limitations that could significantly impact our ability to operate our business.

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

other purposes, and there can be no assurance that our operations will generate sufficient cash flow to service this indebtedness;

•

we will be exposed to the risk of increased interest rates because our borrowings under facility agreements will be at variable rates of interest;

•

it may be more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;

•

we may be more vulnerable to general adverse economic and industry conditions;

•

we may be at a competitive disadvantage compared to our competitors with less debt or comparable debt at more favorable interest rates;

•

our ability to refinance indebtedness may be limited or the associated costs may increase; and

•

our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited, or we may be prevented from carrying out capital spending that is necessary or important 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. 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 are relying on third party equipment vendors and integration partners. If we are unable to enter into agreements or arrangements with such equipment vendors or integration partners or if the equipment provided or services performed by such equipment vendors or integration partners do not perform as expected, this could impair our ability to deploy 4G based HFW networks.

We are relying on various equipment vendors and integration partners to provide us with equipment and services to deploy our 4G based HFW networks. We are in advanced discussions with MotorolaÒ to develop a strategic partnership whereby we will deploy 4G based HFW networks within multi- tenant buildings. However, in the event that we are unable to enter into an agreement with MotorolaÒ in the near term or at all, 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. We cannot assure you that we will be able to enter into an agreement with MotorolaÒ or a comparable third party integration partner and technology vendor that will enable us to rollout 4G based HFW networks as planned. The failure to do so would have a material adverse effect on our business and operating results. To the extent that the equipment provided or the services performed by such equipment vendors or integration partners do not perform as expected, or our relationship with any of these vendors or partners changes or is terminated, this 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.

Our 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.

Our 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

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 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, 2008. Verizon has since withdrawn its motion to dismiss on January 22, 2008. 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.

Intellectual property infringement claims are common in the industry, and should such claims be made against us, and if we do not prevail, our business, financial condition and operating results could be harmed.

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.

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 may 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 for at least the next 14 months. We may 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. In order 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 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.

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.

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.

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.

If 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.

On 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 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; 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 54% of our total revenues in 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.

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 4G based HFW network we plan to use 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.

Because 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. 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. One such proceeding (“In the Matter of Preserving the Open Internet Broadband Industry Practices,” GN Docket No. 09-191; WC Docket No. 07-52), recently resulted in the adoption by the FCC on December 21, 2010 (and release on December 23, 2010), of the so called “net neutrality” rules with the stated goal of preserving the openness of the Internet. The rules limit the ways that a broadband Internet access service provider manages its network and the services it could provide over the network. The rules apply to all providers of broadband Internet access services, whether wireline or wireless (albeit addressing wireless and wireline service providers differently). The rules only apply to “mass market” customers (i.e., a service marketed and sold on a standardized basis to residential customers, small businesses, and other end-user customers such as schools and libraries) and generally do not apply to enterprise level customers. Specifically, the rules provide that a broadband Internet access provider: 1) cannot prevent its users from sending or receiving lawful content over the Internet; 2) cannot prevent its users from using lawful applications and/or services; 3) cannot prevent its users from connecting to and using the user’s choice of lawful devices that do not harm the network; 4) cannot deprive its users of competition among network providers, applications, content or services; 5) must treat lawful content, applications or services in a nondiscriminatory manner; and 6) must disclose information on network management and other practices reasonably required for users and application, content and service providers to enjoy the protections of the rules. However, the rules do allow for network management practices that are reasonably appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service. The rules do not supersede statutes such as CALEA, FISA, and ECPA, nor are they intended to prevent providers’ ability to respond to law enforcement authorities’ needs to coordinate disaster relief or other emergency response efforts. The rules also permit practices that prevent transfer of unlawful content and unlawful transfers of content.

While the company has not yet completed its review of the FCC’s net neutrality rules, they could limit our flexibility in managing our broadband networks and delivering broadband services, and could have an adverse effect on certain of our business operations and restrict our ability to compete in the marketplace. The new rules would also require enhanced disclosure in our terms and conditions to the extent such new disclosures are required. Finally, end users may bring action at the FCC if they feel a provider has breached the rules or the FCC may institute an enforcement action upon its own motion.

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. 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.

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 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.

Risks Related to Our Capital Structure and this Offering

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

You 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 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 and warrants to fluctuate include:

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introduction of technological innovations or new commercial products by us or our competitors;

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regulatory developments or enforcement in the United States and foreign countries;

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developments or disputes concerning patents or other proprietary rights;

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changes in estimates or recommendations by securities analysts, if any covering our common stock;

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litigation;

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future sales of our common stock or warrants;

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general market conditions;

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economic, political and other external factors or other disasters or crises;

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period-to-period fluctuations in our financial results; and

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overall fluctuations in U.S. equity markets.

These and other external factors may cause the market price and demand for our common stock and warrants to fluctuate substantially, which may 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 active, liquid trading market for our common stock and warrants may not develop or be sustained after this offering.

There is currently no trading market for our common stock or warrants. Although we intend to have our common stock and warrants listed on the NYSE Amex, there is no guarantee that an

active trading market for our common stock and warrants will develop or be sustained after this offering on the NYSE Amex. If a trading market does not develop or is not maintained, you may experience difficulty in reselling your shares or warrants, or an inability to sell your shares and warrants 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 $6.35 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 included in the units sold in this offering, which is the price listed on the cover page of this prospectus. In addition, investors purchasing common stock in this offering will contribute approximately 61% of the total amount invested by stockholders since inception, but will only own approximately 27% 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 60% 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 and warrants by:

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delaying, deferring or preventing a change in control;

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entrenching our management or our board of directors;

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

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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 12,186,620 outstanding shares of common stock. This includes the 3,300,000 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 repay a bridge loan from Victory Park, to partially repay the notes held by the RNK noteholders, 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 may 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 at least 14 months. We may, 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:

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

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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;

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

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

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limit who may call stockholder meetings; and

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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.

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 an $80 million company with over 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. Immediately prior to the listing of our common stock on the NYSE Amex, Mr. Bressman will relinquish his position as a senior 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.

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, 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.

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:

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our inability to retire or renegotiate the terms of our outstanding debt;

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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;

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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;

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changes in technology;

•

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.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of 3,300,000 units in this offering will be approximately $12.7 million, or approximately $14.8 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $4.25 per unit, the price listed on the cover page of this prospectus, and after deducting estimated underwriting discounts, commissions and expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $4.25 per unit would increase (decrease) the net proceeds to us from this offering by $3.0 million, assuming that the number of 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.

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


Victory Park repayment (36% per annum interest rate)	$	7,517,000
Partial repayment to RNK noteholders		1,000,000
Additional proceeds to be used as working capital and at management’s discretion		4,136,000

Capital raised	$	12,653,000

The principal purposes of this offering are to, net of professional and underwriter fees incurred directly in connection with this offering, repay our senior secured notes of approximately $7.5 million held by Victory Park and to partially repay ($1.0 million) the notes held by the RNK noteholders. We estimate that we will reserve the remaining proceeds of this offering to help fund the first phase of our planned 4G-based HFW network roll-out, general and administrative expenses, capital expenditures, working capital needs, and other general corporate purposes.

On October 12, 2007, we issued the RNK Notes in the aggregate original principal amount of $30,666,939, to RNK Holding Company, Wellesley Leasing, LLC and certain of RNK’s employees (including $27,899,026 to RNK Holding Company, an affiliate of Richard Koch, the president of RNK, our wholly-owned subsidiary), as partial consideration in connection with our acquisition of the issued and outstanding common stock of RNK. The RNK Notes originally bore an interest rate of 6% per annum and originally matured on November 10, 2009. The outstanding principal balance of the RNK Notes is $9,651,803, as of November 30, 2010, plus accrued interest currently accruing at a rate of 6% per annum. We have entered into several modifications and amendments to the original RNK Notes. In connection with these amendments, we have issued 75,000 shares of our common stock at a fair value of approximately $300,000 which we reserved as debt discount and amortized to interest expense from the date of issuance to the date of maturity and we have issued 24,070 warrants at a fair market value of approximately $260,000 which were recorded as debt discount and amortized to interest expense from the date of issuance to the date of maturity.

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 originally bore an interest rate of 3% per month and matured on the earlier of (a) May 8, 2010 and (b) the consummation of this offering.

On 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

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, 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.

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, 2010:

•

on an actual basis; and

•

on a pro forma as adjusted basis to give effect to our sale of 3,300,000 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, 2010
	Actual			Pro Forma			Pro Forma As Adjusted
	(unaudited in thousands)
Cash and cash equivalents (includes restricted $740)		$	1,223		$	13,846		$	4,429

Debt:
Long-term debt			8,418			8,418			—
Related party note payable—Wilmington Trust			19,850			19,850			19,850
Related party note payable—RNK, including accrued interest			10,807			10,807			9,807
Capital leases, including current portions			2,270			2,270			2,270
All other debt			—			—			—

Total debt			41,344			41,344			31,927
Total stockholders’ equity			23,147			35,770			35,770
Total capitalization		$	64,491		$	77,114		$	67,697

The outstanding share information excludes:

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656,124 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2010 at a weighted average exercise price of $0.94 per share;

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386,403 shares of common stock issuable upon the exercise of warrants outstanding as of September 30, 2010 at a weighted average exercise price of $6.22 per share; and

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836,340 additional shares reserved for future issuance under our stock plans as of September 30, 2010.

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 price 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, 2010 was $(38.0) million, or ($4.32) per share, based on 8,811,620 shares of common stock outstanding as of September 30, 2010.

After giving effect to the sale by us of 3,300,000 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, our increase per share attributable to the offering as of September 30, 2010 would have been approximately $12.6 million, or approximately $2.22 per share. After giving effect to the foregoing, our pro forma net tangible book value at September 30, 2010 would have been approximately $(25.4) million, or $(2.10) per share. This amount represents an immediate increase in pro forma net tangible book value of $2.22 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $6.35 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:


				Per Share
Assumed initial public offering price per share					$	4.25
Historical net tangible book value per share as of September 30, 2010	$	(4.32	)
Increase per share attributable to this offering		2.22
Pro forma net tangible book value per share after this offering						(2.10	)
Dilution per share to new investors in this offering					$	6.35

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, 2010 by approximately $3.0 million, the pro forma as adjusted net tangible book value per share after this offering by $0.25 and the dilution to new investors in this offering by $0.75 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 $(2.02) per share, the increase per share attributable to new investors would be $2.07 per share and the dilution to new investors would be $6.27 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		72.8	%		$	8,853,000		38.7	%		$	1.00
New Investors		3,300,000		27.2	%			14,025,000		61.3	%			4.25

Total		12,111,620		100.0	%		$	22,878,000		100.0	%		$	1.88

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 $3.0 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 70% and will increase the number of shares held by new investors to 3,795,000, or 30%.

If all outstanding options under our equity incentive plans were exercised, then our existing stockholders, including the holders of these options, would own 74% and our new investors would own 26%, 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 40% of the total consideration paid; new investors would tender $14.0 million, or 60%, 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.

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:

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

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

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

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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.

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 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated financial data as of and for the year ended December 31, 2005 have been derived from our unaudited consolidated financial information not included elsewhere in this prospectus. Our historical 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, 2010 and September 30, 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.

All financial data presented in thousands except whereas noted.


	(Unaudited) Nine Months Ended September 30,								Year Ended December 31,
	2010				2009				2009				2008				2007				2006				2005
					(restated)
Operating revenues		$	53,265			$	61,693			$	79,871			$	78,455			$	35,403			$	18,552			$	2,677
Operating expenses:
Costs of goods sold (exclusive of depreciation show separately below)			36,353				39,039				51,588				43,205				22,143				11,996				991
Depreciation and amortization			5,066				5,243				6,983				6,658				1,986				1,047				450
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)																				(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.

All financial data presented in thousands.

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

Nine Months Ended
September 30,

Year Ended December 31,

2010

2009

2008

2007

2006

2005

Net (loss) income

(10,453

)

(1,887

)

(21,536

)

(1,209

)

1,894

(2,451

)

(1,251

)

Provision for income taxes & minority interest

(4,383

)

(1,311

)

(3,089

)

2,309

(3,629

)

—

Other (expense) income

—

940

769

(312

)

(3,496

)

131

—

Interest expense, net

8,315

4,429

7,231

7,009

2,306

871

305

Depreciation and amortization

5,066

5,243

6,983

6,658

1,986

1,047

450

EBITDA

(1,455

)

7,414

(9,642

)

14,455

(939

)

(402

)

(496

)

Non-cash compensation

1,650

318

17,713

664

2,876

Gain on change in estimate for VFX

—

(6,573

)(1)

—

Adjusted EBITDA

195

7,732

8,071

8,546

1,937

(389

)

(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 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.

For the years ended December 31, 2009, 2008 and 2007, we 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. As of September 30, 2010, we had an accumulated deficit of approximately $44.4 million. The net losses over the past several years primarily reflect material non-cash charges such as stock compensation, amortization expenses as well as interest expense which had cash and non-cash components.

We 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

businesses, we have acquired material intangible assets which have resulted in material amortization, which will continue over the next several years. Over the past three years, we have generated significant operating losses driven primarily by stock compensation expense of $21.2 million, depreciation and amortization expense of $15.6 million and net interest expense of $16.5 million. For the nine month period ended September 30, 2010 we recorded stock compensation, depreciation and amortization, and interest expense of approximately $1.7 million, $5.1 million and $8.3 million, respectively. For the nine month period ended September 30, 2009, we recorded stock compensation, depreciation and amortization, and interest expense of approximately $0.3 million, $5.2 million and $4.4 million, respectively.

Our net losses are primarily the result of our efforts to grow the business through acquisitions, which were primarily funded by debt, resulting in significant amortization and interest expense charges. We have also had to modify our debt obligations numerous times and have had to issue derivative securities such as warrants and options to purchase shares of our common stock. These issuances are recorded as debt discount and amortized to interest expense and have been material as well.

We intend to use approximately $8.5 million of the proceeds of our proposed offering to retire our most expensive debt that carries a weighted average interest rate of 33.2%. There is no assurance that we will not continue to generate losses. In addition, we are seeking to “go public.” This process and the ongoing costs of being a public company will drive our selling, general and administrative expenses higher on an absolute and relative basis.

We expect that our strategic relationships with Motorola,^Ò Inc. (“Motorola”) and Winncom Technologies Holding Limited (“Winncom”) will, in conjunction with other partners and technology vendors, enable us to rapidly deploy our HFW networks in our commercial buildings in anticipation of supporting 4G services. We intend to source equipment, services, expertise and experience from Motorola and will work with Winncom for design and implementation efforts. However, in the event that we are unable to enter into an agreement with MotorolaÒ in the near term or at all, 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.

Following the completion of this offering, in combination with our strategic partners and technology vendors, we believe that we will be well positioned to launch next generation HFW networks in anticipation of supporting 4G wired and wireless broadband services. This will enable us to support in- building carrier-grade broadband wired and wireless services, including high speed Internet access, cell 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.

Our 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.

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 and the repayment of certain debt as described in our “Use Of Proceeds” section of this prospectus for the initial 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 that will support 4G services in 90 to 120 days at an estimated cost of approximately $1.10 per square foot per building. 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”. 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 nine months ended September 30, 2010 and 2009, revenue from two customers totaled 11% and 26% of our operating revenues, respectively. The concentration of these revenues for the nine months ended September 30, 2010 and 2009 were distributed as follows:

CLEC Revenues (Wholesale)

Access. Approximately 41% of our revenues 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

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.

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.

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 MyTempNumberÒ service. 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

downloaded on Series 60 3rd edition and 5th edition smart phones. We’ve also made MyTempNumberÒ available to wholesale customers who may bundle this service in with mobile applications for resale to their end 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 have completed an agreement with an SMS provider that enables us to pair our DIDs with the provider’s SMS messaging services. We are currently reselling these services primarily to mobile solutions providers in a standalone or bundled fashion (the latter incorporating other in-house developed applications, such as 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. Achieving the anticipated benefits of 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 $38 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 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 ours costs of services.

Revenue Classifications

Access. Approximately 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, 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 a 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.

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, 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.

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.

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.

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, 2009, 2008 and 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, 2009, 2008 and 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.

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 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 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.

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 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.

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 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. We anticipate cost of goods sold may increase as a result of our ongoing litigation with VFX for which certain costs have been unilaterally adjusted by the reseller which will result in increased monthly costs during the fourth quarter 2010 and into 2011.

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

“self-help” and block traffic as a result of payment disputes do so at their own risk and may face regulatory sanctions and legal action.

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

Selling, General, and Administrative Expenses. Our selling, general and administrative expenses increased $17.1 million to $37.9 million or 82.4% for the year ended December 31, 2009, from $20.8 million for the year ended December 31, 2008, due primarily to $17.7 million for stock-based compensation expense as well as increases in professional fees. Stock-based compensation expense was driven primarily by accelerated vests on various grants. We expect stock-based compensation expense to decrease considerably going forward.

We believe, with the exception of stock-based compensation, that 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 an increase in costs due to being a public company. We also expect to incur material non-recurring costs with respect to post-acquisition integration and the direct expensing of substantially all professional fees related to the offering.

On an ongoing basis, we expect to incur costs associated with being a public company including, but not limited to, implementation and maintenance of Section 404 of the Sarbanes-Oxley Act of 2002, directors and officers insurance, the cost of Securities and Exchange Commission filings including Forms 10-K, 10-Q, 8-K, proxy statements and others as well investor relations, annual meetings of shareholders, listing and other exchange related fees, board of directors compensation and potentially higher 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,

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 Net revenues			2007				% of Net revenues			$ Change			% Change
Operating revenues			78,455			100.0	%			35,403			100.0	%		43,052			121.6	%
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			70,658			90.1	%			38,328			45.7	%		32,330			84.4	%

Income (loss) from operations			7,797			9.9	%			(2,925	)		54.3	%		10,722			(366.6	)%
Interest expense			7,009			8.9	%			2,306			6.5	%		4,703			203.9	%
Other (expense) income			312			0.4	%			3,496			9.9	%		(3,184	)		-91.1	%

Net interest expense and other income			6,697			8.5	%			(1,190	)		-3.4	%		7,887
(Loss) income before income taxes			1,100			1.4	%			(1,735	)		57.6	%		2,835			(163.4	)%
Provision for income taxes			2,309			2.9	%			(3,629	)		-10.3	%		5,938

Net (loss) income			(1,209	)		-1.5	%			1,894			67.9	%		(3,103	)		(163.8	)%

Adjusted EBITDA		$	8,546						$	1,937

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 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 Net revenues			2006				% of Net revenues			$ Change			% Change
Operating revenues			35,403			100.0	%			18,552			100.0	%		16,851			90.8	%
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			38,328			108.3	%			20,001			107.8	%		18,327			91.6	%

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)			3,496			9.9	%			(131	)		-0.7	%		3,627

Net interest expense and other income			(1,190	)		-3.4	%			1,002			5.4	%		(2,192	)		-218.8	%
(Loss) income before income taxes			(1,735	)		-4.9	%			(2,451	)		-13.2	%		716
Provision for income taxes			(3,629	)		-10.3	%			—			0.0	%		(3,629	)

Net (loss) income			1,894			5.3	%			(2,451	)		-13.2	%		4,345

Adjusted EBITDA		$	1,937						$	(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 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 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.”


	Year Ended December 31,														2008 vs 2007
	2008				% of Net revenues			2007				% of Net revenues			$ Change			% Change
								(unaudited)
Operating revenues			78,455			100.0	%			78,638			100.0	%		(183	)		-0.2	%
Operating expenses:
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:			70,658			90.1	%			77,349			98.4	%		(6,691	)		-8.7	%

Income (loss) from operations			7,797			9.9	%			1,289			1.6	%		6,508			504.9	%
Interest expense			(7,009	)		8.9	%			(6,683	)		8.5	%		326			4.9	%
Other (expense) income			312			0.4	%			3,482			4.4	%		(3,170	)		-91.0	%

Net interest expense and other income			(6,697	)		8.5	%			(3,201	)		(4.1	)%		3,496			109.2	%
(Loss) income before income taxes			1,100			1.4	%			(1,912	)		-2.4	%		3,012
Provision for income taxes			(2,309	)		2.9	%			3,458			4.4	%		5,767

Net (loss) income			(1,209	)		-1.5	%			1,546			2.0	%		(2,755	)		-178.2	%

Adjusted EBITDA		$	8,546						$	8,725

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 $2.1 million, or 46%, to $6.7 million for the year ended December 31, 2008 from $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-

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 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 Net revenues			2006				% of Net revenues			$ Change			% Change
	(unaudited)							(unaudited)
Operating revenues			78,638			100.0	%			58,839			100.0	%		19,799			33.6	%
Operating expenses:
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:			77,349			98.4	%			60,962			103.6	%		16,387			26.9	%

Income (loss) from operations			1,289			1.6	%			(2,123	)		-3.6	%		3,412
Interest expense			6,683			8.5	%			6,100			10.4	%		583			9.6	%
Other (expense) income			3,482			4.4	%			(223	)		-0.4	%		3,705

Net interest expense and other income			3,201			4.1	%			6,323			10.7	%		(3,122	)		-49.4	%
(Loss) income before income taxes			(1,912	)		-2.4	%			(8,446	)		-14.4	%		6,534
Provision for income taxes			(3,458	)		-4.4	%			67			0.1	%		(3,525	)		-5,261.2	%

Net (loss) income			1,546			2.0	%			(8,513	)		-14.5	%		10,059

Adjusted EBITDA		$	8,725						$	2,450

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.

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.

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 Net revenues			December 31, 2006				% of Net revenues			$ Change			% Change
Operating revenues			43,235			100.0	%			40,287			100.0	%		2,948			7.3	%
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:			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		$	6,802						$	2,931

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.

(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%

Liquidity and Capital Resources

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

Nine Months Ended
September 30,

Year Ended December 31,

2010

2009

2008

2007

Net cash provided by (used in)
Operating activities

780

1,220

2,509

4,012

(2,646

)

Investing activities

(199

)

(696

)

(859

)

(1,227

)

(18,026

)

Financing activities

(2,093

)

521

(1,252

)

(2,298

)

21,527

Net increase (decrease) in cash and cash equivalents

(1,512

)

1,045

398

487

855

Cash and cash equivalents, at the beginning of the period

1,995

1,598

1,111

256

Cash and cash equivalents, at the end of the period

483

2,642

1,995

1,598

1,111

Sources of Liquidity

We have incurred net losses during the majority of our reported periods but have been 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 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 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, 128,569 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 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. 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 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 January 11, 2011, we agreed with the holders of the RNK Notes that we would use $1.0 million of the offering proceeds to partially repay the RNK Notes in exchange for an extension of the maturity date of the RNK Notes to March 31, 2012.

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 maintained all terms with the exception of maturity date which was 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 7, 2013.

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 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 January 26, 2010, Steven Asman entered into an agreement to extinguish an outstanding note owed to us (the “Asman Note”) that had been held between 2006 and 2009. The Asman Note’s principal and accrued interest amounted to approximately $96,000 (the “Asman Payoff Amount”) as of December 31, 2009. The Asman Payoff Amount has been be settled by Mr. Asman tendering without restriction an agreed-upon 2,400 shares of our common stock. We have accepted Mr. Asman’s shares and consider the Asman Note paid in full.

On January 26, 2010, Andrew Bressman entered into an agreement to extinguish an outstanding note owed to us (the “Bressman Note”) that had been held between 2006 and such date. The Bressman Note’s principal and accrued interest amounted to approximately $686,712 (the “Bressman Payoff Amount”) as of January 26, 2010. The Bressman Payoff Amount of $16,625 has been settled by Mr. Bressman tendering without restriction an agreed-upon 66,600 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. Bressman’s shares and consider the Bressman Note paid in full.

On January 27, 2010 the Company issued the Lender warrants to purchase 100,000 shares of the common stock of the Company with an exercise price of $17.04 per share and expiring on October 7, 2013 (the “Maturity Date”). The warrants were issued in order to induce the Lender to extend the expiration dates of the notes assigned to October 7, 2013.

On February 1, 2010, pursuant to the terms of the Stock Issuance and Payment Agreement (the “SIPA”) entered into on September 8, 2009, with the holders of the Notes held by former owners of RNK, the interest rate on the notes was “stepped-up” from 9% per annum to 12% per annum. Pursuant to the agreement the interest rate would remain at 9% per annum through January 31,

2010. If the notes were not repaid in full at that time, the new interest rate going forward would be 12% per annum 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 repayment of the approximate $7.5 million balance with VPC and a partial repayment of $1.0 million to the holders of the RNK Notes. 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 RNK notes in full, we may 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 approximately $7.5 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 $0.4 million to $0.8 million for the nine months ended September 30, 2010 compared to the same period in 2009. This was driven primarily by lower negative adjusted EBITDA in 2010 partially offset by more aggressive cash management.

Cash provided by operating activities decreased by $1.5 million to $2.5 million for the year ended December 31, 2009, compared to the same period in 2008. This was driven primarily by very strong adjusted EBITDA in 2008, increased by favorable non-recurring adjustments that positively affected our gross margins.

Cash provided by operating activities increased by $6.6 million to $4.0 million for the year ended December 31, 2008, compared to the same period in 2007. This was driven primarily by very strong adjusted EBITDA in 2008, increased by favorable non-recurring adjustments that positively affected gross margins as well as lower selling, general and administrative expenses as a percentage of revenues.

Investing Activities

Cash used by investing activities was $0.2 million for the nine months ended September 30, 2010 compared to $0.7 million for the same period in 2009.

Cash used by investing activities decreased by $0.3 million to $0.9 million for the year ended December 31, 2009, compared to the same period in 2008. This was driven primarily by lower capital expenditures required to maintain the existing infrastructure, particularly that required by our CLEC business.

Cash used by investing activities decreased by $16.8 million to $1.3 million for the year ended December 31, 2008, compared to the same period in 2007. This was driven primarily by the lack of acquisition activity in 2008. Our two major lines of business 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.”

Financing Activities

Cash used by financing activities was approximately $2.1 million for the nine months ended September 30, 2010, compared to cash provided by financing activities of approximately $1.0 million for the same period in 2009. The cash used in financing activities during the nine months ended September 30, 2010 was primarily attributable to the repayment of long term debt in the amount of $1.1 million and principal payments on capital leases of $1.0 million during the current period.

Cash used by financing activities decreased by $1.0 million to $1.3 million for the year ended December 31, 2009, compared to the same period in 2008. This was driven primarily by favorable re-negotiations of existing debt terms, and a without recourse assignment of much of our existing debt portfolio to a related party on very favorable terms. In addition, while continuing to service our accounts receivable facility in 2009, we also received additional short-term financing from related parties, who were induced to do so with the issuance 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.

Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments, in thousands, at December 31, 2009, as further described in our notes to our consolidated financial statements.


	Payments Due By Period
	Total			Less than 1 Year			1-3 Years			3-5 Years			More than 5 Years
Long-term debt, non-related party		$	9,300		$	9,300		$	—		$	—		$	—
Capital lease obligations			3,045			1,289			1,756			—			—
Operating lease obligations			3,249			782			2,094			373			—
Related party obligations			58,754			19,554			—			39,200			—

Total		$	74,348		$	30,925		$	3,850		$	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 entered into a forbearance agreeement for any defaults on 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 December 31, 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.

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, 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.

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 December 31, 2009, we had borrowed a total of approximately $70.0 million primarily under a related party note due in 2013, a senior secured financing arrangement maturing in May 2010 and subordinated secured promissory notes due May 2010, all which carry fixed rates of interest. The weighted average effective interest rate on these arrangements at December 31, 2009, was approximately 12.1%. 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.

Recent Accounting Pronouncements

ASU No. 2010-11 was issued in March 2010, and clarifies that the transfer of credit risk that is only in the form of subordination of one financial instrument to another is an embedded derivative feature that should not be subject to potential bifurcation and separate accounting. This ASU will be effective for the first fiscal quarter beginning after June 15, 2010, with early adoption permitted. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the company.

In April 2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes” (Topic 740). In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-12 (ASU 2010-12), Income Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts. After consultation with the FASB, the SEC stated that it “would not object to a registrant incorporating the effects of the Health Care and Education Reconciliation Act of 2010 when accounting for the Patient Protection and Affordable Care Act”. The company does not expect the provisions of ASU 2010-12 to have a material effect on the financial position, results of operations or cash flows of the company.

ASU 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 April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity 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 a material effect on the financial position, results of operations or cash flows of the company.

In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-18 “Receivables (Topic 310)—Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset—a consensus of the FASB Emerging Issues Task Force.” ASU 2010-18 provides guidance on account for acquired loans that have evidence of credit deterioration upon acquisition. It allows acquired assets with common risk characteristics to be accounted for in the aggregate as a pool. ASU 2010-18 is effective for modifications of loans accounted for within pools under Subtopic 310-30 in the first interim or annual reporting period ending on or after July 15, 2010. The company does not expect ASU 2010-18 to have an impact on its financial condition, results of operations, or disclosures.

In May 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-19 (ASU 2010-19), Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. The company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or 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.

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 installing our next generation wired and wireless broadband networks at 450 Park Avenue, New York, NY and we intend to deploy to hundreds of multi-tenant buildings over the next several years. We have successfully implemented and sold fixed wireless broadband solutions in the northeast United States since our inception. We sell our services to businesses primarily through a direct sales force, channel partners and telemarketing. 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. 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 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 telecommunication services under our multiple state and federal tariffs. We process approximately a billion minutes a month through our network of interconnected switches.

Through the 2007 acquisition of our wholly owned subsidiary RNK Inc. d/b/a RNK Communications, Inc., or RNK, a Competitive Local Exchange Carrier, or CLEC, operating in various jurisdictions since 1997, 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. With the acquisition of RNK and our January 2006 acquisition of the assets of Intellispace, Inc., a national transport company, we have significantly expanded our suite of product offerings and service footprint making us a full service communications provider.

We expect that our strategic relationships with MotorolaÒ and Winncom will, in conjunction with other integration partners and technology vendors, enable us to rapidly deploy our HFW networks in our commercial buildings in anticipation of supporting 4G services. We intend to source equipment, services, expertise and experience from MotorolaÒ and will work with Winncom for design and implementation. However, in the event that we are unable to enter into an agreement with MotorolaÒ in the near term or at all, 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.

Following the completion of the offering, in combination with our integration partners and technology vendors, we believe that we will be well positioned to launch next generation HFW networks in anticipation of supporting wired and wireless broadband services using Fourth-Generation, or 4G, technology. This technology will enable us to support in-building carrier-grade broadband wired and wireless services, including high speed Internet access, cell phone services, VoIP, HDTV applications, two-way multi-session, multi-party video conferencing and more. Since our 4G networks will be fully IP-based integrated systems, this will allow wired and wireless technologies to converge and will be capable of providing between 100 Mbit/s and 1 Gbit/s symmetrical speeds both indoors and outdoors, with high definition, or HD, voice and data quality

and high security. We believe that we will be one of the first companies to focus on deploying in-building HFW networks in commercial buildings.

According to TMT’s (Deloitte’s Global Technology, Media and Telecommunications Industry Group) Telecommunications Trends Report 2009, broadband was one of the fastest growing services for mobile operators in 2008. If demand for mobile broadband remains strong, the resultant stress on networks, particularly backhaul connections, could be severe. A typical mobile network backhaul connection is 2Mbit/s for a leased line; mobile broadband services have advertised maximum speeds of up to 7.2 MBit/s. A single mobile broadband user can consume as much capacity as 1,000 voice callers. The report continues by stating to bridge this gap, and increase capacity to accommodate the growing numbers of users, operators may collectively have to spend tens of billions of dollars. The report recommends that where possible, operators should try to divert heavy data traffic from cellular networks, and route it via other networks, such as WiFi-hotspots or home-broadband. Not surprisingly, the phenomenal growth of mobile communications is beginning to displace fixed broadband. The process has been underway for several years and is the consequence of falling mobile prices and increasingly advanced handsets. What is surprising is that the majority of calls made on mobile phones are made within buildings, even when fixed line services are readily available. According to TMT’s Telecommunications Trends Report 2008, just 30% of mobile calls are made outdoors during the course of a year. Mobile data use has also moved indoors, a trend expected to continue. Cellular mobile networks were not originally designed to provide reliable in-building service, and overcoming this challenge is important.

•

We believe the United States broadband market, and in particular, in-building mobile wireless services, offers significant long-term growth potential. A study from ABI Research 2008, forecasts worldwide deployment revenues from in-building wireless systems 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.

•

The competing wide area network 4G, or WAN 4G, solutions from the major carriers and equipment suppliers are aimed at meeting the accelerating demand for both wireless bandwidth as well as for IP convergence or unification of bundled voice, video, and data broadband services. Hence, wide area 4G solutions such as WiMax, mobile WiMax, Ultra Mobile Broadband, or UMB,and Long Term Evolution, or LTE, are being aggressively marketed and funded.

Acquisitions

Our Business Strategy

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. Once carriers are able to use our network, we expect this to be a significant revenue generator as carriers roam onto the 4G based HFW network within the buildings we operate.

Business Strategy: Phase 1

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.

Build a Superior Network—We plan to offer a differentiated carrier-grade 4G based Hybrid Fiber-Wireless (HFW) network solution that will support 4G services and enable 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.

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 HFW broadband wireless networks. This design approach is based on what now has become known as the Long Term Evolution, or LTE, Standard and 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.

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. We expect that our in-building networks will be able to broadcast Wi-Fi, 4G, 3G, and 2G cellular signals throughout our contracted buildings and will 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.

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 support 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.

4G Technology

The 4G technology that we plan to employ is a suite of carrier-grade broadband wireless networking products and systems that together comprise a fourth generation capable broadband wireless converged network platform. With its flexible, scalable network architecture, 4G technology can symmetrically support any service (video, voice, data) at any bandwidth. 4G enables all types of content, e.g. broadband voice, digital-audio, video, and VPN-data over wireless IP channels, to be transmitted across one IP radio connection. This medium convergence integrates many disparate networks (landline-based and wireless) into one network.

With 4G technology, there are no service distinctions between consumer and business devices. All services are under the control of the user’s device, and there are no service distinctions between data, voice and video content. Video is as mobile as voice. The only distinctions are bandwidth and user identities. In addition, 4G technology offers multi-level security and authentication for all user sessions.

This system offers major advantages to our competitors as follows:

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It facilitates seamless IP convergence across private and public networks by integrating cellular, WiFi and wired networks. Unlike mesh or other discontinuous signaling mechanisms, it employs a signaling scheme that establishes virtual connectivity between client and host systems—regardless of bandwidth requirements. The result is what we believe to be the best of both worlds—IP packet transmission with a circuit construct that insures a high quality of service.

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By bringing together wired and wireless networks into one communications nerve center, it helps us create value, while simultaneously reducing expenses associated with operating our network. It can sense its environment and adjust its operating characteristics based on environmental or user inputs.

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It costs less to implement and operate than those of non-4G competitors because (1) spectrum licenses are not required to insure high quality of service which allows a variety of services to be offered in addition to a “best-effort” broadband service and (2) only one network is used which lowers network infrastructure costs.

We are presently working with MotorolaÒ, Inc., in anticipation of deploying HFW networks within two multi-tenant buildings in New York, New York. The first building (450 Park Avenue, New York, NY) is set to begin testing during the first quarter of 2011. Upon the completion of this first phase of deployments, we intend to deploy HFW networks within hundreds of multi-tenant buildings in major metropolitan areas over the course of the next several years. If we are unable to enter into an agreement with MotorolaÒ, we will attempt to enter into a relationship with a comparable third party integration partner and technology vendor.

Service Offerings

High-speed dedicated Internet access services. We offer integrated voice and Internet services. With this service, our customers are able to obtain voice and Internet access services at competitive prices from a single source. We provide customers with high speed, reliable Internet services that are scalable to meet the needs of businesses of all size. Our dedicated access products offer high-speed solutions for businesses that need high-performance and full-time dedicated Internet access. We provide high-bandwidth, full-time dedicated connections to multiple, redundant upstream carriers, providing businesses with what we believe to be the best reliability and uptime in the market.

Wireless Services. We provide point-to-point and point-to-multipoint wireless connections. In order to provide service within a market, we install a “base station” (an antenna on either a tower or rooftop) that can provide service up to a 10-mile radius from that site. The subscriber typically receives service with an antenna installed on the rooftop of its premises. Once a customer is verified to be within range of a base station’s signal, we provide such customer with service within days of receiving an order.

Virtual private network services. Virtual private networks, or VPNs, are secure, outsourced networks that link multiple customer locations by using computer software to dedicate circuits solely for the customer’s use, instead of building a physical circuit to the customer. We offer virtual private network services to businesses seeking a cost-effective means of creating their own secure networks for communicating and conducting business with their employees, customers and suppliers.

Virtual Local Area Network. We provide virtual local area network, or VLAN, point-to-point and point-to-multipoint services providing businesses with a scalable and secure means of converging multiple business locations. By utilizing our infrastructure to connect “lit” buildings and points-of- presence, or POPs, or by delivering dedicated fiber or Metro-Ethernet to a customer’s location(s) while utilizing fiber rings to create a multi-site WAN, our fully-managed VLAN solutions are customized to meet specific business requirements. Our service is provided by configuring VLANs between multiple customer locations and routing the data traffic so it only traverses our network via inter-connected POPs or fiber rings. Providing greater speed and efficiency than IP-based VPNs and typically more cost-effective than traditional point-to-point circuits, our VLAN services will provide a business with the cost-effective, secure solution. This service can be achieved on a metro-basis, as well as multi-city or internationally, within our footprint.

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Enterprise Voice: Our enterprise voice services offer businesses of all sizes a reliable, cost-effective voice solution. Our customers benefit from business-class VoIP service without taxing the organization’s bandwidth, ensuring superb call quality while allowing their broadband services to run at top speeds. Offering both a hosted voice solution, as well as SIP Trunking technology, we believe we can meet the telephony and data transport needs of any company regardless of its current platform. We offer a bundled solution scalable to a customer’s needs at competitive price points. Services include: E911, 411, Operator Services, Directory Listing / Caller ID, Local Number Portability, Customizable outbound and inbound calling plans, Virtual DIDs, Auto Attendant, 24 X 7 X 365 Customer Support, Access to audio/web conferencing.

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Hosted IP Voice: Delivering superb flexibility and functionality without the cost of bringing additional hardware in-house, our Hosted IP Voice solution allows a company to realize an immediate savings of both time and money. Offering a streamlined migration of existing telephony services with very little down time, our Hosted IP Voice service offers feature-rich technology that is simple for employees to manage and control. Since these features reside on our network, it immediately eliminates the need for any costly infrastructure upgrades. We handle the design, implementation, and ongoing maintenance required to keep the voice services running efficiently.

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SIP Trunking: Our SIP Trunking solution allows a customer’s existing telephone system to interoperate seamlessly with our top-of-the-line infrastructure. Widely considered the industry standard for VoIP calling, our SIP Trunking solution offers businesses premiere call quality while maintaining all of the existing features that a business relies on. An excellent add-on to bundle with our bandwidth services, this unique technology enables voice traffic to always

take priority over data, delivering superb call quality to all users while maintaining company’s remaining broadband services at top speeds. Highly scalable to meet the needs of any company, our SIP Trunking solution eliminates the over-subscription of voice channels, allowing a customer to customize their system, adding or subtracting lines as needed.

With competitive usage plans available, our SIP Trunking solution delivers cost efficient local, toll-free, and long-distance service across our nationwide footprint. Some of the standard features include: Unlimited Inbound Calling, Directory Assistance/Operator Services, Inbound Caller ID, Unlimited site-to-site calling, Local Number Portability, Customizable outbound/inbound (toll-free) calling plans, Virtual DIDs, E911, and 24 X 7 X 365 Customer Support. The benefits to the customers include the elimination of unnecessary hardware costs, increased call quality, flexibility to add/subtract lines as needed, the dynamic optimization of unused bandwidth, the availability of local DIDs for remote users, faster, more efficient disaster recovery and legacy system compatibility.

In-building Service

We aggregate bandwidth in the telecommunications facilities of commercial office buildings. Tenants in these buildings receive public Internet bandwidth via ethernet (cable) handoffs terminated in their individual suites. This delivery method provides countless benefits over typical Internet services including faster installation and greater uptime (service availability) for businesses. Bandwidth is rate-limited to a certain speed from T-1 speeds up to and exceeding 1 Gbps. Other advantages of ethernet delivery are the scalability of the bandwidth speed and the ability to upgrade the bandwidth speed on-demand. Redundancy is achieved by using carrier and path diversity for transport to our POPs and multiple backbone providers at the POP level. Best of all, our Internet bandwidth services are fully-managed and monitored in real-time, 24 hours per day, seven days per week, 365 days per year, at our network operations center.

Remote Service

Our customers that are located in buildings that are not currently wired by us receive bandwidth services on a “remote” basis. The minimum bandwidth level is 1.5 Mbps delivered via ILEC T-1 circuits that are mapped to a nearby POP. Customers are provided with a fully-managed router to accept the T-1 or higher bandwidth. As with “in-building” bandwidth services, all “remote” customers are fully managed and monitored in real-time, 24 hours per day, seven days per week, 365 days per year, at our network operations center.

Remote services are also available on a multiple T-1 basis (3 Mbps, 4.5 Mbps and 6 Mbps), metro-ethernet (10 Mbps, 100 Mbps and 1 Gbps; committed-rate or burstable with a minimum committed-rate requirement), DS3 (45 Mbps; committed-rate or burstable with a minimum committed-rate requirement).

Local Telephone Services. Our local telephone services include basic local dial tone service, call waiting, call forwarding, call return, caller ID, voicemail, universal messaging, directory assistance, hunting, call pick-up, repeat dialing and speed dialing services. In some regions, we also offer our business customers a remote office feature that enables them to place calls from any location but appear to be calling from their offices, as well as a simultaneous ring feature that provides customers with the ability to have their calls ring at multiple locations, providing greater flexibility than traditional call forwarding. We have entered into interconnection agreements with the traditional regional Bell operating companies, or RBOCs, that historically provided local telephone service, as well as with other large local telephone companies operating in its markets. These agreements currently allow is to interconnect our network with the networks of those companies to offer local telephone services in 48 states and the District of Columbia.

Long Distance Services. We offer a range of switched and dedicated long distance services to customers connected to our network. These include services that originate and terminate within the same local transport area and in different local transport areas, international services, 1+ outbound services and inbound toll-free services. We also offer ancillary long distance services, such as operator assistance, calling cards and pre-paid long distance. In those instances where we are not

able to connect a customer to our network, we resell the long distance services of other communications carriers through agreements we have entered into with those carriers. We generally sell our long distance services as part of a bundle that includes one or more of our local services offerings, our other network service offerings or our integrated solutions offerings.

Carrier Services. We offer our wholesale offering of voice to other communications providers and to larger-scale purchasers of network capacity. Our carrier class services customers include communications companies that resell our local and long distance services, interactive voice response providers, Voice over Internet Protocol, or VoIP, providers, other “competitive carriers” such as us that have been formed as a result of the Telecommunications Act of 1996, government agencies, wireless service providers, web services providers and Internet service providers.

We offer the following services to some or all of our carrier customers:

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dedicated local services, including primary rate interface services, that provide high capacity local service for carrier access services, such as dial up Internet access and VoIP services;

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local voice and related enabling services, such as digital loop carrier services and local switching services;

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long distance transport and termination;

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long distance network services, including special access services;

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origination, including toll-free origination, for competitive local providers and other carriers;

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network security services for local resale service providers and other competitive carriers;

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end user multiprotocol label switching aggregation services that provide secure IP communications connections between carrier end users and single or multiple network points of presence, or POPs, of the carrier;

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local access to Internet service providers;

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high-speed Internet connectivity for Internet service providers and web services applications; and

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Internet transit services that provide global routing.

The majority of our carrier services revenue historically has been generated by long distance termination and origination for competitive local providers and other carriers.

We provide our regional customers with the flexibility to extend their coverage areas without extending their operational centers or investing in additional personnel through the use of our centralized network equipment centers.

Sales and Marketing

Retail

We have an experienced direct sales force in all markets that currently focuses on voice and data services to the small and mid-size business market, although we do also sell to large customers. Our experience is that the ILEC’s do not focus on the business segment in a consultative, solution oriented manner. Our sales strategy involves face-to-face solution oriented sales, building trust and confidence and a strong relationship with the client through a keen understanding of their data and voice requirements. Our solutions are developed specifically around these requirements and comprehensive proposals prepared and presented. Our services are custom “packaged” to client requirements, and we expect that our 4G services will be seamlessly folded into this solution offering.

Sales Channels

The direct organization is augmented by a channel referral network of typically IT companies (IT Consultants, Outsourced IT Providers, VAR’s) extending their clients to our sales personnel.

Additionally, web based inquiries and referrals from Property Management are assigned to the direct sales force for follow-up.

Strategy

Our sales strategy is based on delivering value creating solutions to our clients incorporating multiple services (data, voice, wired, wireless, VLAN, 4G) with professionalism, a strong sense of urgency and results. Account development and relationships are continually strengthened overtime to position us for additional services, locations and expansion opportunities. This account relationship earns loyalty, reducing churn and assisting Customer Support. We do not sell “price” as a prime driver for our services instead focuses on service quality, personalized and urgent client support, ease of doing business and economic savings with multiple service integration.

Client solutions are developed with the inclusion of voice and data engineers to creatively apply the expertise internally to complex client requirements. We believe that these sometimes unique solutions often eliminate competition and enhance the over-all value of our solutions. These may incorporate multi-site VLANs, redundancy and wired/wireless capabilities. This creative technical approach earns confidence, enhances the value of our offering and increases the close rate on complex, high value service sales. Sales management is actively engaged in pipeline management and is also required to be actively engaged in the high value sales opportunities.

Our marketing efforts to date have been focused on the following:

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On-net building seminars/lobby events endorsed and attended by property management;

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Email marketing to current clients for upgrade and expansion opportunities;

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Proactive account calling plans monthly in customer support to “touch” each client to measure satisfaction and search for new business initiatives; and

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Client and property management referrals.

Wholesale

Through our subsidiary, RNK, we offer a wide variety of regulated and unregulated services in all of its jurisdictions. We employ a duel sales strategy. Our in house dedicated sales staff, is comprised of seasoned professionals, who solicit wholesale customers which in turn have their own dedicated sales staff and marketing avenues. We solicit business through the following sales channels.

Direct Sales through in house sales staff

We have a sales staff dedicated to international origination and terminating carrier sales, pre-paid calling cards, domestic origination and termination carrier sales, Direct Inward Dial, or DID, sales (phone numbers RNK provides to other carriers which RNK owns), collocation services, and various other tarriffed and homegrown products.

Agents

We have several agents that sell our services throughout the telecommunications industry. Agents work both domestic and international markets and provide a continual stream of business for us. Typically, our agents bring in more wholesale business clients.

Contractual buy sell arrangements

We have many contractual relationships with other carrier and telecommunication companies. These contracts allow for a reciprocal business relationship—we buy from them and they buy from us. The wholesale phone business is based on price and quality, and the more minute volume a carrier has, the greater their buying power, which in turn allows lower pricing to attract more business while maintaining profit margins. The lower our prices, the more business we can attract. This “prime the pump” business scenario works well for us as we have doubled our overall monthly

minute volume every two years. We now average over a billion minutes a month through our switching network.

Interconnected VoIP Services

We have approximately 1,300 in-house VoIP customers and another 10,600 VoIP private label end users through resellers of our VoIP service. We have built and maintained a residential VoIP network for these customers. Further, we have approximately 3,000 phone numbers assigned to VoIP business customers.

Direct Inward Dial, or DID, Services

We have over two hundred DID customers utilizing over 1,000,000 RNK assigned phone numbers. This service provides telephone numbers and the underlying transport facilities to complete calls to our customers. We provide this service using our own telephone numbers as well as those we resell from other carriers. These numbers are most commonly sold to other carriers and phone companies for their direct end user customers.

Carrier Origination and Termination Services (both Domestic and International

RNK, as a “carrier’s carrier,” provides international and domestic originating calling and domestic and international terminating calling to approximately 200 other carriers. These services allow customers, such as other carriers, long distance providers, and IP-enabled service providers, among others, to send to us long distance telecommunications traffic for termination to the PSTN.

Collocation Services

We have facilities in several east coast cities and provide other carriers, service providers and businesses with the ability to locate their equipment and utilize our network connectivity. We have approximately 20 collocation customers in four different facilities.

Calling Card Services (both RNK brand and private label)

RNK produces its own calling cards under the RNK brand as well as approximately 30 different private label cards for retail stores, government and non-profit organizations.

Pre-Paid Private Pin Service

We provide customers, such as calling card companies and prepaid long-distance providers with the ability to produce their own pre-paid calling services utilizing our network and pre-paid calling platform. These services allow customers to track and maintain their customer’s accounts using our platform. Such customers combine our services into their own customer offerings.

Company Developed Innovations

MyTempNumberÒ is a mobile application that allows users to add an additional phone number to their current cell phone. This unique call forwarding service allows users to have a private phone number from anywhere in the continental United States or Canada ring to their current cell phone. Currently MyTempNumberÒ is available on the iPhoneÒ App StoreÒ and can be downloaded through AppleÒ iTunesÒ and iPhone and iPod touchÒ devices. MyTempNumberÒ is currently available in the NokiaÒ OVIÒ store and on Series 60 3rd edition and 5th edition smart phones.

Phone Number BankÒ is an application that allows users to keep any phone number they own without the cost of paying their monthly phone bill. Phone Number Bank gives customers the ability to save the phone number they have always had and they can manage where the number rings to via an online portal. Users can point that number to either a virtual voicemail box or forward to any other United States phone number.

Other Telecommunications Services

We provide various other telecommunications services, including but not limited to, dedicated transport, on a case by case basis or in accordance with our lawfully filed tariffs, as applicable.

Marketing

We have limited marketing expenditures and rely mainly on our participation in industry trade shows and direct customer contact to generate new business. As a wholesale carrier, RNK has also advertised its services in industry focused publications and email blasts to attract new wholesale customers.

Customer Support Systems

Our fully redundant customer care facilities are located just outside Boston, Massachusetts, with two locations allowing for real time disaster recovery. We provide live support from our multiple call center locations 24 hours a day, seven days per week, 365 days a year.

Our support representatives are specifically trained to enable them to offer customers customized support depending on the product or service at issue. Our call centers utilize industry standard coaching and employee development and training programs to ensure all of our customer interactions are of a high quality. As such, most of our callers reach a live representative in less than one minute and, when they do, trained agents work hard to address any concerns or issues on that very first call into the support system. Customer Care operations strive to ensure first call resolutions are over 80% for customer issues and those issues escalated to a higher level are handled quickly by senior engineers.

Our Customer Care centers cater to the diverse needs and preferences of our customers. We believe in providing efficient, high-tech offerings like Secure Live Chat, Online Self Help engines along with the personal service and attention to detail that our customers have grown to expect as well as the option to speak to a live representative at any time.

Network Architecture and Deployment

Overview. Our integrated voice and data network offers an advanced and secure network, sophisticated voice and data applications, as well as outstanding, reliability, redundancy, and security.

The diversity and resiliency of our network is designed to insulate customers from network failures by providing diverse network access points in each of our markets and multiple private peering arrangements. Our network provides disaster protection from the bottom up, with redundant equipment on every card, router, and server in the network. All of this is supported by power backup and a self-healing high capacity fiber backbone.

We pride ourselves on our ability to manage and control our entire network: equipment, Points of Presence, and fiber optic backbone—providing customers with reliability, high availability service, and security. We believe that our network deployment strategy has allowed us to enter new markets rapidly and to offer our customers flexible technological solutions tailored to their specific needs. We also believe that this flexible network deployment strategy allows us to adapt quickly to emerging technological innovations.

Our network is equipped with the latest generation of voice and data equipment in partnership with industry leading suppliers, including Lucent, Cisco, Nextone, BroadSoft, Asterisk, and NACT. Our underlying network is based on a Geographically Redundant Lucent Distributed Gateway Architecture, and is complemented by a Cisco-based IP Mesh Platform. Our network was built from the ground up by professionals with many years of combined engineering and design experience in voice and data technologies.

This network infrastructure and operations support systems enable us to control the types of services that we offer, how these services are packaged and how they are integrated to serve customers. Through our installation of IP routers at our switch sites, we have deployed packet-based technology to augment our traditional circuit-switching technology. Our customer-specific voice and

data solutions are driven by customer preferences and priorities, as we strive to provide industry-leading packet delivery, latency, and backbone availability over our core IP network, enabling rapid, secure, and accurate transmissions.

By providing the latest in IP technologies, we have sought to maintain an advanced architecture that supports converged technologies. This allows us to deliver cutting-edge products, features and services to customers efficiently over a single, next-generation network—including unified messaging, IP video and trunking, presence management, and online feature management—allowing customers to combine voice and data services to increase efficiency and reduce costs.

Full-scale Facilities Based Competitive Local Exchange Carrier Capabilities

Through RNK, we offer full-scale facilities based CLEC capabilities, creating nationwide and international coverage for all voice and data communications. Capital investments made over the past 12 years have helped create a robust infrastructure designed specifically to allow for long-term network presence, stability and profitability. In addition, this allows us to perform essential communications functions internally, including:

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Public Switched Telephone Network (PSTN) Access—We have full access to both domestic and international public switched networks.

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Local Number Portability—Our Number Provisioning Team offers full function Number Administration including all necessary porting, certification, and central registry administration.

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Public Safety Answer Point (PSAP) Access—As a local service provider, we provide all voice customers with connections to the PSAP. All of our voice products include Emergency 911 dialing capability.

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Repair Services—We offer a full fleet of maintenance and repair technicians that are dispatched to provide professional services should any of our customers require site services.

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Billing & Collections—Our ability to provide our billing and collections allows for a higher level of control and understanding of our expenses, our revenues, our collections, and any financial or service issues that are impacting our customers.

Leased “Last Mile.” We traditionally have connected our customers to our network primarily by leasing “special access” digital transmission lines. We have obtained most of these digital transmission lines, which either provide a dedicated connection between our customer locations and our switches, from major communications providers such as AT&T Inc., Verizon Communications, and Global Crossing or a dedicated bandwidth brought into a building that is used to service customers in that building. These connections provide our customers with a minimum of 24 available channels over which we can provide network services. Our strategy traditionally has been to form relationships with multiple providers of communications lines to improve service reliability through alternative network paths and to lower our costs through competitive procurement.

Packet Technology. Our network infrastructure and operations support systems enable us to control the types of services that we offer, how these services are packaged and how they are integrated to serve customers. Through our installation of IP routers at our switch sites, we have deployed packet- based technology to augment our traditional circuit-switching technology. Circuit switch-based systems, which historically have dominated the public telephone network, establish a dedicated channel for each communication, such as a telephone call for voice or fax, maintain the channel for the duration of the call, and disconnect the channel at the conclusion of the call. Packet-switched systems format the information to be transmitted into a series of shorter digital messages called “packets.” Each packet consists of a portion of the complete message plus the addressing information to identify the destination and return address. Unlike circuit-switching, packet-switching does not require a single dedicated channel between communication points. This type of communication between sender and receiver is considered connectionless, rather than dedicated. Most traffic over the Internet, which is a connectionless network, uses packet-switching technology. We believe a transition to combining the delivery of our data and voice services over a converged packet-based network enables us to streamline the delivery of core communications services to our

customer base in a more flexible manner than circuit-switching technology has permitted, to deliver a new generation of product offerings, and to more effectively and efficiently leverage our network assets.

Network Infrastructure and Backbone Network. Our network backbone enables us to offer high-quality Internet access and virtual private networking services. This backbone consists of high-capacity fiber optic telephone and data transmission lines that we lease and that allows us to transport traffic between points on our network. The packet-switching portion of our backbone is based on Internet Protocol, which is a broadly deployed standards-based protocol that allows unrelated computer networks to exchange data and is the technological basis of the Internet. IP technology has enabled us to accelerate network traffic flow and has made it easier and less costly for us to manage our network. This technology generally makes more of the network capacity available for revenue-generating customer traffic. Our backbone network is intended to provide a network switching presence close to the customer to reduce access and switching costs, and to allow us to expand our network rapidly to meet customer demand. This regional design also is intended to enhance service reliability and allow us to improve quality and speed.

Network Operations Command Center (NOCC). We provide pro-active, real-time monitoring to protect customer services. Our Network Operations Command Center (NOCC) in Bedford, Massachusetts provides 24/7/365 surveillance of over 10,000 network elements to support our next-generation network and protect our customers’ services. Our NOCC is equipped with proactive monitoring tools to ensure quick identification and resolution of network issues.

In addition to this constant surveillance of individual network elements, we perform routine equipment audits to ensure reliability. Our network is highly sectionalized, with remote access to all devices that allows us to communicate with devices such as modems and routers to speed detection and repair. We employ the latest telecommunications standards to ensure that we maintain the low mean-time-to-repair performance. In addition, we adhere to stringent “maintenance window” schedules, where repairs are done overnight to minimize or eliminate any impact on our customers.

The NOCC provides advanced, “always-on” monitoring for latency, jitter, utilization and packet loss in real time. Customer Premise Equipment, local loops and backbone elements are constantly under surveillance with proactive monitoring systems for fast failure detection and recovery. Because of these capabilities, many problems are identified and rectified before customers are even aware there is an issue. Our highly trained staff is provided with the right tools, training and state-of-the-art equipment to maintain network reliability and keep the network and our customers up and running.

Stringent Security Regulations. We meet the most demanding security standards and regulations to safeguard customers’ critical data and processes against disruption, and provide privacy protection.

Competition

We compete in the marketplace with Incumbent Local Exchange Carriers, or ILECs, such as Verizon and ATT, and other national and international providers such as Level 3 Communications, LLC, XO Communications and Cogent Communications, Inc. Additionally, regional and local providers such as Broadview Networks, Inc. and Paetec also compete in the market. Although many are larger organizations, they may be less apt to handle the small to mid-size market that is our focus. We believe that we compete effectively in the marketplace by solution oriented sales, personal and prompt client support and services, and competitive pricing, and building out our 4G based HFW network allows us to provide differentiated offerings at differentiated pricing.

We expect to face competition in the In-Building Wireless market from other established companies that offer solutions utlizing a variety of technologies. These technologies will include Active DAS, Passive DAS, Repeaters, Picocells, and Femtocells. Each of these technologies will provide our competitors with various levels of advantage and disadvantage as it relates to cost, capacity, coverage, installation timeframes, number of wireless bands supported, scalability, reliability, management, building disruption, interference mitigation, and end-user applications. Competitors in the In-building Wireless space will include ADC Telecommunications, Inc.;

CommScope, Inc.; InnerWireless, Inc., MobileAccess, Inc.; and Alcatel-Lucent. We believe that our technology and our offering as a whole is well positioned to compete in this marketplace, provides a superior experience for end users, and provides for the most efficient use of network resources.

RNK

The market for wholesale communication services in the RNK service area is a highly competitive one and there is a variety of types of competitors ranging from traditional ILECs to CLECs and other enhanced service providers. We compete with these companies based on price, services, and quality of the network provided. RNK provides domestic origination/local access, domestic and international terminations, and prepaid services. We briefly discuss each below and identify our main competitors for each service category.

Domestic Origination/Local Access

This is RNK’s featured product. Due to our advantageous carrier contracts and efficient network deployment, we believe that RNK enjoys a significant advantage over most of our competitors in the RNK service area. Some of the main competitors in this product line are Global Crossing, Level 3 Communications, LLC, XO Communications, Paetec, One Communications Corp., Verizon Business, and other smaller regional CLECs.

Domestic and International Terminations

RNK terminates local, long distance, and international calls for our customers. In the RNK service area we have established contracts with carrier partners to allow us to offer an extremely competitive termination product both domestically and internationally. Some of the main competitors in this product are Qwest Communications International, Inc., AT&T, Level 3 Communications, LLC, Transcom, Paetec, One Communications Corp., Ibasis, Inc., Primus Telecommunications, Inc., and other smaller VoIP carriers.

Prepaid Calling Services

RNK offers its own as well as private label calling card products throughout our service area. Currently our products are offered in approximately 1,500 stores comprised of local chain supermarkets, discount stores, and smaller private grocery/markets. This is a challenging market with many competitors. The most significant competition in this market comes from IDT Corporation, STI-Telecommunications, and Dollar Phone Corp.

Government Regulation

Overview of Existing Regulatory Requirements

Our services are subject to varying degrees of federal, state and local regulation. We provide both what are known as “information services” and “telecommunications services.” These terms are specifically defined by federal statutes and rules, and the regulations that apply to them are vastly different. Information services provide customers with an ability to interact with data or stored information. Internet access service and voice mail are examples of information services. Information services are subject to minimum regulation, and states are preempted from regulating these services altogether. As described below, however, the Federal Communications Commission has recently launched a proceeding to determine whether to adopt new rules barring Internet access service providers from favoring one type of Internet application over another. This non-discrimination requirement is referred to as “net neutrality.”

Telecommunications services, such as local or long distance telephone service, are subject to stricter regulation, at both the federal and state level. Many of the wholesale services provided by RNK are telecommunication services. Telecommunications services must be provided at just and reasonable rates and offered to all potential customers on a non-discriminatory basis. Telecommunications carriers must also interconnect their networks with other carriers so that the

customer of one carrier can call or transmit data to the customer of another. Certain telecommunications services are priced based on tariffs filed at the federal or state level. Providers of telecommunications services must obtain federal and state authority to operate and must obtain federal and state approval for many kinds of major transactions, such as sale of the company, its assets or incurring substantial debt. Federal and state regulatory requirements impose compliance costs and, in extreme cases of non-compliance, can result in the imposition of fines or the revocation of operating authority. RNK is authorized to provide varying degrees of service, and its thus subject to state regulation, in the following states: Massachusetts, Rhode Island, New Hampshire, New York, Maine, Vermont, Connecticut, Maryland, Pennsylvania, Virginia, Florida, Texas, New Jersey and Washington, D.C.

Market Opening Provisions of the 1996 Telecommunications Act

The 1996 Telecommunications Act, or the Telecommunications Act established new rules designed to help carriers enter local telecommunications services markets and compete against the incumbent carriers that, up to then, had been treated as natural monopolies. These carriers are called competitive local exchange carriers or CLECs. Among other things, the Telecommunications Act required the incumbent carriers to make parts of their network—called unbundled network elements or UNEs—available to CLECs at favorable rates. The specifics of these general requirements have been the subject to intense litigation and shifting rules. As a result, the availability of incumbent network elements at low rates has become more limited and the incumbent carriers continue to push for elimination of these requirements to the detriment of new entrants like RNK who could see their costs increase.

The Telecommunications Act also requires Incumbent carriers to negotiate in good faith with competitive carriers such as us for interconnection, collocation, intercarrier compensation and providing access to unbundled network elements of the incumbent carrier. If the negotiating carriers cannot reach agreement within the time prescribed in the Act, either carrier may request binding arbitration of the disputed issues by a state regulatory commission. In addition, carriers are permitted to “adopt” in their entirety agreements reached between the incumbent carrier and another carrier.

These agreements currently allow us to interconnect our network with the networks of those companies to offer local telephone services. Each interconnection agreement allows us to enter new markets and to offer communications services to current and prospective customers. Each agreement permits us to provide local service on a resale basis or by purchasing UNEs that we require to provide local service on a facilities basis. Each interconnection agreement, including pricing terms agreed to by us and the incumbent carrier, must be approved by state regulatory authorities, and they remain subject to review and modification by those authorities. Although parties may negotiate prices contained in the interconnection agreement, such agreements typically incorporate prices for interconnection, collocation, intercarrier compensation and UNEs that have been established by state regulators in generic proceedings using the FCC’s approved pricing methodology.

Interconnection agreements typically 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 the parties cannot negotiate new favorable interconnection agreements, adopt an existing agreement, renew existing interconnection agreements, either party may invoke binding arbitration by state regulatory agencies. The arbitration process is expensive and time-consuming, and the results of an arbitration may be unfavorable to us. If we are unable to obtain favorable interconnection terms, it would harm our existing operations and opportunities to grow our business in our current and new markets.

Regulation of Voice over Internet Protocol (VoIP) Calls

We and many other providers are increasingly using Internet technology to provide communications services. One example is Voice over Internet Protocol, or VoIP. The regulations applicable to VoIP traffic are currently unsettled. Some VoIP calls never touch regular telephone networks and are classified as information services. Sometimes calls begin and end as regular

telephone calls, but are carried as VoIP calls in between. These VoIP-in-the-middle calls are regulated as telecommunications services. Much of the company’s traffic is VoIP on one end and regular voice calls on the other. These are called interconnected VoIP calls because they interconnect with the regular telephone network called the Public Switched Telephone Network or PSTN. When Wave2Wave provides VoIP-based telephone products to business customers, it is providing an interconnected VoIP service. The FCC has yet to determine whether interconnected VoIP calls are information services or telecommunications services, creating substantial regulatory uncertainty. Even though the FCC has not decided how to classify interconnected VoIP calls, the agency has extended various telecommunications regulatory requirements to such calls, such as requiring that VoIP customers be able to make 911 calls that interconnected VoIP providers pay certain federal telecommunications fees and assessments, and that VoIP networks enable law enforcement agencies to lawfully intercept VoIP calls. Furthermore, to the extent in Phase 2 of our business strategy that 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 as discussed above.

Charges Between Service Providers for Network Access

The proliferation of different types of communications service providers offering an array of new telecommunications and information services has put increasing pressure on the complex regulatory regime governing how providers compensate each other for access to their networks. The amount that one carrier may charge another carrier for the use of its network varies substantially depending on the type and nature of the communication, even though essentially similar network functions may be performed. For example, regular long distance voice calls are subject to so-called access charges. These are fees paid by long distance companies to local telephone companies, such as RNK. The amount that the local carrier can charge the long distance company depends on whether the long distance call travels between states or begins and ends in the same state. Intrastate access charges, which are regulated by state utility commissions, typically are higher, and sometimes much higher, than interstate access charges, which are regulated by the FCC. Access charges apply to telecommunications services. Pursuant to the FCC’s Information Service Provider, or ISP, exemption, entities that provide information services are not subject to access charges. In a 2006 order, the FCC ruled that providers of prepaid calling card services are liable for access charges for long distance calls. The FCC has not ruled that access charges apply to interconnected VoIP traffic.

As a new entrant into the market, the FCC generally does not regulate our prices. The FCC does, however, regulate the interstate access charges that RNK and other CLECs can assess long distance companies. Under these rules, CLECs generally cannot charge higher interstate access fees than the incumbent carrier against which it competes. Some states have, or are considering, imposing similar caps on CLEC intrastate access charges, which could have the effect of lowering RNK’s intrastate access rates, and hence its revenue, in some states.

Service providers also exchange traffic that is subject to a different compensation arrangement known as reciprocal compensation. Reciprocal compensation applies when carriers exchange local calls or when a customer of one carrier calls an Internet service provider that is served by another carrier. The rates for reciprocal compensation for local calls are set by the states using a formula prescribed by Federal law, and are usually much lower than access charges. The FCC has also set a very low rate for terminating a dial-up call to an ISP, although the FCC’s authority to set these rates is the subject of a pending appeal. In addition to different rates, the access charge and reciprocal compensation regimes are subject to different rules. For example, a local carrier whose customer makes a long distance call may charge the long distance carrier an originating access fee. A local carrier whose customer makes a local call cannot charge an originating fee but instead must pay the carrier whose customer is being called a terminating reciprocal compensation fee. Wireless carriers are also subject to access charges and reciprocal compensation, but under yet another set of rules. For example, what constitutes a “local” call, and hence is subject to low reciprocal compensation rates rather than higher access charges, is different for wireless calls. Thus, a call that would be subject to access charges if originated by a wireline company may be subject to lower reciprocal compensation if originated on a wireless phone.

The FCC and state commissions have initiated a number of proceedings to rationalize this disparate array of intercarrrier charges. One proposal is to establish, over some transition period, a single, relatively low uniform compensation rate for all different kinds of traffic. Key proceedings are described below. The outcome of these proceedings, which are difficult to predict, could have a materially adverse affect on the companies. For example, a substantial portion of RNK’s revenue comes for payment from other carriers in the form of access charges or reciprocal compensation. If the result of these proceedings is to lower access charges, there would be materially lower RNK revenue. Conversely, if the FCC were to rule that VoIP traffic is subject to access charges, Wave2Wave’s and RNK’s costs could materially increase or business opportunities could decrease. Additionally, disputes often arise between carriers regarding the appropriate classification, and hence the appropriate compensation rate, to be applied. RNK is currently the subject to a lawsuit filed by its competitor, Verizon, seeking to collect access charges for traffic that RNK considers to be local traffic.

Universal Service

The FCC and some states have established a universal service subsidy regime known as the “Universal Service Fund,” which, among other things, provides subsidies for the provision of telecommunications and information services to rural and other high-cost areas. Universal service is closely linked to the intercarrier compensation issues cited above. A number of incumbent carriers, particularly those serving more rural areas, claim that the government should not reduce access fees, which often act as implicit subsidies, without increasing the amounts they receive under the Universal Service Fund.

Providers of interstate telecommunications services such as us must pay assessments that fund these subsidies. We also may be eligible to obtain subsidies for some services that we provide. At this time, we cannot determine with certainty our net financial responsibility for the Universal Service Fund. The FCC currently is assessing Universal Service Fund contribution payments based on a percentage of each telecommunications provider’s projected interstate and international telecommunications revenue. Carriers are permitted to pass through a specified percentage of their Universal Service Fund contribution assessment to their customers in a manner consistent with FCC billing regulations.

In conjunction with intercarrier compensation reform, the FCC also is addressing ways to revise the manner in which carriers are required to make contributions to the Universal Service Fund. In January 2008, the FCC issued a series of proposals designed to reform the manner in which Universal Service Fund proceeds are collected and distributed. One of these proposals would base the Universal Service Fund assessment on the number of lines or telephone numbers that a telecommunications carrier actively provides, rather than on a percentage of collected revenue. The objective behind this proposal is to capture Universal Service Fund revenues from the expanding number of new service providers, which could include providers of information services like Internet access. These and other proposals pending before the FCC related to Universal Service Fund reform are expected to generate considerable debate and their outcome is not predictable. In addition, various states maintain, or are in the process of implementing, their own universal service programs. Rising universal service obligations may increase our overall costs. We, however, could benefit from Universal Service Fund program subsidies if we choose to deploy network infrastructure and services in areas and to customers eligible to receive universal service support.

Other Regulatory Obligations.

Telecommunications carriers such as us are subject to a variety of miscellaneous regulations at the federal and state level that can have cost or operational implications. The regulations, for instance, require the filing of periodic revenue and service quality reports, the provision of services to customers with hearing or speech disabilities and associated funding of telecommunications relay services, protection of Customer Proprietary Network Information (CPNI), the capability to associate a physical address with a calling party’s telephone number (E-911) and cooperation with law enforcement officials engaged in lawful communication intercept or monitoring activities, in addition

to regulating telemarketing and slamming, which involves an unauthorized change in a subscriber’s carrier of choice. Noncompliance with these and other provisions can result in administrative fines and penalties.

Regulation of Wireless Services

There exists a highly developed and complex regulatory scheme for providers of wireless telecommunications services. However, because our wireless services will not likely be regulated as a commercial mobile radio service, we will generally not be subject to those regulations. Instead, we will be subject to regulation as a provider of information services to the extent that we provide wireless data services. Because we propose to offer wireless Internet access, we may be subject to net neutrality rules developed by the FCC designed to govern the manner by which Internet service providers permit their customers access to and from the Internet. We plan to offer other wireless carriers the ability to permit their customers to “roam” onto our wireless in-building network. To the extent those customers roam using data services, we will still be considered to provide information services. If we carry the voice traffic of other carriers’ customers over our in-building IP network, those calls would likely be considered interconnected VoIP calls and we would be obligated to comply with whatever regulatory scheme is developed for interconnected VoIP services. In either case, the FCC has not mandated roaming among non-CMRS providers. Therefore, it is not clear whether we will be able to secure roaming agreements with commercial providers to carry either their voice or data traffic. The use of unlicensed spectrum, which we will operate within buildings to provide our 4G services (regardless of whether we are carrying voice or data or the traffic of our own customers or a third party’s), is not highly regulated. We are obligated to observe technical limitations imposed by the FCC’s rules and are required to accept harmful interference from other entities using unlicensed spectrum. See also section entitled “Regulation of Voice over Internet Protocol (VoIP) Calls” above.

Key Regulatory Proceedings

The following summary of regulatory developments does not purport to describe all current and proposed federal, state and local regulations, administrative rulemakings and legislation that may affect us. Federal and state legislation and regulations governing telecommunications and related services is a subject of ongoing judicial proceedings, rulemakings and legislative initiatives that could change, in varying degrees, the manner in which the communications industry operates and could materially affect Wave2Wave and RNK’s business.

Intercarrier Compensation

The FCC currently is reviewing the compensation arrangements that exist between carriers for the use of their respective networks in several interrelated dockets. Various proposals have been under review. On November 5, 2008, the FCC released a notice seeking comment on three proposals, including a draft order circulated by the then FCC Chairman Martin. These proposals or other proposals could significantly alter the manner in which local carriers charge long distance carriers and other types of carriers such as VoIP providers, for the origination and termination of communications traffic and the rates local exchange carriers charge for these services. The proceeding could also significantly alter the manner in which and rates at which facilities-based local carriers charge other carriers, such as VoIP providers and wireless providers, for the origination and termination of local communications traffic. One specific proposal under consideration would, over a specified transition period, establish a single, low rate for all traffic and providers. Another proposal would bar carriers from charging each other and require that carriers recover all network costs from their own end users—a regime called bill and keep, meaning, bill your own customer and keep the proceeds. The FCC’s review of these matters will not only re-examine the rules governing the way carriers charge one another but also the potential effect that changes to the intercarrier compensation regime could have on various federal subsidy programs such as the Universal Service Fund, on the nation’s legacy carrier network infrastructure, and on consumers’ retail rates. The FCC has taken no action of any of these proposals and it is difficult to predict if or when the agency will

take up comprehensive intercarrier compensation reform or what the final rules would require. The FCC has recently sought comment on whether intercarrier compensation and USF reform should be addressed in the national broadband plan Congress directed the agency to complete in February 2010.

In addition to comprehensive intercarrier reform proceedings, there are several pending proceedings reviewing discrete intercarrier compensation issues. These include a proceeding to address so-called phantom traffic, which is traffic whose nature and originating provider cannot readily be determined.. Another pending docket, pertaining to so called “traffic pumping,” was initiated by incumbents and their interexchange carrier affiliates to curb the practice of generating large amounts of intercarrier compensation by soliciting customers with high in-bound calling patterns. Some alternatives proffered in this docket include access growth caps or certifications that carriers are not sharing access revenues with customers. Additionally, on November 6, 2008, the FCC issued a further order finding that dial up Internet access traffic to ISPs is subject to reciprocal compensation and extending the rate it had previously set for terminating this traffic to the ISP.

Access to Incumbent Network Elements and Special Access Services

We rely on incumbent LEC network elements to connect over the last mile to some of our customers. In a series of orders and court rulings culminating in 2004, the FCC reduced the types of network elements incumbents must make available at low rates. For the most part, those orders maintained unbundled, low-cost access to DS 1 local loops and transport. In more recent years, the incumbent carriers have sought to use a provision of the 1996 Telecommunications Act, called forbearance that allows incumbents to petition for elimination of remaining unbundling requirements if certain criteria are met. These petitions have met with mixed success. On December 4, 2007, the FCC rejected a request by Verizon to forbear from unbundling obligations in six markets, including New York, Boston and Philadelphia. The FCC’s decision was overturned on appeal and remanded to the agency. The remand remains pending. If the incumbent’s ultimately prevail on this issue, RNK may be exposed to increased costs as incumbents eliminate low-cost access to unbundled network elements.

Where these elements are not available at low rates on an unbundled basis, the company may lease them from the incumbents or other providers as point-to-point services, called special access services. Special access services may be materially more expensive than unbundled network elements. Although incumbent carrier special access services are subject to price regulation, incumbents are able to lift price regulation in areas where they can show competitive alternatives. In 2005, the FCC initiated a rulemaking to assess whether its deregulation of special access services is premature and whether it should re-impose pricing regulation. Such an action, if taken, could reduce our costs of leasing special access services.

Broadband Network Management and Net Neutrality Policies.

On October 22, 2009, the FCC launched a new rulemaking to codify previously adopted “net neutrality” principles and to require, subject to reasonable network management, broadband Internet access service providers to treat lawful content, applications and services in a nondiscriminatory manner and to disclose network management practices. The FCC also proposes to extend these requirements to all forms of broadband Internet access, including fixed or mobile, licensed or unlicensed, wireless services. Net Neutrality obligations are also the subject of pending federal legislation. Although the discussion of Net Neutrality obligations by service providers pertains principally to broadband Internet access services provided to retail subscribers, the FCC has also sought comment on whether or how to regulate managed IP services, including business services provided to enterprise customers. Developments in this area are difficult to predict and could have implications for all network management practices, including those pursued by us.

Roaming

In the context of several proceedings the FCC is considering its roaming regulations which today require CMRS providers to offer automatic roaming for switched voice, push-to-talk and text messaging services to other carriers on reasonable and non-discriminatory bases. The FCC does not require carriers to offer roaming to other carriers that are licensed for spectrum in the market for which they seek roaming rights, so-called “home roaming.” The FCC is likely to revisit the home roaming exception (permitting carriers to seek roaming rights where they have spectrum). It is also expected to determine whether automatic roaming obligations should extend to data services (and not merely the switched telephone, push-to-talk and text messaging services to which it applies today). The FCC’s evaluation of this matter may affect our planned provision of wireless services.

Spectrum Issues

The FCC has acknowledged that there may not be sufficient spectrum available to meet wireless broadband needs, particularly as wireless technologies begin to support high-capacity applications such as data and video. Accordingly, the FCC is examining how it may make additional spectrum available. This spectrum may be allocated for unlicensed purposes, potentially making additional capacity for our in-building 4G based HFW network. However, the FCC may also make spectrum available on a licensed basis, creating additional competitors (or strengthening existing competitors) by providing them with additional spectrum capacity.

Handset Exclusivity

Carriers have complained to the FCC that handset manufacturers have been contractually restricted from making handsets available to all carriers. These handset exclusivity arrangements particularly disadvantage smaller carriers who are prevented from offering their customers the most attractive handsets, which larger carriers have prevented from being broadly available. If the FCC regulates against handset exclusivity, it may negatively affect us. However, it may positively affect us if we are able to access handsets to make available to our customers which were previously the subject of exclusivity arrangements.

State Review of Intrastate Access Charges.

We face substantial uncertainties stemming from ongoing state utility commission proceedings and legislative initiatives in various states. Such proceedings, as well as those that may be filed in the future, and any state or federal judicial proceedings or legislative initiatives, could result in significant changes to the regulatory environment of a particular state. We cannot predict the outcome of ongoing administrative or judicial proceedings or their potential impact upon the company. Further, we cannot predict how carriers will interpret these rules and whether or not such interpretations will adversely impact us.

Several state public utility commissions are currently reviewing the level of intrastate access charges that can be imposed by local exchange carriers, including competitive carriers such as RNK. As a result of these state proceedings, competing carriers may be required to lower their intrastate access rates to the levels of the major incumbent carrier against which they compete, Verizon for example, or to the level of their interstate access charges. Competing carriers may have the ability to demonstrate that their costs of originating or terminating traffic justify higher rates than those charged by the competing incumbent carrier. Several legislatures have also imposed such requirements by statue. Two recent examples of state commission action related to access charges are illustrative. 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. 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. 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. Similarly, the New Jersey Board of Public Utilities

recently reviewed 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 its appeal is unsuccessful, the initial reduction rate is 54% below the historic rate with further reductions to the final 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.

Local Regulation

Our network is subject to numerous local regulations such as building codes, municipal franchise requirements and licensing. Such regulations vary on a city-by-city and county-by-county basis and can affect the company’s provision of both network services and carrier services, as well as, where applicable, video services. In some of the areas where we provide service, we may be subject to municipal franchise requirements and may be required to pay license or franchise fees based on a percentage of gross revenue or other formula. It is possible that some municipalities that do not currently impose fees could seek to impose fees in the future, and that, following the expiration of existing franchises, they could increase fee levels. In many markets, the traditional local telephone companies do not pay rights-of-way fees or pay fees that are substantially less than those paid by us.

Competitive Carriers

The telecommunications industry is highly competitive. Our core business competes primarily on the basis of the price, availability, reliability, variety and quality of its service offerings and customer care. Our competitors in the provisioning of data, local and long distance telecommunications include:

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incumbent carriers such as AT&T, Qwest and Verizon;

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independent long distance carriers such as Sprint Nextel, and other competitive carriers; and

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other types of companies, including wireless carriers, resellers, cable companies, Internet service providers, satellite carriers, equipment vendors, network integration outsourcing vendors, electric utilities, and businesses offering long distance data and voice services using VoIP.

Incumbent Carriers. We believe that our primary competition in each of our markets will continue to be the incumbent carriers, which are the large telephone companies, such as AT&T, Qwest and Verizon that today constitute the traditional RBOCs that historically provided local telephone service. These carriers are vertically integrated and offer a comprehensive package of local, long distance and Internet services to their customers in direct competition with us.

Incumbent carriers generally have long-standing relationships with their customers, have financial, technical and marketing resources and economies of scale substantially greater than ours and have the potential to subsidize competitive services with revenue from a variety of other businesses. While the Communications Act of 1934, as amended, or the Communications Act, and past decisions by the Federal Communications Commission, or the FCC, and state regulatory commission have established extensive obligations on the incumbent carriers to allow non-incumbent carriers such as us to interconnect with the facilities of the incumbent carriers and to obtain critical network elements, such as certain digital T1, 10 mbps, 100 mbps and 1 gbps transmission lines, from those carriers, the scope of those obligations has been narrowed pursuant to recent court decisions and regulatory changes. These developments, which have resulted in increased pricing flexibility and relaxed regulatory oversight for incumbent carriers, may have a negative impact on our business opportunities and competitive position. As noted above, however, the FCC has an ongoing proceeding to assess the impact of this pricing flexibility regulatory regime.

FCC decisions and policy initiatives provide incumbent carriers with increased pricing flexibility for their private line, special access and switched access services. These FCC decisions and initiatives provide that, when an incumbent carrier demonstrates that competitors have made specified competitive inroads in providing a specified federally-regulated service in a geographic area, the incumbent carrier in that area may offer discounts to large customers through contract tariffs, engage in aggressive volume and term discount pricing practices for its customers, or otherwise free itself of regulatory constraints. Regulators in some states have adopted or are considering similar forms of deregulation or alternative regulatory plans. These actions could have a material adverse effect on the ability of competitive carriers, including us, to compete with the incumbent carriers.

Consolidation of Established Long Distance Operators and Other Competitive Carriers. We also face, and expect to continue to face, competition from other current and potential market entrants. Consolidation of telecommunications companies and the formation of strategic alliances within the telecommunications industry, as well as the development of new technologies, could give rise to a number of new competitors that may put us at a competitive disadvantage. Established long distance carriers such as AT&T, MCI and Sprint made significant inroads into the marketplace for local and other services, and the mergers between AT&T and SBC, between MCI and Verizon, and between AT&T and BellSouth increased the strength of those combined companies in both the local and long distance markets. These mergers also decreased the competitive alternatives available to us for various network elements and services. Many other incumbent and non-incumbent carriers also are expanding their facilities-based and non-facilities-based offerings in the long distance market. Other new competitive carriers already have established full service local operations in some of our current and target markets. Many competitive carriers and long distance service providers have been struggling financially, but we cannot accurately predict which of these carriers will be able to continue to compete effectively against it over time. We also cannot accurately predict all of the changes that the marketplace for telecommunications services may continue to experience. For instance, prices in the long distance market have declined significantly in recent years and are expected to continue to decline, but we cannot predict the ultimate effect this may have on our competitors or on our business.

Wireless Carriers. National carriers such as AT&T, Sprint, T-Mobile USA and Verizon Wireless, as well as smaller regional companies, provide wireless, local and long distance services. Increasingly, these companies are providing broadband mobile services as well. Established providers in other industries, such as cable television companies, as well as companies that specifically target markets with defined demographic characteristics, also have entered into arrangements to resell or re-brand wireless services. Some of these providers have long-standing relationships with customers and financial, technical and marketing resources substantially greater than ours. In addition, the availability of new wireless spectrum is expected to increase the number of wireless providers and improve their service offerings.

Industry consolidation also has resulted in the significant growth of traditional wireless competitors. Continued consolidation within the wireless industry could create economies of scope and scale that would improve the ability of wireless carriers to compete in the marketplace for telecommunications services. Recent advances in technologies allow wireless carriers to provide not only voice but also data transmission, Internet access services and next generation services, such as mobile multimedia products. In addition, the introduction of fixed wireless applications has facilitated the creation of companies that are in the process of installing equipment and building networks that may offer the same types of services that we offer or intend to offer. The planned deployment of WiMax technology, for example, will facilitate the development of similar broadband access services on a fixed and mobile basis.

Internet Service Providers. Advances in digital transmission technologies have created opportunities for the transmission of voice and data services over the Internet. Broadband Internet service providers such as AT&T, Qwest, Verizon and the largest cable television companies are exploiting their market position as incumbent providers of telecommunications or cable television services to promote their broadband Internet services and related voice and data applications.

VoIP Providers. We expect to face increasing competition from companies offering long distance data and voice services using VoIP. The emergence of these companies could present a competitive threat, principally because the regulatory classification of VoIP remains unclear. Providers of VoIP services may be able to avoid costly regulatory requirements, including the payment of intercarrier compensation fees, if these regulatory classification issues are resolved in favor of VoIP providers. Such a resolution could impede our ability to compete against these providers on the basis of price.

Cable Television Companies. Cable television companies such as Cablevision Systems Corp., Comcast Corporation, Cox Communications Inc. and Time Warner Cable Inc. have continued to deploy telecommunications and broadband Internet access services aggressively to customers on a broad scale. These companies initially deployed telecommunications services using circuit-switched facilities, but, increasingly, these companies are using VoIP applications and other technologies to provide voice services in a less costly, more efficient manner. In addition, some of these companies, including Time Warner, Cox and Comcast, have announced plans to resell wireless services, which potentially could lead to the creation of new bundled competitive service offerings that incorporate multimedia components of cable television and wireless broadband Internet access services at competitive rates. Some of these companies have recently acquired a financial interest in spectrum capable of accommodating advanced mobile wireless services. Such a development also could result in additional competitive offerings. Cable companies are also aggressively expanding into the small and medium-size business market with VoIP-based service offerings.

Intellectual Property

To protect our proprietary rights, we rely 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.

Trademarks. As of January 10, 2011, Wave2Wave has two trademark registrations and four pending trademark applications in the U.S. for five word marks and one logo. We have been granted Federal trademark status for the following marks: Wave2Wave and Wave2Wave Logo. As of January 10, 2011, our subsidiary, RNK has 14 trademark registrations in the U.S. for a variety of word marks, logos and slogans. We have been granted Federal trademark status for the following marks: RNK Telecom, RNK Telecom Logo, RNK Communications, RNK Communications Logo, Bridge2VoIP, ReVoS, Voip2Go, SubjectTalk, RNKVoIP, Don’t Give Out Your Number Give Out One of Ours, Phone Number Bank, Phone Number Bank Logo, MyTempNumber, and Dialaroundtheworld.com.

Copyrights. We have not registered any copyrights. All works of original authorship fixed in a tangible form that may exist are unregistered.

Patents. As of January 10, 2011, we had no issued U.S. patents. RNK is in the process of applying for additional patent coverage for various aspects of its technology, including technologies for telecommunications services. As a result, as of January 10, 2011, we had three U.S. patent applications on file relating to various telecommunications technologies.

Other Materials. From time to time our personnel will report on potential intellectual property opportunities for the company. These opportunities may include new product and service offerings, and potential proprietary information association with such services which may warrant application for formal IP protection. Regarding potential patentable material, our personnel will conduct interviews with the inventors, may perform initial prior art searches, and if a determination is made that the proprietary material is valuable enough to the company to warrant patent protection, such applications are made with the assistance of third-party patent counsel with support of our own in-house patent counsel. Pursuant to this process, RNK has filed provisional and non-provisional utility patent applications. Currently, we are evaluating certain technologies and their potential patentability.

In addition, we also seek to maintain certain intellectual property and proprietary know-how as trade secrets, and generally require our partners to execute non-disclosure agreements prior to any substantive discussions or disclosures of our technology.

Employees

As of January 3, 2011, we had 149 employees. None of our employees is subject to a collective bargaining agreement. We believe that we have good relations with our employees.

Properties

We lease approximately 7,555 square-feet of office space in Hackensack, New Jersey, pursuant to a lease set to expire on November 30, 2013, for a current monthly rent of $19,044.90 per month, for the corporate headquarters of Wave2Wave. For the corporate headquarters of RNK, we lease approximately 14,925 square-feet in Dedham, Massachusetts, pursuant to a lease set to expire on December 31, 2014, at a monthly rent of $26,118.75 for 2010, $27,362.50 for 2011, $28,606.25 for 2012, $29,850 for 2013 and $31,093.75 for 2014. We also lease 9,375 square-feet in Bedford, Massachusetts, pursuant to a lease for a current monthly rent of $14,648.44. We do not own any real estate. We believe that our existing facilities are suitable and adequate for the business conducted therein, appropriately used and have sufficient capacity for their intended purpose.

Collocation Space

In addition to the real estate mentioned above, we also lease several collocation sites throughout the region. These sites are leased to provide secure locations for mission-critical equipment within our network. These collocation sites allow us to locate network switching, server and storage equipment in secure, geographically diverse sites, and interconnect to a variety of telecommunications and other network service provider(s) with a minimum of cost and complexity. These sites include:

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111 8th Avenue, New York, NY

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111 Pavona Avenue, Jersey City, NJ

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433 Hackensack Avenue, Hackensack, NJ

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60 Page St., Bedford, Massachusetts

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60 Hudson St., New York, New York

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50 NE 9th Street, Miami, Florida

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165 Halsey St., Newark, New Jersey

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21 Harborview Avenue, Stamford, Connecticut

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360 Hamilton Avenue, White Plains, New York

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111 South Independence Mall East Philadelphia, Pennsylvania

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401 North Broad Street, Philadelphia, Pennsylvania

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111 North Canal Street, Chicago, Illinois

60 Hudson Street and 165 Halsey Street serve as two of our primary POPs, and are the anchor locations for our geographically redundant network architecture. All of these locations are equipped with high levels of physical security including 24 hours per day, seven days per week, guard services. All of the locations are also equipped with redundant power facilities including generators and/or back up battery power systems to guard against any type of power related outages. The cooling systems in these facilities are also continuously maintained to peak performance to avoid any type of heat related issues with network switching equipment.

For the most part, we provide our own technical and facilities support to these building, dispatching our technicians where necessary. However, in certain key locations, we do also deploy

“remote hands”, or contract services to other telecommunications technicians to provide emergency technical or facilities related support.

Legal Proceedings

From time to time we are involved in legal proceedings arising in the ordinary course of our business. We believe that we have adequately reserved for these liabilities and that there is no litigation pending, except as noted below, that could have a material adverse effect on our results of operation and financial condition.

Verizon New England, Inc. v. RNK Inc., No. 1:08-cv-11457

RNK filed its opposition on January 15, 2008. Verizon has since withdrawn its motion to dismiss on January 22, 2008. 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 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 of 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.

MANAGEMENT

Executive Officers and Directors upon Consummation of this Offering

The following table sets forth certain information concerning our executive officers and directors as of January 10, 2011, assuming completion of this offering:


Name	Age		Position
Aaron Dobrinsky		46	Chief Executive Officer and Director
Steven Asman		47	Chairman, Secretary (Currently our President and sole Director)
Richard Koch		64	President of RNK
Eric Mann		47	Chief Financial Officer
Sanford McMurtry		47	Chief Operating Officer of RNK
G. Jeff Mennen		70	Director
Joel Blank		54	Director (2)(3)
R. Bruce Merrell		64	Director (1)(2)(3)
Robert P. Heller		49	Director (1)(2)(3)

(1) Member of our proposed Audit Committee

(2) Member of our proposed Compensation Committee

(3) Member of our proposed Nominating and Governance Committee

Our board has concluded that at the time of this filing, each of the members of the board of directors following the consummation of this offering, should serve as a member of the board of directors based upon his particular experience, qualifications, attributes and skills, in light of our business and structure. Biographical information for our directors, executive officers, special advisor and key employees are as follows:

Aaron Dobrinsky, Chief Executive Officer and Director

Aaron Dobrinsky. Mr. Dobrinsky has been our Chief Executive Officer since September 2010, and will become a member of our board of directors upon the consummation of the offering. Since January 2006, Mr. Dobrinsky has served as president of Dobrinsky Management, Inc. (DMI), a management consulting and advisory firm providing strategic, operational and financial guidance to startup and mid-stage companies. Mr. Dobrinsky also served as interim-chief executive officer of Kosher.com, an online national specialty supermarket from June 2009 through September 2010. Mr. Dobrinsky founded GoAmerica (now Purple Communications (NASDAQ: PRPL)) in 1996, and from 1996 to June 2008, he served as the chairman of its board of directors. He also served as president of GoAmerica until November 2000 and chief executive officer until January 2003. Mr. Dobrinsky served as chairman of the board of directors of Purple Communications from 2003 through 2009 and rejoined the board of directors in March 2010 as a director. He also serves as a strategic advisor to the board of directors of Purple Communications. Mr. Dobrinsky was an executive member of the board of directors of RoomLinX, Inc.(Nasdaq: RMLX), a provider of wireless broadband solutions to hotels and conference centers, from June 2004 through November 2006, where he also served as chief executive officer from June 2004 through November 2005. Mr. Dobrinsky has also served as a board advisor and board member for several private companies and non-profit organizations. Mr. Dobrinsky received his BA in Economics and Finance from Yeshiva University and he attended New York University School of Business where he studied Marketing and Finance.

Steven Asman, Chairman and Secretary

Mr. Asman has been our sole director and President since 1999. Prior to joining us, Mr. Asman was the founder, owner and President of Innoventions Enterprises, Ltd., a company that created the patented GustBuster Umbrella. From 1986 through 1994, Mr. Asman was a Vice President of Sterling Development Group, a company that built and developed residential and commercial real

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estate on Long Island. Prior to this position, from 1987 through 1989, he was Vice President of 340 Morgan Avenue Corp., a company that manages property in Brooklyn, New York. Mr. Asman worked for Royal Realty Consulting Firm Corporation from 1986 through 1987, where he managed commercial real estate and real estate syndication. Mr. Asman’s ten years of experience as our sole director and President, coupled with his management and entrepreneurial skills, will continue to be valuable attributes in his services as a director. Mr. Asman received his B.A from University of Hartford.

Richard N. Koch, President of RNK

Mr. Koch has been President of RNK since 1999, and was Chief Executive Officer of RNK from 1999 to 2007. Together with co-founder Joy Tessier, Richard Koch established RNK, our wholly-owned subsidiary, in 1997. Under his leadership, RNK grew from a small regional reseller to a full-service telecommunications provider with a global presence and the nationwide technology infrastructure to process billions of usage minutes annually. Mr. Koch’s career as an entrepreneur and telecommunications innovator spans more than 25 years and includes a number of central leadership roles in businesses on the cutting edge of phone/computer convergence technologies. In 1985, Mr. Koch became president of Boston CitiNet, a pioneering videotext company. During his tenure, the business grew into a national franchise, American CitiNet, with a roster of Fortune 500 clients. In 1991, Mr. Koch became president of Untraceable Phone Calls, a telecommunications privacy service, and of Safe Call, a joint venture between Shared Technologies and Cycomm Corporation. Prior to joining RNK, Mr. Koch served as president of Cycomm’s Privacall division, a developer of cell phone security devices and services. Prior to entering the telecommunications industry, Mr. Koch had a 10-year career as a science and chemistry teacher in the Boston public school system. He received a B.A. in Psychology from Boston University, and an M.S. in Education from Boston State College.

Eric Mann, Chief Financial Officer

Mr. Mann has been our Chief Financial Officer since 2000. He has 14 years of corporate banking experience, with a focus in leverage finance and the telecommunications industry. From April 1998 to April 2000, Mr. Mann worked for Mitsubishi Trust and Banking Corporation as a Vice President in Leverage Finance, with a concentration on the Telecommunications industry. As Vice President, Mr. Mann worked for Merita Bank, first in the Leverage Finance Group from 1990 to 1995, and then in telecommunications Finance 1995 to 1998. From 1988 to 1990, he worked in the leverage finance group at Fuji Bank. Mr. Mann began his banking career with Chemical Bank, where he successfully completed the bank’s training program and worked from 1986 to 1988 as an analyst. Mr. Mann received his MBA in Finance from Pace University and his BBA from The University of Massachusetts in Amherst.

Sanford McMurtry, Chief Operating Officer, RNK

Mr. McMurtry has served as Chief Operating Officer of RNK since September 2010, and served as our Vice President of Network Operations since 2008. Prior to that, he served as RNK’s Vice President, Strategic Operations beginning September 2006. Before joining RNK, our wholly-owned subsidiary, and subsequent to joining us, McMurtry was Director of Verizon’s Telecom Finance organization. During his 21-year career at Verizon, Mr. McMurtry led a range of departments ranging from Operator Services and Human Resources to Network Services and Wholesale Markets. Mr. McMurtry received a B.A. in Psychology from The College of the Holy Cross, as well as an M.B.A. from Suffolk University.

Board of Directors

G. Jeff Mennen, Director

Mr. Mennen will become a director upon consummation of the offering. Mr. Mennen is the former Vice Chairman of The Mennen Company. The Mennen Company was started in 1878, at

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Newark, New Jersey, moving to Morristown, New Jersey in 1953, where it manufactured and sold many over-the-counter pharmaceuticals and personal products such as Skin Bracer, Speed Stick, and Baby Magic products. He spent most of his career working for his family owned business. He started his career with The Mennen Company in April 1968 as a sales merchandiser and later, in marketing, in the United States. In July 1975 he became Vice President of Latin America for Mennen International and in August of 1977 was promoted to President of that division. Under his leadership, Mennen International grew over 90% in both sales and profits. In 1981, he was named Vice Chairman of the Mennen Company and was elected to its Board of Directors where he served until the company was sold to Colgate-Palmolive in 1992. In 1989, Mr. Mennen founded the G.J. Mennen Group, a consulting firm that specializes in assisting family owned businesses in their efforts to provide a stable environment for the family and employees of their companies. Succession planning, strategic planning and marketing assistance are the core of this consulting business. Mr. Mennen presently serves on the Board of Directors for On-Site Analysis, Inc., Group Thermo, Inc. and The Fabri-Form Company. Mr. Mennen received his B.S in Business from Washington & Lee University in 1964 and M.S in Foreign Trade from American Institute for Foreign Trade in 1965. Mr. Mennen’s extensive management experience, substantial business knowledge and strong leadership skills will enhance his contributions as a director.

Joel M. Blank—Director

Mr. Blank will become a director upon the consummation of the offering. Mr. Blank is an Executive Vice President of BDI-Laguna Holdings Inc. and is responsible for all sales, merchandising and purchasing. Prior to the merger of BDI Inc and Laguna Corporation, Mr. Blank was the President of Laguna Corporation for six years. Laguna is a total solution provider committed to supplying consumer electronics and computer products to the nation’s most successful retailers through state-of-the-art logistical services. The combined entities have over 300 employees and approximately $900,000,000 in annual revenue. As a founding partner of Laguna Corporation, Mr. Blank was in charge of various aspects of the company including sales, marketing, and purchasing. Prior to founding Laguna Corporation, Mr. Blank spent most of his career working for various manufacturers and distributors in the computer industry. Mr. Blank began his career in computer sales and distribution serving as the Director of Sales for Zemex/Promark Corporation from 1990-1992 and then as Vice President of Sales for Atlantic Logic from 1992-1994. Mr. Blank earned a B.S. degree in economics from Penn State University in 1979. Mr. Blank’s business experience and entrepreneurial skills will be useful in his contributions on our board of directors.

R. Bruce Merrell—Director

Mr. Merrell will become a director upon the consummation of the offering. Mr. Merrell has been President and CEO of Browz LLC, a SaaS business, serving the supply chain and risk management markets, since 2006. Under his leadership, Browz experienced a significant cash flow and profitability turnaround in this early stage venture. From 2002 to 2003, Mr. Merrell served as an independent business consultant focusing his attention with T-Mobile USA on the development and implementation of the “T-Mobile HotSpot” service. Mr. Merrell was President, CEO and co-founder of Laptop Lane Limited, providing a private office with “peace, quiet and a T-1 line” in airports. Laptop Lane partnered with Nokia and was an early user and provider of wi-fi 802.11 service. Laptop Lane had grown to 18 locations in 12 airports when it was acquired by SoftNet Systems, Inc (SOFN). From 1994 to 1996, Mr. Merrell served as Interim President and CEO of Oral Logic, Inc., a venture backed consumer products manufacturing and marketing company with significant financial and shareholder difficulties. In a short time, the company was streamlined, yielding a dramatic profit and cash flow turnaround. From 1993 to 1994, he was involved in the acquisition and sale of assets of the Hypercolor Division from the Generra Sportswear bankruptcy. Mr. Merrell was President and CEO of Pacific Northern Oil Corporation (PNO) in Seattle, Washington from 1977 to 1991. PNO was a multinational marketer of petroleum products. Mr. Merrell graduated from the University of Utah with a Master of Engineering Administration (MSME) in 1973 and a BS in Industrial Engineering (BSME) degree in 1969. Mr. Merrell has extensive experience working on and with boards of directors. His experience with the start- up, expansion and sale of Laptop Lane, as well as

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his experience with T-Mobile HotSpot’s wi-fi venture, will make him a valuable addition to our board of directors.

Robert P. Heller—Director

Mr. Heller will become a director upon consummation of the offering. Mr. Heller is currently Vice President of Finance and Chief Financial Officer of National Home Health Care Corp. and has been with the company since 1989. National Home Health Care Corp. was a publicly traded company until November 21, 2007 when purchased by Angelo Gordon & Company, a private equity firm in New York City. National Home Health Care Corp. today has approximately 4,600 employees and is one of the largest providers of home health care services on the East Coast, having operations in four states—New Jersey, New York, Connecticut and Massachusetts. From 1985 to 1989, Mr. Heller worked in the audit department of Eisner & Company, L.L.P, a large regional CPA firm. Mr. Heller graduated in 1983 from Fairleigh Dickinson University with a Bachelor of Science in Accounting and is a Certified Public Accountant—State of New Jersey and America Institute of Certified Public Accountants. Mr. Heller has extensive experience in the preparation of public company filings and working with independent auditors, and his expertise will serve him well as a member of our audit committee. His experience with the financial affairs of National Home Health Care Corp., in particular with respect to cash management, financing and banking relationships, budgeting, risk management and corporate income taxes, will be an asset in his services on our board of directors.

Strategic Advisor

As described above, Jeff Hyland is a strategic advisor to the company. As strategic advisor, he will consult with our Chief Executive Officer, Aaron Dobrinsky. Effective immediately upon the occurrence of a default under the 7th Forbearance, Mr. Dobrinsky will be required to report directly to Mr. Hyland and Mr. Hyland will have the 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 as appropriate, provided that he will 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.

Mr. Hyland has been an Executive Director at Capstone Advisory Group, LLC, a restructuring and transaction advisory firm, since March 2006. Prior to joining Capstone, Mr. Hyland was a Partner at Fort Dearborn Partners, a middle-market turnaround consulting, crisis management, and corporate finance firm, from 1996 to March 2006.

Board Composition

Our amended and restated bylaws provide that the number of directors shall be fixed from time to time by our board of directors. One director is currently fixed by our board of directors. Vacancies occurring on the board of directors may be filled by the vote or written consent of a majority of our stockholders or our directors. Upon the completion of the offering, seven directors will be authorized.

Director Independence

We have reviewed the materiality of any relationship that each of our anticipated directors has with us, either directly or indirectly. Based on this review, our board has determined that three of our anticipated directors will be “independent directors” as defined by the NYSE Amex rules. The independent directors are Joel Blank, R. Bruce Merrell and Robert P. Heller. We intend to identify

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and appoint one additional independent director within one year after the completion of the offering.

Committees of our Board of Directors

Upon completion of the offering, our board of directors will have an audit committee, a compensation committee and a nominating and governance committee, each of which will have the composition and responsibilities described below.

Audit Committee. We anticipate that our audit committee will initially be comprised of Robert P. Heller and R. Bruce Merrell. Robert P. Heller will qualify as an “audit committee financial expert” for purposes of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the applicable NYSE Amex rules, a company listing in connection with its initial public offering is permitted to phase in its compliance with the independent audit committee requirements set forth in Rule 803 of the NYSE Amex Company Guide on the same schedule as it is permitted to phase in its compliance with the independent audit committee requirement pursuant to Rule 10A-3 under the Exchange Act. Pursuant to Rule 10A-3, a newly listed company must have (1) one independent member at the time of listing; (2) a majority of independent members within 90 days of listing; and (3) all independent members within one year of listing. All of the anticipated members of the audit committee will qualify as independent under Rule 10A-3. We intend to identify and appoint one additional independent director to our audit committee within one year after the completion of the offering. Our audit committee will be authorized to:

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appoint, compensate, and oversee the work of any registered public accounting firm employed by us;

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resolve any disagreements between management and the auditor regarding financial reporting;

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pre-approve all auditing and non-audit services;

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retain independent counsel, accountants, or others to advise the audit committee or assist in the conduct of an investigation;

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seek any information it requires from employees—all of whom are directed to cooperate with the audit committee’s requests—or external parties;

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meet with our officers, external auditors, or outside counsel, as necessary; and

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oversee that management has established and maintained processes to assure our compliance with all applicable laws, regulations and corporate policy.

Compensation Committee. We anticipate that our compensation committee will be comprised of Joel Blank, R. Bruce Merrell and Robert P. Heller and will be authorized to:

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discharge the responsibilities of the board of directors relating to compensation of the our directors, executive officers and key employees;

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assist the board of directors in establishing appropriate incentive compensation and equity-based plans and to administer such plans;

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oversee the annual process of evaluation of the performance of our management; and

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perform such other duties and responsibilities as enumerated in and consistent with compensation committee’s charter.

Nominating and Governance Committee. We anticipate that our nominating and governance committee will be comprised of R. Bruce Merrell, Joel Blank and Robert P. Heller and will be authorized to:

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assist the board of directors by identifying qualified candidates for director nominees, and to recommend to the board of directors the director nominees for the next annual meeting of shareholders;

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lead the board of directors in its annual review of its performance;

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recommend to the board director nominees for each committee of the board of directors; and

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develop and recommend to the board of directors corporate governance guidelines applicable to us.

Code of Conduct and Ethics

Our board of directors will adopt a Code of Conduct and Ethics. The Code of Conduct and Ethics applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), agents and representatives, including directors and consultants. Upon the effectiveness of the registration statement of which this prospectus forms a part, the full text of our Code of Conduct and Ethics will be posted on our website at www.wave2wave.com. We intend to disclose future amendments to certain provisions of our Code of Conduct and Ethics, or waivers of such provisions, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above. The inclusion of our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

Compensation Committee Interlocks and Insider Participation

Our compensation committee will be comprised of Joel Blank, R. Bruce Merrell and Robert P. Heller. No member of our compensation committee will have at any time been an employee of ours. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

We have prepared the following Compensation Discussion and Analysis, or CD&A, to provide you with information that we believe is necessary to understand our executive compensation policies and decisions as they relate to the compensation of our named executive officers.

We currently do not have a compensation committee, but upon consummation of the offering, we will have a compensation committee in place. The primary objectives of the compensation committee of our board of directors with respect to executive compensation will be to attract and retain the best possible executive talent, to motivate our executive officers to enhance our growth and profitability and increase stockholder value and to reward superior performance and contributions to the achievement of corporate objectives.

We expect that the focus of our executive pay strategy will be to tie short- and long-term cash and equity incentives to the achievement of measurable corporate and individual performance objectives, and to align executives’ incentives with stockholder value creation. To achieve these objectives, the compensation committee will develop and maintain a compensation plan that ties a substantial portion of executives’ overall compensation to our sales, operational, and regulatory performance. Because we believe that the performance of every employee is important to our success, we will be mindful of the effect our executive compensation and incentive program has on all of our employees.

Our compensation plan will be designed to attract and retain the best possible talent, and we recognize that different elements of compensation are more or less valuable depending on the individual. For this reason, we will offer a broad range of compensation elements. We will offer our executive team salaries that are competitive with the market, executive bonuses that are in line with our corporate goals, and dependent on measurable results, plus stock option plans designed to retain talent, promote a sense of company ownership, and tie corporate success to monetary rewards. We will also offer a comprehensive benefit package including medical, dental, vision, paid time off, 401(k) with match, life, disability, tuition reimbursement, and more.

The compensation committee will meet regularly to assess the cost and effectiveness of each benefit element regarding its ability to attract and retain talent. This will include regular employee surveys and trending reports. The committee will also regularly assess the compensation and benefits offered by similar companies in the market to ensure offerings are up to date and appropriate for our employee base. Changes and additions will occur regularly to ensure our compensation plan is in line with our corporate goals.

The compensation committee of our board of directors, will have the responsibility of formulating, evaluating and approving the compensation of our directors and executive officers, and assisting the full board of directors in establishing and administering appropriate incentive compensation and equity-based plans. We expect that the compensation committee, with the input of management, will develop our compensation plans in part by utilizing publicly available compensation data and subscription compensation survey data for national and regional companies in the telecommunications industry. For benchmarking executive compensation, we will periodically review the compensation data we have collected from internal and external surveys, as well as various subsets of this data, to compare elements of compensation based on certain characteristics of the company, such as number of employees and number of shares of stock outstanding. By utilizing benchmark data from companies in our industry that have similar organizational structures, and accordingly tend to compete with us for executives and other employees, we believe that this data will provide us with appropriate compensation benchmarks for our executive compensation. We expect that base salaries for our executive officers will be established based on the scope of their responsibilities and their prior relevant background, training, and experience, taking into account competitive market compensation paid by the companies represented in the compensation data we review for similar positions and the overall market demand for similar executives at the time of hire. Base salaries will be reviewed annually and may be increased for merit reasons, based on the executive officer’s success in meeting or exceeding individual performance goals and an assessment

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of whether significant corporate goals were achieved. We will also assess whether there are any significant differences in how a person is compensated compared to industry benchmarks by utilizing survey data. Our compensation committee, once established, will determine the target levels for the performance criteria. We expect that our corporate goals will be based on our revenues and earnings, and that individual goals will be comparable to the individual goals used in determining compensation for our named executive officers in 2010.

We expect that base salaries for our executive officers will be determined based on the scope of their job responsibilities, prior experience, uniqueness of industry skills, education, and training. Compensation paid by industry competitors for similar positions, as well as market demand will also taken into account. Base salaries will be reviewed annually as part of our performance management program, whereby merit or equity adjustments may be made. Merit adjustments will be based on the level of success in which individual and corporate performance goals have been met or exceeded. Equity adjustments may be made to ensure base salaries are competitive with the market and will be determined using benchmark survey data.

The compensation committee will regularly engage in benchmarking surveys to gather industry specific salary data. In addition to publicly available information, we will periodically pay for subscription compensation survey data (i.e. Radford, an AON consulting company) to specifically target survey data from our competitors. In addition, our compensation committee may periodically engage third-party compensation consultants to analyze our existing compensation policies and recommend changes to those policies based on current market data and trends in compensation in our industry. Using surveys and any information provided by compensation consultants, the compensation committee will evaluate the competitive nature of our various forms of compensation including salary and benefits as well as equity-based compensation relative to other telecom and communications companies.

Our goal is to attract and retain top talent, and for this reason, we will want to maintain a pay-for-performance compensation philosophy that is intended to ensure base salaries and total executive compensation is in line with the 50th-70th percentile of the companies in our industry with a similar number of employees. For this purpose, we will review compensation data for all comparable companies that are included in external market surveys, within our industry and geographical location, as well as national averages.

This pay-for-performance philosophy will directly link high performance with monetary reward. We have worked within the framework to determine each component of an executive’s initial compensation package based on numerous factors, including:

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the individual’s particular background and circumstances, including training and prior relevant work experience;

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the individual’s role with us and the compensation paid to similar persons in the companies represented in the compensation data that we review;

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the demand for people with the individual’s specific expertise and experience at the time of hire;

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performance goals and other expectations for the position;

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comparison to other executives within our company having similar levels of expertise and experience; and

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uniqueness of industry skills.

To determine the initial compensation package for each employee, including our executive officers, each individual will be assigned to a pay grade, determined by comparing position-specific duties and responsibilities with the market pay data and our internal organizational structure. Each pay grade will have a salary range with corresponding long-term incentive award opportunities and a bonus target based on a percentage of the employee’s base salary. We believe that this is the most transparent and flexible approach to achieve the objectives of our compensation program.

Annual base salary increases and annual bonus awards, if any, will be determined by the board of directors. The CEO will recommend annual base salary increases and the amount of annual bonus

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awards, if any, for the executive officers, which will be reviewed and approved by the compensation committee and subject to final approval by the board of directors. These recommendations will be based on individual and company performance, as well as internal and external market data. Performance data will be measured using our annual performance evaluation process as described below.

Executive officers will also make recommendations with respect to compensation to the CEO on salaries within their respective departments. Executive officers will utilize performance evaluations and benchmarking data provided by the compensation committee when making these recommendations.

The compensation committee will implement an annual performance management program for our executive officers and employees that commences with the establishment of corporate and individual goals for the applicable fiscal year and culminates with an assessment by management, the compensation committee and the full board of directors of the achievement of these goals and the approval of compensation awards and adjustments.

During each year, and coincident with the preparation of our budget for the upcoming fiscal year, we will determine our corporate and individual goals for the upcoming fiscal year. We expect that our corporate goals will include the achievement of qualitative and quantitative sales, operational, financial, and regulatory targets and pre-defined corporate milestones, including progress of our products in development and entering into new collaboration and strategic agreements. Each goal will be weighted as to importance. The board of directors will make any modifications it believes are necessary or warranted and then approves the goals in December of each year. We expect that, on a quarterly basis, members of management will meet with the board of directors to update the board on the progress of achieving the established goals and to discuss the need for modifications, if any, to the previously established goals in order to account for any significant events or changes in corporate strategy that have occurred.

The following primary corporate, financial and operational goals for the upcoming fiscal year, together with the weights associated with each, will serve to define the core values and measurements associated with performance evaluations:

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Sign new deals, establish new business opportunities (25%);

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Continue development of existing product lines (25%);

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Strengthen existing partnerships (15%);

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Product development and innovation (15%);

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Improve Customer Service and retention (10%);

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Improve financial stability by increasing corporate cash balance (10%).

Each of our executive officers will propose his individual goals to our Chief Executive Officer, who will review the proposals with the officer and establish a recommended set of goals which is subject to final approval by the board of directors. The individual goals of our executive officers are designed to support the goals of the company as a whole. The individual goals for our executive officers are assigned weights and a proposed timeline is created for achieving each goal over the course of the year. Our executive officers will be encouraged to meet with our Chief Executive Officer on a quarterly basis to assess their progress on these goals. The achievement of these corporate goals along with core corporate values such as coaching, performance management, leaderships, and innovation will be used when assessing individual performance.

We will assess individual performance and award corresponding salary adjustments, if any, in the first quarter of each year. Cash bonuses if any, will be awarded at the end of each year, and/or sporadically throughout the fiscal year as appropriate and corresponding to the achievement of specific goals. We will use performance evaluations and internal/external market data as described above to annually assess and adjust compensation.

Our compensation structure will be primarily comprised of base salary, annual performance bonus and stock options. In setting executive compensation, the compensation committee will consider the aggregate compensation payable to an executive officer and the form of the

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compensation. The compensation committee will seek to achieve an appropriate balance between immediate cash rewards and long-term financial incentives for the achievement of both annual and long-term financial and non-financial objectives.

The compensation committee will manage the expected impact of salary increases and performance bonuses by requiring that the size of any salary increases and bonuses be tied to the attainment of corporate and individual goals. For example, the size of each employee’s bonus is determined not only by individual performance, but also by whether we have met our corporate goals.

The compensation committee will view the award of stock options as a primary long-term retention benefit. The compensation committee will make the award of stock options a component of total compensation and will tie the earning of these awards to long-term vesting schedules, generally three years. In most instances, if an employee leaves our employ before the completion of the vesting period, then that employee would not receive any benefit from the non-vested portion of his award. We believe that this feature makes it more attractive to remain as our employee.

We expect that the compensation committee will review from time to time the mix of the compensation elements for executive officers against comparable companies in our industry and geographic location. The size and mix of each element in a compensation package will be based on the impact of the position on the company, market practice and overall corporate and individual performance relative to stated corporate goals. The level of incentive compensation typically increases in relation to an executive officer’s responsibilities and ability to meet individual and corporate goals. The compensation committee will make a significant portion of an executive officer’s compensation contingent on corporate performance more closely aligns the executive officer’s interests with those of our stockholders.

The compensation committee may decide, as appropriate, to modify the mix of base salary, annual and long-term incentives to best fit an executive officer’s specific circumstances or if required by competitive market conditions for attracting and retaining skilled personnel. For example, the compensation committee may make the decision to award more cash and not award a stock option. The compensation committee may also decide to award additional stock options to an executive officer if the total number of stock option grants received during an individual’s employment with us does not adequately reflect the executive’s current position. We believe that this discretion and flexibility allows the compensation committee to better achieve our compensation objectives.

The 2010 individual goals for our named executive officers were as follows:

Steven Asman, President and Chairman—confer with the executive team in devising, planning and executing corporate, financial and strategic business plans and objectives; and further our corporate growth and increase stockholder value.

Aaron Dobrinsky, Chief Executive Officer—confer with the Board of Directors on devising and planning the corporate growth, increasing stockholder value; and oversee and manage the executive team in planning and executing the corporate, financial and strategic business plans and objectives.

Richard N. Koch, President of RNK—participate with our executive team in planning and executing corporate, financial and strategic business plans and objectives; oversee business development; and participate in decision making with regard to completing and managing corporate collaborations.

Eric Mann, Chief Financial Officer—participate with our executive team in planning and executing corporate, financial and strategic business plans and objectives; confirm with our President and the executive team that our financial needs are adequately met; provide adequate cost and budgetary controls and timely reporting to effectively manage our finances; oversee facilities and administration functions; and participate in decision making with regard to completing corporate collaborations.

Andrew Bressman, Managing Director and Head of Business Development—participate with our executive team in overseeing the day-to-day operations and management of the company; locate and develop new strategic opportunities; generate business and strategic relationships; and interface with technology partners and vendors.

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Sanford McMurtry, Vice President, Network Operations—participate with our executive team in planning and executing corporate, financial and strategic business plans and objectives; oversee the company’s facilities, bandwidth transport and network functions; and interface on a regular basis with technology partners.

Base Salary

Mr. Dobrinsky’s base salary for 2010 of $325,000 was set forth in his employment agreement dated September 21, 2010.

Mr. Koch’s employment agreement provides that his base salary shall initially be $420,000, which shall increase by approximately 10% on each of January 1, 2009 and January 1, 2010. Mr. Mann’s and Mr. Bressman’s base salaries for 2010, of $367,500 and $551,250 respectively, were set forth in each of their employment agreements, which were entered into on June 12, 2009. In 2010, Mr. Asman did not receive a base salary. In determining the base salary and amount of increase of Mr. Koch’s salary as set forth in his employment agreement, the base salaries set forth in each of Messrs. Mann’s and Bressman’s employment agreements, and in determining the amount of base salary and increase of Mr. McMurtry’s salary for 2010, we considered the following factors:

•

the scope of the responsibilities associated with the position held by each executive and where that position fits within our overall corporate structure;

•

base salary level of each executive officer in prior years;

•

prior experience;

•

uniqueness of industry skills;

•

seniority of the individual’s executive position; and

•

education and training.

We did not assign relative weights or rankings to these factors, but instead made a subjective determination taking into account all of these factors. Additionally, compensation paid by public companies of comparable size and stage of development in the telecommunications industry for similar positions, based on publicly available compensation data, as well as market demand, were also taken into account to ensure that the salaries were competitive with the market. We believe this process allows us to check our compensation scheme against the market, as we strive to set base salaries of our executives in the range of levels of companies that may compete with us for executives and other employees. No cash bonuses were paid in 2010.

The base salary increases from 2009 to 2010 for our named executive officers are set forth below.


Name	2009 Base Salary ($)		2010 Base Salary ($)		Increase ($)
Aaron Dobrinsky Chief Executive Officer		N/A		325,000		N/A
Richard N. Koch President of RNK		508,200		559,020		10	%
Eric Mann Chief Financial Officer		350,000		367,500		5	%
Andrew Bressman Managing Director and Head of Business Development		525,000		551,250		5	%
Sanford McMurtry Vice President, Network Operations		235,000		242,050		3	%

Equity Incentive Awards

The factors which we considered in setting the equity incentive awards for each named executive officer in 2010 included the following:

•

skills, responsibilities and experience;

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•

the executive’s past performance;

•

the executive’s anticipated future contributions;

•

the executive’s ability to identify and facilitate the consummation of strategic business acquisitions; and

•

the executive’s ability to facilitate this offering.

The awards were intended to provide the executive with incentives to build value in the organization over an extended period of time, to maintain competitive levels of total compensation and to more closely align our executives’ ownership interests with the long-term interests of our stockholders. In November 2009, following the adoption of our 2009 Employee and Director Equity Incentive Plan, our board approved the grant of stock options to our Chief Financial Officer, Managing Director and Head of Business Development and Vice President, Network Operations, at an exercise price equal to the fair market value of our common stock on the date of grant. Specifically, we made the following grants to our named executive officers on November 20, 2009: (i) to Eric Mann, non-qualified options to purchase 155,270 shares of common stock and incentive stock options to purchase 15,625 shares of common stock, which options were fully-vested on the date of grant; (ii) to Andrew Bressman, incentive stock options to purchase 31,250 shares of common stock which options were fully-vested on the date of grant; and (iii) to Sanford McMurtry, incentive stock options to purchase 9,375 shares of common stock, of which 938 shares vested on the date of grant, 2,812 shares vested on November 20, 2010, and the remaining shares will vest in equal installments on each of the second and third anniversaries of the date of grant. We also issued 310,540 shares of common stock on November 20, 2009 to Mr. Bressman, pursuant to his employment agreement, as amended.

On September 21, 2010, the Company issued Aaron Dobrinsky 125,000 restricted shares of common stock, of which 31,250 will vest on each of the six month anniversaries from the date of grant. The shares were issued under the 2009 Employee and Director Equity Incentive Plan.

Relationship of Elements of Compensation

Base Salary. Base salaries for our executives will be established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for similar positions. Base salaries are reviewed annually, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. Annual reviews are typically delivered in February of each year; evaluating and rewarding performance during the prior calendar year.

Discretionary Annual Bonus. The compensation committee will have the authority to award discretionary annual bonuses to our executive officers and will set the terms and conditions of those bonuses and take all other actions necessary for the plan’s administration. These awards are intended to compensate officers for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives vary depending on the individual.

Long-Term Incentive Program. We believe that long-term performance is achieved through an ownership culture that encourages such performance by our executive officers through the use of stock and stock-based awards. Our stock compensation plans have been established to provide certain of our employees, including our executive officers, with incentives to help align those employees’ interests with the interests of stockholders.

Summary Compensation Table

The following table sets forth certain information with respect to compensation for the last three fiscal years ended December 31, 2010, 2009 and 2008 earned or paid to our President, our Chief Financial Officer, and our three other most highly compensated executive officers, other than our President and Chief Financial Officer. We refer to these individuals as our named executive officers.

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Name and Principal Position

Year

Salary ($)

Bonus ($)

Option
Awards ($)
(1)

Stock
Awards ($)

Non-Equity
Incentive Plan
Compensation ($)

All Other
Compensation ($)

Total ($)

Steven Asman

2010

—

11,533

(2)

11,533

President and Chairman

2009

—

12,468

2008

—

Aaron Dobrinsky

2010

91,250

500,000

3,289

(2)

594,539

Chief Executive Officer

2009

—

2008

—

Richard Koch

2010

535,728

20,271

(2)

555,999

President of RNK

2009

508,200

27,454

(2)

535,654

2008

462,000

24,732

(2)

486,732

Eric Mann

2010

347,040

—

21,020

(3)

368,060

Chief Financial Officer

2009

350,000

5,003,806

21,994

(3)

5,375,800

2008

333,333

276,000

18,385

(3)

627,718

Andrew Bressman

2010

531,155

—

59,959

(3)

591,114

Managing Director and

2009

525,000

915,000

9,440,416

52,484

(3)

10,932,900

Head of Business

2008

525,000

414,000

41,552

980,552

Development

Sanford McMurtry

2010

231,965

—

528

(4)

232,493

Vice President, Network

2009

235,000

274,500

468

(4)

509,968

Operations

2008

233,125

34,500

468

(4)

268,093

Customer