Attached files
| file | filename |
|---|---|
| 8-K/A - KeyOn Communications Holdings Inc. | i00214_keyon-8ka.htm |
| EX-99.1 - KeyOn Communications Holdings Inc. | i00214_ex99-1.htm |
KEYON COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
INTRODUCTION TO PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements give effect to the acquisition of substantially all of the assets and the assumption of certain liabilities used to provide wireless Internet and other related services to residential and commercial subscribers in East Central Texas (the “Business”) from ERF Wireless, Inc. (“ERF”) which was completed on February 15, 2011. The wireless broadband assets acquired exclude assets owned by ERF and its separate subsidiaries that are used to deliver broadband services to the oil and gas and banking industries, as well as any wireless broadband assets outside of the Business.
The unaudited pro forma information is presented for illustration purposes only in accordance with the assumptions set forth below and in the notes to the pro forma condensed combined financial statements.
The unaudited pro forma balance sheet and statements of operations should be read in conjunction with the historical financial statements of the Business, appearing elsewhere herein. These pro forma condensed combined financial statements may not be indicative of what would have occurred if the acquisition had actually occurred on the indicated dates and they should not be relied upon as an indication of future results of operations.
On February 15, 2011, pursuant to the Asset Purchase Agreement and in connection with the acquisition, the Company paid $2,700,000 in cash and issued 100,000 shares of common stock with a fair value of $32,000 as consideration for the purchase. The balance of the consideration of $300,000 of cash is subject to working capital and other adjustments as described in the Asset Purchase Agreement and shall be paid on May 15, 2011.
KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARY
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PRO FORMA CONDENSED COMBINED BALANCE SHEETS |
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AS OF DECEMBER 31, 2010 |
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ASSETS |
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KeyOn |
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ERF |
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Adjustments |
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KeyOn |
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(a) |
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(b) |
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CURRENT ASSETS: |
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Cash |
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$ |
766,264 |
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$ |
1,250 |
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(1,250 |
)(c) |
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$ |
766,264 |
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Accounts receivable, net of allowance for doubtful accounts |
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282,951 |
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109,401 |
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392,352 |
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Marketable Securities |
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5,746,612 |
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— |
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— |
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5,746,612 |
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Prepaid expenses and other current assets |
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278,671 |
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61,886 |
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340,557 |
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Total current assets |
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7,074,497 |
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172,537 |
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(1,250 |
)(m) |
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7,245,784 |
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PROPERTY AND EQUIPMENT - Net |
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3,406,340 |
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513,212 |
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746,444 |
(d) |
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4,665,996 |
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OTHER ASSETS |
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Goodwill |
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1,815,095 |
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1,078,631 |
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(537,808 |
)(e) |
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2,355,919 |
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Subscriber base -net |
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864,867 |
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133,638 |
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1,206,213 |
(f) |
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2,204,718 |
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Trademarks |
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16,567 |
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— |
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— |
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16,567 |
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Refundable deposits |
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85,386 |
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31,796 |
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(31,796 |
)(g) |
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85,386 |
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Debt issuance costs - net |
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278,880 |
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— |
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— |
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278,880 |
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Total other assets |
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3,060,795 |
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1,244,065 |
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636,609 |
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4,941,469 |
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TOTAL ASSETS |
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$ |
13,541,632 |
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$ |
1,929,814 |
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$ |
1,381,803 |
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16,853,249 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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$ |
3,301,164 |
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$ |
110,780 |
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$ |
3,411,944 |
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Revolving Line of Credit |
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1,215,938 |
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1,215,938 |
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Current portion of notes payable |
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396,847 |
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227,152 |
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(227,152 |
)(h) |
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396,847 |
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Deferred rent liability |
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66,835 |
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— |
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— |
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66,835 |
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Current portion of capital lease obligations |
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644,119 |
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84,236 |
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(84,236 |
)(g) |
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644,119 |
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Deferred revenue |
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253,596 |
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168,837 |
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422,433 |
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Derivative Liability |
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2,390,515 |
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2,390,515 |
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Total current liabilities |
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8,269,014 |
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591,005 |
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(311,388 |
)(m) |
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8,548,631 |
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LONG-TERM LIABILITIES: |
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Deferred rent liability, less current maturities |
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16,148 |
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— |
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— |
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16,148 |
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Convertible Note |
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1,958,451 |
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— |
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— |
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1,958,451 |
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Notes payable, less current maturities |
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505,312 |
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— |
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— |
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505,312 |
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Capital lease obligations, less current maturities |
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145,605 |
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— |
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— |
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145,605 |
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Deferred tax liability |
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165,471 |
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— |
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— |
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165,471 |
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Total long term liabilities |
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2,790,987 |
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— |
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— |
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2,790,987 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ EQUITY |
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Preferred Stock - 60,000,000 shares authorized with 60,000,000 shares designated |
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in the following classes: |
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Series Cal Cap preferred stock, 30,000,000 shares authorized; 0 shares issued |
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Series KIP preferred stock, 0.0001 par value; 30,000,000 shares authorized:; |
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0 shares issued |
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Common stock, $0.001 par value; 115,000,000 shares authorized; |
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— |
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— |
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23,668,211 and 20,686,056 shares issued and outstanding at December 31, 2010 |
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— |
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— |
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and 2009, respectively |
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23,668 |
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100 |
(i) |
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23,768 |
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Additional paid-in capital |
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28,718,581 |
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3,031,900 |
(j) |
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31,750,481 |
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Parent company advances |
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3,409,405 |
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(3,409,405 |
)(k) |
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— |
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Accumulated deficit |
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(26,261,840 |
) |
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(2,070,596 |
) |
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2,070,596 |
(l) |
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(26,261,840 |
) |
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Accumulated other comprehensive income |
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1,224 |
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1,224 |
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Total stockholders’ (deficit) |
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2,481,632 |
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1,338,809 |
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1,693,191 |
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5,513,632 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) |
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$ |
13,541,633 |
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$ |
1,929,814 |
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$ |
1,381,803 |
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$ |
16,853,249 |
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(a) Derived from the audited balance sheet of KeyOn as of December 31, 2010.
(b) Derived from the audited carve-out balance sheet of ERF Wireless as of December 31, 2010.
(c) Represents the elimination of cash that was excluded from the assets acquired.
(d) Represents the estimated fair value of acquired property based on replacement cost.
(e) Reflects KeyOn’s purchase price for the ERF assets of $3,032,000 at fair value on the date of consummation. The difference between the purchase price and the fair value of the tangible assets acquired was allocated to the acquired subscriber base and goodwill. This goodwill is tax deductible which will create a tax liability as stated in the Pro forma Statement of Operations.
(f) Reflects KeyOn’s estimated fair value of the acquired ERF subscriber base of approximately 3,879 subscribers, based on the net present value of the net cash flows expected over the estimated life of the subscribers.
(g) Refundable Deposits and Capital Lease obligations were satisfied by ERF to eliminate security interests held by third-parties. These obligations were satisfied as a pre-condition to consummating the acquisition.
(h) Reflects the elimination of Notes Payable repaid by ERF as a pre-condition to consummating the acquisition.
(i) Reflects the fair value of 100,000 shares of KeyOn common stock at $0.001 par value issued as purchase consideration.
(j) Reflects the fair value of 100,000 shares of KeyOn common stock at $0.32 per share and $3,000,000 in cash as purchase consideration.
(k) Reflects the elimination of ERF’s Parent Company Advances upon the consummation of the acquisition.
(l) Reflects the elimination of ERF’s Accumulated Deficit upon the consummation of the acquisition.
(m) The effect of the Working Capital deficit shown in the carve-out balance sheet of ERF Wireless as of December 31, 2010 is not reflected in the purchase price included in the pro forma Balance Sheet. Although the Net Working Capital credit or deficit as applicable will serve as a purchase price adjustment according to the terms of the Asset Purchase Agreement, the amount will not be known until May 15, 2011.
The following table provides a breakdown of the purchase price of the ERF assets acquired by KeyOn including the fair value of the purchase consideration issued to the seller.
KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARY
ERF WIRELESS ACQUISITION ASSET VALUATION SUMMARY (as of 12/31/10)
| Calculation of Acquisition Accounting | ||||
Stock value on date of transfer (February 15, 2011) |
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$ |
0.32 |
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Net Purchase Price for 100,000 shares as of 02/15/11 |
$ |
32,000 |
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Cash in Consideration |
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3,000,000 |
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Total consideration |
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3,032,000 |
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Accounts receivable, net of allowance for doubtful accounts |
109,401 |
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Prepaid expenses and other current assets |
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61,886 |
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Fixed assets |
1,259,656 |
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Accounts payable |
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(110,780 |
) |
Deferred revenue |
(168,837 |
) |
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Net tangible assets acquired |
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1,151,326 |
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Purchase price remaining to be allocated to intangible assets |
1,880,674 |
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Subscriber base allocation |
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1,339,851 |
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Goodwill allocations |
$ |
540,823 |
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| The purchase price allocation is preliminary and is subject to adjustment based upon a more detailed analysis to be performed by management within the one year measurement period prescribed under the acquisition method of accounting. |
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| Fair Market Value of Acquired Net Assets | ||||
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Accounts receivable, net of allowance for doubtful accounts |
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109,401 |
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Prepaid expenses |
7,451 |
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Equipment |
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Network Equipment and Customer Premise Equipment |
$ |
1,219,081 |
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Equipment and Materials not deployed |
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54,435 |
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Vehicles |
40,575 |
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Subtotal assets |
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1,430,943 |
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Subscriber Base |
1,339,851 |
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Accounts payable |
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(110,780 |
) |
Deferred revenue |
(168,837 |
) |
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TOTAL FMV OF NET ASSETS |
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$ |
2,491,177 |
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KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARY
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PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS |
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FOR THE YEAR ENDED DECEMBER 31, 2010 |
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KeyOn |
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ERF |
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Adjustments |
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KeyOn |
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REVENUES: |
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(a) |
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(b) |
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Service and installation revenue |
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$ |
7,415,493 |
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$ |
2,104,461 |
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$ |
— |
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$ |
9,519,954 |
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Support and other revenue |
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108,185 |
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103,248 |
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— |
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211,433 |
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Total revenues |
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7,523,678 |
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2,207,709 |
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— |
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9,731,387 |
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OPERATING COSTS AND EXPENSES: |
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Payroll, bonuses and taxes |
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5,129,802 |
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552,228 |
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(142,044 |
)(c) |
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5,539,986 |
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Network operating costs |
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3,342,913 |
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507,088 |
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(75,946 |
)(d) |
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3,774,055 |
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Professional fees |
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1,901,117 |
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7,061 |
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(7,061 |
)(e) |
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1,901,117 |
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Depreciation and amortization |
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2,080,303 |
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1,200,963 |
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(334,461 |
)(f) |
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2,946,805 |
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General and administrative expense |
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1,509,843 |
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233,824 |
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(64,237 |
)(g) |
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1,679,430 |
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Installation expense |
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267,427 |
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— |
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— |
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267,427 |
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Marketing and advertising |
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390,376 |
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3,125 |
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— |
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393,501 |
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Total operating costs and expenses |
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14,621,781 |
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2,504,289 |
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(623,750 |
) |
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16,502,320 |
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LOSS FROM OPERATIONS |
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(7,098,103 |
) |
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(296,580 |
) |
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623,750 |
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(6,770,933 |
) |
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OTHER INCOME (EXPENSE): |
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Other income |
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145,804 |
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— |
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— |
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|
145,804 |
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Interest income |
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6,114 |
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— |
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— |
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|
6,114 |
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Interest expense |
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(3,454,945 |
) |
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(77,027 |
) |
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77,027 |
(h) |
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(3,454,945 |
) |
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Loss on note repaid in common stock |
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— |
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|||
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Fair value of derivative in excess of |
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— |
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|||
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debt proceeds |
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(29,792,150 |
) |
|
— |
|
|
— |
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|
(29,792,150 |
) |
|
Change in fair value of derivative |
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|
42,401,635 |
|
|
— |
|
|
— |
|
|
|
42,401,635 |
|
|
Total other income (expense) |
|
|
9,306,458 |
|
|
(77,027 |
) |
|
77,027 |
|
|
|
9,306,458 |
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NET INCOME (LOSS) BEFORE INCOME TAXES |
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|
2,208,355 |
|
|
(373,607 |
) |
|
700,777 |
|
|
|
535,525 |
|
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INCOME TAXES |
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(165,471 |
) |
|
— |
|
|
(9,577 |
)(i) |
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|
(175,048 |
) |
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OTHER COMPREHENSIVE INCOME (LOSS) |
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||||
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Net income (loss) |
|
$ |
2,042,884 |
|
$ |
(373,607 |
) |
$ |
710,354 |
|
|
$ |
2,360,476 |
|
|
Unrealized gain on investments |
|
|
1,224 |
|
|
|
|
|
|
|
|
$ |
1,224 |
|
|
Total comprehensive income (loss) |
|
$ |
2,044,108 |
|
$ |
(373,607 |
) |
$ |
710,354 |
|
|
$ |
2,361,700 |
|
|
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|
|||||
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Net income (loss) per common share, basic |
|
$ |
0.10 |
|
|
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|
|
|
$ |
0.10 |
|
||
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|||||
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Net income (loss) per common share, diluted |
|
$ |
(0.17 |
) |
|
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|
|
|
$ |
(0.17 |
) |
||
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|||||
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Weighted average common shares outstanding, basic |
|
|
22,647,487 |
|
|
|
|
|
|
|
22,747,487 |
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Weighted average common shares outstanding, diluted |
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43,441,999 |
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43,541,999 |
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(a) Derived from the audited statement of operations of KeyOn for the year ended December 31, 2010.
(b) Derived from the audited carve-out statement of operations of ERF Wireless for the year ended December 31, 2010.
(c) Reflects the elimination of all payroll and payroll related expenses for the employees that are not assumed pursuant to the acquisition.
(d) Reflects the elimination of network operating costs that are duplicative services of KeyOn’s.
(e) Reflects the elimination of all professional fees that are duplicative services of KeyOn’s (i.e., accounting, legal and consulting professional services).
(f) Reflects the decrease in depreciation and amortization based on the fair market value of the assets acquired by KeyOn on the date of the acquisition. This includes the valuation of tower assets, customer premise equipment, vehicles, office equipment, network equipment, and the valuation of the subscriber base, an intangible asset. The amortizable life of the subscriber base was determined by using the historical churn of the customer base provided by ERF in regards to the ERF customer base. This churn of 2.8% per month calculates to be a three year life on the subscriber base purchased by KeyOn.
(g) Reflects the G&A expenses including insurance, bank charges, travel expenses and facility expenses that are being eliminated as a direct result of the acquisition.
(h) Reflects the elimination of all interest expense due to all debt that was repaid as a precondition to consummating the acquisition.
(i) Reflects deferred income tax expense resulting from the amortization of tax deductible goodwill.