Attached files
Exhibit 99.3
KEYON COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
INTRODUCTION TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements give effect to the acquisition of substantially all of the assets and the assumption of certain liabilities used to provide Voice over Internet Protocol (VoiP) and other related services to residential and commercial subscribers of (i) CommX Holdings, Inc., a Florida corporation (“CommX Holdings”); (ii) CommX, Inc., a Florida corporation (“CommX Inc.”); and (iii) Communications Xchange, LLC, a Florida limited liability company, (“Xchange”), collectively referred to as “CommX” by Keyon Communications Holdings, Inc (“the Company”) which was completed on June 10, 2011.
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 CommX, 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 June 27, 2011, pursuant to the Asset Purchase Agreement and in connection with the acquisition, the Company paid $500,000 in cash, issued 2,000,000 shares of common stock with a fair value of $680,000 and a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $0.40 per share with a fair value of $94,291 as consideration for the purchase. The balance of the consideration of $3,500,000 is paid with a promissory note that accrues interest at a rate of 5% per annum and is payable in 10 equal quarterly installments of $374,511 commencing August 31, 2011. The final purchase price is subject to adjustments for net working capital and qualified subscribers.
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KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARIES
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PROFORMA CONDENSED CONSOLIDATED BALANCE SHEETS
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AS OF MARCH 31, 2011
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ASSETS
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KeyOn
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CommX
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Adjustments
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KeyOn pro forma
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(a)
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(b)
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CURRENT ASSETS:
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Cash
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$ | 1,859,804 | $ | 107,257 | (107,257 | ) |
(c)
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$ | 1,859,804 | ||||||||
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Accounts receivable, net of allowance for doubtful accounts
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463,205 | 438,313 | (110,758 | ) |
(d)
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$ | 790,760 | ||||||||||
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Markeatable Securities
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750,077 | - | - | $ | 750,077 | ||||||||||||
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Prepaid expenses and other current assets
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364,781 | - | $ | 364,781 | |||||||||||||
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Total current assets
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3,437,867 | 545,570 | (218,015 | ) |
(e)
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3,765,422 | |||||||||||
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PROPERTY AND EQUIPMENT - Net
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4,839,796 | 908,171 | 1,916,227 |
(f)
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7,664,194 | ||||||||||||
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OTHER ASSETS
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Goodwill
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2,227,802 | - | - | 2,227,802 | |||||||||||||
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Subscriber base -net
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2,185,596 | - | 1,764,852 |
(g)
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3,950,448 | ||||||||||||
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Trademarks
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16,567 | - | - | 16,567 | |||||||||||||
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Refundable deposits
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43,480 | - | - | 43,480 | |||||||||||||
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Other assets
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- | 37,991 | (37,991 | ) |
(h)
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- | |||||||||||
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Debt issuance costs - net
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269,414 | - | - | 269,414 | |||||||||||||
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Total other assets
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4,742,859 | 37,991 | 1,726,861 | 6,507,711 | |||||||||||||
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TOTAL ASSETS
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$ | 13,020,522 | $ | 1,491,732 | 3,425,073 | 17,937,327 | |||||||||||
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LIABILITIES AND STOCKHOLDERS' (DEFICIT)
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CURRENT LIABILITIES:
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Accounts payable and accrued expenses
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$ | 2,538,002 | $ | 437,026 | $ | (390,491 | ) |
(i)
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$ | 2,584,537 | |||||||
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Revolving Line of Credit
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1,224,271 | - | - | 1,224,271 | |||||||||||||
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Current portion of notes payable
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691,227 | - | 1,848,057 |
(j)
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2,539,284 | ||||||||||||
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Current portion of deferred rent liability
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68,543 | - | - | 68,543 | |||||||||||||
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Current portion of capital lease obligations
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556,752 | - | - | 556,752 | |||||||||||||
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Deferred revenue
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230,105 | - | - | 230,105 | |||||||||||||
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Total current liabilities
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5,308,900 | 437,026 | 1,457,566 |
(e)
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7,203,492 | ||||||||||||
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LONG-TERM LIABILITIES:
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Notes payable, less current maturities
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661,571 | - | 2,151,943 |
(j)
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2,813,514 | ||||||||||||
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Capital lease obligations, less current maturities
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45,386 | - | - | 45,386 | |||||||||||||
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Other liabilities
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- | 28,534 | (28,534 | ) |
(k)
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- | |||||||||||
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Deferred tax liability
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179,581 | - | - | 179,581 | |||||||||||||
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Total long term liabilities
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886,538 | 28,534 | 2,123,409 | 3,038,481 | |||||||||||||
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TOTAL LIABILITIES
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$ | 6,195,438 | $ | 465,560 | $ | 3,580,975 | $ | 10,241,973 | |||||||||
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS' (DEFICIT):
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Preferred Stock - 60,000,000 shares authorized with 30,000,000 shares designated in the following classes:
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Series A preferred stock, 30,000,000 shares authorized; 16,315,068 shares issued
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$ | 16,315,068 | $ | - | $ | - | $ | 16,315,068 | |||||||||
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Preferred Stock - 15,000,000 shares authorized with 15,000,000 shares designated in the following classes:
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Series A preferred stock, 5,000,000 shares authorized; 3,150,000 shares issued at March 31, 2011
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2,100,000 | (2,100,000 | ) |
(l)
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- | ||||||||||||
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Series B preferred stock, 10,000,000 shares authorized; 5,782,800 shares issued at March 31, 2011
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5,782,800 | (5,782,800 | ) |
(l)
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- | ||||||||||||
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Common Stock, no par value, 15,000,000 shares authorized; 14,524,927 sharesissued at March 31, 2011
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9,331,663 | (9,331,663 | ) |
(l)
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- | ||||||||||||
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Common stock, $0.001 par value; 115,000,000 shares authorized; 23,768,211 at March 31, 2011
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23,768 | - | 2,000 |
(m)
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25,768 | ||||||||||||
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Stock Subscription Receivable
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(12,542 | ) | 12,542 |
(n)
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- | ||||||||||||
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Additional paid-in capital
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34,692,074 | - | 772,291 |
(o)
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35,464,365 | ||||||||||||
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Accumulated deficit
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(44,205,995 | ) | (16,175,749 | ) | 16,271,728 |
(p)
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(44,110,016 | ) | |||||||||
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Accumulated Other Comprehensive Income
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169 | - | - | 169 | |||||||||||||
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Total stockholders' (deficit)
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6,825,084 | 1,026,172 | (155,902 | ) | 7,695,354 | ||||||||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
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$ | 13,020,522 | $ | 1,491,732 | $ | 3,425,073 | $ | 17,937,327 | |||||||||
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(a) Derived from the unaudited balance sheet of KeyOn as of March 31, 2011.
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(b) Derived from unaudited balance sheet of CommX as of March 31, 2011.
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(c) Represents the elimination of cash that was excluded from the assets acquired.
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(d) Reflects the elimination of certain CommX receivables upon the consumation of the acquisition
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(e) The effect of the Working Capital deficit shown in the balance sheet of CommX as of March 31, 2011 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 September 8, 2011.
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(f) Represents the estimated fair value of acquired property determined based on replacement cost.
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(g) Reflects KeyOn’s estimated fair value of the acquired CommX subscriber base of approximately 252 wholesale and retail subscribers, based on the net present value of the net cash flows expected over the estimated life of the subscribers.
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(h) Reflects the elimination of CommX other assets upon the consummation of the acquisition.
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(i) Reflects the elimination of CommX accounts payable and accrued expenses that were not assumed upon the consummation of the acquisition.
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(j) Reflects the note payable issued the sellers for $4,000,000 as purchase consideration.
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(k) Reflects the elimination of CommX liabilities upon the consummation of the acquisition.
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(l) Reflects the elimination of CommX common and preferred stock equity upon the consummation of the acquisition.
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(m) Reflects the fair value of 2,000,000 shares of KeyOn common stock at $0.001 par value issued as purchase consideration.
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(n) Reflects the elimination of CommX’s Stock subcription receivable upon the consummation of the acquisition.
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(o) Reflects the fair value of 2,000,000 shares of KeyOn common stock at $0.34 per share and a warrant to purchase 1,000,000 shares of KeyOn common stock at an exercise price of $0.40 per share with a fair value of $94,291 as purchase consideration.
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(p) Reflects the elimination of CommX’s Accumulated Deficit upon the consummation of the acquisition and the gain on acquisition for $95,979 upon consumation of the acquisition.
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3
The following table provides a breakdown of the purchase price of the Commx assets acquired by KeyOn including the fair value of the purchase consideration issued to the seller.
KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARIES
COMMX ASSET VALUATION SUMMARY (as of 06/01/11)
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Stock value on date of transfer (June 01, 2011)
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0.34 | |||
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Net Purchase Price for 2,000,000 shares as of 06/01/11
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680,000 | |||
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Warrants
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94,291 | |||
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Note Payable Commx
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4,000,000 | |||
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Total
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4,774,291 | |||
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Accounts Receivable due from subscribers at closing
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327,555 | |||
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Fixed assets
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2,824,398 | |||
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Net tangible assets acquired
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3,151,953 | |||
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Liabilities assumed
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(46,535 | ) | ||
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Allocated purchase price
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3,105,418 | |||
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Purchase price remaining to be allocated to intangible assets
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1,668,873 | |||
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Subscriber base allocation
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1,764,852 | |||
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Gain on Acquisition
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$ | (95,979 | ) |
Purchase price allocation is preliminary and subject to adjustment based upon further 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 Assets
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Equipment
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Software
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$ | 1,641,348 | |
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Furniture
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9,940 | ||
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Telecom Network Hardware
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120,379 | ||
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IP Block (expeditious Group)
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737,258 | ||
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CPE
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315,473 | ||
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Subtotal assets
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2,824,398 | ||
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Subscriber Base
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1,764,852 | ||
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TOTAL FMV OF ASSETS
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$ | 4,589,250 | |
4
KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
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KeyOn
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CommX
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Adjustments
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KeyOn pro forma
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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 | $ | 2,886,991 | $ | - | $ | 10,302,484 | |||||||||
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Support and other revenue
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108,185 | - | - | 108,185 | |||||||||||||
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Total revenues
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7,523,678 | 2,886,991 | - | 10,410,669 | |||||||||||||
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OPERATING COSTS AND EXPENSES:
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Payroll, bonuses and taxes
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5,129,802 | 1,473,393 | (606,485 | ) |
(c)
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5,996,710 | |||||||||||
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Network operating costs
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3,342,913 | 1,255,689 | - | 4,598,602 | |||||||||||||
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Professional fees
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1,901,117 | 8,768 | (8,768 | ) |
(d)
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1,901,117 | |||||||||||
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Depreciation and amortization
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2,080,303 | 151,334 | 984,262 |
(e)
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3,215,899 | ||||||||||||
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General and administrative expense
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1,509,843 | 375,750 | (13,404 | ) |
(f)
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1,872,189 | |||||||||||
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Installation expense
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267,427 | - | - | 267,427 | |||||||||||||
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Marketing and advertising
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390,376 | - | - | 390,376 | |||||||||||||
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Total operating costs and expenses
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14,621,781 | 3,264,934 | 355,605 | 18,242,320 | |||||||||||||
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LOSS FROM OPERATIONS
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(7,098,103 | ) | (377,943 | ) | (355,605 | ) | (7,831,651 | ) | |||||||||
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OTHER INCOME (EXPENSE):
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Other income
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145,804 | - | - | 145,804 | |||||||||||||
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Interest income
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6,114 | - | - | 6,114 | |||||||||||||
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Interest expense
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(3,454,945 | ) | 22,264 | 152,736 |
(g)
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(3,279,945 | ) | ||||||||||
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Fair value of derivative in excess of debt proceeds
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(29,792,150 | ) | - | - | (29,792,150 | ) | |||||||||||
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Change in fair value of derivative
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42,401,635 | - | - | 42,401,635 | |||||||||||||
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Total other income (expense)
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9,306,458 | 22,264 | 152,736 | 9,481,458 | |||||||||||||
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NET INCOME (LOSS) BEFORE INCOME TAXES
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2,208,355 | (355,679 | ) | (202,869 | ) | 1,649,807 | |||||||||||
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INCOME TAXES
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(165,471 | ) | - | - | (165,471 | ) | |||||||||||
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OTHER COMPREHENSIVE INCOME (LOSS)
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Net income (loss)
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$ | 2,042,884 | $ | (355,679 | ) | $ | (202,869 | ) | $ | 1,484,336 | |||||||
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Unrealized gain on investments
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1,224 | $ | 1,224 | ||||||||||||||
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Total comprehensive income (loss)
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$ | 2,044,108 | $ | (355,679 | ) | $ | (202,869 | ) | $ | 1,485,560 | |||||||
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Net income (loss) per common share, basic
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$ | 0.09 | $ | 0.06 | |||||||||||||
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Net income (loss) per common share, diluted
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$ | (0.17 | ) | $ | (0.18 | ) | |||||||||||
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Weighted average common shares outstanding, basic
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22,647,487 | 24,647,487 | |||||||||||||||
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Weighted average common shares outstanding, diluted
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42,110,070 | 44,646,196 | |||||||||||||||
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(a) Derived from the audited statement of financial operations of KeyOn for the year ended December 31, 2010.
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(b) Derived from the audited statement of financial operations of Commx Holdings, Inc. for the year ended December 31, 2010.
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(c) Reflects the elimination of all payroll and payroll related expenses with the exception of ten retained employees.
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(d) Reflects the elimination of all professional fees that are duplicative services of KeyOn’s (i.e., accounting, legal and consulting professional services).
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(e) Reflects the increase 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 customer premise equipment, office equipment, network equipment, software licences 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 CommX in regards to the CommX customer base. This churn of 2.1% per month calculates to be a four year life on the subscriber base purchased by KeyOn.
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(f) Reflects the elimination of duplicate general and administrative expenses including bank charges & travel expenses.
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(g) Reflects the elimination of all interest expense due to all debt being paid off on the date of consummation of the acquisition and the interest accrued due to the $3,500,000 note payable to the sellers.
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5
KEYON COMMUNICATIONS HOLDINGS INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2011
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KeyOn
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CommX
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Adjustments
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KeyOn pro forma
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REVENUES:
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(a)
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(b)
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Service and installation revenue
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$ | 2,345,822 | $ | 761,333 | $ | - | $ | 3,107,155 | |||||||||
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Support and other revenue
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19,816 | 17,191 | - | 37,007 | |||||||||||||
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Total revenues
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2,365,638 | 778,524 | - | 3,144,162 | |||||||||||||
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OPERATING COSTS AND EXPENSES:
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Payroll, bonuses and taxes
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2,571,377 | 273,602 | (56,880 | ) |
(c)
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2,788,099 | |||||||||||
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Network operating costs
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1,039,474 | 322,188 | - | 1,361,662 | |||||||||||||
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Professional fees
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95,957 | - | - | 95,957 | |||||||||||||
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Depreciation and amortization
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650,386 | 47,317 | 236,582 |
(d)
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934,285 | ||||||||||||
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General and administrative expense
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476,470 | 65,643 | (3,351 | ) |
(e)
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538,762 | |||||||||||
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Installation expense
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72,374 | - | - | 72,374 | |||||||||||||
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Gain on disposal of equipment
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(246,197 | ) | - | - | (246,197 | ) | |||||||||||
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Marketing and advertising
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100,764 | - | - | 100,764 | |||||||||||||
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Total operating costs and expenses
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4,760,605 | 708,750 | 176,351 | 5,645,706 | |||||||||||||
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LOSS FROM OPERATIONS
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(2,394,967 | ) | 69,774 | (176,351 | ) | (2,501,544 | ) | ||||||||||
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OTHER INCOME (EXPENSE):
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Other income
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13,775 | - | - | 13,775 | |||||||||||||
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Interest income
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704 | - | - | 704 | |||||||||||||
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Interest expense
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(13,327,210 | ) | - | (43,750 | ) |
(f)
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(13,370,960 | ) | |||||||||
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Debt conversion inducement
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(2,292,059 | ) | - | - | (2,292,059 | ) | |||||||||||
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Change in fair value of derivative instruments
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159,110 | - | - | 159,110 | |||||||||||||
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Total other income (expense)
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(15,445,680 | ) | - | (43,750 | ) | (15,489,430 | ) | ||||||||||
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NET INCOME (LOSS) BEFORE INCOME TAXES
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(17,840,647 | ) | 69,774 | (220,101 | ) | (17,990,974 | ) | ||||||||||
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INCOME TAXES
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(14,110 | ) | - | - | (14,110 | ) | |||||||||||
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OTHER COMPREHENSIVE INCOME (LOSS)
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Net income (loss)
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$ | (17,854,757 | ) | $ | 69,774 | $ | (220,101 | ) | $ | (18,005,084 | ) | ||||||
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Net income (loss) per common share, basic
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$ | (0.76 | ) | $ | (0.70 | ) | |||||||||||
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Net income (loss) per common share, diluted
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$ | (0.76 | ) | $ | (0.70 | ) | |||||||||||
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Weighted average common shares outstanding, basic
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23,718,211 | 25,718,211 | |||||||||||||||
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Weighted average common shares outstanding, diluted
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23,718,211 | 25,718,211 | |||||||||||||||
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(a) Derived from the unaudited statement of financial operations of KeyOn for the three months ended March 31, 2011.
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(b) Derived from the unaudited statement of financial operations of Commx for the three months ended March 31, 2011.
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(c) Reflects the elimination of all payroll and payroll related expenses with the exception of ten retained employees.
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(d) Reflects the increase 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 customer premise equipment, office equipment, network equipment, software licences 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 CommX in regards to the CommX customer base. This churn of 2.1% per month calculates to be a four year life on the subscriber base purchased by KeyOn.
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(e) Reflects the elimination of duplicate G&A expenses including bank charges & travel expenses.
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(f) Reflects the interest expense generated by the $3,500,000 note payable to CommX upon consumation of the acquisition.
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