KeyOn Reports Second Quarter 2010 Results

OMAHA, Neb.--(BUSINESS WIRE)--KeyOn Communications Holdings, Inc. (OTCBB: KEYO), one of the largest providers of wireless broadband, satellite video and voice over Internet protocol (VoIP) services in the United States, reported its financial results for the quarter ending June 30, 2010.

Jonathan Snyder, President and CEO of KeyOn Communications, commented, “In the second quarter, we experienced the positive effects of the acquisitions completed under Rural UniFi and increases in our marketing expenses. On a sequential basis over the first quarter, our revenues grew over 8%. At the end of May, we completed the acquisition of the wireless broadband assets of Dynamic Broadband and consequently, only one month of its results is included in our second quarter. On a Pro Forma basis, our revenues grew 30% over the first quarter of 2010. We expect that our revenue growth will continue throughout the year as we have completed two acquisitions subsequent to Dynamic Broadband – TS Wireless and Southwest Wireless Net – and will receive the benefit of those acquisitions in the third quarter.”

Snyder continued, “Our Adjusted EBITDA loss widened in the second quarter on a sequential basis, though this increased loss was anticipated in our internal forecasting. Greater marketing expenses in support of organic subscriber growth and payroll expenses associated with our Rural UniFi acquisition initiative increased our operating expenses. We are realizing a return on investment with these expense categories as our revenues will show greater growth in the coming quarters resulting from completed and future acquisitions as well as overall organic subscriber growth. On a Pro Forma basis, our revenue for the second quarter ended June 30, 2010 would have been $2,065,531, an increase of 20% and 42% over the actual second quarter of 2010 and the second quarter of 2009, respectively.”

2010 Second Quarter Consolidated Results
For the second quarter ended June 30, 2010, the Company reported revenue of $1,728,849, as compared to $1,784,332 for the second quarter ended June 30, 2009. This decrease is smaller than the approximately 15% decline in revenues in comparable periods for the first quarter of 2010 compared to 2009. Our improving revenue trends come as a result of continuing growth of new subscribers through increased marketing efforts coupled with the inclusion of two acquisitions completed during the quarter. In the fourth quarter of 2009 and continuing into the first two quarters of 2010, we began to increase our marketing expenses in an effort to organically grow our subscriber base. We have been able to hold our network operating costs relatively constant in light of the additional expenses from acquisitions. Our professional fees continue to be higher than the previous quarter as a result of our expenses related to the broadband stimulus program under which KeyOn has applied for $374 million in grants and loans.

Net income increased for the three month period ended June 30, 2010, as compared to the three month period ended June 30, 2009 by $1,709,824. The primary reason for the increase is the derivative accounting of a long-term convertible note, which included a non-cash increase in fair value of derivative instruments and interest expense totaling $2,680,051. If the effects of the derivative accounting are removed for the three month period ended June 30, 2010 would have been a net loss of $2,004,309 as compared to a net loss of $1,034,083 for the three month period ended June 30, 2009.

Adjusted EBITDA for the second quarter ended June 30, 2010, was negative $1,110,370 compared to a negative $10,117 in the second quarter of 2009. By removing expenses related to the Company’s stimulus applications and non cash stock-based compensation expense, adjusted EBITDA for the quarter ended June 30, 2010, would have been negative $673,775 as compared to a positive $28,183 for the quarter ended June 30, 2009. In the second quarter of 2009, the company received a credit from a vendor which lowered normalized general and administrative expenses.

Outlook
Jonathan Snyder continued, “Last quarter, our revenues had declined 15% over the previous year’s quarter. In the second quarter, our revenues only declined 3% and we only received one month of revenues from the Dynamic Broadband acquisition. Our new subscriber additions are up 78% over the second quarter in 2009. We have invested in our growth - increasing marketing, completing five acquisitions this year under Rural UniFi and our $374 million in government stimulus applications – and we expect to see a return in the form of EBITDA this year. As revenues grow and we achieve anticipated synergies from acquisitions, we expect to be in a positive EBITDA position by the end of the year at a significantly higher revenue run rate going into 2011. ”

About KeyOn Communications Holdings, Inc.
KeyOn Communications Holdings Inc. (OTCBB: KEYO) is one of the largest providers of wireless broadband, satellite and voice over Internet protocol (VoIP) services in the United States, primarily targeting underserved markets with populations generally less than 50,000. KeyOn offers broadband services with VoIP and satellite video services to both residential and business subscribers across 12 Western and Midwestern states. Through a combination of organic growth and acquisitions, KeyOn has expanded its network footprint to reach approximately 55,000 square miles and cover over 2,800,000 people, as well as small-to-medium businesses. With its successful track record of acquiring companies and growing its core subscriber base, KeyOn is one of the leading wireless broadband companies in the United States. Management intends to drive subscriber growth through additional acquisitions as well as organic growth across the company’s expanding footprint by offering bundled services including broadband, video, VoIP and related valuable services such as the Bullseye Club. The company also intends to opportunistically build mobile and/or nomadic WiMAX networks in and around its market footprint. More information on KeyOn can be found at http://www.keyon.com. Companies interested in participating in Rural UniFi can visit www.keyon.com/ruralunifi.html.

Non-GAAP Measures
This press release includes disclosure regarding “Adjusted EBITDA” which is a measurement used by KeyOn Communications to monitor business performance and is not recognized under GAAP (generally accepted accounting principles). Accordingly, investors are cautioned in using or relying upon these measures as alternatives to recognized GAAP measures.

“Adjusted EBITDA” is defined as earnings or loss from operations adjusted for depreciation, amortization, goodwill impairment, non-cash stock-based compensation, and broadband stimulus application expenses and the effect of derivative accounting. Adjusted EBITDA should not be construed as an alternative to operating loss as defined by GAAP.

Our results follow.

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
REVENUES:
Service and installation revenue	$	1,694,096		$	1,728,838		$	3,248,524		$	3,560,829
Support and other revenue		34,753			55,494			75,284			89,675
Total revenues		1,728,849			1,784,332			3,323,808			3,650,504
OPERATING COSTS AND EXPENSES:
Payroll, bonuses and taxes		1,285,357			703,606			2,362,649			1,576,176
Depreciation and amortization		419,302			617,500			889,797			1,256,957
Network operating costs		760,408			754,541			1,425,682			1,462,727
Other general and administrative expense		343,681			258,333			633,721			566,718
Installation expense		49,047			32,613			100,622			79,966
Professional fees		568,171			95,430			1,472,820			132,523
Marketing and advertising		77,611			5,825			128,263			21,178
Total operating costs and expenses		3,503,577			2,467,848			7,013,554			5,096,245
LOSS FROM OPERATIONS		(1,774,728	)		(683,516	)		(3,689,746	)		(1,445,741	)
OTHER INCOME (EXPENSE):
Other income		-			-			153,356			-
Interest income		-			1			853			1
Interest expense		(748,987	)		(350,568	)		(1,284,088	)		(610,921	)
Change in fair value of derivative instruments		3,199,456			-			7,748,814			-
Total other income (expense)		2,450,469			(350,567	)		6,618,935			(610,920	)
PROVISION FOR INCOME TAXES		-			-			-			-

NET INCOME (LOSS)	$	675,741		$	(1,034,083	)	$	2,929,189		$	(2,056,661	)

Net income (loss) per common share, basic and diluted	$	0.03		$	(0.10	)	$	0.14		$	(0.22	)

Weighted average common shares outstanding, basic and diluted		22,257,054			10,292,397			21,614,633			9,563,390


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Reconciliation of Non-GAAP to GAAP:
Adjusted EBITDA	$	(673,775	)	$	28,183		$	(955,657	)	$	92,897
Interest expense		(748,987	)		(350,568	)		(1,284,088	)		(610,921	)
Interest income		-			1			853			1
Other income -other		-			-			153,356			-
Change in fair value of derivative instruments		3,199,456			-			7,748,814			-
Depreciation and amortization		(419,302	)		(617,500	)		(889,797	)		(1,256,957	)
Stock-based compensation in payroll		(232,056	)		(42,649	)		(464,112	)		(230,131	)
Stock-based compensation in professional fees		(247,102	)		(13,250	)		(553,502	)		(13,250	)
Stimulus related expenses		(202,493	)		(38,300	)		(826,678	)		(38,300	)
Net income (loss)	$	675,741		$	(1,034,083	)	$	2,929,189		$	(2,056,661	)

Safe Harbor Statement
Certain statements contained in this press release are "forward-looking statements" within the meaning of applicable federal securities laws, including, without limitation, anything relating or referring to future financial results and plans for future business development activities, and are thus prospective. Forward-looking statements may include, without limitation, the company’s expectations regarding: future financial and operating performance and financial condition; plans, objectives and strategies; product development; industry conditions; the strength of its balance sheet; and liquidity and financing needs. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside of the company’s control, which could cause actual results to differ materially from such statements, including, without limitation, the company’s ability to secure ARRA stimulus funding, its ability to successfully complete accretive acquisitions and grow its business organically, the company’s reliance on multi-user unlicensed spectrum to service subscribers, competition from larger and better financed providers, the company’s reliance on third party sales representatives and new and more burdensome telecommunications’ regulations. For a more detailed description of the factors that could cause such a difference, please refer to the company’s filings with the Securities and Exchange Commission, including the information under the headings “Risk Factors” and “Forward-Looking Statements” in our Form 10-K/A filed on April 16, 2010. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained herein. The company undertakes no obligation to update or supplement such forward-looking statements.