Note 4 - Business Combinations

6 Months Ended

Jun. 30, 2011

Business Combination Disclosure [Text Block]

Note 4 - Business Combinations

Wells Rural Electric Company

On January 31, 2011, KeyOn Communications Holdings, Inc. purchased the assets of Wells Rural Electric Company (“WREC”), pursuant to an Asset Purchase Agreement, including subscriber contracts, accounts, and fixed assets. As consideration for the acquired assets, we agreed to pay $363,888 in cash over a period of two years, subject to further adjustments. Upon the satisfaction of certain closing conditions, we initiated the Closing Payment of $94,734. The balance of the purchase price which amounts to $269,154 will be made in eight consecutive quarterly payments and will accrue interest at the rate of 5.25% per annum (See Note 7).

The purchase price breakdown is as follows:

Subscriber base	$	121,898
Network equipment		23,348
Customer premise equipment		195,298
Accounts receivable		1,239
Goodwill		22,105
Total consideration	$	363,888

Grand Junction, Colorado market sale

On February 1, 2011, we entered into an agreement to sell substantially all of the wireless broadband assets and assign certain liabilities used in the operation of our Grand Junction, Colorado network to Skybeam, Inc. As consideration for the acquired assets, the Company agreed to accept an aggregate purchase price of $261,000 in cash, subject to a holdback in the amount of $52,200 with which to make post-closing purchase price adjustments based upon the number of broadband subscribers and monthly Internet service revenue. Also, on February 1, 2011, upon the satisfaction of certain closing conditions as described in the Asset Purchase Agreement, KeyOn completed the divesture, and received the initial closing payment of $208,800. We received the balance of the purchase price of $38,915 on May 2, 2011 after making certain purchase price adjustments as described in the Asset Purchase Agreement.

The final sales price breakdown is as follows:

Network equipment	$	272,510
Customer premise equipment		226,757
Software		461
Computer equipment		2,460
Accumulated depreciation		(495,885	)
Gain on sale of assets		246,197

Total consideration	$	252,500

ERF Wireless, Inc

On February 10, 2011, we entered into an agreement to acquire certain wireless broadband assets and assume certain liabilities used to provide wireless Internet access and other related services from ERF Wireless, Inc., (“ERF”). The assets to be acquired are used in the business of operating wireless networks that provide high-speed Internet access and other related services to residential and commercial subscribers in East Central Texas (the “Business”). As consideration for the acquired assets, the Company paid $3,000,000 in cash, subject to further adjustments as described in the Asset Purchase Agreement and issue 100,000 shares of the Company’s common stock. The Asset Purchase Agreement contains customary representations and warranties by the Company and ERF. On February 15, 2011, upon the satisfaction of the closing conditions, we consummated this transaction by delivering $2,700,000 in cash and issued 100,000 restricted shares of our common stock. On July 1, 2011 we made the final payment to the balance of the final purchase price of $215,120 (see Note 7) after making certain price adjustments as described in the Asset Purchase Agreement.

The final allocation of the purchase price breakdown is as follows:

Network equipment	$	1,219,082
Vehicles		40,575
Subscriber base		1,339,851
Network equipment not deployed		54,434
Goodwill		378,058
Accounts Payable		11,298
Accounts Receivable		(66,624	)
Obligations to Subscribers		(29,553	)
Total consideration	$	2,947,121

Entities Doing Business as CommX

On June 1, 2011, a wholly owned subsidiary of KeyOn Communications Holdings, Inc., KeyOn Commx, LLC, a Nevada limited liability company, acquired from CommX Holdings, Inc., a Florida corporation, CommX, Inc., a Florida corporation and Communications Xchange, LLC, a Florida limited liability company, (“Xchange” and together with CommX Holdings and CommX Inc., “CommX”) pursuant to an asset purchase agreement. Substantially, all of the CommX’s assets are used in providing services commonly known as hosted VoIP to commercial and residential customers as well as certain other assets related to Internet addresses and, as a continuation of our core business strategy, they will serve to integrate horizontally into our product line-up and services provided to the same geographical locations and customers.

As consideration for the acquired assets, we initiated the closing payment of $500,000 in cash at closing, upon satisfaction of certain closing conditions, issued a promissory note in the principal amount of $3.5 million, 2,000,000 shares of our common stock with a fair value of $0.34 a share or $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.

The promissory note accrues interest at the rate of 5% per annum and is payable in 10 equal quarterly installments of $374,510.76 commencing August 31, 2011. However, in the event that we complete an equity financing or series of equity financings that result in gross proceeds of at least $5,000,000, we are required to make a mandatory prepayment of $1,500,000 under the Note. The Note contains a variety of events of default that are typical for transactions of this type (See Note 7).

The final purchase price is subject to adjustments for net working capital and qualified subscribers as described in the asset purchase agreement and it is not expected to exceed $80,000.

The table showing the fair value warrants issued in consideration is as follows: Fair value of warrants to purchase common stock
Exercise Price of Option	$	0.40
Term (years)		5
Volatility		53	%
Risk Free Interest Rate		0.74	%
Dividend Yield		0
Unit fair value	$	0.34
Shares issuable upon exercise		1,000,000
Aggregate fair value	$	94,291

The preliminary allocation of the purchase price breakdown is as follows:

Subscriber base	$	1,764,852
Network equipment		120,379
Software licenses		2,378,606
Furniture and fixtures		9,940
Customer premises equipment		315,473
Accounts receivable		327,555
Obligations to subscribers		(46,535	)
Gain on acquisition		(95,979	)
Total cash and stock consideration	$	4,774,291
Total stock consideration	$	680,000
Total warrant to purchase common stock consideration	$	94,291
Total cash and debt consideration	$	4,000,000

Pro forma financials

The Company accounted for the business combinations using the acquisition method of accounting. The results of operations for the three and six months ended June 30, 2011, include the revenues and expenses of these acquired businesses since their respective dates of acquisition.

The unaudited pro-forma financial results for the three and six months ended June 30, 2011 and June 30, 2010, combines the historical results of Dynamic Broadband Corporation, RidgeviewTel, LLC, Affinity Wireless, ERF Wireless, Inc., Wells Rural Electric Company and Commx VOIP with those of the Company as if these acquisitions had been completed as of the beginning of each of the periods presented. The pro-forma weighted average number of shares outstanding also assumes that the shares issued as purchase consideration were outstanding as of the beginning of each of the periods presented.

As described in Note 3, the Company adopted ASU 2010-29 relating to pro forma disclosures effective January 1, 2011. There were no material non-recurring pro forma adjustments directly attributable to these acquisitions.

PRO FORMA COMBINED STATEMENT OF OPERATIONS

		Three Months Ended 30-Jun-11			Three Months Ended 30-Jun-10			Six Months Ended 30-Jun-11			Six Months Ended 30-Jun-10
Total revenues	$	3,353,258		$	3,425,510		$	6,785,833		$	6,921,040
Loss from operations	$	(1,238,271	)	$	(1,494,164	)	$	(3,422,318	)	$	(3,059,125	)
Net income/(loss) available to common stockholders	$	(1,238,177	)	$	956,305		$	(19,378,169	)	$	3,559,810
Net income/(loss) per share, basic	$	(0.05	)	$	0.04		$	(0.75	)	$	0.14
Net income/(loss) per share, diluted	$	(0.05	)	$	(0.04	)	$	(0.75	)	$	(0.08	)
Pro forma weighted average shares outstanding, basic		25,768,211			25,737,746			25,768,211			25,492,594
Pro forma weighted average shares outstanding, diluted		25,768,211			46,856,237			25,768,211			43,785,082

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

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+ Details

KeyOn Communications Holdings Inc. 10-Q