Attached files
| file | filename |
|---|---|
| EX-31.2 - MULTIBAND CORP | v179496_ex31-2.htm |
| EX-32.1 - MULTIBAND CORP | v179496_ex32-1.htm |
| EX-31.1 - MULTIBAND CORP | v179496_ex31-1.htm |
| EX-23.1 - MULTIBAND CORP | v179496_ex23-1.htm |
| EX-32.2 - MULTIBAND CORP | v179496_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
|
|
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
OR
|
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
|
|
FOR
THE TRANSITION PERIOD FROM ____________ TO ____________
|
|
|
COMMISSION
FILE NUMBER 0 - 1325
|
|
MULTIBAND
CORPORATION
(Exact
name of registrant as specified in its charter)
MINNESOTA
(State or
other jurisdiction of incorporation or organization)
41-1255001
(IRS
Employer Identification No.)
9449
Science Center Drive, New Hope, Minnesota 55428
(Address
of principal executive offices)
Telephone
(763) 504-3000 Fax (763) 504-3060
The
Company's Internet Address: www.multibandusa.com
(Registrant's
telephone number, facsimile number, and Internet address)
Securities
registered pursuant to Section 12 (b) of the Act: None
Securities
registered pursuant to Section 12 (g) of the Act:
Common
Stock (no par value)
Indicated
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by a check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K § 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by references in Part III of this Form 10-K
or any amendment to this Form 10-K ¨
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. (Check one):
Large
accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x Smaller reporting
company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
As of
June 30, 2009, (the most recently completed fiscal second quarter), the
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrants’ most recently completed
second fiscal quarter was approximately $19,349.
As of
March 15, 2010, there were 9,804,396 outstanding shares of the registrant's
common stock, no par value stock.
Table of
Contents
|
Page
|
||||||
|
Part
I
|
Item
1.
|
Business
|
2 | |||
|
Item
1A.
|
Risk
Factors
|
4 | ||||
|
Item
1B.
|
Unresolved
Staff Comments
|
8 | ||||
|
Item
2.
|
Properties
|
8 | ||||
|
Item
3.
|
Legal
Proceedings
|
8 | ||||
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
9 | ||||
|
Part
II
|
||||||
|
Item
5.
|
Market
for the Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
|
9 | ||||
|
Item
6.
|
Selected
Consolidated Financial Data
|
13 | ||||
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
14 | ||||
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
25 | ||||
|
Item
8.
|
Consolidated
Financial Statements and Supplementary Data
|
25 | ||||
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
25 | ||||
|
Item
9A.
|
Disclosure
Controls and Procedures
|
25 | ||||
|
Item
9B.
|
Other
Information
|
26 | ||||
|
Part
III
|
||||||
|
Item
10.
|
Directors,
Executive Officers, and Corporate Governance
|
26 | ||||
|
Item
11.
|
Executive
and Director Compensation
|
31 | ||||
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management
|
34 | ||||
|
Item
13.
|
Certain
Relationships, Related Transactions and Director
Independence
|
35 | ||||
|
Item
14.
|
Principal
Accountant Fees and Services
|
35 | ||||
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
36 | ||||
|
Signatures
|
39 | |||||
Page
1
Business
Multiband
Corporation (the Company), is a Minnesota corporation formed in
September 1975. The Company has two operating segments: 1) Home
Service Provider (HSP), which primarily installs and maintains video services
for residents of single family homes and 2) Multi-Dwelling Unit (MDU, which
sells voice, data and video services to residents of multiple dwelling
units). Both segments encompass a variety of different corporate
entities.
The
Company completed an initial public offering in June 1984. In
November 1992, the Company became a non-reporting company under the
Securities Exchange Act of 1934. In July 2000, the Company regained
its reporting company status. In December 2000, the Company stock
began trading on the NASDAQ stock exchange under the symbol VICM. In
July 2004, the symbol was changed to MBND concurrent with the Company’s name
change from Vicom, Incorporated to Multiband Corporation.
The
Company’s website is located at: www.multibandusa.com
.
From its
inception until December 31, 1998, the Company operated as a telephone
interconnect company only. Effective December 31, 1998, the Company
acquired the assets of the Midwest region of Enstar Networking Corporation
(ENC), a data cabling and networking company. In late 1999, in the context of a
forward triangular merger, the Company, to expand its range of computer products
and related services, purchased the stock of Ekman, Inc. d/b/a Corporate
Technologies, and merged Ekman, Inc. into the newly formed surviving
corporation, Corporate Technologies USA, Inc. (MBS). MBS
provided voice, data and video systems and services to business and
government. The MBS business segment was sold effective April 1,
2005. The Company’s MDU segment (formally known as MCS) began in
February 2000. MDU provides voice, data and video services to
multiple dwelling units, including apartment buildings, condominiums and time
share resorts. During 2004, the Company purchased video subscribers in a number
of separate transactions, the largest one being Rainbow Satellite Group, LLC.
During 2004, the Company also purchased the stock of Minnesota Digital Universe,
Inc. (MNMDU), which made the Company the largest master service operator in
MDU’s for DirecTV satellite television in the United States. During
2006 and 2007, the Company strategically sold certain assets at multiple
dwelling properties where only video services were primarily
deployed. The Company continues to operate properties where multiple
services were deployed. To remain competitive, the Company in future
periods intends to continue to own and operate properties at locations where
multiple services can be deployed and manage properties where one or more
services are deployed. Consistent with that strategy the Company
during 2006, 2007, and 2008, expanded its servicing of third party clients
(other system operators) through its call center. At March 15, 2010,
the Company had approximately 120,000 owned and managed subscriptions, with an
additional 50,000 subscriptions supported by the call center.
During
2008, the Company became involved in the business of installing video services
in single family homes by acquiring 51% of the outstanding stock of Multiband NC
Incorporated (NC) (formerly Michigan Microtech, Incorporated (MMT a former
subsidiary of Directech Holding Company Inc. (DTHC))), a fulfillment agent for a
national satellite television company, DirecTV, which specializes in the
providing of satellite TV to single family homes. This acquisition was followed
up by the acquisition of an 80% interest in a group of companies which were the
former operating subsidiaries of DTHC, (Multiband NE Incorporated (NE),
Multiband SC Incorporated (SC), Multiband EC Incorporated (EC), Multiband DV
Incorporated (DV) and Multiband Security Incorporated
(Security)). The Company also purchased an additional 29% ownership
interest in Multiband NC Incorporated, of which it previously owned 51%,
effective on January 2, 2009. The remaining 20% of those operating
entities were purchased in December 2009.
The
Company’s rationale for acquiring the aforementioned operating subsidiaries is
as listed below.
|
|
1.
|
The
operating entities are potentially accretive to our business model as they
have the:
|
|
|
a.
|
Same
line of business (DirecTV)
|
|
|
b.
|
Ability
to leverage systems and management
|
|
|
c.
|
Ability
to leverage core competencies in support center, software, and
engineering
|
|
|
d.
|
Ability
to expand geographic presence with ample technician
capacity
|
|
|
e.
|
Size,
scale, and scope of combined business enterprise more in line with growth
necessary to support public entity
|
|
|
f.
|
Potential
for accretive positive cash flow and capacity for net
income.
|
|
|
2.
|
Also,
new business opportunities may be integrated into an existing installation
process which touches over 5,000 homes per day. Multiband
Enterprise Manager software application is capable of modification to
support “bundled billing” attributes resulting from new sales
opportunity.
|
|
|
3.
|
Furthermore,
the transaction produced a strong barrier to entry to other potential
competitors which creates potential for longevity and
exclusivity.
|
Page
2
|
|
4.
|
Other
reasons for the acquisition
included:
|
a. Strong
financial performance by DirecTV which provides security and continued growth
potential for Multiband.
b. Strong
DirecTV balance sheet and liquidity which provides comfort for continued,
successful operations.
c. Multiband’s
public company reporting status provides an excellent platform to support and
motivate new human resource asset.
d. Multiband’s
management is, we believe, capable of “rightsizing” operating expense structure
of DTHC operating entities to provide increased cash flow and earning potential
over a short
period of
time; and
e. Opportunity
for significant shareholder appreciation when comparing industry valuation
metrics to pre-existing Multiband market values.
This
purchase was a significant event for the Company. The purchase materially
increased the size and scope of the Company’s operations. The Company
has now expanded its operations into 16 states with 32 field offices. The
Company now employs approximately 2,800 people. Multiband is now the second
largest independent DirecTV field services provider in the United
States.
Home
Service Provider (HSP Segment)
The
Company, through its HSP segment, receives net cash payments for the
installation and service of DirecTV video programming for residents of single
family homes. These video subscribers are billed by DirecTV. The HSP
segment functions as a fulfillment arm for DirecTV. As a result,
Multiband generally does not directly compete with other providers for DirecTV’s
business. Although DirecTV competes with DISH, the other leading
satellite television provider and incumbent providers of phone and telephone
services for pay television customers, DirecTV has its own marketing and
competitive programs of which the Company is merely an indirect and passive
recipient.
Multi-Dwelling
Unit (MDU Segment)
Since
2004, the Company, through its MDU segment, serves as a master service operator
for DirecTV, a provider of satellite television service. DirecTV is the largest
provider of satellite television services in the United States with
approximately 18 million subscribers. DirecTV competes with the
leading cable companies and with DISH, America's second largest provider of
satellite television. The master service operator arrangement allows
the Company to offer satellite television services to residents of
multi-dwelling-units through a network of affiliated operators.
Since
2000, Multiband has also offered voice, data and video services directly to
residents of the multi-dwelling unit (MDU) market. Our experience in
this market suggests that property owners and managers are currently looking for
a solution that will satisfy two market demands from customers. The
first market demand from customers is how to satisfy the residents who desire to
bring satellite television service to the unit without being visually
unattractive or a structural/maintenance problem. The second is how
to provide competitive access for local and long distance telephone, cable
television and internet services. Our service offering addresses
these demands and provides the consumer several benefits,
including:
o Lower
Cost Per Service
o Blended
Satellite and Cable Television Package
o
Multiple Feature Local Phone Services (features such as call waiting, call
forwarding and three-way calling)
o Better
than Industry Average Response Times
o One
Number for Billing and Service Needs
o One
Bill for Local, Long Distance Cable Television and Internet
o
“Instant On" Service Availability
In late
2005, the Company began to use its internal support center and billing platform
to service third party clients.
In late
2006, DirecTV provided the Company with the right to bill DirecTV services
directly to end users. The Company is providing such billing services
to a certain number of customers.
As we
develop and market this package, we keep a marketing focus on two levels of
customers for this product. The primary decision-makers are the
property owners/managers. Their concerns are focused on delivering
their residents reliability, quality service, short response times, minimized
disruptions on the property, minimized alterations to the property and value
added services. Each of these concerns is addressed in our contracts
with the property owner, which includes annual reviews and 10 year terms as
service providers on the property. The secondary customer is the
end-user. We provide the property with on-going marketing support for
their leasing agents to deliver clear, concise and timely information on our
services. This will include simple sign up options that should
maximize our penetration of the property.
Page
3
When
taken as a whole, and based on Multiband’s interpretations of U.S. Census Bureau
statistics, cable television, telephone and internet services currently generate
over $170 billion of revenues annually in the U.S, with an estimated 26 million
households living in MDUs. We believe these statistics indicate
stable growing markets with demand that is likely to deliver significant value
to businesses that can obtain a subscriber base of any meaningful
size.
Multiband
Consumer Industry Analysis and Strategy
MDU
offers video and, in some cases, data and voice to residents of
Multiple-Dwelling Units primarily throughout the Midwest and the
Southeast. Our primary competition in this market comes from the
local incumbent providers of telephone and cable television
services. The leading competitors in these services are the former
Bell System Companies such as Verizon Communications (Verizon) and Qwest
Communications International, Inc. (Qwest) and national cable companies such as
Comcast Corporation (Comcast) and Time Warner. These regional and
national rivals have significant resources and are strong
competitors. Nonetheless, we believe as a largely unregulated entity,
we can be competitive on both price and service.
Regarding
video services, we believe we have a significant consumer benefit in that we are
establishing private rather than public television systems, which allows us to
deliver a package not laden with local "public access" stations that clog the
basic service package. In essence, we will be able to deliver a
customized service offering to each property based upon pre-installation market
research that we perform. The pricing of our service is also
untariffed which allows for flexible and competitive "bundling" of
services.
Regarding
data services, the general concern among consumers is the quality of the
connection and the speed of the download. We believe our design
provides the highest broadband connection speeds currently
available. The approach we market is "blocks of
service". Essentially, we deliver the same high bit rate service in
small, medium and large packages, with an appropriate per unit cost reduction
for those customers that will commit to a higher monthly
expenditure.
Market
Description
We are
currently marketing Multiband services to MDU properties primarily throughout
the Midwest and Southeast. We will target properties that range from
50 to 150 units on a contiguous MDU property for television and internet access
only. We will survey properties that exceed 150 units for the
feasibility of local and long distance telephone services.
We are
initially concentrating on middle to high-end rental complexes. We
are also pursuing resort area condominiums. A recent U.S. Census
Bureau table indicates there are more than 65,000 properties in the United
States which fit this profile. Assuming an average of 100 units per
complex, our focus is on a potential subscriber base of 6,500,000.
A recent
Property Owners and Manager Survey, published by the U.S. Census Bureau, shows
rental properties are focusing on improving services and amenities available to
their tenants. These improvements are being undertaken to reduce
tenant turnover, relieve pricing pressures on rents and attract tenants from
competing properties. We believe most of these owners or managers are
not interested in being "in the technology business" and will use the services
that we are offering. Various iterations of this package will allow
the owners to share in the residual income stream from the subscriber
base.
Number
of Units/Customers
At March
15, 2010, the Company had approximately 120,000 owned and managed subscriptions,
with an additional 50,000 subscribers supported by the support
center.
Employees
As of
March 15, 2010, Multiband employed 71 full-time employees, including 9
management employees, 37 finance personnel, 19 information technology employees,
5 human resource employees and 1 employee in an administrative
position. HSP employed 2,609 full-time employees consisting of 85
management employees, 4 human resource employees, 72 administrative personnel,
251 customer service employees, 2,108 technicians and 89 warehouse
employees. As of that same date, MDU had 169 full-time employees,
consisting of 3 in sales and marketing, 3 in technical positions, 18
technicians, 141 in customer service and related support, 2 in management
positions, and 2 administrative personnel.
Item
1A
Risk Factors (in
thousands)
Our
operations and our securities are subject to a number of risks, including but
not limited to those described below. If any of the following risks
actually occur, the business, financial condition or operating results of
Multiband and the trading price or value of our common stock could be materially
adversely affected.
Page
4
General
Multiband,
as noted earlier herein, since 1998, has taken several significant steps to
reinvent and reposition itself to take advantage of opportunities presented by a
shifting economy and industry environment.
Recognizing
that voice, data and video technologies in the late twentieth century were
beginning to systematically integrate as industry manufacturers were evolving
technological standards from "closed" proprietary networking architectures to a
more "open" flexible and integrated approach, Multiband, between 1998 and 2001,
purchased three competitors which, in the aggregate, possessed expertise in data
networking, voice and data cabling and video distribution
technologies.
In early
2000, Multiband created its MDU division, employing the aforementioned
expertise, to provide communications and entertainment services (local dial
tone, long distance, high-speed internet and expanded satellite television
services) to residents in MDUs on one billing platform, which the Company
developed internally. In 2004, the Company added its master system
operator agreement and in 2008, its HSP segment.
The
specific risk factors, as detailed below, should be analyzed in the context of
the Company's evolving business model.
Net
Income (Loss) Attributable to Multiband Corporation and
Subsidiaries
The
Company had net loss attributable to Multiband Corporation and subsidiaries of
$9,650 for the year ended December 31, 2009 and a net income attributable to
Multiband Corporation and subsidiaries of $945 for the year ended December 31,
2008 and a net loss attributable to Multiband Corporation and subsidiaries of
$6,088 for the year ended December 31, 2007. Included in our 2008 net
income are amounts earned under certain contractual arrangements with DTHC prior
to the date we acquired majority ownership of DTHC’s operating subsidiaries (see
Note 2).
The
effects of accumulated losses without additional funding may restrict our
ability to pursue our business strategy. Unless our business plan is
successful, an investment in our common stock may result in a complete loss of
an investor's capital.
If we
cannot achieve continued profitability from operating activities, we may not be
able to meet:
o our
capital expenditure objectives;
o our
debt service obligations; or
o our
working capital needs.
Working
Capital
The
Company had a working capital deficit of $28,596 as of December 31, 2009
primarily due to the acquisition of the former DTHC operating
entities. As of December 31, 2008, the Company had working capital of
$2,457 due to the acquisition of MMT.
Long-lived
Assets
The
Company reviews its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable or exceeds its fair value. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. An impairment loss shall be measured as the amount by which
the carrying amount of a long-lived asset exceeds its fair
value. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
For the
HSP segment, the income approach was used to measure fair value for those
long-lived assets. For the MDU segment, the market approach
considering market multiples from comparable transactions were used to measure
fair value of those long-lived assets. There was no impairment noted
for either segment at December 31, 2009 or 2008. However, should the
Company in future periods experience a significant decline in profitability
and/or should the market value for the Company’s long-lived assets decrease,
some impairment to these assets could occur. If an
impairment occurs it could be materially adverse to the Company’s results of
operations in those future periods.
Goodwill
and Intangible Assets
Annually,
the Company tests for impairment its goodwill and intangible assets without a
defined life. We tested impairment for the HSP and MDU segments which
had goodwill at December 31, 2009 using standard fair value measurement
techniques. The Company concluded there was no goodwill impairment as
of December 31, 2009. For the year ended December 31, 2008, the
Company recorded an impairment of $50 on the goodwill related to the US Install
purchase and impaired the remaining goodwill balance of $17 from a previous
acquisition. Also, pursuant to the abandonment of a right of entry
intangible asset, the Company recorded an impairment charge of $65 for the year
ended December 31, 2008. However, should the Company in future
periods experience a significant decline in profitability and/or should the
business climate for satellite providers deteriorate, some impairment to its
goodwill could occur. If an impairment occurs it could be materially
adverse to the Company’s results of operations in those future
periods.
Page
5
Group
Health and Workers’ Compensation Insurance Coverage
The
Company uses a combination of self-insurance and third-party carrier insurance
with predetermined deductibles that cover certain insurable risks. The Company’s
share of its workers compensation plan are recorded for the aggregate
liabilities for claims reported, based on historical experience. The Company
also estimates the cost of health care claims that have been incurred but not
reported, based on historical experience.
Insurance
and claims accruals reflect the estimated cost for group health and workers’
compensation claims not covered by insurance. The insurance and
claims accruals are recorded at the estimated ultimate payment
amounts. Such insurance and claims accruals are based upon individual
case estimates and estimates of incurred-but-not-reported losses using loss
development factors based upon past experience.
During
2009, in certain states, the Company is self-insured for workers’ compensation
liability claims up to $100, plus administrative expenses, for each occurrence
involving workers’ compensation claims since February 1,
2009. Effective January 1, 2010, the Company is self-insured for
workers compensation claims up to $250 plus administrative expenses, for each
occurrence involving workers compensation claims since that date.
The
Company is self-insured for health insurance covering the range of liability
under which management expects most claims to occur. If any liability
claims are substantially in excess of coverage amounts, such claims are covered
under premium-based policies issued by insurance companies to coverage levels
that management considers adequate. However, if the Company
experiences claims that in the aggregate become castatrophic, those claims may
not be covered entirely by its premium based policies and as such the Company
could experience expenses that would be materially adverse to its results of
operations in future periods.
Debt
The
Company has related party debt of approximately $30,000 which will be due in
January 2013. We will need to seek additional financing to pay this
debt if there is not adequate cash flow from operations. Sources of
additional financing, if needed in future, may include further debt financing or
the sale of equity (including the issuance of preferred stock) or other
securities. We cannot assure you that any additional sources of
financing or new capital will be available to us, available on acceptable terms,
or permitted by the terms of our current debt. In addition, if we
sell additional equity to raise funds, all outstanding shares of common stock
will be diluted.
Deregulation
Several
regulatory and judicial proceedings have recently concluded, are underway or may
soon be commenced that address issues affecting our operations and those of our
competitors, which may cause significant changes to our industry. We
cannot predict the outcome of these developments, nor can we assure you that
these changes will not have a material adverse effect on
us. Historically, we have been a reseller of products and services,
not a manufacturer or carrier requiring regulation of its
activities. Pursuant to Minnesota statutes, our Multiband activity is
specifically exempt from the need to tariff our services in
MDU's. However, the Telecommunications Act of 1996 provides for
significant deregulation of the telecommunications industry, including the local
telecommunications and long-distance industries. This federal statute
and the related regulations remain subject to judicial review and additional
rule-makings of the Federal Communications Commission, making it difficult to
predict what effect the legislation will have on us, our operations, and our
competitors.
Dependence
on Strategic Alliances
Several
suppliers or potential suppliers of Multiband, such as McLeod, WorldCom, WS Net,
XO Communications and others have filed for bankruptcy in recent
years. While the financial distress of its suppliers or potential
suppliers could have a material adverse effect on Multiband's business,
Multiband believes that enough alternate suppliers exist to allow the Company to
execute its business plans. The Company is also highly dependent on
its Master System Operator agreement with DirecTV. The initial term
of the agreement expired in August 2008, and provided for two additional
two-year renewals if the Company had a minimum number of paying video
subscribers in its system operator network. The Company did meet the
requirements and has entered into the first two year automatic renewal
period. The Company also has a home service provider agreement with
DirecTV ending May 1, 2013. The term of this agreement with DirecTV
will automatically renew for additional one year periods unless either the
Company or DirecTV gives written notice of termination at least 90 days in
advance of expiration of the then current term. Although an alternate
provider of satellite television services, Echostar, exists, the termination of
any or all of its HSP dealer agreements with DirecTV would have a material adverse
effect on Multiband's business.
Changes
in Technology
A portion
of our projected future revenue is dependent on public acceptance of broadband
and expanded satellite television services. Acceptance of these
services is partially dependent on the infrastructure of the internet and
satellite television which is beyond Multiband's control. In
addition, newer technologies, such as video-on-demand, are being developed which
could have a material adverse effect on the Company's competitiveness in the
marketplace if Multiband is unable to adopt or deploy such
technologies.
Page
6
Attraction
and Retention of Employees
Multiband's
success depends on the continued employment of certain key personnel, including
executive officers. If Multiband were unable to continue to attract and retain a
sufficient number of qualified key personnel, its business, operating results
and financial condition could be materially and adversely affected. In addition,
Multiband's success depends on its ability to attract, develop, motivate and
retain highly skilled and educated professionals with a wide variety of
management, marketing, selling and technical capabilities. Competition for such
personnel is intense and is expected to increase in the future.
Intellectual
Property Rights
Multiband
relies on a combination of trade secret, copyright and trademark laws, license
agreements, and contractual arrangements with certain key employees to protect
its proprietary rights and the proprietary rights of third parties from which
Multiband licenses intellectual property. Multiband also relies on
agreements with owners of multi-dwelling units which grant the Company rights of
access for a specific period to the premises whereby Multiband is allowed to
offer its voice, data, and video services to individual residents of the
property. If it was determined that Multiband infringed the
intellectual property rights of others, it could be required to pay substantial
damages or stop selling products and services that contain the infringing
intellectual property, which could have a material adverse effect on Multiband's
business, financial condition and results of operations. Also, there
can be no assurance that Multiband would be able to develop non-infringing
technology or that it could obtain a license on commercially reasonable terms,
or at all. Multiband's success depends in part on its ability to protect the
proprietary and confidential aspects of its technology and the products and
services it sells. There can be no assurance that the legal
protections afforded to Multiband or the steps taken by Multiband will be
adequate to prevent misappropriation of Multiband's intellectual
property.
Variability
of Quarterly Operating Results
Variations
in Multiband's revenues and operating results occur from quarter to quarter as a
result of a number of factors, including customer engagements commenced and
completed during a quarter, the number of business days in a quarter, employee
hiring and utilization rates, the ability of customers to terminate engagements
without penalty, the size and scope of assignments and general economic
conditions. Because a significant portion of Multiband's expenses are
relatively fixed, a variation in the number of customer projects or the timing
of the initiation or completion of projects could cause significant fluctuations
in operating results from quarter to quarter.
Certain
Anti-Takeover Effects
Multiband
is subject to Minnesota statutes regulating business combinations and
restricting voting rights of certain persons acquiring shares of
Multiband. These anti-takeover statutes may render more difficult or
tend to discourage a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of Multiband's securities, or the removal
of incumbent management.
Volatility
of Multiband's Common Stock
The
trading price of our common stock has been and is likely to continue to be
volatile. The stock market has experienced extreme volatility, and
this volatility has often been unrelated to the operating performance of
particular companies. Prices for our common stock are 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.
Future
Sales of Our Common Stock May Lower Our Stock Price
If our
existing shareholders sell a large number of shares of our common stock, the
market price of the common stock could decline significantly. The
perception in the public market that our existing shareholders might sell shares
of common stock could depress our market price.
National
Market for Stock
There is
no assurance that the Company’s common stock will continue to trade on the
Nasdaq Stock Market or other national stock exchange due to ongoing listing
criteria for such exchanges.
Competition
We face
competition from others who are competing for a share of the MDU market,
including other satellite companies, cable companies and telephone
companies. Some of these companies have significantly greater assets
and resources than we do.
Uncertain
Effects of the Acquisition
During
2009, the Company completed its acquisition of the former operating subsidiaries
of DTHC (see Note 2). The DTHC operating entity business as merged
into the Multiband business may not achieve the operating results and growth
anticipated by management in structuring the transaction.
Page
7
General
Economic Conditions
As of
this writing, the United States is experiencing overall adverse economic
conditions. While we believe this environment may actually assist the
Company in that consumers may stay home more for entertainment, there is no
guarantee that consumers will continue to purchase the Company’s services at a
constant level if the country’s recession becomes prolonged.
Forward-Looking
Statements
This
document contains forward-looking statements within the meaning of federal
securities law. Terminology such as "may," "will," "expect,"
"anticipate," "believe," "estimate," "continue," "predict," or other similar
words, identify forward-looking statements. These statements discuss
future expectations, contain projections of results of operations or of
financial condition or state other forward-looking
information. Forward-looking statements appear in a number of places
in this Form 10-K and include statements regarding our intent, belief or current
expectation about, among other things, trends affecting the industries in which
we operate, as well as the industries we service, and our business and growth
strategies. Although we believe that the expectations reflected in
these forward-looking statements are based on reasonable assumptions,
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual results may differ materially from
those predicted in the forward-looking statements as a result of various
factors, including those set forth in "Risk Factors."
Item
1B
Unresolved
Staff Comments
None.
Properties (in
thousands)
Multiband
and its subsidiaries lease principal offices located at 2000 44th Street SW,
Fargo, ND 58103 and 9449 Science Center Drive, New Hope, Minnesota 55428. We
have no foreign operations. The Fargo office lease is made up of three separate
leases expiring in 2010, 2013 and 2017 and covers approximately 17 square feet.
The Fargo total base rent is $15 per month. The New Hope office lease expires in
2013 and covers approximately 47 square feet. The New Hope base rent ranges from
$22 to $25 per month. Our HSP principal office is located in at 2185
East Remus Road, Mount Pleasant, MI. This lease expires in 2010 and
covers approximately 6 square feet with base rent of $5 per
month. All leases have provisions that call for the tenants to pay
net operating expenses, including property taxes, related to the
facilities. All offices have office, warehouse and training
facilities. In addition, the Company leases warehouses in its various
markets of operation to facilitate storage of inventory and technician
interface. These warehouses have lease terms ranging from month to
month to five years in duration with lease terms expiring through
2015. The base rents at these facilities range from $1 to $8 per
month. The Company considers its current facilities adequate for its
current needs and believes that suitable additional space would be available as
needed.
Item
3
Legal
proceedings
In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset a portion of certain claims against the note to DTHC, in
relation to the settlement noted above, the Company offset $3,904 during the
year ended December 31, 2009. The Company has recorded a receivable
of $1,011 as of December 31, 2009 which represents an estimate of the amount
that could potentially be recovered from DTHC including legal fees for the
remaining litigation.
Page
8
In
December 2009, the US Department of Labor (DOL) sued various individuals that
are either shareholders, directors, trustees and/or advisors to DirecTECH
Holding Company (DTHC) and its Employee Stock Ownership Plan
(ESOP). Multiband Corporation was not named in this
complaint. Various defendants in this matter have made requests to
Multiband for advancement or reimbursement of legal fees to defend the
case. The basis for these requests are certain corporate
indemnification agreements that were entered into by the former DTHC operating
subsidiaries and Multiband itself. To date, Multiband has denied all
requests for indemnification of legal fees in this matter for, in part, the
following reasons: 1) Similar indemnification agreements as the ones in question
here were declared illegal under Federal law by a California federal appeals
court; 2) The Company believes the primary remedy the DOL is seeking from the
defendants is one of “disgorgement” from the individual DTHC
shareholders. Multiband has no obligation to indemnify DTHC
individual shareholder conduct. Notwithstanding the above, the
outcome of the matter is uncertain at present and Multiband cannot definitively
predict based on the current facts known to it, whether it ultimately will have
any material expense in the matter.
Additionally,
the Company is subject to pending claims, regulatory processes and lawsuits for
which losses are not probable and amounts cannot be reasonably
estimated. Those losses could ultimately be material to the Company’s
financial position, results of operations and cash flows.
Item
4
Submission
of Matters to a Vote of Security Holders
A special
meeting of Multiband shareholders was held on December 17,
2009. There were present or present by proxy at the meeting 3,633,102
votes, the number necessary to hold a quorum.
The
meeting resulted in the following votes related to the proxy item:
|
|
1.
|
Approval
of the acquisition of the remaining 20% of the stock of the DirecTECH
Holding Co., Inc. (DTHC) operating entities by Multiband via issuance of
ten million dollars worth of Series J Preferred Stock pursuant to that
certain Stock Purchase Agreement dated November 3, 2008, between Multiband
and DTHC.
|
|
Number of votes
|
||||
|
For
|
3,620,194 | |||
|
Against
|
12,880 | |||
|
Abstain
|
28 | |||
Item
5
Market
for the Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Through
May 17, 2000, Multiband's common stock was traded and quoted on the OTC Bulletin
Board(R) ("OTCBB") under the symbol "VICM." From May 18, 2000 until
August 21, 2000, the common stock was quoted under the VICM symbol on the Pink
Sheets(R) operated by Pink Sheets LLC. From August 21, 2000, to
December 12, 2000, Multiband's common stock was traded and quoted on the OTCBB
under the VICM symbol. Since then, the stock has been traded and
quoted on the NASDAQ Capital Market system. In July 2004, the symbol
was changed to MBND to coincide with the Company's name change to Multiband
Corporation. The table below sets forth the high and low bid prices
for the common stock during each quarter in the two years ended December 31,
2009 and December 31, 2008 as provided by NASDAQ.
|
Quarter
Ended
|
High
Bid
|
Low
Bid
|
||||||
|
March
31, 2009
|
2.24
|
1.15
|
||||||
|
June
30, 2009
|
3.70
|
1.85
|
||||||
|
September
30, 2009
|
2.50
|
1.81
|
||||||
|
December
31, 2009
|
2.66
|
1.67
|
||||||
|
March
31, 2008
|
3.33
|
1.63
|
||||||
|
June
30, 2008
|
1.99
|
.69
|
||||||
|
September
30, 2008
|
1.87
|
.70
|
||||||
|
December
31, 2008
|
1.80
|
1.00
|
||||||
Page
9
As of
March 15, 2010, Multiband had 998 shareholders of record of its common stock and
9,804,396 shares of common stock outstanding. As of that date, five shareholders
held a total of 14,171 of Class A Preferred, one shareholder held 1,070 shares
of Class B Preferred, four shareholders held a total of 112,580 shares of Class
C Preferred, three shareholders held a total of 220,000 shares of Class E
Preferred, one shareholder held a total of 150,000 shares of Class F Preferred,
three shareholders held a total of 11,595 shares of Class G Preferred, five
shareholders held a total of 1.25 shares of Class H Preferred and one
shareholder held a total of 100 shares of Class J Preferred.
Recent Sales of Unregistered
Securities (in thousands, except for share amounts)
In
December 2009, the Company issued 3,333 shares of common stock worth $17 in
connection with the conversion of notes payable.
In
December 2009, the Company issued 1,667 shares of common stock worth $8 in
connection with the conversion of Class H preferred stock from an
investor.
In
October 2009, the Company issued 100,000 shares of common stock worth $193 in
connection with the conversion of notes payable.
In
October 2008, the Company issued 37,880 shares of common stock worth $102 in
connection with the acquisition of US Install.
In August
2008, the Company issued 75,000 shares of common stock worth $128 in lieu of
payment for consulting services.
In June
2008, the Company issued 22,500 shares of common stock worth $24 in connection
with the issuance of restricted stock to Company executives.
In June
2008, the Company issued 6,250 shares of common stock worth $50 in connection
with the conversion of Class G preferred stock from various
investors.
In March
2008, the Company issued 526,667 shares of common stock worth $3,745 in
connection with the conversion of Class I preferred stock.
In
February 2008, the Company issued 1,490,000 shares of common stock worth $3,854
in connection with the acquisition of Michigan Microtech,
Incorporated
In
January 2008, the Company issued 12,500 shares of common stock worth $100 in
connection with the conversion of Class G preferred stock from various
investors.
In
December 2007, the Company issued 14,500 shares of common stock worth $116 in
connection with the conversion of Class G preferred stock from various
investors.
In
November 2007, the Company issued 30,000 shares of common stock worth $84 in
connection with the acquisition of equipment.
In August
2007, the Company issued 27,000 shares of common stock worth $52 in lieu of
payment for consulting services.
In July
2007, the Company issued 240,000 shares of common stock worth $1,706 in
connection with a conversion of Class I preferred stock.
In June
2007, the Company issued 15,000 shares of common stock worth $113 in lieu of
payment for investor relations services.
In
connection with these sales, we relied on the exemption from registration
provided by Sections 4(2) and 4(6) of the Securities Act of 1933, as well as
Rule 506 of Regulation D based on (i) our belief that the issuances did not
involve a public offering, (ii) the transactions involved fewer than 35
purchasers, and (iii) because we had a reasonable basis to believe that each of
the shareholders were either accredited or otherwise had sufficient knowledge
and sophistication, either alone or with a purchaser representative, to
appreciate and evaluate the risks and merits associated with their investment
decision.
Common
Stock
Holders
of common stock are entitled to one vote per share in all matters to be voted
upon by shareholders. There is no cumulative voting for the election
of directors, which means that the holders of shares entitled to exercise more
than 50% of the voting rights in the election of directors are able to elect all
of the directors. Multiband's Articles of Incorporation provide that
holders of the Company's common stock do not have preemptive rights to subscribe
for and to purchase additional shares of common stock or other obligations
convertible into shares of common stock which may be issued by the
Company.
Holders
of common stock are entitled to receive such dividends as are declared by
Multiband's Board of Directors out of funds legally available for the payment of
dividends. Multiband presently intends not to pay any dividends on
the common stock for the foreseeable future. Any future determination
as to the declaration and payment of dividends will be made at the discretion of
the Board of Directors. In the event of any liquidation, dissolution
or winding up of Multiband, and subject to the preferential rights of the
holders of the various classes of Multiband’s preferred stocks, the holders of
common stock will be entitled to receive a pro rata share of the net assets of
Multiband remaining after payment or provision for payment of the debts and
other liabilities of Multiband.
Page
10
All of
the outstanding shares of common stock are fully paid and
non-assessable. Holders of common stock of Multiband are not liable
for further calls or assessments.
The
Company's Board of Directors has not declared any dividends on our common stock
since our inception, and does not intend to pay out any cash dividends on our
common stock in the foreseeable future. We presently intend to retain
all earnings, if any, to provide for our growth. The payment of cash
dividends in the future, if any, will be at the discretion of the Board of
Directors and will depend upon such factors as earnings levels, capital
requirements, our financial condition and other factors deemed relevant by our
Board of Directors.
Preferred Stock (in thousands,
except for share amounts)
In
December 2009, the Company issued 100 shares worth $10,000 of Class J preferred
stock.
In
December 2009, $8 worth of Class H preferred stock from various stockholders was
converted into common stock at a price of $10.00 per share.
In
December 2009, the Company issued 10,000 shares worth $100 of Class E preferred
stock.
In
November 2009, the Company issued 10,000 shares worth $50 of Class E preferred
stock to two different shareholders.
In
September 2009, the Company issued 150,000 shares worth $1,500 of Class E
preferred stock.
In
September 2009, the Company issued 50,000 shares worth $500 of Class E preferred
stock.
In June
2008, $50 worth of Class G preferred stock from various stockholders was
converted into common stock at a price of $10.00 per share.
In March
2008, $3,950 worth of Class I preferred stock was converted into common stock at
a price of $100.00 per share.
In
January 2008, $100 worth of Class G preferred stock from various stockholders
was converted into common stock at a price of $10.00 per share.
During
the fourth quarter of 2007, $116 worth of Class G preferred stock from various
stockholders was converted into common stock at a price of $10.00 per
share.
During
the third quarter of 2007, $1,800 worth of Class I preferred stock was converted
into common stock at a price of $100.00 per share.
Page
11
Dividends
on Class A, Class B, Class C, Class D, Class F, Class G, and Class H cumulative
convertible preferred stock are payable quarterly at 8%, 10%, 10%, 14%, 10%, 8%
and 6% per annum, respectively. Dividends on Class E cumulative
preferred stock are payable monthly at 15% per annum, which shall be adjusted
after 180 days with an increase of 83 basis points. Dividends
on Class J cumulative preferred stock are cumulative and payable quarterly at 8%
per annum, in cash or common stock at the Company’s sole
discretion. Cumulative convertible preferred stock can be converted
into common shares at any time as follows: Class A and Class B - five shares,
Class C - two shares, Class D - two and one-half shares, Class F- five shares,
Class G- six and one quarter shares, Class H is convertible at $1.00 per share
and Class I is convertible at $1.50 per share (subject to adjustment for reverse
stock split). Class E is not convertible. The intrinsic
value of any beneficial conversion option is recorded as preferred stock
dividends at the time of preferred stock issuance. Dividends on Class
B preferred are cumulative and payable monthly at 10% per annum. The
Class B preferred was offered to certain note payable holders at a conversion of
$10 per Class B preferred share. The dividends are based on $10.00
per share for Class A, B, C, D, E, F and G cumulative preferred
stock. Dividends for Class G stock are payable in common stock at a
fixed rate of $1.60 per share which is higher rate than fair market
value. Dividends for Class H cumulative preferred stock are based on
6% of the stated liquidation preference amount per share per
annum. They are payable in common stock at a fixed rate of $1.00 per
share which is higher than market value. Dividends on Class J
preferred stock are payable in common stock at a fixed rate of $2.00 per
share. All preferred stock is non-voting. Warrants to
purchase shares of the Company's common stock were given with the issuance of
Class A, Class B, Class D, Class G and Class H preferred stock and were valued
at fair value using the Black Scholes pricing model. The Company may,
but is not obligated to, redeem the preferred stock at $10.50 per share for
Class A and Class B and $10.00 per share for Class C, Class D, Class E and Class
F whenever the Company's common stock price exceeds certain defined criteria as
defined in the preferred stock agreements, except as noted below. The
Class H shares can be redeemed for $100,000 per share. Upon the
Company's call for redemption, the holders of the preferred stock called for
redemption have the option to convert each preferred share into shares of the
Company's common stock. Holders of preferred stock cannot require the
Company to redeem their shares with the exception of Class H shares, Class J
shares and the 50,000 shares of Class F converted into mandatory redeemable
preferred stock (see below). The liquidation preference is the same
as the redemption price for each class of preferred stock where
redeemable.
The
single Class F shareholder, at its sole discretion pursuant to a put option, can
force the Company to redeem up to 50,000 Class F Preferred Shares (the
equivalent of $500 worth). This has been redeemed
already. Class H shareholders have the right to convert all or a
portion of preferred shares upon the occurrence of a major transaction or
triggering event as defined in the agreement and Multiband has the sole option
to pay the redemption price in cash or shares of the Company’s common
stock. Class J shares have forced redemption rights at par, upon the
occurrence of a major transaction or triggering event as defined in the
agreement. Classes G, I and J have no redemption “call”
price). Upon Multiband's call for redemption, the holders of the
preferred stock called for redemption will have the option to convert each share
of preferred stock into shares of common stock until the close of business on
the date fixed for redemption, unless extended by Multiband in its sole
discretion. Preferred stock not converted would be
redeemed.
Page
12
Item
6
Selected
Consolidated Financial Data
The
following selected financial data should be read in conjunction with our
consolidated financial statements including the accompanying notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The data has been derived from our consolidated
financial statements and accompanying notes included elsewhere in this
report. The Statement of Operations data for the years ended December
31, 2006 and 2005 and the Balance Sheet data at December 31, 2007, 2006 and 2005
have been derived from our audited consolidated financial statements which are
not contained in this filing. In the financial data below, the
Company reclassed the operations related to the MBS segment to discontinued
operations. The Company sold this segment in the first quarter of
2005.
|
Statement
of Operations Data
(in
thousands except share and per share amounts)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Revenues
|
$
|
268,994
|
$
|
42,986
|
$
|
15,086
|
$
|
18,052
|
$
|
16,515
|
||||||||||
|
Cost
of products and services (exclusive of depreciation and amortization
listed separately below)
|
$
|
207,533
|
$
|
28,426
|
$
|
8,340
|
$
|
8,281
|
$
|
7,850
|
||||||||||
|
Cost
of products and services as % of revenue
|
77.21%
|
66.13
|
%
|
55.3
|
%
|
45.9
|
%
|
47.5
|
%
|
|||||||||||
|
Selling,
general and administrative expenses
|
$
|
57,778
|
$
|
10,500
|
$
|
8,888
|
$
|
11,481
|
$
|
9,723
|
||||||||||
|
Selling,
general and administrative as % of revenues
|
21.55
|
%
|
24.43
|
%
|
58.9
|
%
|
63.6
|
%
|
58.9
|
%
|
||||||||||
|
Depreciation
and amortization
|
$
|
10,906
|
$
|
3,025
|
$
|
3,624
|
$
|
5,168
|
$
|
4,780
|
||||||||||
|
Impairment
of assets
|
$
|
-
|
$
|
132
|
$
|
-
|
$
|
2,262
|
$
|
-
|
||||||||||
|
Income
(loss) from operations
|
$
|
(7,223
|
)
|
$
|
903
|
$
|
(5,766
|
)
|
$
|
(9,140
|
)
|
$
|
(5,838
|
)
|
||||||
|
Other
income (expense), net
|
$
|
(3,748
|
)
|
$
|
1,826
|
$
|
(322
|
)
|
$
|
(1,046
|
)
|
$
|
(1,655
|
)
|
||||||
|
Income
(loss) before income taxes and minority interest in
subsidiary
|
$
|
(10,971
|
)
|
$
|
2,729
|
$
|
(6,088
|
)
|
$
|
(10,186
|
)
|
$
|
(7,493
|
)
|
||||||
|
Provision
for income taxes
|
$
|
406
|
$
|
1,132
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
|
Income
(loss) from continuing operations
|
$
|
(11,377
|
)
|
$
|
1,597
|
$
|
(6,088
|
)
|
$
|
(10,186
|
)
|
$
|
(7,493
|
)
|
||||||
|
Discontinued
operations
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
2
|
$
|
18
|
||||||||||
|
Net
income (loss)
|
$
|
(11,377
|
)
|
$
|
1,597
|
$
|
(6,088
|
)
|
$
|
(10,184
|
)
|
$
|
(7,475
|
)
|
||||||
|
Less:
Net income (loss) attributable to the noncontrolling interest in
subsidiairies
|
$
|
(1,727
|
)
|
652
|
-
|
-
|
-
|
|||||||||||||
|
Net
Income (loss) attributable to Multiband Corporation and
subsidiaries
|
$
|
(9,650
|
)
|
$
|
945
|
$
|
(6,088
|
)
|
$
|
(10,184
|
)
|
$
|
(7,475
|
)
|
||||||
|
Loss
attributable to common stockholders
|
$
|
(10,020
|
)
|
$
|
(3,143
|
)
|
$
|
(8,389
|
)
|
$
|
(14,250
|
)
|
$
|
(10,827
|
)
|
|||||
|
Income
(loss) from continuing operations
|
$
|
(1.04
|
)
|
$
|
(.34
|
)
|
$
|
(1.16
|
)
|
$
|
(2.11
|
)
|
$
|
(1.86
|
)
|
|||||
|
Income
(loss) from discontinued operations
|
$
|
(.00
|
)
|
$
|
(.00
|
)
|
$
|
(.00
|
)
|
$
|
(.00
|
)
|
$
|
(.00
|
)
|
|||||
|
Loss
attributable to common stockholders
|
$
|
(1.04
|
)
|
$
|
(.34
|
)
|
$
|
(1.16
|
)
|
$
|
(2.11
|
)
|
$
|
(1.86
|
)
|
|||||
|
Weighted
average shares outstanding
|
9,665,316
|
9,302,570
|
7,237,473
|
6,757,643
|
5,819,585
|
|
Balance
Sheet Data
|
2009
|
)
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||
|
Working
Capital (deficiency)
|
$
|
(28,596
|
$
|
2,457
|
$
|
(5,018
|
)
|
$
|
(5,294
|
)
|
$
|
(971
|
)
|
|||||||
|
Total
Assets
|
$
|
99,531
|
$
|
26,043
|
$
|
8,893
|
$
|
17,986
|
$
|
26,271
|
||||||||||
|
Mandatory
Redeemable Preferred Stock (1)
|
$
|
-
|
$
|
150
|
$
|
220
|
$
|
280
|
$
|
333
|
||||||||||
|
Long-Term
Debt, net (2)
|
$
|
34,709
|
$
|
338
|
$
|
119
|
$
|
2,970
|
$
|
3,817
|
||||||||||
|
Capital
Lease Obligations, net (2)
|
$
|
491
|
$
|
317
|
$
|
249
|
$
|
492
|
$
|
453
|
||||||||||
|
Stockholders’
Equity
|
$
|
5,103
|
$
|
5,642
|
$
|
674
|
$
|
5,659
|
$
|
14,968
|
||||||||||
(2) –
current portion of long-term debt and capital lease obligations is included in
working capital (deficiency)
Page
13
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
The
following discussion of the financial condition and results of operations of
Multiband should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this report.
Years
Ended December 31, 2009 and December 31, 2008
Results
of Operations (in thousands)
The
following table sets forth certain items.
|
2009
|
2008
|
|||||||
|
Revenues
|
||||||||
|
HSP
|
90.64
|
%
|
55.12
|
%
|
||||
|
MDU
|
9.36
|
%
|
44.88
|
%
|
||||
|
MBCorp
|
-
|
%
|
-
|
%
|
||||
|
Total
Revenues
|
100.00
|
%
|
100.00
|
%
|
||||
|
Cost
of Products and Services (exclusive of depreciation and
amortization)
|
||||||||
|
HSP
|
70.94
|
%
|
37.83
|
%
|
||||
|
MDU
|
6.21
|
%
|
28.30
|
%
|
||||
|
MBCorp
|
-
|
%
|
-
|
%
|
||||
|
Total
Cost of Products and Services (exclusive of depreciation and
amortization)
|
77.15
|
%
|
66.13
|
%
|
||||
|
Selling,
General and Administrative Expenses
|
21.48
|
%
|
24.43
|
%
|
||||
|
Depreciation
and Amortization
|
4.06
|
%
|
7.04
|
%
|
||||
|
Income
(Loss) from Operations
|
(2.69)
|
%
|
2.10
|
%
|
||||
|
Net
Income (Loss)
|
(4.23)
|
%
|
3.72
|
%
|
||||
Revenues
Total revenues from continuing
operations increased 525.8% from $42,986 in 2008 to $268,994 in
2009. HSP segment had revenues of $243,807 in 2009 and $23,696 in
2008, an increase of 928.9%. This overall and HSP segment increase in
revenues is due to the purchase of the former DirecTECH operating
entities. Multiband initially acquired 51% of NC on March 1, 2008,
achieved 80% ownership of all the operating entities on January 2, 2009 and
purchased the remaining 20% of those entities in December 2009 (see Note
2). The Company expects HSP segment revenues will slightly decline in
2010, due in part, to the reduction in conversion to digital services which was
mandated in 2009 by the Federal Government. The MDU segment had
revenues of $25,187 in 2009 and $19,290 in 2008, at an increase of
30.6%. This overall increase of approximately $5,897 in the MDU
segment is primarily due to a larger subscriber base, and increased activity
from the call center. The Company believes it can ultimately increase
revenues by selling its support center services to its network of system
operators and by providing ancillary programs for voice and data services to
that same network. Due to demand for high definition television
services and a larger subscriber base, MDU revenues are not expected to decline
in 2010. However due to other factors such as more stringent DTV
credit standards and anticipated weakness in the general economy, the Company
does not expect significant growth in the MDU segment in 2010. In
summary, the Company expects MDU revenues to be relatively constant in
2010.
Costs
of Products and Services (exclusive of depreciation and
amortization)
Total costs of products and services
were $207,533 in 2009 compared to $28,426 in 2008. Overall cost of
products and services increased due to the purchase of 80% of the former
DirecTECH operating entities in January 2009. The remaining 20% of
these entities were purchased in December 2009 (see Note 2). Cost of
products and services for the year ended December 31, 2009, were $190,818 for
the HSP segment (initially acquired March 1, 2008 and significantly increased in
January 2, 2009 with the purchase of DTHC operating entities), compared to the
$16,261 for the ten months ended December 31, 2008, a 1073.5%
increase. This increase is due to the purchase of the former
DirecTECH operating entities (see Note 2). During 2010, the Company expects HSP
cost of products and services to drop in relation to revenues due to tighter
inventory controls and a better mix of jobs (i.e. more installation work orders
versus service calls which yield a higher margin). Cost of products
and services for the year ended December 31, 2009 were $16,715 for the MDU
segment, compared to $12,165 in the prior year, a 37.4% increase. The
increase in cost of products and services in the MDU segment is primarily
related to the purchase of MBMDU, one of the former DirecTECH operating
entities. The increase in costs is also related to the increase in
revenue generated by the system operators due to a change in revenue mix and
certain commission payments. In 2010, the Company expects MDU cost of
products and services to increase slightly as compared to 2009 due to certain
commission payments.
Page
14
Selling,
General and Administrative Expense
Selling, general and administrative
expenses from continuing operations increased 450.3% to $57,778 in 2009,
compared to $10,500 in 2008 due primarily to the acquisition of the former
DirecTECH operating entities in 2009. Selling, general and
administrative expenses were, as a percentage of revenues, 21.5% for 2009 and
24.4% for 2008. This percentage decrease is primarily due to a
significant increase in revenues with proportionately less increases in payroll
and administrative expenses. Without the Multiband Corp segment which
recorded in 2008, $1,285 of reimbursed payroll expenses for management
consulting to DTHC, the decline in selling, general and administrative expenses
would have been greater. The Company’s management consulting
agreement with DTHC ended on January 2, 2009 as a result of the acquisition of
the majority ownership of former operating subsidiaries of DTHC (see Note
2). The Company anticipates for 2010, selling, general and
administrative expenses will remain consistent as a percentage of overall
revenues.
Depreciation
and Amortization
Depreciation and amortization expense
increased 260.5% to $10,906 for the year ended December 31, 2009, as compared to
$3,025 for the year ended December 31, 2008. This increase in
depreciation and amortization is largely due to the amortization of intangibles
related to the DirecTECH purchase (see Note 2). During 2010,
depreciation and amortization expense is expected to remain at the same level as
in 2009.
Income
(Loss) from Operations
The Company, in 2009, incurred a loss
from operations for its combined operating business segments of $7,223 compared
to an income of $903 during 2008. The HSP segment for the year ended
December 31, 2009 had a loss from operations of $2,397, compared income from
operations of $2,335 for the ten months ended December 31, 2008. The
HSP segment is expected to maintain its profitability by reaching incentive
goals and continued improvement in job mix (i.e. more installation work orders
versus service calls which yield a higher margin). The MDU segment
incurred a loss from operations of $1,038 in 2009 compared to profits of $1,511
in 2008. The Company expects to mitigate its future losses in the MDU
segment due to an expected increased in future subscriber activity at maturing
properties and better control of administrative costs. The Multiband
Corporation segment, which has no revenues, showed a loss from operations of
$3,788 in 2009 compared to a loss of $2,943 for the same period last
year. In 2008, the Multiband Corporation segment loss was reduced as
a result of its management agreement with DTHC. This agreement
resulted in $1,285 of management consulting income as well as a management
performance bonus of $2,366. This agreement ended on January 2, 2009
as a result of the acquisition of the majority ownership of former operating
subsidiaries of DTHC (see Note 2). The Multiband Corporation loss is
expected to increase in future periods as corporate overhead is expected to
increase as a result of the acquisition of 100% ownership of DTHC’s operating
subsidiaries (see Note 2).
Interest
Expense
Interest expense was $4,104 for 2009
versus $657 for 2008, primarily due to an increase in interest expense incurred
on the debt issued for the purchase of DirecTECH (see Note
3). Imputed interest discount was $35 and $282 for the years ended
December 31, 2009 and 2008, respectively.
Management
consulting income
During
the year ended December 31, 2008, Multiband recorded a performance bonus as part
of the management consulting agreement with DTHC of $2,366 which was paid via
reduction of the debt incurred in the acquisition of NC (see Note 2 and Note
17). The Company recorded this consulting income as part of other
income and expense on the statement of operations because the income does not
constitute the entity’s ongoing major or central operations. The
consulting income was not a reimbursement of direct expenses. In
2009, due to the acquisition of majority ownership of former subsidiaries of
DTHC, the Company’s consulting agreement with DTHC was terminated and no income
was earned during that comparable year. This income is part of the
Multiband Corp. business segment.
Noncontrolling
Interest
Effective January 1, 2009, the Company
adopted new accounting guidance related to accounting for noncontrolling
interests in subsidiaries (see Note 2). This resulted in the
reclassification of minority interest of $3,471 at December 31, 2008 related to
the 51% ownership of NC from the mezzanine section of the balance sheet to the
noncontrolling interest in the equity section of the balance
sheet. As of January 2, 2009, Multiband purchased an additional 29%
of the outstanding stock of NC. $2,054 of noncontrolling interest was
transferred to Multiband’s controlling interest related to this acquisition,
leaving $1,417 as the remaining value of the noncontrolling
interest. In addition, Multiband purchased 80% of the outstanding
stock of EC, NE, SC, DV, Security and MBMDU (see Note 2). The Company
recorded $6,306 of noncontrolling interest related to this acquisition. The net
loss attributable to the noncontrolling interest in subsidiaries for the year
ended December 31, 2009 was $1,727. On December 17, 2009, the Company
purchased the remaining 20% of the issued and outstanding shares of common stock
of all of the DTHC operating subsidiaries (DirecTECH) and reclassified $5,996 of
noncontrolling interest to Multiband’s controlling interest.
Page
15
Income
taxes
In 2009, the Federal income tax return
of Multiband Corporation will include the former subsidiaries of DirecTech
Holding Company which were acquired by the Company. The state tax
expense reported is due to some of the subsidiaries having taxable income in
states where the state requires filing separate company income tax returns
instead of filing on a consolidated basis with members of the consolidated
group. Other state tax expense is associated with the tax liability
being calculated off of gross receipts, capital, or some other non-income method
of computation. In 2008, for federal income tax purposes, NC was not
included in the consolidated tax return of the Company due to less than 80% of
ownership. Components of income tax expense for the year ended
December 31, 2008 relates to taxable income from the HSP segment and $45 of
alternative minimum tax (AMT) in the Multiband Corp. segment: Due to
the Company’s purchase of 51% of NC’s stock, effective March 1, 2008, NC did not
file consolidated tax returns in 2008 with its former parent DTHC but filed as a
single entity as it no longer met the 80% ownership required for tax
consolidation. Effective with the additional stock purchased in 2009,
NC expects to be able to utilize the tax loss carryforwards of Multiband
Corporation. For the years ended December 31, 2009 and 2008, the
Company has recorded a provision for income tax of $406 and $1,132,
respectively, which consisted primarily of provisions for state income
taxes.
The
Company has federal and state net operating losses of approximately $68,596 and
$50,800, respectively, which, if not used, will begin to expire in
2018. Changes in the stock ownership of the Company may place
limitations on the use of these net operating loss
carryforwards. During 2009 the company performed an IRC 382 study and
determined that an ownership change had occurred. As a result of the
ownership change, an annual limitation is in place on the use of the net
operating loss carry forwards, the Company expects to utilize $41,613 of the net
operating loss carryforwards before they expire.
Net
Income (Loss)
The
Company incurred a net loss of $11,377 in 2009. The Company incurred
a net income of $1,597 in 2008
Total
Assets
The
following table sets forth certain items.
|
Total
Assets
|
2009
|
2008
|
||||||
|
HSP
|
$
|
84,474
|
$
|
13,005
|
||||
|
MDU
|
12,547
|
7,471
|
||||||
|
MBCorp
|
2,510
|
5,567
|
||||||
|
Total
Assets
|
$
|
99,531
|
$
|
26,043
|
||||
Years
Ended December 31, 2008 and December 31, 2007
Results
of Operations (in thousands)
The
following table sets forth certain items.
|
2008
|
2007
|
|||||||
|
Revenues
|
||||||||
|
HSP
|
55.12
|
%
|
-
|
%
|
||||
|
MDU
|
44.88
|
%
|
100.00
|
%
|
||||
|
MBCorp
|
-
|
%
|
-
|
%
|
||||
|
Total
Revenues
|
100.00
|
%
|
100.00
|
%
|
||||
|
Cost
of Products and Services (exclusive of depreciation and
amortization)
|
||||||||
|
HSP
|
37.83
|
%
|
-
|
%
|
||||
|
MDU
|
28.30
|
%
|
55.28
|
%
|
||||
|
MBCorp
|
-
|
%
|
-
|
%
|
||||
|
Total
Cost of Products and Services (exclusive of depreciation and
amortization)
|
66.13
|
%
|
55.28
|
%
|
||||
|
Selling,
General and Administrative Expenses
|
24.43
|
%
|
58.92
|
%
|
||||
|
Depreciation
and Amortization
|
7.04
|
%
|
24.02
|
%
|
||||
|
Income
(Loss) from Operations
|
2.10
|
%
|
(38.22
|
)%
|
||||
|
Net
Income (Loss)
|
3.72
|
%
|
(40.36
|
)%
|
||||
Page
16
Revenues
Total
revenues from continuing operations increased 184.9% from $15,086 in 2007 to
$42,986 in 2008. This overall increase in revenues is primarily due
to the purchase of NC in March 2008, with revenues for the ten month period
ended December 31, 2008 of $23,696, offset by sales of approximately 23,000
owned subscriptions which occurred throughout 2007 in efforts to strategically
sell unprofitable owned assets, utilizing the proceeds from those assets into
facilitating growth in the Company’s managed subscriber services including our
support center and our master system operator program. The HSP
segment had revenues of $23,696 made up entirely of NC (see Note
2). The Company expects revenues in the HSP segment will continue to
increase into 2009, as a result of the acquisition of the majority ownership of
former operating subsidiaries of DTHC (see Note 2). The MDU segment
had revenues of $19,290 in 2008 and $15,086 in 2007, at an increase of
27.9%. This overall increase of approximately $4,204 in the MDU
segment is primarily due to the revenue earned for coordinating improvements of
systems used to deliver enhanced programming services, and increased activity
from a large system operator along with an increase in call center revenue
offset by the aforementioned sales of owned subscriptions. The
Company believes it can ultimately increase revenues by selling its support
center services to its network of system operators and by providing ancillary
programs for voice and data services to that same network. Due to
demand for high definition television services and the aforementioned revenue
generated from coordinating system improvements to provide enhanced programming
services, MDU revenues are expected to remain above 2008 levels in
2009.
Costs
of Products and Services (exclusive of depreciation and
amortization)
Total costs of products and services
were $28,426 in 2008 compared to $8,340 in 2007. Overall costs of
products and services as a percentage of revenue did increase between 2007 and
2008 due, in part, to the purchase of NC, which makes up 100% of the HSP
segment, with costs for the ten months ended December 31, 2008 of $16,261, along
with specific vendor price increases without a corresponding increase in price
to customers, certain commission payments, and allocation of certain support
center costs to cost of products and services. MDU segment costs of
products and services were $12,165 in 2008 and $8,340 in 2007. The
increase in costs of products and services in the MDU segment is primarily
related to an increase in revenue generated by a system upgrade subsidized by
DirecTV, and performed by system operators along with a change in revenue mix,
certain commission payments, and a decrease in programming and circuit charges
between the comparable periods due to a decreased subscriber
number. The Company expects costs of products and services as a
percentage of revenue to increase slightly in future periods due to the
continued change in revenue mix.
Selling,
General and Administrative Expense
Selling, general and administrative
expenses from continuing operations increased 18.1% to $10,500 in 2008, compared
to $8,888 in 2007 due primarily to the addition of the HSP segment resulting
from the acquisition of NC in 2008 with costs for the ten months ended of
$5,068, offset by a reduction in payroll and employee expenses, property
maintenance expenses, and outside service expenses. Selling, general
and administrative expenses were, as a percentage of revenues, 24.43% for 2008
and 58.9% for 2007. This percentage decrease is primarily due to a
significant increase in revenues with only modest increases in payroll and
administrative expenses. Multiband Corp segment also recorded $1,285
of reimbursed payroll expenses for management consulting to DTHC per its
management consulting agreement which ended at December 31, 2008 (see Note
18). The Company anticipates that for 2009, selling, general and
administrative expenses will remain consistent as a percentage of overall
revenues.
Impairment
of Assets
For the year ended December 31, 2008,
the Company recorded impairment costs totaling $132, consisting of $50 of the
goodwill related to the US Install purchase and the remaining goodwill balance
of $17 from a previous acquisition. Also, pursuant to the abandonment
of a right of entry intangible asset, the Company recorded an impairment charge
of $65 for the year ended December 31, 2008.
Depreciation
and Amortization
Depreciation and amortization expense
decreased 16.5% to $3,025 for the year ended December 31, 2008, as compared to
$3,624 for the year ended December 31, 2007. This decrease in
depreciation and amortization is due to the sale of tangible and intangible
assets in various states most of which occurred in 2007 (see Note 2), offset by
the increase in amortization of intangible asset related to the NC purchase (see
Note 2). Depreciation and amortization expense is expected to
increase in 2009 as a result of the acquisition of the former operating
subsidiaries of DTHC.
Income
(Loss) from Operations
The Company, in 2008, earned income
from operations for its combined operating business segments of $903 compared to
a loss of $5,766 during 2007. The HSP segment for the ten months
ended December 31, 2008, had a profit of $2,335, compared to the $0 in the prior
year. The HSP segment did not exist in 2007 so there are no
comparable results to report (see Note 2). The MDU segment showed a
profit from operations of $1,511 in 2008 compared to a loss of $1,445 in
2007. The Company expects the MDU segment profitability in future
periods to decline slightly due to reduced activity related to system
enhancements which were robust throughout 2008. At the same time, the
Company will look to add subscribers in its MDU division since the on-going
selling, general and administrative expenses to service those subscribers is
more variable than fixed. The Multiband Corporation segment, which
has no revenues, showed a loss from operations of $2,943 in 2008 compared to a
loss of $4,321 for the same period last year. In 2008, the Multiband
Corporation segment loss was reduced as a result of its management agreement
with DTHC. This agreement resulted in $1,285 of management consulting
income as well as a management performance bonus of $2,366. This
agreement ends in 2009 as a result of the acquisition of the majority ownership
of former operating subsidiaries of DTHC (Note 2). The Multiband
Corporation loss is expected to increase in future periods as corporate overhead
is expected to increase as a result of the acquisition of the majority ownership
of DTHC’s operating subsidiaries (see Note 2).
Page
17
Interest
Expense
Interest expense was $657 for 2008
versus $504 for 2007, reflecting primarily an increase in the Company’s debt
issued for the purchase of 51% of NC (see Note 2) and related imputed interest
discount expense. Amortization of imputed interest discount was $282
and $0 for the years ended December 31, 2008 and 2007,
respectively.
Management
consulting income
During the year ended December 31,
2008, Multiband recorded a performance bonus as part of the management
consulting agreement with DTHC of $2,366 which was paid via reduction of the
debt incurred in the acquisition of NC (see Note 2 and Note 18). The
Company recorded this consulting income as part of other income and expense on
the statement of operations because the income does not constitute the entity’s
ongoing major or central operations. The consulting income was not a
reimbursement of direct expenses. No income was earned during the
comparable year ended December 31, 2007. This income is part of the
Multiband Corp. business segment. In 2009, due to the acquisition of
majority ownership of former subsidiaries of DTHC, the Company’s consulting
agreement with DTHC was terminated.
Noncontrolling
interest
Effective March 1, 2008, the Company
purchased 51% of the stock of NC. The noncontrolling interest on the
statement of operations for the year ended December 31, 2008 was
$652. The minority interest represents DTHC’s 49% ownership of
NC. In 2008, NC made up 100% of the HSP segment.
Income
taxes
Due to the Company’s purchase of 51% of
NC’s stock, effective March 1, 2008, NC will no longer file consolidated federal
tax returns with its former parent DTHC but will file as a single entity as it
no longer meets the 80% ownership required for federal tax
consolidation. Therefore, NC will not be able to utilize the tax loss
carryforwards of Multiband Corporation since Multiband owns less than 80% of
NC. For the year ended December 31, 2008, the Company has recorded a
provision for income tax of $1,132. NC currently makes up 100% of the
HSP segment.
Net
Income (Loss)
The
Company incurred a net income of $1,597 in 2008. The Company’s net
loss in 2007 totaled $6,088.
Total
Assets
The
following table sets forth certain items.
|
Total
Assets
|
2008
|
2007
|
||||||
|
HSP
|
$
|
13,005
|
$
|
-
|
||||
|
MDU
|
7,471
|
7,621
|
||||||
|
MBCorp
|
5,567
|
1,272
|
||||||
|
Total
Assets
|
$
|
26,043
|
$
|
8,893
|
||||
Page
18
Related
Party Transactions
During
2008, the Company did have certain transactions with DTHC as described
above. In January 2009, the Company purchased 80% of the operating
subsidiaries of DTHC (see Note 2). The following table is a condensed
balance sheet as of December 31, 2008 and a condensed statement of operations
for the year ended December 31, 2008, which presents the proforma financial
results for the Company excluding all 2008 transactions with DTHC
(unaudited):
|
As
reported
|
Less:
DTHC
Related
|
(unaudited)
Proforma
|
||||||||||
|
Accounts
receivable, net
|
$
|
3,436
|
$
|
(771
|
)
|
$
|
2,665
|
|||||
|
Other
receivable – related party
|
7,666
|
(7,666
|
)
|
-
|
||||||||
|
Prepaid
expenses and other
|
1,273
|
(518
|
)
|
755
|
||||||||
|
Accounts
payable
|
8,274
|
(1,127
|
)
|
7,147
|
||||||||
|
Revenues
|
42,986
|
(3,333
|
)
|
39,653
|
||||||||
|
Cost
of products and services (exclusive of depreciation and amortization shown
separately below)
|
28,426
|
(2,895
|
)
|
25,531
|
||||||||
|
Selling,
general and administrative
|
10,500
|
750
|
11,250
|
|||||||||
|
Management
consulting income
|
2,366
|
(2,366
|
)
|
-
|
||||||||
Page
19
Unaudited Quarterly
Results
The
following table sets forth certain unaudited quarterly operating information for
each of the eight quarters in the two-year period ending December 31,
2009. This data includes, in the opinion of management, all normal
recurring adjustments necessary for the fair presentation of the information for
the periods presented when read in conjunction with the Company's consolidated
financial statements and related notes thereto. Results for any previous fiscal
quarter are not necessarily indicative of results for the full year or for any
future quarter (in thousands, except per share amounts).
|
Dec.
31,
2009
|
Sept.
30,
2009
|
June
30,
2009
|
March
31,
2009
|
Dec.
31,
2008
|
Sept.
30,
2008
|
June
30,
2008
|
March
31,
2008
|
|||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||
|
Multiband
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
|
MDU
|
$ | 6,562 | $ | 6,595 | $ | 6,705 | $ | 5,325 | $ | 6,407 | $ | 4,948 | $ | 4,201 | $ | 3,734 | ||||||||||||||||
|
HSP
|
$ | 61,457 | $ | 64,826 | $ | 60,691 | $ | 56,833 | $ | 7,718 | $ | 7,393 | $ | 6,605 | $ | 1,980 | ||||||||||||||||
|
Total
Revenues
|
$ | 68,019 | $ | 71,421 | $ | 67,396 | $ | 62,158 | $ | 14,125 | $ | 12,341 | $ | 10,806 | $ | 5,714 | ||||||||||||||||
|
Cost
of Products & services (exclusive of depreciation and amortization
shown separately below)
|
$ | 48,678 | $ | 54,645 | $ | 56,894 | $ | 47,316 | $ | 9,656 | $ | 8,556 | $ | 6,394 | $ | 3,820 | ||||||||||||||||
|
SG&A
Expense
|
$ | 14,755 | $ | 13,774 | $ | 15,509 | $ | 13,740 | $ | 3,326 | $ | 2,758 | $ | 2,561 | $ | 1,855 | ||||||||||||||||
|
Depreciation
& Amortization
|
$ | 2,504 | $ | 2,414 | $ | 2,703 | $ | 3,285 | $ | 562 | $ | 846 | $ | 879 | $ | 738 | ||||||||||||||||
|
Impairment
of assets
|
$ | - | $ | - | $ | - | $ | - | $ | 67 | $ | - | $ | 7 | $ | 58 | ||||||||||||||||
|
Operating
Income (Loss)
|
$ | 2,082 | $ | 588 | $ | (7,710 | ) | (2,183 | ) | $ | 514 | $ | 181 | $ | 965 | $ | (757 | ) | ||||||||||||||
|
Interest
Expense
|
$ | (1,333 | ) | $ | (1,026 | ) | $ | (890 | ) | $ | (855 | ) | $ | (143 | ) | $ | (301 | ) | $ | (113 | ) | $ | (100 | ) | ||||||||
|
Management
Income
|
$ | - | $ | - | - | $ | - | $ | 919 | $ | 1,447 | $ | - | $ | - | |||||||||||||||||
|
Other
Income (Expenses)
|
$ | (87 | ) | $ | 85 | $ | 101 | $ | 257 | $ | 37 | $ | 8 | $ | 32 | $ | 40 | |||||||||||||||
|
Net
Income (Loss) Before Income Taxes and Noncontrolling Interest In
Subsidiaries
|
$ | 662 | $ | (353 | ) | $ | (8,499 | ) | $ | (2,781 | ) | $ | 1,327 | $ | 1,335 | $ | 884 | $ | (817 | ) | ||||||||||||
|
Provision(benefit)
for Income Tax
|
$ | (168 | ) | $ | 372 | $ | 102 | $ | 100 | $ | 383 | $ | 286 | $ | 434 | $ | 29 | |||||||||||||||
|
Net
Income (Loss)
|
$ | 830 | $ | (725 | ) | $ | (8,601 | ) | $ | (2,881 | ) | $ | 944 | $ | 1,049 | $ | 450 | $ | (846 | ) | ||||||||||||
|
Less:
Net Income (Loss) Attributable to the Noncontrolling Interest in
Subsidiaries
|
$ | 317 | $ | (266 | ) | $ | (1,482 | ) | $ | (296 | ) | $ | 102 | $ | 138 | $ | 394 | $ | 18 | |||||||||||||
|
Net
Income (Loss) attributable to Multiband Corporation and
Subsidiaries
|
$ | 513 | $ | (459 | ) | $ | (7,119 | ) | $ | (2,585 | ) | $ | 842 | $ | 911 | $ | 56 | $ | (864 | ) | ||||||||||||
|
Income
(Loss) attributable to commons stockholders
|
$ | 357 | $ | (529 | ) | $ | (7,190 | ) | $ | (2,658 | ) | $ | 802 | $ | 847 | $ | (47 | ) | $ | (4,745 | ) | |||||||||||
|
Income
(Loss) per common share attributable to common stockholders –
basic
|
$ | 0.04 | $ | (0.05 | ) | $ | (0.75 | ) | $ | (0.28 | ) | $ | 0.08 | $ | 0.09 | $ | 0.00 | $ | (0.56 | ) | ||||||||||||
|
Income
(Loss) per common share attributable to common stockholders –
diluted
|
$ | 0.03 | $ | (0.05 | ) | $ | (0.75 | ) | $ | (0.28 | ) | $ | 0.08 | $ | 0.09 | $ | 0.00 | $ | (0.56 | ) | ||||||||||||
|
Weighted
average shares outstanding – basic
|
9,701 | 9,659 | 9,651 | 9,650 | 9,634 | 9,562 | 9,499 | 8,498 | ||||||||||||||||||||||||
|
Weighted
average shares outstanding – diluted
|
10,763 | 9,659 | 9,651 | 9,650 | 9,865 | 9,797 | 9,499 | 8,498 |
Page
20
Year
Ended December 31, 2009
During
the years ended December 31, 2009 and 2008, the Company recorded a net loss of
$11,377 and a net income of $1,597, respectively. Net cash used by operations in
2009 was $3,924 as compared to net cash provided by operations in 2008 of
$3,303. Payments on short-term debt over the next 12 months are expected to
total $1,411. Principal payments on current long-term debt and
capital lease obligations over the next 12 months are expected to total
$717.
In May
2009, the Company paid off its then existing loan with Convergent Capital
Partners I, L.P., and entered into a new five million dollar loan facility with
a different lender due in December 2012. That new facility has a rolling
quarterly positive EBITDA covenant which the Company was in compliance with as
of December 31, 2009.
During
the quarter ended June 30, 2009, the Company incurred a material operating loss
primarily due to significant hiring and training expenses and inventory breakage
related to changes in work order closure technology. During the
quarter ended September 30, 2009, the Company generated an operating profit of
$588 as the aforementioned hiring, training and inventory breakage expenses were
reduced. During the quarter ended December 31, 2009, the Company
generated an operating profit of $2,082. Although the Company cannot
definitively predict future quarter operating results, we have reason to believe
second quarter operating results were atypical.
Cash and
cash equivalents totaled $2,240 at December 31, 2009 versus $4,346 at December
31, 2008. Working capital deficit at December 31, 2009 was $28,596 as
compared to a positive working capital of $2,457 at December 31, 2008 primarily
due to the acquisition of the former DTHC operating entities. Total
debt and capital lease obligations increased by $38,339 in the year ended
December 31, 2009, due mainly to the addition of notes payable in order to
purchase DirecTECH. The Company had a material increase in accounts
receivable, accounts payable and accrued liabilities for the year ended December
31, 2009 verses the year ended December 31, 2008 due to the acquisition of 100%
of outstanding stock of the former DTHC operating entities. Net cash
used by investing activities totaled $3,452 for the period ended December 31,
2009, compared to net cash of $790 provided by investing activities for the
period ended December 31, 2008, related to cash acquired in the acquisition of
NC.
The
Company experienced a material increase in revenues between the year ended
December 31, 2009 and the year ended December 31, 2008. The revenue
increase, as stated previously, is primarily a result of the additional revenue
obtained from the purchase of the former DTHC operating entities. In
2010, the Company intends to focus on facilitating growth of its HSP business
segment and its managed subscriber services including its support center and its
master system operator program. The Company believes it can increase
revenues by selling its support center services to its network of system
operators and by providing ancillary programs for voice and data services to
that same network.
The
Company used $2,937 for capital expenditures during 2009, as compared to $171 in
2008. Capital expenditures consisted of project build-outs and
equipment acquired for internal use. This increase was related to an
expansion of company funded video and internet service build outs to MDU
properties made during 2009. In 2010, the Company estimates that it
will have approximately $2,000 of additional capital expenditures which the
Company intends to fund through leasing equipment and/or cash on
hand.
Management
anticipates that the impact of the actions listed below will generate sufficient
cash flows to pay current liabilities, long-term debt and capital and operating
lease obligations and fund the Company's operations for the next twelve
months:
|
1.
|
Continued
to improve mix of jobs (i.e. increase in higher paying installation work
orders versus non or limited revenue producing service calls) which
improves gross margins in its Home Service provider (HSP) segment by
maintaining DirecTV exclusivity in its core markets.
|
|
2.
|
Reduce
operating expenses by reducing inventory losses, reducing training costs
through decreased technician turnover, managing professional fees,
insurance and other general and administrative
expenses.
|
|
3.
|
Evaluate
factors such as anticipated usage and inventory turnover to maintain
optimal inventory levels.
|
|
4.
|
Obtain
senior debt financing with extended terms to refinance the Company’s note
payable to DirecTECH Holding Company, Inc., which matures on January 1,
2013.
|
|
5.
|
Expand
call center support with sales of call center services to both existing
and future system operators and to buyers of the Company’s video
subscribers.
|
|
6.
|
Solicit
additional equity investment in the Company by issuing either preferred or
common stock.
|
Page
21
The
Company, as of December 31, 2009, needs to improve its working capital ratio
over the next few quarters to adequately manage the size of its expanded
operations. Since the Company acquired significant assets in its
purchase of 100% of the outstanding stock of the former DTHC operating entities,
Multiband believes it has the capacity to leverage certain of those
assets. Management believes that through a combination of leveraging
assets, its cash on hand, greater expense control, recent positive operating
income, and potential sales of common and/or preferred stock, it can
meet its anticipated liquidity and capital resource requirements for the next
twelve months.
Year
Ended December 31, 2008
During
the years ended December 31, 2008 and 2007, the Company recorded a net income of
$1,597 and a net loss of $6,088 respectively. Net cash provided by
operations in 2008 was $3,303 as compared to net cash used by operations in 2007
of $1,391. Principal payments on current long-term debt over the next
12 months are expected to total $1,609. During the first three
quarters of 2008, and as of December 31, 2007, the Company failed to meet the
compliance covenants of its lender, Convergent Capital, with respect to having
minimum net worth of five million dollars and positive EBITDA of
$150. Convergent Capital provided the Company with a waiver of both
covenants for the year ended December 31, 2007 and for the first three quarters
of 2008. The Company paid $100 on the note during 2008. At
December 31, 2008, the Company was in compliance with the debt
covenants.
Cash and
cash equivalents totaled $4,346 at December 31, 2008 versus $944 at December 31,
2007. Working capital for the year ended December 31, 2008 was $2,457
as compared to a working capital deficit of $5,018 at December 31, 2007,
primarily due to the acquisition of NC. Total debt and capital lease
obligations increased by $331 in the year ended December 31, 2008, due mainly to
the addition of notes payable in order to purchase NC and US
Install. The Company had a material increase in accounts receivable,
accounts payable and accrued liabilities for the ten month period ended December
31, 2008 verses the year ended December 31, 2007 due to the acquisition of
NC. Net cash flows from investing activities totaled $709 compared to
$2,277 for the comparable period due to the acquisition of NC.
The
Company experienced a material increase in revenues between the year ended
December 31, 2008 and the year ended December 31, 2007. The revenue
increase, as stated previously, is primarily a result of the additional revenue
obtained from the purchase of NC, offset by the reduction of revenue resulting
from the sale of unprofitable assets. In 2009, the Company intends to
focus on facilitating growth of its HSP business segment and its managed
subscriber services including its support center and its master system operator
program. The Company believes it can increase revenues by selling its
support center services to its network of system operators and by providing
ancillary programs for voice and data services to that same
network.
The
Company used $171 for capital expenditures during 2008, as compared to $384 in
2007. Capital expenditures consisted of project build-outs and
equipment acquired for internal use. This decrease was related to a
reduction of video and internet service build outs to MDU properties made during
2008. Capital expenditures in 2009 are expected to increase due to
the need to invest in networking infrastructure to integrate systems related to
legacy and recently purchased operations and an expected increase in MDU
property build outs.
During
the twelve months ended December 31, 2007 and 2006, the Company recorded a net
loss of $6,088 and $10,184 respectively. Net cash used by operations
in 2007 was $1,391 as compared to net cash used by operations in 2006 of
$650. Principal payments on current long-term debt over the next 12
months are expected to total $158. As of December 31, 2007, the
Company failed to meet the compliance covenants of its lender, Convergent
Capital, with respect to having minimum net worth of three million dollars and
positive EBITDA for the quarter ended December 31, 2007 of
$150. Convergent Capital provided the Company with a waiver for both
covenants for the quarter ended December 31, 2007. The Company’s
management believes it is probable that the violation will not be cured at
measurement dates that are within the next twelve months. The Company
has therefore classified the debt as current as of December 31,
2007.
Cash and
cash equivalents totaled $944 at December 31, 2007 versus $1,021 at December 31,
2006. Working capital deficit for the twelve months ended December
31, 2007 decreased to $5,018 as compared to $5,294, at December 31, 2006,
primarily due to net proceeds received from the sale of video assets to CSBS,
DirecTECH and MDUC (see Note 2), during 2007. Total debt and capital
lease obligations were reduced by $2,910 in the twelve months ended December 31,
2007 as the Company continued to retire financing debt as certain notes were
paid off in conjunction with asset sales. The Company had a material
decrease in accounts receivable for the period ended December 31, 2007 verses
the period ended December 31, 2006 due to sales of assets. Accounts
payable and accrued liabilities combined remained relatively constant in total
from December 31, 2006 to December 31, 2007. Net cash flows from
investing activities totaled $2,277 compared to ($335) for the comparable period
reflecting the sale of video assets to CSBS, DirecTECH and MDUC, previously
mentioned herein.
Page
22
The
Company experienced a material decrease in revenues between the year ended
December 31, 2007 and the year ended December 31, 2006. The revenue decrease, as
stated previously, resulted from the sale of unprofitable assets. In
2008, the Company intends to focus on facilitating growth of its managed
subscriber services including its support center and its master system operator
program. The Company believes it can increase revenues by selling its
support center services to its network of system operators and by providing
ancillary programs for voice and data services to that same
network.
The
Company used $384 for capital expenditures during 2007, as compared to $993 in
2006. Capital expenditures consisted of project build-outs and
equipment acquired for internal use. This decrease was related to a
reduction of video and internet service build outs to MDU properties made during
2007.
Critical
Accounting Policies
Inventories
The
Company’s inventories are segregated into three major
categories. Serialized DirecTV inventories consist primarily of
satellite receivers and similar devices. Non-serialized DirecTV
inventories consist primarily of satellite dishes, poles and similar devices
which are supplied by DirecTV. Other inventory consists primarily of
cable, switches and various small parts used in the installation of DirecTV
satellite dishes. Inventory is costed using a standard cost, which
approximates actual costs, determined on a first-in first-out
basis.
Impairment
of Long-Lived Assets
The
Company's long-lived assets include property, equipment, leasehold improvements
and intangibles, subject to amortization. At December 31, 2009, the
Company had net property and equipment of $8,546 which represents approximately
8.3% of the Company's total assets. At December 31, 2009, the Company
had net intangibles of $22,677 which represented approximately 22.0% of the
Company’s total assets (see Note 1). The Company reviews its
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable or exceeds its fair
value. The carrying amount of a long-lived asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset. An impairment loss shall
be measured as the amount by which the carrying amount of a long-lived asset
exceeds its fair value. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
For the
HSP segment, the income approach was used to measure fair value for those
long-lived assets. The income approach was based on the present value
of five years of future cash flows with an assumed growth of 0–3% while applying
a discount rate. For the MDU segment, the market approach considering
market multiples from comparable transactions were used to measure fair value of
those long-lived assets. Comparable transactions were identified
based on their similarities to the reporting unit with similar features, age of
equipment, and length of ROE contracts. There was no impairment noted
for either segment at December 31, 2009 or 2008.
Impairment
of Goodwill
In
accordance with ASC Topic No. 350, Intangibles-Goodwill and
Other, goodwill and intangible assets without a defined life shall not be
amortized over a defined period, but instead must be tested for impairment at
least annually. Additionally, goodwill is tested for impairment
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of an entity below its carrying
value. The goodwill impairment test is a two-step impairment
test. In the first step, the Company compares the fair value of each
reporting unit to its carrying value. The Company’s estimates may differ from
actual results due to, among other things, economic conditions, changes to its
business models, or changes in operating performance. Significant
differences between these estimates and actual results could result in future
impairment charges and could materially affect the Company’s future financial
results. If the fair value of the reporting unit exceeds the carrying
value of the net assets assigned to that reporting unit, goodwill is not
impaired and the Company is not required to perform further
testing. If the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit, then the Company
must perform the second step in order to determine the implied fair value of the
reporting unit’s goodwill and compare it to the carrying value of the reporting
unit’s goodwill. The activities in the second step include valuing
the tangible and intangible assets and liabilities of the impaired reporting
unit based on their fair value and determining the fair value of the impaired
reporting unit’s goodwill based upon the residual of the summed identified
tangible and intangible assets and liabilities. Future events could
cause us to conclude that impairment indicators exist and that goodwill
associated with our acquired businesses, which amounts to $38,067 as of December
31, 2009, may be impaired. Any resulting impairment loss could have a material
adverse impact on our financial condition and results of
operations. During the year ended December 31, 2009, the Company did
not record any impairment related to goodwill. In 2008, the Company
recorded an impairment of $50 on the goodwill related to the US Install purchase
and the remaining goodwill balance of $17 from a previous
acquisition. During the year ended December 31, 2007, the Company did
not record any impairment losses related to goodwill.
Page
23
Group
Health and Workers’ Compensation Insurance Coverage
The
Company uses a combination of self-insurance and third-party carrier insurance
with predetermined deductibles that cover certain insurable risks. The Company’s
share of its workers compensation plan are recorded for the aggregate
liabilities for claims reported, based on historical experience. The Company
also estimates the cost of health care claims that have been incurred but not
reported, based on historical experience.
Insurance
and claims accruals reflect the estimated cost for group health and workers’
compensation claims not covered by insurance. The insurance and
claims accruals are recorded at the estimated ultimate payment
amounts. Such insurance and claims accruals are based upon individual
case estimates and estimates of incurred-but-not-reported losses using loss
development factors based upon past experience.
During
2009, in certain states, the Company is self-insured for workers’ compensation
liability claims up to $100, plus administrative expenses, for each occurrence
involving workers’ compensation claims since February 1,
2009. Effective January 1, 2010, the Company is self-insured for
workers compensation claims up to $250 plus administrative expenses, for each
occurrence involving workers compensation claims since that date.
The
Company is self-insured for health insurance covering the range of liability
under which management expects most claims to occur. If any liability
claims are substantially in excess of coverage amounts, such claims are covered
under premium-based policies issued by insurance companies to coverage levels
that management considers adequate.
The
Company accounts for its stock options using fair value for the measurement and
recognition of compensation expense for all share-based payment awards made to
employees and directors. The Company’s determination of fair value of
share-based payment awards on the date of grant using an option-pricing model is
affected by the Company’s stock price as well as assumptions regarding a number
of variables. These variables include, but are not limited to the
Company’s expected stock price volatility, and actual and projected stock option
exercise behaviors and forfeitures.
Income
Taxes
The
Company accounts for deferred tax assets and liabilities under the liability
method. Deferred tax liabilities are recognized for temporary
differences that will result in taxable amounts in future
years. Deferred tax assets are recognized for deductible temporary
differences and tax operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be realized or
settled. We assess the likelihood that our deferred tax assets will
be recovered from future taxable income and record a valuation allowance to
reduce our deferred tax assets to the amounts we believe to be
realizable. We concluded that a full valuation allowance against our
U.S. deferred tax assets was appropriate as of December 31, 2009 and
2008.
The
following summarizes our contractual obligations at December 31, 2009, and the
effect these contractual obligations including interest payments are expected to
have on our liquidity and cash flows in future periods:
|
Total
|
1
Year or Less
|
2-3
Years
|
Over
3
Years
|
|||||||||||||
|
Operating
leases - buildings
|
$
|
4,631
|
$
|
1,775
|
$
|
2,257
|
$
|
599
|
||||||||
|
Related
party debt – short term
|
1,414
|
1,414
|
-
|
-
|
||||||||||||
|
Long-term
debt
|
7,524
|
1,046
|
6,421
|
57
|
||||||||||||
|
Long-term
debt, related party
|
37,433
|
2,582
|
4,995
|
29,856
|
||||||||||||
|
Capital
leases
|
1,092
|
563
|
524
|
5
|
||||||||||||
|
Totals
|
$
|
52,094
|
$
|
7,380
|
$
|
14,197
|
$
|
30,517
|
||||||||
Page
24
Forward
Looking Statements
From time
to time, the Company may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects, technological
developments, new products, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements including those made in this document. In
order to comply with the terms of the Private Securities Litigation Reform Act,
the Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking
statements. The risks and uncertainties that may affect the
operations, performance, developments and results of the Company's business
include the following: national and regional economic conditions; pending and
future legislation affecting the IT and telecommunications industry; market
acceptance of the Company's products and services; the Company's continued
ability to provide integrated communication solutions for customers in a dynamic
industry; the Company’s ability to raise additional financing and other
competitive factors. Because these and other factors could affect the
Company's operating results, past financial performance should not necessarily
be considered as a reliable indicator of future performance, and investors
should not use historical trends to anticipate future period
results.
Quantitative
and Qualitative Disclosure About Market Risk
None.
Item
8
Consolidated
Financial Statements and Supplementary Data
The
consolidated financial statements of Multiband and the reports of the
independent registered public accounting firm, listed under Item 15, are
submitted as a separate section of this Annual Report on Form 10-K beginning on
page F-1 and are incorporated herein.
Item
9
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
period covered by this report (the “Evaluation Date”). Because of its
inherent limitations, our disclosure controls and procedures may not prevent or
detect misstatements. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issued and instances of fraud, if any, have
been detected.
Based on
this evaluation, our chief executive officer and chief financial officer
concluded that as of December 31, 2009, our disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and that such information is accumulated and communicated to management,
including the chief executive officer and chief financial officer, to allow
timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
During
2009, the Company implemented the following major initiatives that serve to
strengthen its system of internal control over financial reporting
(“ICFR’).
The
Company developed a computer database that provides for the identification,
assessment and documentation of the Company’s system of internal
control. This system identifies all the control activities
implemented to prevent or detect material misstatements in the accounts,
disclosures and related assertions as referenced in the Company’s financial
statements. These control activities address relevant processes in
all the Company’s segments and, as such, address the information technologies
(IT) of the HSP segment as well as the controls related to the financial close
and reporting process for the HSP segment. The
database’s design facilitates an integrated depiction of a specific control
activity process and its related system documentation. Management
evaluates quarterly the design and operating effectiveness all control
activities in the database that are applicable to significant financial and
compliance reporting processes.
Page
25
During
the fourth quarter, the Company made certain improvements in its inventory
accounting system with the purpose of providing a more detailed recording of
inventory movements and improving the costing process. These
improvements were directed specifically at the inventories of the HSP
segment.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rule 13a-15(f) promulgated under
the Exchange Act. Internal control over financial reporting is a
process designed by, or under the supervision of, our Chief Executive Officer
and Chief Financial Officer and effected by our Board of Directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of an issuer’s financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). Internal control
over financial reporting includes policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of an issuer’s assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that an
issuer’s receipts and expenditures are being made only in accordance with
authorizations of its management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of an issuer’s assets that could have a material effect on
the consolidated financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, the application of any
evaluation of effectiveness to future periods is subject to the risk that
controls may become inadequate because of changes in conditions, or that
compliance with the policies or procedures may deteriorate.
As
required by Rule 13a-15(c) promulgated under the Exchange Act, our management,
with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our internal control over financial
reporting as of December 31, 2009. Management’s assessment was based
on criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control — Integrated Framework
(“COSO”). Based upon this evaluation, management concluded that the
Company’s internal control was effective as of December 31, 2009.
The
certifications of the Company’s Chief Executive Officer and Chief Financial
Officer attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K
include, in paragraph 4 of such certifications, information concerning the
Company’s disclosure controls and procedures and internal controls over
financial reporting. Such certifications should be read in
conjunction with the information contained in this Item 9A for a more complete
understanding of the matters covered by such certifications.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
None.
PART
III
Item
10 Directors,
Executive Officers, and Corporate Governance
Listed
below is certain information concerning the Company’s board of directors and
executive officers as of December 31, 2009. Each director is elected
for a term of one year. Yearly elections are held at the annual
meeting.
|
Name of Director and/or
Executive Officer
|
|
Age
|
|
Position
|
|
Director
Since
|
|
Steven M.
Bell
|
50
|
General
Counsel & Chief Financial Officer, Multiband
Corporation
|
1994
|
|||
|
Frank
Bennett
|
53
|
President,
Artesian Management, Inc.
|
2002
|
|||
|
Jonathan
Dodge
|
58
|
Senior
Partner, Brunberg, Blatt and Company
|
1997
|
|||
|
Eugene
Harris
|
45
|
Managing
Member, Step Change Advisors, LLC.
|
2004
|
|||
|
James
L. Mandel
|
52
|
Chief
Executive Officer, Multiband Corporation
|
1998
|
|||
|
Donald
Miller
|
69
|
Chairman,
Multiband Corporation
|
2001
|
|||
|
Henry
Block
|
52
|
Vice
President of Marketing, Multiband Corporation
|
-
|
|||
|
Dave
Ekman
|
48
|
Chief
Information Officer, Multiband Corporation
|
-
|
|||
|
Kent
Whitney
|
50
|
Chief
Operating Officer, Multiband Corporation
|
-
|
Page
26
Steven M. Bell was general
counsel of the Company from June 1985 through October 1994, at which
time he also became Chief Financial Officer. He is a graduate of the
University of Minnesota and William Mitchell College of Law.
Frank Bennett has been a
Director of Multiband Corporation since 2002 and is currently the Chairman of
Multiband’s Audit Committee and the Nominating Committees. Mr.
Bennett is President of Artesian Management, Inc., a private equity investment
firm based in Minneapolis. Prior to founding Artesian Management in
1989, he was a Vice President of Mayfield Corporation, and a Vice President of
Corporate Finance of Piper Jaffray & Hopwood and a Vice President of Piper
Jaffray Ventures, Inc.
Jonathan Dodge is a senior
partner in the firm of Brunberg, Blatt and Company. Prior to that, he
was a partner with McGladrey and Pullen and Dodge & Fox C.P.A.
firm. Mr. Dodge is a member of both the AICPA and the Minnesota
Society of CPA’s where he has served on both the ethics and the tax conference
committees. He currently serves on four other boards in the Twin
Cities. Mr. Dodge is a member of the Audit and Compensation
Committee.
Eugene Harris is the Managing
Member of Step Change Advisors, LLC. Step Change Advisors, LLC,
provides portfolio management services and financial consulting to individuals
and small businesses. Prior to forming Step Change Advisors, LLC, Mr.
Harris was Chief Operating Officer of Fulcrum Securities and President of
Fulcrum Advisory Services. Mr. Harris joined Fulcrum in 2007 after
spending 4 years at Flagstone Securities running their private equity
practice. Mr. Harris joined Flagstone after 10 years as the majority
shareholder of Eidelman, Finger, Harris & Co., a registered investment
advisor. Prior to joining Eidelman, Finger, Harris & Co., Mr.
Harris held positions in general management and new business development for the
Monsanto Company from 1990 to 1994. He also was an Associate
Consultant with Bain and Co. from 1986 to 1988. Mr. Harris received a
B.S. in Industrial Engineering from Stanford University in 1986 and an M.S. in
Management from the Sloan School of Management at the Massachusetts Institute of
Technology in 1990. He is a Chartered Financial Analyst, holds series
24, 63, 65 and 7 securities licenses and is a member of the Financial Analysts
Federation. He is currently also on the Board of Directors at the
Business Bank of St. Louis and Fulcrum Capital Corp. Mr. Harris was
appointed to the Company’s Board of Directors in April 2004. Mr.
Harris is Chairman of the Company’s Compensation Committee and a member of the
Nominating Committee.
James Mandel has been the
Chief Executive Officer and a Director of the Company since October 1,
1998. From October 1991 to October 1996, he was Vice President of
Systems for Grand Casinos, Inc., where his duties included managing the design,
development, installation and on-going maintenance for the 2,000 room, $507
million Stratosphere Hotel, Casino and Tower in Las Vegas. Mr. Mandel
also managed the systems development of Grand Casino Mille Lacs, in Onamia,
Minnesota, Grand Casino Hinckley in Hinckley, Minnesota and six other casinos
nationwide. Mr. Mandel is currently on the Board of Directors at New
Market Technologies, GeoSpan Corporation, Independent Multi-Family Council and
Western Capital Resources, Inc.
Donald Miller was appointed to
the Company’s Board of Directors in September 2001 and was elected Chairman of
the Board in April 2002. Mr. Miller is also a member of the Audit and
Compensation Committees. Mr. Miller worked for Schwan’s Enterprises
from 1962 to 2007, primarily as Chief Financial Officer. He was
appointed to the Board of Directors on January 1, 2008. He is
currently the Chairman of the Finance Committee and a member of the Audit and
Risk Committees at Schwan’s Enterprises. Mr. Miller is also on the
Board of Directors of FoodShacks, Inc. and Webdigs, Inc. and on their Audit
Committee.
Henry Block has been the Vice
President of Marketing since January, 2008, acting on behalf of both Multiband
and DirecTECH Holding Subsidiaries. He served on the Board of
Directors and oversaw all marketing functions and other duties for DirecTECH
Holding Company, Inc. from 2005 to 2008. He also served as President of Michigan
Microtech, Inc. (previously one of four separate Companies comprising DirecTECH
Holdings Company, Inc.) from 1980 to 2005. Mr. Block continues to
serve on the Board of Directors for DirecTECH Holding Company, Inc. as its
acting Treasurer.
Dave Ekman is the Chief
Information Officer of Multiband. Dave is a veteran in the computer
hardware, software and internet industry, starting a computer company in 1981,
and an internet ISP company in 1994. The computer company
subsequently merged with Vicom (now Multiband) in November 1999. In
addition, Dave has ownership interests in a travel agency, a storage company,
two hotels, and commercial real estate in North Dakota. He was
awarded the State & Regional Young Entrepreneur of the Year in
1991. He is a board of trustee member on the NDSU Development
Foundation.
Page
27
Kent Whitney is the Chief
Operating Officer of Multiband. He joined Multiband in 2004 as Vice
President of Operations. Mr. Whitney began his satellite television
career in 1980 and became one of DIRECTV's first retail TVRO dealers in
1994. In 1996, he joined Pace Electronics in Rochester, MN where he
was General Manager and later Vice President. In 1998, Mr. Whitney
co-founded Minnesota Digital Universe (MNMDU) and its Master System Operator
program. MNMDU was one of the first DIRECTV® MSOs and quickly became
the largest by providing equipment and engineering support through Pace and the
development of the MNMDU back office team. Mr. Whitney trained and
led the back office team of DIRECTV Commercial and MNMDU experts to support a
national network of System Operators. He was also responsible for IS
development and on-line services for the System Operator network. Mr.
Whitney has served on the Board of Directors for the Satellite Broadcasting
& Communications Association (SBCA) and has been on the Board of Directors
for the Independent Multi-Family Communications Council (IMCC). He
graduated from Willmar, MN with a degree in electronics. Multiband
acquired MNMDU in 2004 and Kent joined the Multiband team.
The
Company knows of no arrangements or understandings between a Director or nominee
and any other person pursuant to which any person has been selected as a
Director or nominee. There is no family relationship between any of
the nominees, directors or executive officers of the company.
The Board
has determined that a majority of its members are “independent” as defined by
the listing standards of the NASDAQ Stock Market. The independent
Directors are Messrs. Frank Bennett, Jonathan Dodge, Eugene Harris and Donald
Miller. Both Messrs. Bennett and Harris have extensive backgrounds in
investment banking, finance and capital raising. They have been
valuable to the Company in advising management how to structure various debt and
equity offerings. Mr. Miller was CFO for a large private company and
advises the Company with regards to its financial and management
reporting. Mr. Dodge has extensive experience in the tax field and
assists the Company on an ongoing basis with answering various tax questions and
suggesting various tax strategies.
The Board
of Directors met five times in 2009. As permitted by Minnesota Law,
the Board of Directors also acted from time to time during 2009 by unanimous
written consent in lieu of conducting formal meetings. Last year,
there were three such actions and accompanying Board Resolutions
passed. The Board has designated an audit committee consisting of
Jonathan Dodge, Donald Miller and Frank Bennett. The Board also
designated a Compensation committee consisting of Jonathan Dodge, Eugene Harris,
and Donald Miller. Frank Bennett and Eugene Harris were also
designated to the nominating committee. Bernard Schafer, who was
elected to the Company’s Board at Multiband’s 2008 annual meeting of
shareholders, served out his one year term and was not on the Company’s slate of
directors submitted to its shareholders at the 2009 annual meeting of
same.
To the
best of the Company’s knowledge, none of the Company’s directors have been
involved with any legal proceedings brought by the government or private
individuals during the past ten years that involve allegation of securities law
violations or other fraud.
Diversity
The
Company has no formal board diversity policy at present. The
Company’s nominating committee, in assessing candidates for potential board
membership, does examine whether those candidates have particular skill sets or
elements in their background that would raise the board’s overall level of
expertise and enhance the furtherment of the Company’s business plans and
objectives.
Shareholder
Communication with the Board
Our Board
welcomes your questions and comments. If you would like to
communicate directly to our Board, or if you have a concern related to the
Company’s business ethics or conduct, financial statements, accounting practices
or internal controls, then you may contact our website via www.multibandusa.com
, section Investor Relations. All communications will be forwarded to
our audit committee.
Directors’
attendance at Annual Meetings can provide shareholders with an opportunity to
communicate with Directors about issues affecting the Company. The
Company does not have a policy regarding director attendance, but all Directors
are encouraged to attend the Annual Meeting of Shareholders. Five of
our directors attended our Annual Meeting in 2009.
Audit
Committee
Our audit
committee:
|
·
|
recommends
to our Board of Directors the independent registered public accounting
firm to conduct the annual audit of our books and
records;
|
|
·
|
reviews
the proposed scope and results of the audit;
|
|
·
|
approves
the audit fees to be paid;
|
|
·
|
reviews
accounting and financial controls with the independent registered public
accounting firm and our financial and accounting staff;
and
|
|
·
|
reviews
and approves transactions between us and our Directors, officers and
affiliates.
|
Page
28
Our audit
committee has a formal charter.
Our Audit
Committee met five times during 2009. The Audit Committee is
comprised entirely of individuals who meet the independence and financial
literacy requirements of NASDAQ listing standards. Our Board has
determined that all three members, Jonathan Dodge, Donald Miller, and Frank
Bennett qualify as an "audit committee financial expert" independent from
management as defined by Item 401(h)(2) of Regulation S-K under the Securities
Act of 1933, as amended. The Company acknowledges that the
designation of the members of the audit committee as financial experts does not
impose on them any duties, obligations or liability that are greater than the
duties, obligations and liability imposed on them as a member of the audit
committee and the Board of Directors in the absence of such
designation.
Report
of the Audit Committee
In
accordance with its written charter adopted by the Board of Directors, the Audit
Committee assists the Board in fulfilling its responsibility for oversight of
the quality and integrity of the accounting, auditing, and financial reporting
practices of the Company. During the year ended December 31, 2009,
the committee met five times, and Frank Bennett, as the Audit Committee chair
and representative of the Audit Committee, discussed the interim financial
information contained in quarterly and annual filings on Forms 10Q and 10K,
respectively, with the Company’s Chief Financial Officer and the Company’s
independent registered public accounting firm prior to public
release.
In
discharging its oversight responsibility as to the audit process, the audit
committee obtained from the independent registered public accounting firm a
formal written statement describing all relationships between the auditors and
the Company that might bear on the auditors’ independence consistent with the
Securities Acts and Standards of the Public Company Accounting Oversight Board,
discussed with the auditors any relationships that may affect their objectivity
and independence and satisfied itself as to the auditors’
independence. The audit committee also discussed with management and
the independent registered public accounting firm the quality and adequacy of
the Company’s internal controls. The audit committee reviewed with
the independent registered public accounting firm their audit plans, audit
scope, and identification of audit risks.
The audit
committee discussed and reviewed with the Company’s independent registered
public accounting firm all communications required by generally accepted
auditing standards and, both with and without management present, discussed and
reviewed the results of the independent registered public accounting firms’
examination of the Company’s consolidated financial statements. The
audit committee reviewed the audited consolidated financial statements of the
Company as of and for the fiscal year ended December 31, 2009 with management
and the independent registered public accounting firm. Management has
the responsibility for the preparation of the Company’s consolidated financial
statements and the Company’s independent registered public accounting firm has
the responsibility for the examination of those statements.
Based on
the review referred to above and discussions with management and the independent
registered public accounting firm, the Audit Committee recommended to the Board
of Directors that the Company’s audited consolidated financial statements be
included in its Annual Report on Form 10-K for the fiscal year ended December
31, 2009 for filing with the Securities and Exchange Commission. The
Audit Committee also recommended the reappointment, subject to shareholder
approval, of the independent registered public accounting firm and the Board of
Directors concurred in such recommendation.
Nominating
Committee
The
Nominating Committee was formed by our Board in April 2004 and consists of Frank
Bennett and Eugene Harris. The Nominating Committee's duties include
adopting criteria for recommending candidates for election or re-election to our
Board and its committees, considering issues and making recommendations
considering the size and composition of our Board. The Nominating
Committee will also consider nominees for Director suggested by shareholders in
written submissions to the Company's Secretary.
Director
Nomination Procedures
DIRECTOR
MANAGER QUALIFICATIONS. The Company's Nominating Committee has
established policies for the desired attributes of our Board as a
whole. The Board will seek to ensure that a majority of its members
are independent as defined in the NASDAQ listing standards. Each
member of our Board must possess the individual qualities of integrity and
accountability, informed judgment, financial literacy, high performance
standards and must be committed to representing the long-term interests of the
Company and the shareholders. In addition, Directors must be
committed to devoting the time and effort necessary to be responsible and
productive members of our Board. Our Board values diversity, in its
broadest sense, reflecting, but not limited to, profession, geography, gender,
ethnicity, skills and experience.
Page
29
IDENTIFYING
AND EVALUATING NOMINEES. The Nominating Committee regularly assesses
the appropriate number of Directors comprising our Board, and whether any
vacancies on our Board are expected due to retirement or
otherwise. The Nominating Committee may consider those factors it
deems appropriate in evaluating Director candidates including judgment, skill,
diversity, strength of character, experience with businesses and organizations
comparable in size or scope to the Company, experience and skill relative to
other Board members, and specialized knowledge or
experience. Depending upon the current needs of our Board, certain
factors may be weighed more or less heavily by the Nominating
Committee. In considering candidates for our Board, the Nominating
Committee evaluates the entirety of each candidate's credentials and, other than
the eligibility requirements established by the Nominating Committee, does not
have any specific minimum qualifications that must be met by a
nominee. The Nominating Committee considers candidates for the Board
from any reasonable source, including current Board members, shareholders,
professional search firms or other persons. The Nominating Committee
does not evaluate candidates differently based on who has made the
recommendation. The Nominating Committee has the authority under its
charter to hire and pay a fee to consultants or search firms to assist in the
process of identifying and evaluating candidates.
CHARTER
OF THE NOMINATING COMMITTEE. A copy of the charter of the Nominating
Committee is available on our website at www.multibandusa.com.
Code
of Ethics for Senior Financial Management
Our Code
of Ethics for Senior Financial Management applies to all of our executive
officers, including our president and our chief financial officer, and meets the
requirements of the Securities and Exchange Commission. We have posted our Code
of Ethics for Senior Financial Management on our website at www.multibandusa.com
. We intend to disclose any amendments to and any waivers from a
provision of our Code of Ethics for Senior Financial Management on our website
within four business days following the amendment or waiver.
Compensation
Discussion and Analysis
Our
compensation committee
|
·
|
reviews
and recommends the compensation arrangements for management, including the
compensation for our Chief Executive Officer; and
|
|
·
|
establishes
and reviews general compensation policies with the objective to attract
and retain superior talent, to reward individual performance and to
achieve our financial goals.
|
We are
committed to attracting, hiring and retaining an experienced management team
that can successfully sell and operate our services. The fundamental
policy of our compensation committee is to provide our executive officers with
competitive compensation opportunities based upon their contribution to our
development and financial success and long-term shareholder interest, as well as
each officer’s personal performance. The compensation package for
each executive officer is comprised of three elements (i) base salary which
reflects individual performance and is designed primarily to be competitive with
salary levels in the industry; (ii) potential for cash bonus payments contingent
upon specific corporate and individual milestones; and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and our shareholders.
At the
beginning of each year, certain performance objectives are set by the
compensation committee for management. 2009 corporate objectives
included goals based on subscriber sales and certain financial
metrics. By year end, the compensation committee reviews the
performance of the Company against the corporate objectives and reviews the
performance of each executive officer against their individual
objectives. Based upon results achieved, the executive officers may
receive part or all of a targeted bonus award.
Our
compensation committee met four times during 2009. The compensation
committee is comprised entirely of non-employee Directors who meet the
independence requirements of the NASDAQ listing standards. The
compensation committee is comprised of Jonathan Dodge, Eugene Harris, and Donald
Miller.
Page
30
|
Item
11.
|
Executive
and Director Compensation
|
The
following table sets forth certain information relating to the remuneration paid
by the Company to its executive officers whose aggregate cash and
cash-equivalent remuneration approximated or exceeded $100 during the Company’s
fiscal year ended December 31, 2009.
EXECUTIVE COMPENSATION (in
thousands, except shares and per share amounts)
|
Name and principal
position
|
Year
|
Salary
|
Bonus
|
Stock
awards
|
(1)
Option
awards
|
Non-equity
incentive plan
compensation
|
Change in
pension value
and nonqualified
deferred
compensation
earnings
|
All other
Compensation
|
Total
|
|||||||||||||||||||||||||
|
James
Mandel
Chief
Executive Officer
|
2009
|
$
|
395
|
$
|
230
|
$
|
-
|
$
|
125
|
$
|
-
|
$
|
-
|
$
|
12
|
$
|
762
|
|||||||||||||||||
|
Steven
Bell
President
and Chief Financial Officer
|
2009
|
311
|
100
|
-
|
68
|
-
|
-
|
12
|
491
|
|||||||||||||||||||||||||
|
Henry
Block
Vice
President of Marketing
|
2009
|
338
|
-
|
-
|
-
|
-
|
-
|
-
|
338
|
|||||||||||||||||||||||||
|
Dave
Ekman
Chief
Information Officer
|
2009
|
158
|
13
|
-
|
-
|
-
|
-
|
5
|
176
|
|||||||||||||||||||||||||
|
Kent
Whitney
Chief
Operating Officer
|
2009
|
136
|
25
|
-
|
-
|
-
|
-
|
-
|
161
|
|||||||||||||||||||||||||
|
(1)
|
The
amounts in this column are calculated based on fair value and equal the
financial statement compensation expense as reported in our 2009
consolidated statement of operations for the fiscal
year.
|
Director
Compensation
Outside
Directors were each paid an annual cash fee in lieu of restricted stock of $100,
an annual retainer varying from $40 to $72, annual chair meeting fees of $8, $5
and $5 for audit, compensation and nominating meeting chairs, respectively and
non-chair per meeting fees of $1 per meeting for all committees in
2009. Awards or options to Directors are determined by the Board's
Compensation Committee. Each Director is entitled to reimbursement
for his reasonable out of pocket expenses incurred in relation to travel to and
from board meetings.
DIRECTOR
COMPENSATION
|
Name
|
Fees earned
or paid in
cash
|
Stock awards
|
(1)
Option
awards
|
Non-equity
incentive plan
compensation
|
Change in
pension value
and nonqualified
deferred
compensation
earnings
|
(2)
All other
compensation
|
Total
|
|||||||||||||||||||||
|
F Bennett
|
$
|
60
|
$
|
-
|
$
|
18
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
78
|
||||||||||||||
|
J Dodge
|
59
|
-
|
18
|
-
|
-
|
1
|
78
|
|||||||||||||||||||||
|
E Harris
|
57
|
-
|
18
|
-
|
-
|
1
|
76
|
|||||||||||||||||||||
|
D Miller
|
71
|
-
|
18
|
-
|
-
|
1
|
90
|
|||||||||||||||||||||
|
(1)
|
The
amounts in this column are calculated based on fair value and equal the
financial statement compensation expense as reported in our 2009
consolidated statement of operations for the fiscal year. Total
board of directors options outstanding at December 31, 2009 are
244,400.
|
|
(2)
|
Represents
payment of expenses incurred in conjunction with attending board
meetings.
|
2009 Grants of Plan-Based Awards
(in thousands, except shares and per share amounts)
The
following table sets forth information on grants of plan-based awards in 2009 to
the named executive officers.
|
Estimated
Future Payouts Under Equity
Incentive
Plan Awards
|
All
Other Stock
|
All
Other Option
|
Exercise
or base price
|
Grant
Date
Fair
Value of
Stock
and
Option
|
||||||||||||||||||||||||||
|
Name
|
Grant
Date
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Awards
(#)
|
Awards
(#)
|
of
award
($/sh)
|
Awards
($)
|
||||||||||||||||||||||
|
Steven
M. Bell
|
1/2/09
|
(1) | 75,000 | 75,000 | 75,000 | - | - | $ | 1.25 | $ | 68 | |||||||||||||||||||
|
James
L. Mandel
|
1/2/09
|
(1) | 138,500 | 138,500 | 138,500 | - | - | 1.25 | 125 | |||||||||||||||||||||
|
(1)
|
The
exercise price of these stock options is $1.25 with a grant date fair
value of $.9027 per share based on the Black-Scholes option pricing
model.
|
Page
31
Narrative
to Summary Compensation Table and 2009 Grants of Plan-Based Awards
Table
See the
Compensation Discussion and Analysis, as well as the Employment Agreement and
Other Compensation and Long-Term Incentive Plans Summaries for a complete
description of compensation elements pursuant to which the amounts listed under
the Summary Compensation Table and 2009 Grants of Plan-Based Awards Table were
paid or awarded and the criteria for such payments.
Stock
Option Grants During 2009
The
following table provides information regarding stock options granted during
fiscal 2009 to the named executive officers in the Summary Compensation
Table.
|
Number
of
Securities
Underlying
Options
Granted
|
Percent
of
Total
Options
Granted
to
Employees
in Fiscal Year
|
Exercise
or
Base
Price
|
Expiration
|
Potential
Realizable Value at
Assumed
Annual Rates of Stock
Price
Appreciation for Option
Term (1)
|
|||||||||||||||||
|
Name
|
(#)
|
(%)
|
($/Share)
|
Date
|
5%
|
10%
|
|||||||||||||||
|
James
L. Mandel
|
138,500 | 64.9 | $ | 1.25 |
1/2/2016
|
$ | 70 | $ | 164 | ||||||||||||
|
Steven
M. Bell
|
75,000 | 35.1 | $ | 1.25 |
1/2/2016
|
$ | 38 | $ | 89 | ||||||||||||
|
(1)
|
The
“potential realizable value” shown represents the potential gains based on
annual compound stock price appreciation of 5% and 10% from the date of
grant through the full option terms, net of exercise price, but before
taxes associated with exercise. The amounts represent certain
assumed rates of appreciation only, based on the Securities and Exchange
Commission rules. Actual gains, if any, on stock option
exercises are dependent on the future performance of the common stock,
overall market conditions and the option holders, continued employment
through the vesting period. The amounts reflected in this table
may not necessarily be achieved and do not reflect the Company’s estimate
of future stock price growth.
|
Each
option represents the right to purchase one share of common
stock. The options shown in this table are all non-qualified stock
options. To the extent not already exercisable, the options generally
become exercisable in the event of a merger in which the Company is not the
surviving corporation, a transfer of all shares of stock of the Company, a sale
of substantially all the assets, or a dissolution or liquidation, of the
Company.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information regarding the outstanding equity awards
held by our named executive officers as of December 31, 2009.
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
|
||||||||||||||||||||||||
|
Steven
M. Bell
|
2,000
|
(1)
|
-
|
-
|
$
|
22.00
|
1/31/2011
|
-
|
$
|
-
|
-
|
$
|
-
|
||||||||||||||||||||
|
100
|
(2)
|
-
|
-
|
7.50
|
8/28/2011
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
10,000
|
(3)
|
-
|
-
|
5.50
|
1/8/2013
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
5,000
|
(4)
|
-
|
-
|
9.45
|
4/23/2014
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
10,000
|
(5)
|
-
|
-
|
7.25
|
6/18/2014
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
80,000
|
(6)
|
-
|
-
|
7.35
|
1/16/2015
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
75,000
|
(7)
|
-
|
75,000
|
1.25
|
1/2/2016
|
||||||||||||||||||||||||||||
|
David
Ekman
|
100
|
(8)
|
-
|
-
|
7.50
|
8/28/2011
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
40,000
|
(9)
|
-
|
-
|
6.75
|
4/27/2015
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
James
L. Mandel
|
100
|
(10)
|
-
|
-
|
7.50
|
8/28/2011
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
60,000
|
(11)
|
-
|
-
|
7.50
|
1/8/2013
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
20,000
|
(12)
|
-
|
-
|
7.25
|
6/18/2014
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
120,000
|
(13)
|
-
|
-
|
7.35
|
1/6/2015
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
138,500
|
(14)
|
-
|
138,500
|
1.25
|
1/2/2016
|
||||||||||||||||||||||||||||
|
(1)
|
The
stock option was granted January 31, 2001 and is fully
vested.
|
Page
32
|
(2)
|
The
stock option was granted August 28, 2001 and is fully
vested.
|
|
(3)
|
The
stock option was granted January 8, 2003 and is fully
vested.
|
|
(4)
|
The
stock option was granted April 23, 2004 and is fully
vested.
|
|
(5)
|
The
stock option was granted June 18, 2004 and is fully
vested.
|
|
(6)
|
The
stock option was granted January 6, 2005 and is fully
vested.
|
|
(7)
|
The
stock option was granted January 2, 2009 and is subject to the continued
service of the executive officer, the option shall vest with respect to
1/4 on the first anniversary of the grant, 1/4 on the second anniversary
of the grant, 1/4 on the third anniversary of the grant, and the remainder
on the fourth anniversary of the grant.
|
|
(8)
|
The
stock option was granted August 28, 2001 and is fully
vested.
|
|
(9)
|
The
stock option was granted April 27, 2005 and is fully
vested.
|
|
(10)
|
The
stock option was granted August 28, 2001 and is fully
vested.
|
|
(11)
|
The
stock option was granted January 8, 2003 and is fully
vested.
|
|
(12)
|
The
stock option was granted June 18, 2004 and is fully
vested.
|
|
(13)
|
The
stock option was granted January 6, 2005 and is fully
vested.
|
|
(14)
|
The
stock option was granted January 2, 2009 and is subject to the continued
service of the executive officer, the option shall vest with respect to
1/4 on the first anniversary of the grant, 1/4 on the second anniversary
of the grant, 1/4 on the third anniversary of the grant, and the remainder
on the fourth anniversary of the
grant.
|
Option
Exercises and Stock Vested
None of
our named Executive Officers exercised any options in 2009.
Other
Compensation and Long-Term Incentive Plans
The
Company has no deferred compensation plans or long-term incentive plans and
issued no long-term incentive awards during 2009.
The
Company has an employment agreement with Mr. Steven Bell, General Counsel and
Chief Financial Officer, for the term beginning January 2009 and expiring
December 2011. Mr. Bell’s compensation is not directly tied to the
Company’s performance. The agreement states the annual base salary
for Mr. Bell will be $315 per year, with a $100 signing bonus, to be paid out
over the next three years. Also, Mr. Bell is eligible for an annual
performance bonus based on an objective criteria established by the Company’s
CEO for up to 50% of his base salary. Other key provisions of the
contract include an agreement by Mr. Bell to keep confidential information
secret both during and after employment by the Company and covenants not to
compete with the Company for one year from the date of termination of
employment.
The
Company maintains key man life insurance policies on the lives of James Mandel
and Steven Bell in the amounts of $5,000 and $3,000,
respectively. The Company is the beneficiary of these
policies. The Company also maintains key man life insurance policies
in the amount of $1,000 each on the lives of Steven Bell and Marvin Frieman,
former Director. The Company is the beneficiary of these policies and
has adopted a plan to pay fifty percent of all life insurance proceeds to the
spouse or surviving children of each such individual.
Report of the Compensation
Committee
March 31,
2010
To the Board of Directors of
Multiband Corporation:
We have
reviewed and discussed with management the Company’s Compensation Discussion and
Analysis.
Based on
this review and these discussions, we recommend to the Board of Directors that
the Compensation Discussion and Analysis be included in Multiband Corporation’s
Annual Report on Form 10-K.
|
THE
COMPENSATION COMMITTEE
|
|||
|
Eugene
Harris, Chairman
Jonathan
Dodge
Donald
Miller
|
|||
Page
33
Compensation Committee Interlocks and
Insider Participation
During
2009, the Compensation Committee was composed of Mr. Harris, Chairman,
Mr. Dodge and Mr. Miller. None of the Company’s executive
officers served during the year ended December 31, 2009 as a director or
member of the compensation committee (or other committee serving an equivalent
function) of any other entity whose executive officers served on our Board of
Directors or Compensation Committee.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s executive
officers and directors, and persons who beneficially own more than 10% of the
Company’s common stock to file reports of ownership and changes in ownership
with the SEC. These persons are required to provide us with copies of
all Section 16(a) reports that they file. Based solely upon a review
these reports and written representations from our directors and executive
officers, we believe that our directors, executive officers and 10% owners
complied with all Section 16(a) filing requirements applicable to them during
the year ended December 31, 2009.
Item
12. Security
Ownership of Certain Beneficial Owners and Management
VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF
On March
15, 2010, the Company had 9,804,396 shares of common stock issued and
outstanding.
The
following tables set forth information with respect to the beneficial ownership
of our outstanding common stock as of March 15, 2010 by (1) each of
our directors, (2) each named executive officer, (3) all of our
directors and executive officers as a group, and (4) each stockholder known
to us as beneficially owning greater than 5% of our outstanding shares of common
stock. Beneficial ownership means sole or shared voting power or investment
power with respect to a security. We have been informed that all shares shown
are held of record with sole voting and investment power, except as otherwise
indicated. To our knowledge, none of the shares reported below are pledged as
security.
|
Number of Shares1
Beneficially Owned
|
Percent of
Common Shares
Outstanding
|
|||||||
|
Steven
Bell
9449
Science Center Drive
New
Hope, MN 55428
|
244,063
|
2
|
2.49
|
%
|
||||
|
Frank
Bennett
301
Carlson Parkway – Suite 120
Minnetonka,
Minnesota 55305
|
272,741
|
3
|
2.78
|
%
|
||||
|
Jonathan
Dodge
715
Florida Avenue South – Suite 402
Golden
Valley, MN 55426
|
81,100
|
4
|
*
|
|||||
|
David
Ekman
200
44 th
Street SW
Fargo,
ND 58103
|
403,917
|
5
|
4.12
|
%
|
||||
|
Eugene
Harris
7773
Forsyth Blvd
Clayton,
MO 63105
|
141,290
|
6
|
1.44
|
%
|
||||
|
James
L. Mandel
9449
Science Center Drive
New
Hope, MN 55428
|
341,203
|
7
|
3.48
|
%
|
||||
|
Donald
Miller
1924
Cocoplum Way
Naples,
FL 34105
|
362,021
|
8
|
3.69
|
%
|
||||
|
Henry
Block
2185
E. Remus Road,
Mount
Pleasant, MI 48622
|
-
|
*
|
||||||
|
Kent
Whitney
9449
Science Center Drive
New
Hope, MN 55428
|
95,500
|
*
|
||||||
|
Special
Situations Fund II QP, LP
527
Madison Avenue
New
York, NY 10022
|
584,936
|
5.97
|
%
|
|||||
|
DirecTECH
Holding Company, Inc.
33
West Second Street, Suite 504
Maysville,
KY 41056-1166
|
1,506,438
|
15.36
|
%
|
|||||
|
All
Directors and executive officers as a group (nine persons)
|
1,941,835
|
19.81
|
%
|
|||||
*Less than one percent
Page
34
1 Each
person has sole voting and sole dispositive power with respect to all
outstanding shares, except as noted. Based on 9,804,396 of common
shares outstanding at March 15, 2010. Shares of common stock not
outstanding but deemed beneficially owned by virtue of the individual’s right to
acquire them as of March 15, 2010 or within 60 days of such date are treated as
outstanding when determining the number of shares beneficially owned by each
person and the group and the percent of the class owned by each individual and
the group. Unless otherwise indicated, each person named or included
in the group has sole vesting and investment power with respect to the shares of
common stock set forth opposite his or her name. Unless otherwise
indicated, the information in the table does not include any stock options
and/or warrants outstanding that cannot be exercised within 60 days of March 15,
2009.
2 Includes
vested options to acquire 125,850 shares of common stock. Mr. Bell's
beneficial ownership does include 6,250 shares of common stock owned by his
spouse as to which Mr. Bell disclaims his beneficial ownership.
3 Includes
vested options to purchase 68,500 shares of common stock.
4 Includes
vested options to acquire 63,500 shares of common stock.
5 Includes
vested options to purchase 40,100 shares of common stock and preferred shares
convertible into 43,600 shares of common stock.
6 Includes
vested options to purchase 62,500 shares of common stock.
7 Includes
and vested options to purchase 234,725 shares of common stock.
8 Includes
warrants and vested options to purchase 149,900 shares of common
stock.
The Board
has determined that a majority of its members are “independent” as defined by
the listing standards of the NASDAQ Stock Market. The independent
Directors are Messrs. Frank Bennett, Jonathan Dodge, Eugene Harris and Donald
Miller.
Multiband
and its subsidiaries lease principal offices located at 2000 44 th Street
SW, Fargo, ND 58013. The Fargo base rate is $14 per month. The Fargo property is
owned in part by David Ekman.
NC leases
warehouse space in Mount Pleasant, MI. Lease payments amount to $9
per month plus expenses, expiring in December 2010. The property is
owned in part by Henry Block, Vice President of Marketing.
The Audit
Committee of the Company selected Baker Tilly Virchow Krause, LLP, independent
registered public accounting firm with offices in Minneapolis, Minnesota, to
audit the Company’s consolidated financial statements for the years ended
December 31, 2009, 2008 and 2007. The following table details the fees paid to
Baker Tilly Virchow Krause, LLP, for the years ended December 31, 2009 and
2008.
|
2009
|
2008
|
|||||||
|
Audit
Fees
|
$
|
368
|
$
|
309
|
||||
|
Audit-Related
Fees
|
72
|
(1)
|
14
|
(2)
|
||||
|
Tax
Fees
|
18
|
26
|
||||||
|
Total
|
$
|
458
|
$
|
349
|
||||
|
(1)
|
Fees
related to accounting required for the acquisition of DirecTECH operating
entities.
|
|
(2)
|
Fees
related to accounting required for the acquisition of
NC.
|
The
Company’s Audit committee consists of Frank Bennett, Jonathan Dodge and Donald
Miller. All three are considered audit committee financial experts independent
from management. The Company’s current audit committee charter has been filed
previously as exhibit 3.5. The audit committee is responsible for engaging the
independent registered public accounting firm and fees related to their
services.
Page
35
The
policy of the Company’s audit committee is to review and pre-approve both audit
and non-audit services to be provided by the independent registered public
accounting firm (other than with de minimis exceptions
permitted by the Sarbanes-Oxley Act of 2002). This duty may be delegated to one
or more designated members of the audit committee with such approval reported to
the committee at its next regularly scheduled meeting. Approval of
non-audit services shall be disclosed to investors in periodic reports required
by section 13(a) of the Securities Exchange Act of
1934. Approximately 90% of the fees paid to Baker Tilly Virchow
Krause, LLP, were pre-approved by the audit committee.
No
services in connection with appraisal or valuations services, fairness opinions
or contribution-in-kind reports were rendered by Baker Tilly Virchow Krause,
LLP. Furthermore, no work of Baker Tilly Virchow Krause, LLP, with
respect to its services rendered to the Company was performed by anyone other
than Baker Tilly Virchow Krause, LLP.
Item
15. Exhibits
and Financial Statement Schedules
A. Exhibits
(1)
Financial Statements.
Reference is made to the Index to Consolidated Financial Statements on page F-1
for a list of financial statements filed as a part of this Annual Report on Form
10-K.
(2)
Financial Statement Schedules. The following financial statement schedules are
included herein and should be read in conjunction with the consolidated
financial statements referred to above.
Exhibit
3.5 states Multiband’s code of ethics for its senior officers. A copy
of said code will be provided upon written request. Any waivers or
amendments to said code will be posted to Multiband’s website or disclosed in an
8K filing.
Exhibit
3.6 provides Multiband’s Audit committee charter
See Index
to Exhibits on page 37 of this report.
Page
36
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Asset
Purchase Agreement and related documents with Enstar Networking
Corporation dated December 31, 1998(1)
|
|
|
2.2
|
Agreement
and Plan of Merger with Ekman, Inc. dated December 29,
1999(1)
|
|
|
2.3
|
Asset
Purchase Agreement with Vicom Systems (14)
|
|
|
3.1
|
Amended
and Restated Articles of Incorporation of Vicom,
Inc.(1)
|
|
|
3.2
|
Restated
Bylaws of Vicom, Incorporated(1)
|
|
|
3.3
|
Articles
of Incorporation of Corporate Technologies, USA,
Inc.(1)
|
|
|
3.5
|
Audit
Committee Charter (9)
|
|
|
4.1
|
Certificate
of Designation of the Relative Rights, Restrictions and Preferences of 8%
Class A Cumulative Convertible Preferred Stock and 10% Class B
Cumulative Convertible Preferred Stock dated December 9,
1998(1)
|
|
|
4.2
|
Form
of Warrant Agreement(1)
|
|
|
4.3
|
Warrant
Agreement with James Mandel dated December 29, 1999(1)
|
|
|
4.4
|
Warrant
Agreement with Marvin Frieman dated December 29,
1999(1)
|
|
|
4.5
|
Warrant
Agreement with Pierce McNally dated December 29,
1999(1)
|
|
|
4.6
|
Warrant
Agreement with Enstar, Inc. dated December 29, 1999(1)
|
|
|
4.7
|
Warrant
Agreement with David Ekman dated December 29, 1999(1)
|
|
|
4.8
|
Certificate
of Designation of the Relative Rights, Restrictions and Preferences of 10%
Class C Cumulative Convertible Stock(2)
|
|
|
4.9
|
Certificate
of Designation of the Relative Rights, Restrictions and Preferences of 14%
Class D Cumulative Convertible Stock(2)
|
|
|
4.10
|
Certificate
of Designation of the Relative Rights, Restrictions and Preferences of 15%
Class E Cumulative Convertible Stock(2)
|
|
|
4.11
|
Securities
Purchase Agreement Dated September 18, 2003 (6)
|
|
|
4.12
|
Secured
Convertible Note Agreement (7)
|
|
|
4.13
|
Wholesale
Services Agreement Dated March 4, 2004 (8)
|
|
|
4.14
|
Note
Purchase Agreement (11)
|
|
|
4.15
|
Series
H Preferred Documents (12)
|
|
|
4.16
|
Series
I Preferred Documents (13)
|
|
|
5.1
|
Opinion
of Steven M. Bell, Esq.(6)
|
|
|
10.1
|
Vicom
Lease with Marbell Realty dated June 20, 1996(1)
|
|
|
10.2
|
Employment
Agreement with Marvin Frieman dated October 1, 1996(1)
|
|
|
10.3
|
Employment
Agreement with Steven Bell dated October 1, 1996(1)
|
|
|
10.4
|
Employment
Agreement with James Mandel dated August 14, 1998(1)
|
|
|
10.5
|
Vicom
Associate Agreement with NEC America, Inc. dated June
1999(1)
|
|
|
10.6
|
Loan
Agreement with Wells Fargo dated June 17, 1999(1)
|
|
|
10.7
|
Employment
Agreement with David Ekman dated December 29, 1999(1)
|
|
|
10.8
|
Debenture
Loan Agreement with Convergent Capital dated March 9,
2000(1)
|
|
|
10.9
|
Corporate
Technologies, USA, Inc. lease with David Ekman dated January 19,
2000(1)
|
|
|
10.10
|
Amendment
dated July 11, 2000 to debenture loan agreement with Convergent Capital
dated March 9, 2000.(2)
|
|
|
10.11
|
Corporate
Technologies agreement with Siemens dated December 14,
2001(4)
|
|
|
10.12
|
Note
with Pyramid Trading, L.P. (4)
|
|
|
10.14
|
Employment
Agreement of Steven M. Bell dated January, 1, 2002(5)
|
|
|
10.15
|
Employment
Agreement of James Mandel dated January 1, 2002(5)
|
|
|
10.16
|
Acquisition
Agreement of Minnesota Digital Universe (9)
|
|
|
10.17
|
Acquisition
of Rainbow Satellite Group, LLC (10)
|
|
|
10.18
|
Asset
Purchase Agreement between Multiband Corporation and Consolidated Smart
Broadband Systems dated March 1, 2007 (15)
|
|
|
10.19
|
Asset
Purchase Agreement between Multiband Corporation and MDU Communications
dated July 21, 2007 (16)
|
|
|
10.20
|
Supplemental
Agreement and Plan of Share Exchange (18)
|
|
|
10.21
|
Stock
Purchase Agreement (19)
|
|
|
10.22
|
First
Amendment to Stock Purchase Agreement (20)
|
|
|
10.23
|
Employment
Agreements of James Mandel, Steven Bell and J. Basil Mattingly
(21)
|
|
|
14
|
Multiband
Code of Ethics for Senior Officers (9)
|
|
|
19.1
|
2000
Non-Employee Director Stock Compensation Plan
(3)
|
Page
37
|
19.2
|
2000
Employee Stock Purchase Plan (3)
|
|
|
21.1
|
List
of subsidiaries of the registrant(1)
|
|
|
23.1
|
Consent
of Baker Tilly Virchow Krause, LLP (17)
|
|
|
24.1
|
Power
of Attorney (included on signature page of original registration
statement)
|
|
|
31.1
|
Rule
13a-14 (s) Certification of Chief Executive Officer - James Mandel
(17)
|
|
|
31.2
|
Rule
13a-14 (s) Certification of Chief Financial Officer - Steven
Bell (17)
|
|
|
32.1
|
Section
1350 of Sarbanes-Oxley Act of 2002 – James Mandel (17)
|
|
|
32.2
|
Section
1350 of Sarbanes-Oxley Act of 2002 – Steven Bell
(17)
|
(2) Previously
filed as the same exhibit to the original Registration Statement on
Form S-1 filed on August 11, 2000 and declared effective on
August 18, 2000.
(3) Previously
filed as the same exhibit to Registrant’s Proxy Statement on Form 14A, filed on
July 31, 2000.
(4) Previously
filed as the same exhibit to the original Registration Statement on Form S-1
filed on August 15, 2001 and declared effective on August 20, 2001.
(5) Previously
filed as the same exhibit to Registrant’s Form 10-Q filed May 15,
2002.
(6) Previously
filed as the same exhibit to Registrant’s Form 8-K filed September 24,
2003.
(7) Previously
filed as the same exhibit to Registrant’s Form 8-K filed December 16,
2003.
(8) Previously
filed as the same exhibit to Registrant’s Form 8-K filed March 17,
2004.
(9) Previously
filed as the same exhibit to registrants Form 8-K filed June 9,
2004.
(10) Previously
filed as the same exhibit to registrants form 8-K filed July 9,
2004.
(12) Previously
filed as the same exhibit to registrants form 8-K filed November 24,
2004.
(13) Previously
filed as the same exhibit to registrants form 8-K filed February 3,
2005.
(14) Previously
filed as the same exhibit to registrants form 8-K filed April 6,
2005.
(15) Previously
filed as the same exhibit to registrants form 8-K filed October 19,
2006
(16) Previously
filed as the same exhibit to registrants form 8-K filed July 25,
2007
(17) Filed
herewith.
(18) Previously
filed as the same exhibit to registrants form 8-K filed February 12,
2008
(19) Previously
filed as the same exhibit to registrants form 8-K filed November 6,
2008
(20) Previously
filed as the same exhibit to registrants form 8-K filed January 2,
2009
(21) Previously
filed as the same exhibit to registrants form 8-K filed January 8,
2009
Page
38
SIGNATURES
Pursuant
to the requirements of Section 13 or Section 15(d) of Securities Exchange Act of
1934, the registrant has duly caused this 10-K Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
MULTIBAND
CORPORATION.
Registrant
|
|||
|
Date:
March 31, 2010
|
By:
|
/s/
James L. Mandel
|
|
|
James
L. Mandel
Chief
Executive Officer
|
|||
|
Date:
March 31, 2010
|
By:
|
/s/
Steven M. Bell
|
|
|
Steven
M. Bell
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Page
39
MULTIBAND
CORPORATION AND SUBSIDIARIES
TABLE OF
CONTENTS
|
Report
of Independent Registered Public Accounting Firm
|
F-2 | |||
|
Financial
Statements
|
||||
|
Consolidated
Balance Sheets
|
F-3 | |||
|
Consolidated
Statements of Operations
|
F-5 | |||
|
Consolidated
Statements of Comprehensive Income (Loss)
|
F-6 | |||
|
Consolidated
Statements of Stockholders' Equity
|
F-7 | |||
|
Consolidated
Statements of Cash Flows
|
F-16 | |||
|
Notes
to Consolidated Financial Statements
|
F-18 | |||
|
Supplemental
Information
|
||||
| F-46 | ||||
|
Valuation
and Qualifying Accounts
|
F-47 |
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders, Board of Directors, and Audit Committee
Multiband
Corporation and subsidiaries
We have
audited the accompanying consolidated balance sheets of Multiband Corporation
and subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity and
cash flows for each of the three years in the period ended December 31,
2009. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of its internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Multiband
Corporation and subsidiaries as of December 31, 2009 and 2008 and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
As
discussed in Note 18 to the consolidated financial statements, certain
contractual relationships exist between the Company and DirecTECH Holding
Company, Inc., which preceded a business combination occurring on January 2,
2009.
/s/ Baker
Tilly Virchow Krause, LLP
Minneapolis,
Minnesota
March 31,
2010
F-2
MULTIBAND
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
ASSETS
(in
thousands)
|
2009
|
2008
|
|||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$
|
2,240
|
$
|
4,346
|
||||
|
Securities
available for sale
|
7
|
46
|
||||||
|
Accounts
receivable, net
|
14,336
|
3,437
|
||||||
|
Other
receivable – related party
|
518
|
7,666
|
||||||
|
Inventories
|
8,561
|
1,903
|
||||||
|
Prepaid
expenses and other
|
549
|
1,273
|
||||||
|
Current
portion of notes receivable
|
6
|
61
|
||||||
|
Total
Current Assets
|
26,217
|
18,732
|
||||||
|
PROPERTY
AND EQUIPMENT, NET
|
8,546
|
2,033
|
||||||
|
OTHER
ASSETS
|
||||||||
|
Goodwill
|
38,067
|
1,095
|
||||||
|
Intangible
assets, net
|
22,677
|
3,668
|
||||||
|
Other
receivable – related party – long term
|
1,011
|
-
|
||||||
|
Notes
receivable – long-term, net of current portion
|
25
|
39
|
||||||
|
Other
assets
|
2,988
|
476
|
||||||
|
Total
Other Assets
|
64,768
|
5,278
|
||||||
|
TOTAL
ASSETS
|
$
|
99,531
|
$
|
26,043
|
||||
See
accompanying notes to the consolidated financial statements
F-3
MULTIBAND
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
LIABILITIES
AND STOCKHOLDERS' EQUITY
(in
thousands, except share and liquidation preference amounts)
|
2009
|
2008
|
||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Mandatory
redeemable preferred stock, 0 and 15,000 Class F preferred
shares
|
$
|
-
|
$
|
150
|
|||
|
Line
of credit
|
49
|
-
|
|||||
|
Short
term debt
|
66
|
-
|
|||||
|
Related
parties debt – short term
|
1,345
|
100
|
|||||
|
Current
portion of long-term debt
|
228
|
1,517
|
|||||
|
Current
portion of capital lease obligations
|
489
|
311
|
|||||
|
Accounts
payable
|
28,008
|
8,274
|
|||||
|
Accrued
liabilities
|
22,026
|
4,435
|
|||||
|
Deferred
service obligations and revenue
|
2,602
|
1,488
|
|||||
|
Total
Current Liabilities
|
54,813
|
16,275
|
|||||
|
LONG-TERM
LIABILITIES
|
|||||||
|
Accrued
liabilities – long term
|
4,415
|
-
|
|||||
|
Long-term
debt, net of current portion and original issue discount
|
4,853
|
73
|
|||||
|
Related
parties debt - long-term, net of current portion and original issue
discount
|
29,856
|
265
|
|||||
|
Capital
lease obligations, net of current portion
|
491
|
317
|
|||||
|
Total
Liabilities
|
94,428
|
16,930
|
|||||
|
COMMITMENTS
AND CONTINGENCIES
|
|||||||
|
STOCKHOLDERS'
EQUITY
|
|||||||
|
Cumulative
convertible preferred stock, no par value:
|
|||||||
|
8%
Class A (14,171 shares issued and outstanding, $148,796 liquidation
preference)
|
213
|
213
|
|||||
|
10%
Class B (1,370 and 2,570 shares issued and outstanding, $14,385 and
$26,985 liquidation preference)
|
14
|
26
|
|||||
|
10%
Class C (112,880 and 114,080 shares issued and outstanding, $1,128,800 and
$1,140,800 liquidation preference)
|
1,465
|
1,482
|
|||||
|
10%
Class F (150,000 shares issued and outstanding, $1,500,000 liquidation
preference)
|
1,500
|
1,500
|
|||||
|
8%
Class G (11,595 shares issued and outstanding, $115,950 liquidation
preference)
|
48
|
48
|
|||||
|
6%
Class H (2.0 shares issued and outstanding, $200,000 liquidation
preference)
|
-
|
-
|
|||||
|
8%
Class J (100 and 0 shares issued and outstanding, $10,000,000 and $0
liquidation preference)
|
10,000
|
-
|
|||||
|
15%
Class E cumulative preferred stock, no par value, (220,000 and 0 shares
issued and outstanding, $2,200,000 and $0 liquidation
preference)
|
2,200
|
-
|
|||||
|
Common
stock, no par value (9,722,924 and 9,642,374 shares issued and
outstanding)
|
38,054
|
37,687
|
|||||
|
Stock
subscriptions receivable
|
(26
|
)
|
(84
|
)
|
|||
|
Options
and warrants
|
46,572
|
46,038
|
|||||
|
Accumulated
other comprehensive income – unrealized gain on securities available for
sale
|
7
|
46
|
|||||
|
Accumulated
deficit
|
(94,944
|
)
|
(81,314
|
)
|
|||
|
Total
Stockholders' Equity
|
5,103
|
5,642
|
|||||
|
Noncontrolling
interest in subsidiaries
|
-
|
3,471
|
|||||
|
Total
Equity
|
5,103
|
9,113
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
99,531
|
$
|
26,043
|
|||
See
accompanying notes to the consolidated financial statements
F-4
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
(in
thousands, except share and per share amounts)
|
2009
|
2008
|
2007
|
||||||||||
|
REVENUES
|
$ | 268,994 | $ | 42,986 | $ | 15,086 | ||||||
|
COSTS
AND EXPENSES
|
||||||||||||
|
Cost
of products and services (exclusive of depreciation and amortization shown
separately below)
|
207,533 | 28,426 | 8,340 | |||||||||
|
Selling,
general and administrative
|
57,778 | 10,500 | 8,888 | |||||||||
|
Depreciation
and amortization
|
10,906 | 3,025 | 3,624 | |||||||||
|
Impairment
of assets
|
- | 132 | - | |||||||||
|
Total
costs and expenses
|
276,217 | 42,083 | 20,852 | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
(7,223 | ) | 903 | (5,766 | ) | |||||||
|
OTHER
INCOME (EXPENSE)
|
||||||||||||
|
Interest
expense
|
(4,104 | ) | (657 | ) | (504 | ) | ||||||
|
Interest
income
|
19 | 58 | 31 | |||||||||
|
Management
consulting income
|
- | 2,366 | - | |||||||||
|
Other
income (expense)
|
337 | 59 | 151 | |||||||||
|
Total
other income (expense)
|
(3,748 | ) | 1,826 | (322 | ) | |||||||
|
NET
INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST IN
SUBSIDIARIES
|
(10,971 | ) | 2,729 | (6,088 | ) | |||||||
|
PROVISION
FOR INCOME TAXES
|
406 | 1,132 | - | |||||||||
|
NET
INCOME (LOSS)
|
(11,377 | ) | 1,597 | (6,088 | ) | |||||||
|
LESS:
NET INCOME (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN
SUBSIDIARIES
|
(1,727 | ) | 652 | - | ||||||||
|
NET
INCOME (LOSS) ATTRIBUTABLE TO MULTIBAND CORPORATION AND
SUBSIDIARIES
|
(9,650 | ) | 945 | (6,088 | ) | |||||||
|
Preferred
stock dividends
|
370 | 4,088 | 2,301 | |||||||||
|
LOSS
ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (10,020 | ) | $ | (3,143 | ) | $ | (8,389 | ) | |||
|
LOSS
PER COMMON SHARE – BASIC AND DILUTED
|
$ | (1.04 | ) | $ | (0.34 | ) | $ | (1.16 | ) | |||
|
Weighted
average common shares outstanding – basic and diluted
|
9,665,316 | 9,302,570 | 7,237,473 | |||||||||
See
accompanying notes to the consolidated financial statements
F-5
MULTIBAND
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
(in
thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
NET
INCOME (LOSS)
|
$ | (11,377 | ) | $ | 1,597 | $ | (6,088 | ) | ||||
|
OTHER
COMPREHENSIVE INCOME (LOSS), NET OF TAX:
|
||||||||||||
|
Unrealized
gains (losses) on securities:
|
||||||||||||
|
Unrealized
holding gains (losses) arising during period
|
(39 | ) | 46 | - | ||||||||
|
COMPREHENSIVE
INCOME (LOSS) BEFORE
NONCONTROLLING INTEREST IN SUBSIDIARIES
|
(11,416 | ) | 1,643 | (6,088 | ) | |||||||
|
COMPREHENSIVE
INCOME (LOSS) ATTRIBUTABLE
TO THE NONCONTROLLING INTEREST IN SUBSIDIARIES
|
(1,727 | ) | 652 | - | ||||||||
|
COMPREHENSIVE
INCOME (LOSS) ATTRIBUTABLE
TO MULTIBAND CORPORATION AND SUBSIDIARIES
|
$ | (9,689 | ) | $ | 991 | $ | (6,088 | ) | ||||
See
accompanying notes to the consolidated financial statements
F-6
MULTIBAND
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands, except for share
amounts)
|
8%
Class A
|
10%
Class B
|
10%
Class C
|
15
% Class E
|
10%
Class F
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||
|
BALANCES,
December 31, 2006
|
26,658
|
$ |
401
|
7,470
|
$ | 50 |
124,130
|
$ | 1,593 | - | $ | - |
150,000
|
$ |
1,500
|
||||||||||||||||||||
|
Stock
issued:
|
|||||||||||||||||||||||||||||||||||
|
Cash
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Conversion
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
In
lieu of cash for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
In
lieu of cash for equipment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Redemption
of preferred stock
|
(1,930
|
)
|
(19
|
)
|
(3,700
|
)
|
(37
|
)
|
(3,880
|
)
|
(39
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
(10
|
)
|
-
|
25
|
-
|
(6
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
Stock
subscriptions receivable:
|
|||||||||||||||||||||||||||||||||||
|
Cash
received
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Interest
collected
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Interest
earned
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Increase
in reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Warrants
issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Options
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
BALANCES,
December 31, 2007
|
24,728
|
$
|
372
|
3,770
|
$
|
38
|
120,250
|
$
|
1,548
|
-
|
$
|
-
|
150,000
|
$
|
1,500
|
||||||||||||||||||||
F-7
|
8%
Class A
|
10%
Class B
|
10%
Class C
|
15%
Class E
|
10%
Class F
|
|||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||
|
Stock
issued:
|
|||||||||||||||||||||||||||||||||||||||
|
Cash
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
||||||||||||||||||||||||
|
Acquisition
of assets – Multiband NC Incorporated
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Acquisition
of assets – US Install
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of notes payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Restricted
stock issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Cancellation
of note receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
In
lieu of cash for future services rendered
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Redemption
of preferred stock
|
(10,557
|
)
|
(106
|
)
|
(1,200
|
)
|
(12
|
)
|
(6,170
|
)
|
(61
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
(53
|
)
|
-
|
-
|
-
|
(5
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
|
Stock
subscriptions receivable:
|
|||||||||||||||||||||||||||||||||||||||
|
Cash
received
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Interest
collected
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Interest
earned
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Increase
in reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Warrants
issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Options
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Other
comprehensive income – unrealized gains on securities available for
sale
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
BALANCES,
December 31, 2008
|
14,171
|
$
|
213
|
2,570
|
$
|
26
|
114,080
|
$
|
1,482
|
-
|
$
|
-
|
150,000
|
$
|
1,500
|
||||||||||||||||||||||||
F-8
|
8%
Class A
|
10%
Class B
|
10%
Class C
|
15%
Class E
|
10%
Class F
|
|||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||
|
Stock
issued:
|
|||||||||||||||||||||||||||||||||||||||
|
Cash
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
70,000
|
$
|
700
|
-
|
$
|
-
|
||||||||||||||||||||||||
|
Acquisition
of 29% of – Multiband NC Incorporated
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Acquisition
of assets – US Install
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Purchase
of 20% of outstanding stock of DirecTECH operating entities via issuance
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Reduction
of related party debt with exchange for preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
150,000
|
1,500
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of notes payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Repurchase
of common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Restricted
stock issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Cancellation
of note receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
In
lieu of cash for future services rendered
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Redemption
of preferred stock
|
-
|
-
|
(1,200
|
)
|
(12
|
)
|
(1,200
|
)
|
(12
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
-
|
-
|
-
|
-
|
(5
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||
|
Stock
subscriptions receivable:
|
|||||||||||||||||||||||||||||||||||||||
|
Cash
received
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Interest
collected
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Interest
earned
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Increase
in reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Warrants
issued for long term financing
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Warrants
issued for interest expense related to warrants re-priced
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Options
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Other
comprehensive income – unrealized losses on securities available for
sale
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
BALANCES,
December 31, 2009
|
14,171
|
$
|
213
|
1,370
|
$
|
14
|
112,880
|
$
|
1,465
|
220,000
|
$
|
$
|
2,200
|
150,000
|
$
|
1,500
|
|||||||||||||||||||||||
See
accompanying notes to the consolidated financial statements
F-9
|
8%
Class G
|
6%
Class H
|
%
Class I
|
8%
Class J
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
BALANCES,
December 31, 2006
|
38,195 | $ | 161 | 2 | $ | - | 57,500 | $ | - | - | $ | - | 7,033,632 | $ | 26,873 | |||||||||||||||||||||||||
|
Stock
issued:
|
||||||||||||||||||||||||||||||||||||||||
|
Cash
|
- | - | - | - | - | - | - | - | - | (24 | ) | |||||||||||||||||||||||||||||
|
Conversion
of accrued interest
|
- | - | - | - | - | - | - | - | 3,536 | 18 | ||||||||||||||||||||||||||||||
|
Conversion
of preferred stock
|
(11,600 | ) | (116 | ) | - | - | (18,000 | ) | - | - | - | 254,500 | 1,823 | |||||||||||||||||||||||||||
|
Conversion
of dividends payable
|
- | - | - | - | - | - | - | - | 88,223 | 637 | ||||||||||||||||||||||||||||||
|
In
lieu of cash for services
|
- | - | - | - | - | - | - | - | 42,000 | 164 | ||||||||||||||||||||||||||||||
|
In
lieu of cash for equipment
|
- | - | - | - | - | - | - | - | 30,000 | 84 | ||||||||||||||||||||||||||||||
|
Redemption
of preferred stock
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Intrinsic
value of convertible feature
|
- | 66 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Stock
subscriptions receivable:
|
||||||||||||||||||||||||||||||||||||||||
|
Cash
payments
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Interest
collected
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Interest
earned
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Increase
in reserve
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Warrants
issued for services
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Options
expense
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Preferred
stock dividends
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
BALANCES,
December 31, 2007
|
26,595 | $ | 111 | 2 | $ | - | 39,500 | $ | - | - | $ | - | 7,451,891 | $ | 29,575 | |||||||||||||||||||||||||
F-10
|
8%
Class G
|
6%
Class H
|
%
Class I
|
8%
Class J
|
Common
Stock
|
||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Stock
issued:
|
||||||||||||||||||||||||||||||||||||
|
Cash
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$ |
-
|
-
|
$
|
(30
|
)
|
||||||||||||||||||||
|
Acquisition
of assets – Multiband NC Incorporated
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,490,000
|
3,854
|
||||||||||||||||||||||||||
|
Acquisition
of assets – US Install
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
37,880
|
101
|
||||||||||||||||||||||||||
|
Conversion
of notes payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
7,500
|
19
|
||||||||||||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
800
|
4
|
||||||||||||||||||||||||||
|
Conversion
of preferred stock
|
(15,000
|
)
|
(150
|
)
|
-
|
-
|
(39,500
|
)
|
-
|
-
|
-
|
545,417
|
3,895
|
|||||||||||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
23,386
|
179
|
||||||||||||||||||||||||||
|
Restricted
stock issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
22,500
|
23
|
||||||||||||||||||||||||||
|
Cancellation
of note receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(12,000
|
)
|
(61
|
)
|
||||||||||||||||||||||||
|
In
lieu of cash for future services rendered
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
75,000
|
128
|
||||||||||||||||||||||||||
|
Redemption
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
87
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Stock
subscriptions receivable:
|
||||||||||||||||||||||||||||||||||||
|
Cash
payments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Interest
collected
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Interest
earned
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Increase
in reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Warrants
issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Options
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Other
comprehensive income – unrealized gains on securities available for
sale
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
BALANCES,
December 31, 2008
|
11,595
|
$
|
48
|
2
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
9,642,374
|
$
|
37,687
|
|||||||||||||||||||||
F-11
|
8%
Class G
|
6%
Class H
|
%
Class I
|
8%
Class J
|
Common
Stock
|
||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Stock
issued:
|
||||||||||||||||||||||||||||||||||||
|
Cash
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$ |
-
|
-
|
$
|
-
|
|||||||||||||||||||||
|
Acquisition
of 29% of – Multiband NC Incorporated
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Acquisition
of 80% of – Multiband EC,NE, SC, MBMDU,
DV, and Security
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Purchase
of 20% of outstanding stock of DirecTECH operating entities via issuance
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
100
|
10,000
|
-
|
-
|
||||||||||||||||||||||||||
|
Reduction
of related party debt with exchange for preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Conversion
of notes payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
103,333
|
210
|
||||||||||||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
800
|
5
|
||||||||||||||||||||||||||
|
Conversion
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
1,667
|
8
|
|||||||||||||||||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
34,750
|
264
|
||||||||||||||||||||||||||
|
Repurchase
of common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(60,000
|
)
|
(120
|
)
|
||||||||||||||||||||||||
|
Restricted
stock issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Cancellation
of note receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
In
lieu of cash for future services rendered
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Redemption
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Stock
subscriptions receivable:
|
||||||||||||||||||||||||||||||||||||
|
Cash
payments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Interest
collected
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Interest
earned
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Increase
in reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Warrants
issued for long term financing
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Warrants
issued for interest expense related to warrants re-priced
|
||||||||||||||||||||||||||||||||||||
|
Options
expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Other
comprehensive income – unrealized losses on securities available for
sale
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
BALANCES,
December 31, 2009
|
11,595
|
$
|
48
|
2
|
$
|
-
|
-
|
$
|
-
|
100
|
$
|
10,000
|
9,722,924
|
$
|
38,054
|
|||||||||||||||||||||
See
accompanying notes to the consolidated financial statements
F-12
|
Stock
Subscriptions
Receivable
|
Options
and
Warrants
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Accumulated
Deficit
|
Noncontrolling
Interest
|
Total
|
|||||||||||||||||||
|
BALANCES,
December 31, 2006
|
$ | (230 | ) | $ | 45,093 | $ | - | $ | (69,782 | ) | $ | - | $ | 5,659 | ||||||||||
|
Stock
issued:
|
||||||||||||||||||||||||
|
Cash
|
- | - | - | - | - | (24 | ) | |||||||||||||||||
|
Conversion
of accrued interest
|
- | - | - | - | - | 18 | ||||||||||||||||||
|
Conversion
of preferred stock
|
- | - | - | (1,707 | ) | - | - | |||||||||||||||||
|
Conversion
of dividends payable
|
- | - | - | - | - | 637 | ||||||||||||||||||
|
In
lieu of cash for services
|
- | - | - | - | - | 164 | ||||||||||||||||||
|
In
lieu of cash for equipment
|
- | - | - | - | - | 84 | ||||||||||||||||||
|
Redemption
of preferred stock
|
- | - | - | - | - | (95 | ) | |||||||||||||||||
|
Intrinsic
value of convertible feature
|
- | - | - | (75 | ) | - | - | |||||||||||||||||
|
Stock
subscriptions receivable:
|
||||||||||||||||||||||||
|
Cash
payments
|
- | - | - | - | - | - | ||||||||||||||||||
|
Interest
collected
|
1 | - | - | - | - | 1 | ||||||||||||||||||
|
Interest
earned
|
(2 | ) | - | - | - | - | (2 | ) | ||||||||||||||||
|
Increase
in reserve
|
60 | - | - | - | - | 60 | ||||||||||||||||||
|
Warrants
issued for services
|
- | 68 | - | - | - | 68 | ||||||||||||||||||
|
Options
expense
|
- | 711 | - | - | - | 711 | ||||||||||||||||||
|
Preferred
stock dividends
|
- | - | - | (519 | ) | - | (519 | ) | ||||||||||||||||
|
Net
loss
|
- | - | - | (6,088 | ) | - | (6,088 | ) | ||||||||||||||||
|
BALANCES,
December 31, 2007
|
$ | (171 | ) | $ | 45,872 | $ | - | $ | (78,171 | ) | $ | - | $ | 674 | ||||||||||
F-13
|
Stock
Subscriptions
Receivable
|
Options
and
Warrants
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Accumulated
Deficit
|
Noncontrolling
Interest
|
Total
|
|||||||||||||||||||||
|
Stock
issued:
|
||||||||||||||||||||||||||
|
Cash
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(30
|
)
|
|||||||||||||
|
Acquisition
of assets – Multiband NC Incorporated
|
-
|
-
|
-
|
-
|
2,819
|
6,673
|
||||||||||||||||||||
|
Acquisition
of assets – US Install
|
-
|
-
|
-
|
-
|
-
|
101
|
||||||||||||||||||||
|
Conversion
of notes payable
|
-
|
-
|
-
|
-
|
-
|
19
|
||||||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
4
|
||||||||||||||||||||
|
Conversion
of preferred stock
|
-
|
-
|
-
|
(3,745
|
)
|
-
|
-
|
|||||||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
179
|
||||||||||||||||||||
|
Restricted
stock issued
|
-
|
-
|
-
|
-
|
-
|
23
|
||||||||||||||||||||
|
Cancellation
of note receivable
|
61
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
|
In
lieu of cash for future services rendered
|
-
|
-
|
-
|
-
|
-
|
128
|
||||||||||||||||||||
|
Redemption
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
(179
|
)
|
|||||||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
-
|
-
|
(29
|
)
|
-
|
-
|
|||||||||||||||||||
|
Stock
subscriptions receivable:
|
||||||||||||||||||||||||||
|
Cash
payments
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
|
Interest
collected
|
3
|
-
|
-
|
-
|
-
|
3
|
||||||||||||||||||||
|
Interest
earned
|
(2
|
)
|
-
|
-
|
-
|
-
|
(2
|
)
|
||||||||||||||||||
|
Increase
in reserve
|
25
|
-
|
-
|
-
|
-
|
25
|
||||||||||||||||||||
|
Warrants
issued for services
|
-
|
1
|
-
|
-
|
-
|
1
|
||||||||||||||||||||
|
Options
expense
|
-
|
165
|
-
|
-
|
-
|
165
|
||||||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
(314
|
)
|
-
|
(314
|
)
|
||||||||||||||||||
|
Other
comprehensive income – unrealized gains on securities available for
sale
|
-
|
-
|
46
|
-
|
-
|
46
|
||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
945
|
652
|
1,597
|
||||||||||||||||||||
|
BALANCES,
December 31, 2008
|
$
|
(84
|
)
|
$
|
46,038
|
$
|
46
|
$
|
(81,314
|
)
|
$
|
3.471
|
$
|
9,113
|
||||||||||||
F-14
|
Stock
Subscriptions
Receivable
|
Options
and
Warrants
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Accumulated
Deficit
|
Noncontrolling
Interest
|
Total
|
|||||||||||||||||
|
Stock
issued:
|
||||||||||||||||||||||
|
Cash
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
700
|
||||||||||
|
Acquisition
of 29% of Multiband NC Incorporated
|
-
|
-
|
-
|
394
|
(2,054
|
)
|
(1,660
|
)
|
||||||||||||||
|
Acquisition
of 80% of – Multiband EC,NE, SC, MBMDU,
DV, and Security
|
-
|
-
|
-
|
-
|
6,306
|
6,306
|
||||||||||||||||
|
Purchase
of 20% of outstanding stock of DirecTECH operating entities via issuance
of preferred stock
|
-
|
-
|
-
|
(4,004
|
)
|
(5,996)
|
-
|
|||||||||||||||
|
Reduction
of related party debt with exchange for preferred stock
|
-
|
-
|
-
|
-
|
-
|
1,500
|
||||||||||||||||
|
Conversion
of notes payable
|
-
|
-
|
-
|
-
|
-
|
210
|
||||||||||||||||
|
Conversion
of accrued interest
|
-
|
-
|
-
|
-
|
-
|
5
|
||||||||||||||||
|
Conversion
of preferred stock
|
-
|
-
|
-
|
(8
|
)
|
-
|
-
|
|||||||||||||||
|
Conversion
of dividends payable
|
-
|
-
|
-
|
-
|
-
|
264
|
||||||||||||||||
|
Repurchase
of common stock
|
-
|
-
|
-
|
-
|
-
|
(120
|
)
|
|||||||||||||||
|
Restricted
stock issued
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Cancellation
of note receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
In
lieu of cash for future services rendered
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Redemption
of preferred stock
|
-
|
-
|
-
|
-
|
-
|
(24
|
)
|
|||||||||||||||
|
Intrinsic
value of convertible feature
|
-
|
-
|
-
|
5
|
|
-
|
-
|
|||||||||||||||
|
Stock
subscriptions receivable:
|
||||||||||||||||||||||
|
Cash
payments
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Interest
collected
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Interest
earned
|
(2
|
)
|
-
|
-
|
-
|
-
|
(2
|
)
|
||||||||||||||
|
Increase
in reserve
|
60
|
-
|
-
|
-
|
-
|
60
|
||||||||||||||||
|
Warrants
issued for long term financing
|
-
|
347
|
-
|
-
|
-
|
347
|
||||||||||||||||
|
Warrants
issued for interest expense related to warrants re-priced
|
-
|
30
|
-
|
-
|
-
|
30
|
||||||||||||||||
|
Options
expense
|
-
|
157
|
-
|
-
|
-
|
157
|
||||||||||||||||
|
Preferred
stock dividends
|
-
|
-
|
-
|
(367
|
)
|
-
|
(367
|
)
|
||||||||||||||
|
Other
comprehensive income – unrealized losses on securities available for
sale
|
-
|
-
|
(39
|
)
|
-
|
-
|
(39
|
)
|
||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(9,650
|
)
|
(1,727
|
)
|
(11,377
|
)
|
|||||||||||||
|
BALANCES,
December 31, 2009
|
$
|
(26
|
)
|
$
|
46,572
|
$
|
7
|
$
|
(94,944
|
)
|
$
|
-
|
$
|
5,103
|
||||||||
See
accompanying notes to the consolidated financial statements
F-15
MULTIBAND
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
(in
thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
income (loss)
|
$
|
(11,377
|
)
|
$
|
1,597
|
$
|
(6,088
|
)
|
||||
|
Adjustments
to reconcile net income (loss) to cash flows from operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
10,906
|
3,025
|
3,639
|
|||||||||
|
Amortization
of debt issuance costs
|
36
|
-
|
-
|
|||||||||
|
Amortization
of original issue discount
|
58
|
-
|
30
|
|||||||||
|
Amortization
of imputed interest discount
|
35
|
282
|
-
|
|||||||||
|
Gain
on debt extinguishment
|
-
|
(30
|
)
|
(131
|
)
|
|||||||
|
Loss
on forgiveness of notes receivable
|
61
|
-
|
-
|
|||||||||
|
Impairment
of goodwill, intangibles and property and equipment
|
-
|
132
|
-
|
|||||||||
|
Loss
(gain) on sale of property and equipment
|
(86
|
)
|
77
|
192
|
||||||||
|
Change
in allowance for doubtful accounts receivable
|
748
|
(15
|
)
|
(154
|
)
|
|||||||
|
Change
in reserve for stock subscriptions and interest receivable
|
58
|
22
|
60
|
|||||||||
|
Management
consulting income from DirecTECH
|
-
|
(1,946
|
)
|
-
|
||||||||
|
Warrants
issued for services or modified as interest expense
|
30
|
2
|
68
|
|||||||||
|
Stock
issued for future services
|
-
|
47
|
164
|
|||||||||
|
Common
stock issued for expenses
|
87
|
-
|
-
|
|||||||||
|
Compensation
expense of restricted stock awards
|
-
|
24
|
-
|
|||||||||
|
Stock
based compensation expense
|
157
|
165
|
711
|
|||||||||
|
Reduction
in interest receivable by increase in note receivable
|
-
|
(2
|
)
|
-
|
||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
(6,966
|
)
|
777
|
615
|
||||||||
|
Other
receivable – related party
|
47
|
(2,365
|
)
|
-
|
||||||||
|
Inventories
|
7,472
|
456
|
208
|
|||||||||
|
Prepaid
expenses and other
|
1,462
|
(520
|
)
|
82
|
||||||||
|
Other
assets
|
24
|
(420
|
)
|
(82
|
)
|
|||||||
|
Accounts
payable and accrued liabilities
|
(7,551
|
)
|
212
|
27
|
||||||||
|
Accrued
income taxes
|
(151
|
)
|
499
|
-
|
||||||||
|
Customer
deposits
|
-
|
-
|
(1
|
)
|
||||||||
|
Liabilities
of discontinued operations
|
-
|
-
|
(125
|
)
|
||||||||
|
Deferred
service obligations and revenue
|
1,026
|
1,284
|
(606
|
)
|
||||||||
|
Net
cash flows from operating activities
|
(3,924
|
)
|
3,303
|
(1,391
|
)
|
|||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Purchases
of property and equipment
|
(2,937
|
)
|
(171
|
)
|
(384
|
)
|
||||||
|
Checks
issued in excess of bank balance with the purchase of 80% of outstanding
stock of DirecTECH operating entities
|
(369
|
)
|
-
|
-
|
||||||||
|
Cash
acquired via purchase of Multiband NC Incorporated
|
-
|
4,044
|
-
|
|||||||||
|
Cash
collected on other receivables – related party acquired via the purchase
of Multiband NC Incorporated
|
-
|
2,815
|
-
|
|||||||||
|
Purchase
of US Install
|
-
|
(101
|
)
|
-
|
||||||||
|
Purchases
of intangible assets
|
(191
|
)
|
-
|
-
|
||||||||
|
Issuance
of other receivable-related party
|
-
|
(5,844
|
)
|
-
|
||||||||
|
Proceeds
from sale of property and equipment
|
8
|
-
|
-
|
|||||||||
|
Proceeds
from sale of intangible assets and related equipment
|
-
|
40
|
2,651
|
|||||||||
|
Collections
on notes receivable
|
37
|
7
|
10
|
|||||||||
|
Net
cash flows from investing activities
|
(3,452
|
)
|
790
|
2,277
|
||||||||
F-16
MULTIBAND
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
(in
thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Checks
issued in excess of cash in bank
|
-
|
-
|
(319
|
)
|
||||||||
|
Net
repayments on line of credit
|
4
|
-
|
-
|
|||||||||
|
Payments
for debt issuance costs
|
(144
|
)
|
-
|
-
|
||||||||
|
Payments
on long-term debt
|
(2,733
|
)
|
(146
|
)
|
(139
|
)
|
||||||
|
Payments
on related parties debt
|
(1,455
|
)
|
-
|
-
|
||||||||
|
Payments
on capital lease obligations
|
(477
|
)
|
(213
|
)
|
(251
|
)
|
||||||
|
Payments
on note payable to stockholder
|
-
|
-
|
(25
|
)
|
||||||||
|
Payment
on mandatory redeemable preferred stock
|
(150
|
)
|
(70
|
)
|
(60
|
)
|
||||||
|
Payments
for stock issuance costs
|
-
|
(30
|
)
|
(24
|
)
|
|||||||
|
Net
borrowings from short-term debt
|
(93
|
)
|
-
|
-
|
||||||||
|
Proceeds
from related parties debt
|
3,700
|
-
|
-
|
|||||||||
|
Proceeds
from issuance of long-term debt
|
6,100
|
100
|
-
|
|||||||||
|
Proceeds
from issuance of preferred stock
|
700
|
-
|
-
|
|||||||||
|
Payments
received on stock subscriptions and interest receivables
|
-
|
3
|
-
|
|||||||||
|
Redemption
of common stock
|
(60
|
)
|
-
|
-
|
||||||||
|
Redemption
of preferred stock
|
(24
|
)
|
(179
|
)
|
(95
|
)
|
||||||
|
Preferred
stock dividends
|
(98
|
)
|
(156
|
)
|
(50
|
)
|
||||||
|
Net
cash flows from financing activities
|
5,270
|
(691
|
)
|
(963
|
)
|
|||||||
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(2,106
|
)
|
3,402
|
(77
|
)
|
|||||||
|
CASH
AND CASH EQUIVALENTS - Beginning of Year
|
4,346
|
944
|
1,021
|
|||||||||
|
CASH
AND CASH EQUIVALENTS - END OF YEAR
|
$
|
2,240
|
$
|
4,346
|
$
|
944
|
||||||
See
accompanying notes to the consolidated financial statements
F-17
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
1 - Summary of Significant Accounting Policies
Nature
of Business
Multiband
Corporation and subsidiaries (the Company) was incorporated in Minnesota in
September 1975. The Company provides voice, data and video services
to multi-dwelling unit and single family home customers. The
Company's products and services are sold to customers located throughout the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern that contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business. The Company incurred a net loss of $11,377 for the year
ended December 31, 2009, earned a net income of $1,597 for the year ended
December 31, 2008, and incurred a net loss of $6,088 for the year ended December
31, 2007. At December 31, 2009, the Company had an accumulated deficit of
$94,944. The Company's ability to continue as a going concern is
dependent on it maintaining profitability and/or raising additional
capital. Management may sell, if prudent, certain assets on a
strategic basis for prices agreeable to the Company and/or obtain additional
debt or equity capital to meet all of its existing cash obligations and fund
commitments on planned Multiband projects; however, there can be no assurance
that the sources will be available or available on terms favorable to the
Company. Management anticipates that the impact of the actions listed
below will generate sufficient cash flows to pay current liabilities, long-term
debt and capital and operating lease obligations and fund the Company's
operations for the next twelve months:
|
1.
|
Continued
to improve mix of jobs (i.e. increase in higher paying installation work
orders versus non or limited revenue producing service calls) which
improves gross margins in its Home Service provider (HSP) segment by
maintaining DirecTV exclusivity in its core markets.
|
|
2.
|
Reduce
operating expenses by reducing inventory losses, reducing training costs
through decreased technician turnover, managing professional fees,
insurance and other general and administrative
expenses.
|
|
3.
|
Evaluate
factors such as anticipated usage and inventory turnover to maintain
optimal inventory levels.
|
|
4.
|
Obtain
senior debt financing with extended terms to refinance the Company’s note
payable to DirecTECH Holding Company, Inc., which matures on January 1,
2013.
|
|
5.
|
Expand
call center support with sales of call center services to both existing
and future system operators and to buyers of the Company’s video
subscribers.
|
|
6.
|
Solicit
additional equity investment in the Company by issuing either preferred or
common stock.
|
Principles
of Consolidation
The 2008
consolidated financial statements include the accounts of Multiband Corporation
(MBCorp) and its wholly owned subsidiaries, Minnesota Digital Universe, Inc.
(MNMDU), Multiband Subscriber Services, Inc. (MBSS), and Multiband USA, Inc.
(MBUSA). In addition, effective March 1, 2008, the Company acquired a
51% interest in Multiband NC Incorporated (NC) (formerly Michigan Microtech,
Inc. (MMT)) and have also included NC’s results of operations and cash flow for
the ten months ended December 31, 2008 in the consolidated financial statements
for that period.
In
addition, effective January 2, 2009, the Company purchased 80% of the issued and
outstanding shares of common stock of all of the DirecTECH Holding Co. (DTHC)
operating subsidiaries (DirecTECH) (an additional 29% of Multiband NC
Incorporated (NC) (formerly Michigan Microtech, Incorporated (MMT)), 51% of
which was previously purchased effective March 1, 2008 (see Note 2) and 80% of
Multiband NE Incorporated (NE), Multiband SC Incorporated (SC), Multiband EC
Incorporated (EC), Multiband MDU Incorporated (MBMDU), Multiband DV Incorporated
(DV) and Multiband Security Incorporated (Security) (see Note
2)). The noncontrolling interest in subsidiaries on the consolidated
balance sheet (formerly Minority Interest) and consolidated statement of
operations represents DTHC’s 20% ownership of Multiband NE Incorporated (NE),
Multiband SC Incorporated (SC), Multiband EC Incorporated (EC), Multiband NC
Incorporated (NC), Multiband MDU Incorporated (MBMDU), Multiband DV Incorporated
(DV) and Multiband Security Incorporated (Security) from January 2, 2009 to
December 17, 2009. On December 17, 2009, the Company purchased the
remaining 20% of the issued and outstanding shares of common stock of all of the
DTHC operating subsidiaries (DirecTECH) and transferred $5,996 of noncontrolling
interest to Multiband’s controlling interest. The 2009 consolidated
financial statements include the accounts of all wholly-owned subsidiaries and
the newly acquired companies (DirecTECH). The Company pushes down
applicable overhead, interest expense and amortization expense from the parent
company (MBCorp) to its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
F-18
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Revenue
Recognition
The
Company recognizes revenue in accordance with the Securities Exchange
Commission’s Staff Accounting Bulletin No. 104 “Revenue Recognition” (“SAB
104”), which requires that four basic criteria be met before revenue can be
recognized: (i) persuasive evidence of a customer arrangement exists; (ii) the
price is fixed or determinable; (iii) collectability is reasonably assured; and
(iv) product delivery has occurred or services have been
rendered. The Company recognizes revenue as services are performed
and completed.
The
Company has two operating segments. The MDU segment (MDU) (companies
include MNMDU, MBSS, MBMDU and MBUSA) represents results as the master service
operator for DirecTV and provides voice, data and video services to residential
multi-dwelling units as the principal to subscribers. The HSP segment
(HSP) (companies include NE, SC, EC, NC, DV and Security) provides the
installation and service of DirecTV video programming, internet and home
security systems for residents of single family homes.
The
Company earns HSP segment revenue as follows:
|
|
·
|
installation
and service of DirecTV video programming for residents of single family
homes
|
|
|
·
|
installation
of home security systems and internet
services
|
The
Company has a home services provider agreement with DirecTV which allows the
Company to install and activate DirecTV video programming services for residents
of single family homes. As a DirecTV HSP, the Company earns revenue
for installing and servicing DirecTV video customers pursuant to predetermined
rates set by DirecTV which may vary from time to time. Revenue is
recognized upon completion of the delivery and installation of
equipment. DirecTV reimburses the Company for substantially all
DirecTV equipment used for customer installation related to the HSP
segment.
MDU
segment user charges are recognized as revenues in the period the related
services are provided. Any amounts billed prior to services being
provided are reported as deferred service obligations and revenues.
The
Company earns MDU segment revenue as follows:
|
|
1.
|
from
voice, video and data communications products which are sold and
installed
|
|
|
2.
|
direct
billing of user charges to multiple dwelling units, through the activation
of, enhancement of, and residual fees on video programming services
provided to residents of multiple dwelling
units
|
Revenue
generated from activation of video programming services is earned in the month
of activation. According to Multiband's Master System Operator
agreement with DirecTV, in the event that a customer cancels within the first 12
months of service, DirecTV has the right to chargeback the Company for a portion
of the activation fees received. The Company has estimated the
potential charge back of commissions received on activation fees during the past
12 months based on historical percentages of customer cancellations and has
included that amount as a reduction of revenue. Residual income is
earned as services are provided by DirecTV through its system
operators. As a master system operator for DirecTV, the Company earns
a fixed percentage based on net cash received by DirecTV for recurring monthly
services, a variable amount depending on the number of activations in a given
month, and a variable amount for coordinating improvements of systems used to
deliver enhanced programming services. The Company’s master system
operator contract with DirecTV also permits the Company to earn revenues through
its control of other system operators who are unable to provide DirecTV video
programming services without the Company’s performance.
The
Company reports the aforementioned MDU voice, data, and video revenues on a
gross basis based on the following factors: the Company has the primary
obligation in the arrangement with its customers; the Company controls the
pricing of its services; the Company performs customer service for the
agreements; the Company approves customers; and the Company assumes the risk of
payment for services provided. We offer some products and services that are
provided by third party vendors. We review the relationship between
us, the vendor and the end customer on an individual basis to assess whether
revenue should be reported on a gross or net basis. As an example,
our resold satellite digital television revenue is reported on a net
basis.
MDU
segment revenue generated by the support center to service third party
subscribers by providing billing and call center support services is recognized
in the period the related services are provided.
F-19
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Customers
contract for both the purchase and installation of voice and data networking
technology products and certain video technologies products. Revenue
is recognized when the products are delivered and installed and the customer has
accepted and has the ability to fulfill the terms of the contract.
The
Company’s policy is to present taxes imposed on revenue-producing transactions
on a net basis.
Cash
and Cash Equivalents
The
Company includes as cash equivalents, investments with original maturities of
three months or less when purchased, which are readily convertible into known
amounts of cash. The Company deposits its cash in high credit quality
financial institutions. The balances, at times, may exceed federally
insured limits.
Investments
We
classify investments in marketable securities at the time of
purchase. At December 31, 2009 and 2008, all marketable securities
are classified as available-for-sale and as such, the investments are recorded
at fair value. Gains and losses on the sale of marketable securities are
recognized in operations based on the specific identification
method. At December 31, 2009 and 2008, our investments consisted
of common shares of Western Capital Resources, Inc. (WCRS).
Accounts
Receivable
The
Company reviews customers' credit history before extending unsecured credit and
establishes an allowance for uncollectible accounts based upon factors
surrounding the credit risk of specific customers and other
information. For the MDU and HSP segments, the Company does have
concentrations of credit risk as over 88% of accounts receivable at December 31,
2009 is with one customer (see Note 17). Invoices are due 30 days
after presentation. Accounts receivable over 30 days are considered
past due. The Company does not accrue interest on past due accounts
receivable. Receivables are written off only after all collection
attempts have failed and are based on individual credit evaluation and specific
circumstances of the customer. Accounts receivable are shown net of
an allowance for uncollectible accounts of approximately $810 and $60 at
December 31, 2009 and 2008, respectively.
Inventories
The
Company’s inventories are segregated into three major
categories. Serialized DirecTV inventories consist primarily of
satellite receivers and similar devices. Non-serialized DirecTV
inventories consist primarily of satellite dishes, poles and similar devices
which are supplied by DirecTV. Other inventory consists primarily of
cable, switches and various small parts used in the installation of DirecTV
satellite dishes. Inventory is costed using a standard cost, which
approximates actual costs, determined on a first-in first-out
basis.
Property
and Equipment
Property,
equipment and leasehold improvements are recorded at
cost. Improvements are capitalized while repairs and maintenance
costs are charged to operations when incurred. Property and equipment
is depreciated or amortized using the straight-line method over estimated useful
lives ranging from three to seven years. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful life of the assets.
Long-lived
Assets
The
Company reviews its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable or exceeds its fair value. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. An impairment loss shall be measured as the amount by which
the carrying amount of a long-lived asset exceeds its fair
value. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
For the
HSP segment, the income approach was used to measure fair value for those
long-lived assets. The income approach was based on the present value
of five years of future cash flows with an assumed growth of 0–3% while applying
a discount rate. For the MDU segment, the market approach considering
market multiples from comparable transactions were used to measure fair value of
those long-lived assets. Comparable transactions were identified
based on their similarities to the reporting unit with similar features, age of
equipment, and length of ROE contracts. There was no impairment noted
for either segment at December 31, 2009 or 2008.
Deferred
Revenue
The
Company invoices for certain installation upgrade projects upon order of project
equipment. Revenue is deferred on these projects until the equipment
is installed.
F-20
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Goodwill
and Other Intangible Assets
In
accordance with ASC Topic No. 350, Intangibles-Goodwill and
Other, goodwill and intangible assets without a defined life shall not be
amortized over a defined period, but instead must be tested for impairment at
least annually. Additionally, goodwill is tested for impairment between
annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of an entity below its carrying value. The
goodwill impairment test is a two-step impairment test. In the first step,
the Company compares the fair value of each reporting unit to its carrying
value. The Company’s estimates may differ from actual results due to, among
other things, economic conditions, changes to its business models, or changes in
operating performance. Significant differences between these estimates and
actual results could result in future impairment charges and could materially
affect the Company’s future financial results. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that
reporting unit, goodwill is not impaired and the Company is not required to
perform further testing. If the carrying value of the net assets assigned
to the reporting unit exceeds the fair value of the reporting unit, then the
Company must perform the second step in order to determine the implied fair
value of the reporting unit’s goodwill and compare it to the carrying value of
the reporting unit’s goodwill. The activities in the second step include
valuing the tangible and intangible assets and liabilities of the impaired
reporting unit based on their fair value and determining the fair value of the
impaired reporting unit’s goodwill based upon the residual of the summed
identified tangible and intangible assets and liabilities.
For our
annual goodwill impairment test, our reporting units were the same as our
operating segments. We tested impairment for the HSP and MDU segments
which both had goodwill at December 31, 2009. The Company utilized
the best information available, including prices for similar assets and
liabilities and the results of using other fair-value measurement
techniques. The income approach was used to determine the fair value
of the HSP segment, whereby the fair value was calculated based on the present
value of five years of future cash flows with an assumed growth of 0-3%, plus
the present value of projected terminal value excluding amortization expense,
calculated based on the Gordon Growth Model and applying a discount rate that
represented the Company’s weighted average cost of capital
(WACC). For the MDU segment, the market approach, considering market
multiples from comparable transactions, was used to measure fair
value. Comparable transactions were identified based on their
similarities to the reporting unit with similar economic
prospects. The Company concluded there was no goodwill impairment at
December 31, 2009.
We
assessed the reasonableness of the fair value calculations of our reporting
units by reconciling the sum of the fair values for all our reporting units
using the income and market approaches to our total market
capitalization. The Company analyzed its stock price and overall
market capitalization which, although fluctuating throughout 2009, trended
upward overall. When reconciling the income approach results with the
Company’s market capitalization as of December 31, 2009, which was lower than
the Company’s goodwill carrying value as stated on its December 31, 2009 balance
sheet, we increased the selected discount rate used in the income approach to
account for the additional cash flow projection risk that is perceived by the
market. The discount rate was increased to 26.5% from the Company’s WACC
of 19%.
Goodwill
was $38,067 and $1,095 at December 31, 2009 and 2008,
respectively. The goodwill recorded as part of our HSP segment was
$37,686 and $1,045 at December 31, 2009 and 2008, respectively. The
goodwill recorded as part of our MDU segment was $381 and $50 at December 31,
2009 and 2008, respectively. The increase in goodwill during 2009 is
due to the purchase of DirecTECH (see Note 2). In 2009, the Company
did not record any impairment to goodwill or intangibles. For the
year ended December 31, 2008, the Company recorded an impairment to goodwill
relating to the partial impairment of US Install goodwill of $50 and the
impairment of the remaining goodwill recorded from a previous acquisition of
$17. Also, pursuant to the abandonment of a right of entry intangible
asset, the Company recorded impairment charges of $65 for the year ended
December 31, 2008.
|
December
31, 2009
|
December
31, 2008
|
|||||||||||||||
|
Gross
Carrying
|
Accumulated
|
Gross
Carrying
|
Accumulated
|
|||||||||||||
|
Amount
|
Amortization
|
Amount
|
Amortization
|
|||||||||||||
|
Intangible
assets subject to amortization
|
||||||||||||||||
|
Right
of entry contracts
|
$
|
2,577
|
$
|
1,228
|
$
|
801
|
$
|
526
|
||||||||
|
Contracts
with DirecTV
|
36,902
|
15,574
|
11,502
|
8,060
|
||||||||||||
|
Customer
contracts
|
102
|
102
|
102
|
86
|
||||||||||||
|
Total
|
39,581
|
16,904
|
12,405
|
8,672
|
||||||||||||
|
Impairment
of intangibles
|
-
|
-
|
-
|
65
|
||||||||||||
|
Total
including impairment
|
$
|
39,581
|
$
|
16,904
|
$
|
12,405
|
$
|
8,737
|
||||||||
F-21
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Amortization
of intangible assets was $8,216, $2,245, and $2,352 for the years ended December
31, 2009, 2008 and 2007, respectively. Estimated amortization expense
of intangible assets for the years ending December 31, 2010, 2011, 2012, 2013,
2014 and thereafter is $5,727, $5,105, $5,060, $4,962, $1,715 and $95,
respectively. Right of
entry contracts contain $13 of contracts that have not been placed in service,
therefore no amortization expense has been recorded. The weighted
average remaining life of the intangibles is 4.24 years with right of entry
average life of 4.39 years and contracts with DirecTV of 4.23
years. The increase in intangibles during 2009 is due to the purchase
of DirecTECH (see Note 2). The increase in intangible value during
2008 is due to the purchase of NC (see Note 2) and US Install (see Note
2). The weighted average contractual life of the purchased
intangibles is 3.05 years (see Note 2).
The
Company amortizes the right of entry contracts, contracts with DirecTV, and
customer contracts, over their estimated useful lives ranging from 3.5 to 119
months.
Debt
Issuance Costs
The
Company has capitalized $145 and $0 of debt issuance costs during the years
ended December 31, 2009 and 2008, respectively. The Company amortizes
the debt issuance costs under the effective method over the life of the related
debt instrument and includes these costs with other assets on the consolidated
balance sheets. Amortization of debt issuance costs of $36 and $0 for
the years ended December 31, 2009 and 2008, respectively, is included in
interest expense.
Group
Health and Workers’ Compensation Insurance Coverage
The
Company uses a combination of self-insurance and third-party carrier insurance
with predetermined deductibles that cover certain insurable risks. The Company’s
share of its workers compensation plan are recorded for the aggregate
liabilities for claims reported, based on historical experience. The Company
also estimates the cost of health care claims that have been incurred but not
reported, based on historical experience.
Insurance
and claims accruals reflect the estimated cost for group health and workers’
compensation claims not covered by insurance. The insurance and
claims accruals are recorded at the estimated ultimate payment
amounts. Such insurance and claims accruals are based upon individual
case estimates and estimates of incurred-but-not-reported losses using loss
development factors based upon past experience.
During
2009, in certain states, the Company is self-insured for workers’ compensation
liability claims up to $100, plus administrative expenses, for each occurrence
involving workers’ compensation claims since February 1,
2009. Effective January 1, 2010, the Company is self-insured for
workers compensation claims up to $250 plus administrative expenses, for each
occurrence involving workers compensation claims since that date.
The
Company is self-insured for health insurance covering the range of liability
under which management expects most claims to occur. If any liability
claims are substantially in excess of coverage amounts, such claims are covered
under premium-based policies issued by insurance companies to coverage levels
that management considers adequate.
Advertising
Costs
Advertising
costs are charged to expense as incurred. Advertising costs were
$153, $59, and $77, for the years ended December 31, 2009, 2008 and 2007,
respectively, and are included in selling, general and administrative expenses
in the consolidated statements of operations.
Income
Taxes
The
Company accounts for deferred tax assets and liabilities under the liability
method. Deferred tax liabilities are recognized for temporary
differences that will result in taxable amounts in future
years. Deferred tax assets are recognized for deductible temporary
differences and tax operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be realized or
settled. We assess the likelihood that our deferred tax assets will
be recovered from future taxable income and record a valuation allowance to
reduce our deferred tax assets to the amounts we believe to be
realizable. We concluded that a full valuation allowance against our
U.S. deferred tax assets was appropriate as of December 31, 2009 and
2008.
F-22
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Stock-Based
Compensation
The
Company measures and recognizes compensation expense for all stock-based
payments at fair value. The financial statements for the years ended
December 31, 2009, 2008 and 2007 recognize compensation cost for the portion of
outstanding awards which have vested during the applicable year. The
Company recognizes stock-based compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the option vesting
term. For the years ended December 31, 2009, 2008 and 2007, total
stock-based compensation expense of $157 ($0.02 per share), $165 ($0.02 per
share) and $711 ($0.10 per share) was included in selling, general and
administrative expenses, respectively. As of December 31, 2009,
there was $164 of total unrecognized compensation cost related to nonvested
share-based compensation arrangements granted under the Plan. That
cost is expected to be recognized over a weighted-average period of 2.79
years. This is an estimate based on options currently outstanding and
therefore this projected expense could be more in the future.
The
Company’s determination of fair value of share-based payment awards on the date
of grant using an option-pricing model is affected by the Company’s stock price
as well as assumptions regarding a number of variables. These
variables include, but are not limited to the Company’s expected stock price
volatility, and actual and projected stock option exercise behaviors and
forfeitures. An option's expected term is the estimated period
between the grant date and the exercise date of the option. As the
expected-term period increases, the fair value of the option and the
compensation cost will also increase. The expected-term assumption is
generally calculated using historical stock option exercise data. The
Company does not have historical exercise data to develop such an
assumption. In cases where companies do not have historical data and
where the options meet certain criteria, the use of a simplified expected-term
calculation is allowed. Accordingly, the Company calculated the
expected terms using the simplified method. During the year
ended December 31, 2008, the Company evaluated the variables used in calculating
its option values. The Company has applied these revised assumptions
in the third quarter of 2008 noting an immaterial effect to compensation expense
recognized on options granted during the first six months of 2008.
The
Company calculates expected volatility for stock options and awards using
historical volatility, as the Company believes the expected volatility will
approximate historical volatility. The starting point for the
historical period used is July 1, 2001. The Company estimates the
forfeiture rate for stock options using 5% for all employees.
The
risk-free rates for the expected terms of the stock options and awards and the
employee stock purchase plan is based on the U.S. Treasury yield curve in effect
at the time of grant.
In
determining the compensation cost of the options granted during fiscal 2009,
2008 and 2007, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model and the weighted
average assumptions used in these calculations are summarized as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Risk-free
interest rate
|
1.43%
|
3.02%
|
4.56%
|
|||||||||
|
Expected
life of options granted
|
5
years
|
6.5
years
|
10
years
|
|||||||||
|
Expected
volatility range
|
95%
|
94%
|
242%
|
|||||||||
|
Expected
dividend yield
|
0%
|
0%
|
0%
|
|||||||||
Net
Loss per Common Share
Basic net
loss per common share is computed by dividing the loss attributable to common
stockholders by the weighted average number of common shares outstanding for the
reporting period. Diluted loss per common share is computed by
dividing loss attributable to common stockholders by the sum of the weighted
average number of common shares outstanding plus all additional common stock
that would have been outstanding if potentially dilutive common shares related
to common share equivalents (stock options, stock warrants, convertible
preferred shares, and issued but not outstanding restricted stock) had been
issued. All options, warrants and convertible preferred shares outstanding
during the years ended December 31, 2009, 2008 and 2007 were anti-dilutive due
to loss attributable to common stockholders for each of the years then
ended.
F-23
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Segment
Reporting
A
business segment is a distinguishable component of an enterprise that is engaged
in providing an individual product or service or a group of related products or
services and that is subject to risks and returns that are different from those
of other business segments. Management believes that the Company has
two operating segments, HSP, where the Company receives net cash payments for
the installation and service of DirecTV video programming for residents of
single family homes, and MDU, where the Company acts as a master service
operator for DirecTV, receives net cash payments for managing video subscribers
through its network of system operators who are billed by DirecTV and also
directly bills voice, data and video subscribers as a principal. The
previously filed Form 10-K business segments disclosed the MCS segment which is
now reported within the MDU segment.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant management estimates relate to the allowances for doubtful accounts,
charge back of DirecTV activation fees, inventory obsolescence, stock
subscriptions and interest receivable, stock based compensation, property and
equipment estimated useful lives, goodwill and intangible assets carrying value
and the valuation of deferred income tax assets.
Financial
Instruments
The
carrying amount of all financial instruments approximates fair value. The
carrying amounts for cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value because of the short maturity
of these instruments. The fair value of capital lease obligations and long-term
debt approximates the carrying amounts based upon the Company's expected
borrowing rate for debt with similar remaining maturities and comparable
risk.
Reclassifications
Certain
accounts in the prior year’s audited consolidated financial statements have been
reclassified for comparative purposes to conform to the current year’s
presentation. The reclass was a change in presentation of minority
interest related to noncontrolling interest in stockholders’ equity (see Note 2
and 12). Also, the MCS segment was combined with the MDU segment in
2009. These reclassifications had no effect on net loss.
NOTE
2 – Business Acquisitions/Sales Transactions
Effective
December 17, 2009, the Company purchased the remainder of the issued and
outstanding shares of common stock of all of the DTHC operating subsidiaries
(DirecTECH) (an additional 20% of NC (formerly MMT), 29% of which was
previously purchased effective January 2, 2009 and 51% purchased effective March
1, 2008 and 20% of NE, SC, EC, MBMDU, DV and Security, 80% of which was
previously purchased effective January 2, 2009). DTHC, a fulfillment
agent for a national satellite television company, DirecTV, specialized in the
providing of satellite TV to single family homes. The purpose of this
acquisition was to increase the Company’s business of installing video services
in single family homes (HSP segment). The Company issued 100 shares
of Multiband Series J Preferred Stock with a fair value of $10,000 to purchase
the remaining 20% interest. Because the Company already had a
controlling interest in these entities the purchase transaction is accounted for
as an equity transaction only.
The
carrying amount of the noncontrolling interest at December 17, 2009 was adjusted
to reflect the 100% ownership in the subsidiaries by reducing the accumulated
deficit. The difference between the amount of noncontrolling interest at
December 17, 2009 and the fair value of the preferred shares issued of $10,000
was also recorded as a reduction of accumulated deficit. The net effect to
equity was zero. No increase to goodwill or intangibles was recorded as part of
this acquisition.
F-24
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
On
January 2, 2009, the Company purchased 80% of NE, SC, EC, MBMDU, DV and
Security. The purchase price totaled $40,400 plus other
consideration valued at $1,608 as of the acquisition date. The
$40,400 consists of three parts: 1) $500 in cash which was paid at the initial
closing date of January 2, 2009 and in escrow as a deposit at December 31, 2008;
2) a non-interest bearing note of $500 payable without interest as
follows: $250 on demand on or after April 1, 2009 and $250 after the Company’s
retention of senior financing, as defined, no later than August 31, 2009 which
amount has not been paid as of December 31, 2009; 3) a promissory note in
the amount of $39,400, due January 1, 2013, bearing interest at an annual rate
of 8.25% (subject to adjustment in the event of a default), plus the remaining
$800 note payable from the purchase of 51% of NC. Subsequent to the
closing, the Company and DTHC mutually agreed to offset the $40,200 promissory
note by the amount of $6,344, for an offsetting receivable on Multiband’s books
as of December 31, 2008. This reduced the amount of this promissory
note to $33,856. As of December 31, 2009, the Company has offset an
additional $4,000 of receivable from DirecTECH related to legal claims discussed
below, which brings the remaining balance of the note to $29,856.
The
Company evaluates the purchase price allocation based on the fair value of the
assets acquired and liabilities assumed. The Company recognizes
pre-acquisition contingencies at fair value, if fair value can be reasonably
determined. If fair value cannot be reasonably determined, the
Company records the contingencies at its best estimate.
Because
the Company had previously gained control of NC with its purchase of 51% of NC
in March 2008, Multiband recognized the acquisition of the additional 29%
ownership interest in NC on January 2, 2009 as an equity
transaction. The purchase price of $1,660 increased the accumulated
deficit and the transfer of $2,054 of noncontrolling interest to controlling
interest decreased the accumulated deficit. No increase to goodwill
or intangibles was recorded as part of this acquisition.
In the
January 2, 2009 transaction to purchase the other DTHC operating subsidiaries,
the Company recognized the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with certain exceptions. The
assets and liabilities purchased are all measured on a nonrecurring basis at
fair value. The Company recognized goodwill as of the acquisition
date, measured using an income, market or cost approach, which in most types of
business combinations will result in measuring goodwill as the excess of the
fair value of consideration transferred plus the fair value of any
noncontrolling interest in the acquiree at the acquisition date over the fair
value of the identifiable net assets acquired or assumed. A
qualitative and quantitative analysis of factors that make up recognized
goodwill, such as DirecTECH’s assets, liabilities and other contingent
considerations, such as leases and other off-balance sheet commitments,
follows.
A summary
of the transaction is as follows:
|
Cash
paid
|
$ | 500 | ||
|
Short-term
debt
|
500 | |||
|
Promissory
note
|
39,400 | |||
|
Total
consideration
|
40,400 | |||
|
Less
consideration for 29% of NC (recorded separately as an equity
transaction)
|
(1,660 | ) | ||
|
Consideration
for 80% of outstanding stock of EC, NE, SC, MBMDU, DV, and
Security
|
$ | 38,740 | ||
|
Assets
|
$ | 33,444 | ||
|
Intangible
assets
|
27,634 | |||
|
Goodwill
|
36,972 | |||
|
Accounts
payable and accrued liabilities
|
(53,004 | ) | ||
|
Noncontrolling
interest
|
(6,306 | ) | ||
| $ | 38,740 |
The fair
value of the intangible assets of $27,634 and noncontrolling interest of $6,306
was obtained by management, using a fair value measurement which included
applying discount rates of 15%, a terminal value of $28,200, as well as a
noncontrolling discount of 30%.
F-25
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
As part
of the acquisition, the Company preliminarily assessed a $5,040 contingent legal
accrual related to an existing litigation. In connection with the
purchase of the operating subsidiaries of DTHC, the Company has the right to
offset half of certain claims against the note to DTHC once those claims are
ultimately resolved, and therefore also allocated a note receivable – related
party of $2,290 which represented an estimate of the amount that could be
recovered from DTHC based on the preliminary legal contingency
accrual. During the year ended December 31, 2009, the Company
increased the contingent legal accrual to $8,706 based on new information
received about facts and circumstances that existed as of the acquisition date
related to certain legal matters. On December 31, 2009 the Company
settled in principal the majority of these claims, and recorded the settlement
of $6,729, net of imputed interest of $575 (see Note 17). The
remaining contingent liability at December 31, 2009 was an estimated $1,977
related to this litigation. At the time the settlement was recorded,
the Company also offset $3,904 of the note receivable – related party against
the note payable – related party to DTHC. The remaining balance on
the note receivable of $1,011 represents an estimate of the amount that can be
further recovered from DTHC based on the preliminary legal
estimate. The receivable is classified as long-term since management
intends to offset the receivable with any balance remaining on the note payable
to DTHC.
The
Company acquired $25,400 of intangible assets relating to contracts with DirecTV
as well as right of entry contracts of $2,234. At the time of the
acquisition, the weighted average remaining life of the intangibles acquired was
2.57 years based on terms without renewals, with an average life for right of
entry contracts of 5.44 years and contracts with DirecTV of 2.33
years. The weighted average remaining life of the intangibles
acquired was 3.49 years assuming one year term renewals, with right of entry
contracts average life of 5.44 years and contracts with DirecTV of 3.33
years. In May 2009, the Company signed a new contract with DirecTV
(see Note 17). The Company capitalizes material costs incurred to
renew or extend terms of intangible assets. No costs have been
incurred to renew or extend the terms of intangible assets during the year ended
December 31, 2009. Goodwill and intangible assets acquired are not
expected to be deductible for tax purposes.
The
Company’s report on Form 10-K for the year ended December 31, 2008 contained a
preliminary estimated fair value of all the aforementioned assets and
liabilities related to the purchase. At the time of the preliminary
estimate DirecTech had not completed its audit for the year ended December 31,
2008. Nor at this time had the Company completed its procedures to
value and allocate the final purchase price to intangible and tangible assets
acquired in the acquisition. The Company’s subsequent receipt of
final balance sheet information to the aforementioned Form 10-K filing,
necessitated a revision of the DirecTech purchase price
valuation. This revision is reflected in this
footnote. The revision consists of reallocations of goodwill and
other intangible assets related to the purchase. More specifically,
goodwill assets were increased by $14,400 and intangible assets were decreased
by $9,066 from the original estimate, due to the additional purchase of 29% of
NC being treated as an equity transaction and therefore no additional assets
(including goodwill) or liabilities were allocated for NC in the purchase price
(see Note 2). At June 30, 2009, the Company revised the fair value of
the contingent consideration from $1,608 to zero. The Company
determined that the significant level 3 inputs previously used to determine the
contingent consideration were incomplete. After further review, the
Company determined that it was appropriate to define this change as a
measurement period adjustment to the purchase price. At December 31,
2009, the Company adjusted the contingencies estimated as a result of improved
information regarding circumstances that existed as of the acquisition date
which increased the liability by $1,090 and goodwill and receivables by
$545. At December 31, 2009, the Company adjusted the majority of the
contingencies due to an actual settlement in principle of certain litigation
(See Note 17). In the fourth quarter, within the one-year measurement
period the Company, also increased accrued liabilities by $1,200 to reflect the
assumption of an insurance premium obligation.
F-26
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
The
unaudited pro forma information for the year ended December 31, 2008 does not
purport to represent what the Company’s results of operations would actually
have been if such transactions in fact had occurred at such date or to project
the Company’s results of future operations.
|
2008
Consolidated
as
reported
|
2008
Pro
Forma Disclosed
|
|||||||
|
Year
ended December 31, 2008
|
||||||||
|
Revenues
|
$
|
42,986
|
$
|
234,645
|
||||
|
Income
(loss) from operations
|
903
|
(3,994
|
)
|
|||||
|
Net
income
|
945
|
(7,275
|
)
|
|||||
|
Preferred
stock dividends
|
4,088
|
4,088
|
||||||
|
Loss
attributable to common shareholders
|
$
|
(3,143
|
)
|
$
|
(11,363
|
)
|
||
|
Loss
attributable to common shareholders per common share –
basic and diluted
|
$
|
(0.34
|
)
|
$
|
(1.21
|
)
|
||
|
Weighted
average shares outstanding – basic and diluted
|
9,303
|
9,429
|
||||||
Effective
March 1, 2008, the Company purchased, pursuant to a Supplemental Agreement and
Plan of Share Exchange, 51% of the outstanding shares of Michigan Microtech,
Incorporated (MMT), previously a wholly owned subsidiary of DirecTECH Holding
Company, Inc. (DTHC) which equaled 1,020,000 MMT common shares. The
consideration paid for the shares was 1,490,000 shares of restricted Multiband
common stock valued at $3,854 and a promissory note for $2,246. The
note was retired in January 2009 when the majority acquisition of all the
DirecTECH operating subsidiaries occurred. The Multiband shares, via
negotiation and mutual agreement between buyer and seller, were valued at $2.59
per share. The seller received certain piggyback registration rights with
regards to the Multiband shares. The note payable was recorded net of
a discount for imputed interest of 3% which amortized monthly as part of
interest expense. The total discount for imputed interest amounted to
$317. The Company purchased MMT to enter the market of installing
video services in single family homes. The Company allocated the
purchase price to the fair values of MMT assets and liabilities. As
part of the acquisition, the Company recognized an intangible asset of $1,804
related to MMT’s HSP agreement with DirecTV, and goodwill of
$1,045. The Company will amortize this intangible over the remaining
38 month term of MMT’s home services provided contract with
DirecTV. The term of the contract will automatically renew as of
April 30, 2011 for additional one year periods unless either MMT or DirecTV
gives written notice of termination at least 90 days in advance of expiration of
the then current term. The goodwill will not be deductible for tax
purposes. The balance sheet as of the March 1, 2008 acquisition date
was as follows:
|
Condensed
Balance
Sheet
March
1, 2008
|
||||
|
Cash
|
$
|
4,044
|
||
|
Accounts
receivable
|
2,627
|
|||
|
Inventory
|
2,209
|
|||
|
Other
current assets
|
2,827
|
|||
|
Property
and equipment, net
|
74
|
|||
|
Other
assets
|
421
|
|||
|
Total
assets
|
$
|
12,202
|
||
|
Accounts
payable and accrued liabilities
|
$
|
6,432
|
||
|
Other
liabilities
|
18
|
|||
|
Total
liabilities
|
6,450
|
|||
|
Stockholders’
equity
|
5,752
|
|||
|
Total
liabilities and Stockholders’
equity
|
$
|
12,202
|
||
F-27
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
In May
2007 (as subsequently amended in June 2007, December 2007, June 2008 and October
2008), DirecTECH Holding Company (DTHC) and its subsidiaries, including Michigan
Microtech, Incorporated (MMT) which, prior to March 1, 2008, was 100% owned by
DTHC, entered into a loan and security agreement with MB Financial Bank, N.A.
(MB Bank). Multiband Corporation, effective March 1, 2008, owned 51%
of the common stock of MMT. At the time of Multiband’s purchase of
the MMT stock in February 2008, Multiband received a release of the MB Bank’s
lien against the MMT stock. However, MMT remained an obligor on the
overall MB Bank loan until the loan was paid in full during December
2008. MMT never utilized any of the loan proceeds. Based
on the Company’s interpretation of Securities Exchange Commission’s Staff
Accounting Bulletin No. 5J (SAB 5J), none of the DTHC bank loan debt is
reflected in MMT’s financial statements which have been consolidated with
Multiband Corporation’s financial statements for the ten months ended December
31, 2008.
Effective
March 1, 2008, the Company purchased 100% of the assets of US Install LLC in
exchange for $95 in cash plus 37,879 shares of restricted Multiband common stock
valued at $103. The Company also incurred acquisition expense of $1
related to this purchase. In addition, the parties executed
employment agreements with US Install’s two principals. The parties also
executed noncompetition and nonsolicitation agreements with each principal in
exchange for cash consideration of $3 per agreement. The Company
allocated the purchase price as follows:
|
Intangible
assets
|
$
|
103
|
||
|
Goodwill
|
100
|
|||
|
Total
assets acquired
|
203
|
Proceeds
for the acquisition were obtained via an unsecured promissory note in the amount
of $100 between Multiband and Bas Mattingly Master, LLC, a trust controlled by
J. Bas Mattingly, Vice President of Business Development of the
Company. The note carries an interest rate of 7% per annum and was
extended through April 1, 2010. The Company purchased US Install LLC
to diversify its revenue sources. For the year ended December 31,
2008, the Company recorded a partial impairment of $50 to the US Install
goodwill.
Effective
March 1, 2007, the Company, pursuant to an asset purchase agreement entered into
October 19, 2006 (the “agreement”), completed the sale of substantially all of
its video assets located in California to Consolidated Smart Broadband Systems,
LLC (CSBS). The purchase price paid by CSBS was $1,214 at closing
plus an additional $100, paid on March 30, 2007 consisting of cash proceeds of
$758 and direct payments to lenders of $556 (including $22 of imputed
interest). The results of the sale of the California assets resulted
in a loss of $40, which is included in the selling, general and administrative
expenses of the accompanying consolidated statements of operations for the year
ended December 31, 2007.
Effective
March 31, 2007, the Company completed the sale of substantially all of its video
assets located in Ohio to Directech MDU (“DirecTECH”). The purchase
price paid by DirecTECH was $746. The purchase price consisted of the
assumption of a note payable for the gross value of $329 and $417 cash paid at
closing on April 20, 2007. The sale of the Ohio assets resulted in a
gain on sale in the amount of $325 which is included in the selling, general and
administrative expenses of the accompanying consolidated statements of
operations for the year ended December 31, 2007. The proceeds of
$684, including assumed liabilities of $267 less the net book value of the MCS
segment assets sold amounted to a gain on sale of $325.
On
October 16, 2007, the Company completed the sale to MDU Communications (MDUC) of
approximately 9,800 subscriptions and the related assets located in 181
multi-family properties located throughout Florida, Illinois, New York,
Colorado, New Jersey, and Texas. Total proceeds for MCS assets sold
amounted to approximately $3,325 consisting of cash proceeds of $1,477 selling
expenses paid by MDUC of $135 and the remainder on debt and liabilities paid
directly by MDUC. The sale resulted in a loss of $462 which is
included in the selling, general and administrative expenses of the accompanying
consolidated statements of operations for the year ended December 31,
2007. The aforementioned loss primarily resulted from fewer
multi-family properties being sold to MDUC than was originally intended in the
party’s asset purchase agreement. Certain properties could not be
sold due to the Company’s inability to obtain some property owners consent to
assignment. The difference in the mix of properties ultimately
transferred to MDUC increased the loss on sale compared to what the Company
originally estimated upon execution of the asset purchase agreement in July
2007.
These
sales were not reported as a discontinued operation because the assets sold did
not constitute a segment or component of the Company’s business, and the Company
retained assets and on-going service rights associated with the video
subscribers.
F-28
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
3 – Securities Available for Sale
As of
December 31, 2007, Multiband had the voting rights for and was holding in trust
58,161 common shares of Western Capital Resources, Inc. (WCRS) (previously URON,
a former subsidiary) for various contingent rights holders whose rights were
tied to potential future warrant exercises or preferred stock
conversions. The Company values these shares at fair
value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value, the
Company values and records all investment securities transactions on a trade
date basis. Securities listed on a national or regional securities
exchange are valued at their last reported sales price on the last business day
of the period. Securities which are not traded on a major exchange or
for which no sale was reported on that date are valued at the average of their
last quoted "bid" price and "asked" price. Short positions are valued
at the last quoted "asked" price. Inputs used in the valuation
methods can be either readily observable, market corroborated, or generally
unobservable inputs. Whenever possible the Company attempts to
utilize valuation methods that maximize the use of observable inputs and
minimizes the use of unobservable inputs. The Company’s investments
in available-for-sale securities was determined based on quoted market prices in
active markets for identical assets and liabilities (level 1). As of
February 4, 2008, certain aforementioned contingent rights were not exercised by
the various holders; therefore Multiband owns 37,994 shares of
WCRS. As a result, Multiband recorded the fair value of WCRS shares
based on quoted market prices as an unrealized gain. At December 31,
2009 and 2008 the balance in securities available for sale was $7 and $46,
respectively.
Securities
available for sale consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Beginning
balance
|
$
|
46
|
$
|
-
|
||||
|
Initial
investment
|
-
|
122
|
||||||
|
Current
period unrealized loss
|
(39
|
)
|
(76
|
)
|
||||
|
Ending
balance
|
$
|
7
|
$
|
46
|
||||
Fair
value of securities available for sale consisted of the following at December
31:
|
2009
|
2008
|
|||||||
|
Cost
|
$
|
-
|
$
|
-
|
||||
|
Unrealized
gain
|
$
|
7
|
$
|
46
|
||||
|
Fair
value at period end
|
$
|
7
|
$
|
46
|
||||
Inventories
consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
DirecTV
– serialized
|
$
|
2,948
|
$
|
814
|
||||
|
DirecTV
– nonserialized
|
3,455
|
670
|
||||||
|
Other
|
2,158
|
419
|
||||||
|
Total
|
$
|
8,561
|
$
|
1,903
|
||||
F-29
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
5 - Property and Equipment
Property
and equipment consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Leasehold
improvements
|
$
|
1,074
|
$
|
771
|
||||
|
Office
equipment and furniture
|
7,242
|
4,956
|
||||||
|
Subscriber
related equipment
|
10,714
|
2,855
|
||||||
|
Property
and equipment under capital lease obligations
|
1,566
|
811
|
||||||
|
Total
property and equipment
|
20,596
|
9,393
|
||||||
|
Less
accumulated depreciation and amortization
|
(11,321
|
)
|
(7,016
|
)
|
||||
|
Less
accumulated depreciation and amortization of capital
leases
|
(729
|
)
|
(344
|
)
|
||||
|
Total
property and equipment, net
|
$
|
8,546
|
$
|
2,033
|
||||
Depreciation
and amortization expense on property and equipment was $2,690, $780 and $1,286
for the years ended December 31, 2009, 2008 and 2007, respectively.
NOTE
6 – Notes Receivable
Notes
receivable consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Notes
receivable – Satellite Systems, variable monthly principal payments based
on revenue generated plus interest of 7%, written off in
2009.
|
-
|
61
|
||||||
|
31
|
39
|
|||||||
|
Total
notes receivable
|
31
|
100
|
||||||
|
Less:
current portion
|
(6
|
)
|
(61
|
)
|
||||
|
Long-term
portion of notes receivable
|
$
|
25
|
$
|
39
|
||||
Accrued
liabilities consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Payroll
and related taxes
|
$
|
6,971
|
$
|
1,354
|
||||
|
Accrued
legal settlements, fees and contingencies (see Note 17)
|
5,684
|
960
|
||||||
|
Accrued
preferred stock dividends
|
626
|
622
|
||||||
|
Accrued
liability – vendor chargeback
|
40
|
-
|
||||||
|
Accrued
contract labor
|
2,002
|
-
|
||||||
|
Accrued
income taxes
|
296
|
499
|
||||||
|
Other
– short term
|
6,407
|
1,000
|
||||||
|
Accrued
liabilities – short term
|
22,026
|
4,435
|
||||||
|
Accrued
– long term related to legal settlement payable in 24 equal installments
and multi-year insurance premium obligations
|
4,415
|
-
|
||||||
|
Total
accrued liabilities
|
$
|
26,441
|
$
|
4,435
|
||||
F-30
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
8 - Long-term Debt
Long-term
debt consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Debenture
payable - Convergent Capital Partners, II, L.P., see terms in note below,
net of original issue discount of $289.
|
$
|
4,711
|
$
|
-
|
||||
|
Debenture
payable - Convergent Capital Partners I, L.P., this note was paid May
2009.
|
-
|
1,400
|
||||||
|
Note
payable – Johanson Berenson LLP, unsecured, monthly installments of $34
including interest of 5%, due July 2010.
|
232
|
-
|
||||||
|
Notes
payable – group of accredited institutional investors. Interest
is 6% payable semi-annually in cash or common stock at the Company’s
election, due November 2007, collateralized by certain assets of the
Company and subordinated. This note payable is past due (see
Note below).
|
50
|
67
|
||||||
|
Note
payable – Lexstar Tower One, LP, monthly installments of $3 including
interest at 4%, due August 2010, secured by leasehold
improvement.
|
21
|
53
|
||||||
|
Note
payable – DeLage Landen Financial Services, monthly installments of $2
including interest at 10.4%, due July 2010, secured by software
licenses.
|
12
|
31
|
||||||
|
Note
payable – CIT Technology Financing Services, Inc., monthly installments of
$2 including interest at 16.6%, due June 2010, secured by software
licenses.
|
9
|
-
|
||||||
|
46
|
39
|
|||||||
|
Total
long-term debt, net of original issue discount of $289 and
$0
|
5,081
|
1,590
|
||||||
|
Less:
current portion and original issue discount of $96
|
(228
|
)
|
(1,517
|
)
|
||||
|
Long-term
debt, net of current portion
|
$
|
4,853
|
$
|
73
|
||||
Future
maturities of long-term debt are as follows for the years ending December
31:
F-31
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
In June
2005, the Company borrowed $2,000 from Convergent Capital Partners I, L.P. in
connection with an amendment of an original debt agreement. The
amendment extended the due date to May 2009 and the Company was required to
comply with certain financial covenants. At December 31, 2008, the Company
was in compliance with the debt covenants. The Company was required
to pay monthly interest only payments through the due date. The
outstanding balance of the debenture was $1,400 at December 31,
2008. The interest rate varied from 11% to 14% dependent on the
Company’s stock prices (14% at December 31, 2008). The debenture
agreement was collateralized by substantially all of the assets of the
Company. In January 2009, the Company modified the terms of its June
2005 warrant agreement with Convergent Capital. The impact of the
modification was an increase in the value of the warrants of approximately $30
which was expensed in 2009. On May 26, 2009, the Company paid
off its loan from Convergent Capital Partners I, L.P., in the amount of
$1,400.
On May
27, 2009, the Company entered into a loan agreement with Convergent Capital
Partners, II, L.P. for $5,000. This loan carries an interest rate of 14% and
requires monthly interest only payments until December 2012 when the principal
is due and payable in full. In connection with this loan, the Company
paid a closing fee to the lender of $100. The Company also issued the
lender 212,574 fully vested five year warrants with an exercise price of
$3. The gross proceeds were allocated between the note and the
warrants based on the relative fair value at the time of
issuance. The warrants were valued at $347 using the Black Scholes
pricing model, recorded as original issue discount, and amortized under the
effective interest method over the term of the note. The Company
expensed $58 during the year ended December 31, 2009. In the event
the Company wishes to prepay the loan a prepayment penalty will be
assessed. The loan gives the lender a first security position in the
Company’s assets. The loan contains certain covenants with regards to
the Company’s quarterly earnings before interest, taxes, depreciation and
amortization. The Company is in compliance with this covenant at
December 31, 2009.
In
November 2004, the Company borrowed $2,167 from a group of accredited
institutional investors. The notes are convertible into shares of common stock
at a conversion rate of $1.00 per share. The notes accrue interest at the rate
of 6% per annum, which interest is payable semi-annually in cash or common stock
at the Company's election. The notes were due to be paid in full November
2007. This note payable is past due. The proceeds of
$2,167 were allocated between the notes and the intrinsic value of the
conversion option. The resulting original issue discount and the beneficial
conversion of the note payable into common stock was being amortized over the
life of the notes using the straight-line method, which approximates the
interest method. These notes are collateralized by certain assets and are
subordinated. During the year ended December 31, 2006, the Company converted
principal of $200 and accrued interest of $4 into 40,833 shares of common
stock. During 2007, the Company paid $456 on the principal
balance. The Company converted accrued interest of $18 into 3,536
shares of common stock during the year ended December 31, 2007. The
outstanding balance as of December 31, 2009 and 2008 was $50 and $67,
respectively.
NOTE
9 – Related Parties Debt
Related
parties debt consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Note
payable – DirecTECH Holding Company, Inc., due on demand beginning April
2009, 0% interest, unsecured.
|
$
|
500
|
$
|
-
|
||||
|
Note
payable – Bas Mattingly, due June 2010, including interest at 4%,
unsecured.
|
745
|
-
|
||||||
|
Note
payable – Bas Mattingly, due April 2010, including interest at 7%,
unsecured.
|
100
|
100
|
||||||
|
Related
parties debt – short term
|
1,345
|
100
|
||||||
|
Loan
payable – DTHC payment due date January 2013, including interest at
8.25%. This note is due in full on January 1, 2013. No
principal payments are required until January 1, 2013. Secured
by all of the issued and outstanding stock of the DTHC operating
entities.
|
29,856
|
-
|
||||||
|
Note
payable – DirecTECH Holding Company, Inc., net of imputed interest of $0
and $35 at December 31, 2009 and 2008. The balance of this note
payable was added to the note payable issued for the purchase of 80% of
the DirecTECH operating subsidiaries (see Note 2).
|
-
|
265
|
||||||
|
Related
parties debt
|
$
|
31,201
|
$
|
365
|
||||
F-32
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
10 - Capital Lease Obligations
The
Company has lease financing facilities for property, equipment and leasehold
improvements. Leases outstanding under these agreements bear interest
at an average rate of 11.48% and expire through May 2014. The obligations are
collateralized by the property under lease excluding certain sold property
items. Total cost and accumulated amortization of the leased
equipment was $1,566 and $729 at December 31, 2009 and $811 and $344 at December
31, 2008. Amortization expense related to these obligations is
included in depreciation expense.
Future
minimum capital lease payments are as follows for the years ending December
31:
|
2010
|
$
|
563
|
||
|
2011
|
379
|
|||
|
2012
|
145
|
|||
|
2013
|
4
|
|||
|
2014
|
1
|
|||
|
Less:
amounts representing interest
|
(112
|
)
|
||
|
Present
value of future minimum lease payments
|
980
|
|||
|
Less:
current portion
|
(489
|
)
|
||
|
Capital
lease obligations, net of current portion
|
$
|
491
|
|
NOTE
11 - Stockholders' Equity
|
Capital
Stock Authorized
The
articles of incorporation as amended authorize the Company to issue 100,000,000
shares of no par capital stock. Authorization to individual classes
of stock is determined by a Board of Directors resolution. All shares
have been allocated to common stock except for 2,435,115 shares reserved for
preferred stock as follows:
|
·
|
275,000
shares of Class A cumulative convertible preferred
stock,
|
|
·
|
60,000
shares of Class B cumulative convertible preferred
stock,
|
|
·
|
250,000
shares of Class C cumulative convertible preferred
stock,
|
|
·
|
250,000
shares of Class D cumulative convertible preferred
stock,
|
|
·
|
400,000
shares of Class E cumulative preferred stock,
|
|
·
|
500,000
shares of Class F cumulative convertible preferred
stock,
|
|
·
|
600,000
shares of Class G cumulative convertible preferred
stock,
|
|
·
|
15
shares of Class H cumulative convertible preferred
stock,
|
|
·
|
100,000
shares of Class I cumulative convertible preferred stock (this class is
inactive) and
|
|
·
|
100
shares of Class J cumulative convertible preferred
stock
|
On July
18, 2007, the Company’s Board of Directors authorized a 1 for 5 reverse stock
split of the Company’s common stock, effective August 7, 2007. In conjunction
therewith, the Company amended its articles of incorporation to reduce its
authorized capital shares from 100 million to 20 million to conform to Minnesota
statutory requirements. On August 12, 2009, the Company’s shareholders
approved an increase in the Company’s authorized shares to 100,000,000 shares of
no par capital stock. This increase was formally effectuated in December
2009. The Company gave retroactive effect of the common shares for the
reverse stock split transaction in the accompanying consolidated balance sheets
and the consolidated statements of operations.
F-33
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Cumulative
Convertible Preferred Stock
Dividends
on Class A, Class B, Class C, Class D, Class F, Class G, and Class H cumulative
convertible preferred stock are payable quarterly at 8%, 10%, 10%, 14%, 10%, 8%
and 6% per annum, respectively. Dividends on Class E cumulative
preferred stock are payable monthly at 15% per annum, which shall be adjusted
after 180 days with an increase of 83 basis points. Dividends
on Class J cumulative preferred stock are cumulative and payable quarterly at 8%
per annum, in cash or common stock at the Company’s sole
discretion. Cumulative convertible preferred stock can be converted
into common shares at any time as follows: Class A and Class B - five shares,
Class C - two shares, Class D - two and one-half shares, Class F- five shares,
Class G- six and one quarter shares, Class H is convertible at $1.00 per share
and Class I is convertible at $1.50 per share (subject to adjustment for reverse
stock split). Class E is not convertible. The intrinsic
value of any beneficial conversion option is recorded as preferred stock
dividends at the time of preferred stock issuance. Dividends on Class
B preferred are cumulative and payable monthly at 10% per annum. The
Class B preferred was offered to certain note payable holders at a conversion of
$10 per Class B preferred share. The dividends are based on $10.00
per share for Class A, B, C, D, E, F and G cumulative preferred
stock. Dividends for Class G stock are payable in common stock at a
fixed rate of $1.60 per share which is higher rate than fair market
value. Dividends for Class H cumulative preferred stock are based on
6% of the stated liquidation preference amount per share per
annum. They are payable in common stock at a fixed rate of $1.00 per
share which is higher than market value. Dividends on Class J
preferred stock are payable in common stock at a fixed rate of $2.00 per
share. All preferred stock is non-voting. Warrants to
purchase shares of the Company's common stock were given with the issuance of
Class A, Class B, Class D, Class G and Class H preferred stock and were valued
at fair value using the Black Scholes pricing model. The Company may,
but is not obligated to, redeem the preferred stock at $10.50 per share for
Class A and Class B and $10.00 per share for Class C, Class D, Class E and Class
F whenever the Company's common stock price exceeds certain defined criteria as
defined in the preferred stock agreements, except as noted below. The
Class H shares can be redeemed for $100,000 per share. Upon the
Company's call for redemption, the holders of the preferred stock called for
redemption have the option to convert each preferred share into shares of the
Company's common stock. Holders of preferred stock cannot require the
Company to redeem their shares with the exception of Class H shares, Class J
shares and the 50,000 shares of Class F converted into mandatory redeemable
preferred stock (see below). The liquidation preference is the same
as the redemption price for each class of preferred stock where
redeemable.
The
single Class F shareholder, at its sole discretion pursuant to a put option, can
force the Company to redeem up to 50,000 Class F Preferred Shares (the
equivalent of $500 worth). This has been redeemed
already. Class H shareholders have the right to convert all or a
portion of preferred shares upon the occurrence of a major transaction or
triggering event as defined in the agreement and Multiband has the sole option
to pay the redemption price in cash or shares of the Company’s common
stock. Class J shares have forced redemption rights at par, upon the
occurrence of a major transaction or triggering event as defined in the
agreement. Classes G, I and J have no redemption “call”
price). Upon Multiband's call for redemption, the holders of the
preferred stock called for redemption will have the option to convert each share
of preferred stock into shares of common stock until the close of business on
the date fixed for redemption, unless extended by Multiband in its sole
discretion. Preferred stock not converted would be
redeemed.
On
February 3, 2005, Multiband Corporation completed a $10 million private
placement of the Company’s Series I Convertible Preferred Stock. The
offering was made by Special Situations Fund of New York, NY through its
designated fund, Special Situations Fund III QP, L.P. Under the terms
of the preferred stock offering, the Company issued 100,000 shares of its Series
I Convertible Preferred Stock in the aggregate offering amount of $10
million. The shares of Series I Convertible Preferred Stock contain a
monthly dividend that is payable at prime plus 10% through August 31, 2005, at
prime rate from September 1, 2005 through August 31, 2006, and at prime rate
plus 1% thereafter, (8.25% and 9.25% at December 31, 2007 and 2006,
respectively). At December 31, 2007, $3,950 worth of preferred stock
value remains to be converted into 526,667 shares of common stock at a rate of
$1.50 per share ($7.50 per share as adjusted for August 2007 reverse stock
split). In addition, the investors received three-year warrants to
purchase shares of common stock at exercise prices of $1.57 and $1.73 per
share. In February, 2008 these warrants have
expired. The Company was also required to file a registration
statement providing for the resale of shares issuable upon the conversion of the
Series I Convertible Preferred Stock and upon exercise of the warrants which was
declared effective in September 2005. On March 18, 2008, the
remaining $3,950 worth of preferred stock value was converted into 526,667
shares of common stock.
Mandatory
Redeemable Preferred Stock
In 2004,
the Company issued 50,000 shares of mandatory redeemable preferred stock valued
at $500 pursuant to the purchase of assets and a put option given to the
sellers. The sellers have exercised $478 of the put option, equal to
47,800 shares of preferred stock and agreed to a negotiated discount of
$22. The mandatory redeemable preferred stock had an outstanding
balance of $0 and $150 as of December 31, 2009 and 2008,
respectively.
F-34
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Stock
Compensation Plans
The
Company has a 1999 Stock Compensation Plan, which permits the issuance of
restricted stock and stock options to key employees and agents. All
outstanding incentive stock options granted under the prior 1997 Stock Options
Plan continues until all agreements have expired. There are
15,000,000 shares of common stock reserved for issuance through restricted
stock, non-qualified stock option awards and incentive stock option
awards. The Plans also provide that the term of each award be
determined by the Board of Directors. Under the Plans, the exercise
price of incentive stock options may not be less than the fair market value of
the stock on the award date, and the options are exercisable for a period not to
exceed ten years from award date.
The
Company also has a 2000 Non-employee Director Stock Compensation Plan, which
permits the issuance of stock options for 5,000,000 shares of common stock to
non-employee directors. The exercise price of the stock options is
the fair market value of the stock on the award date, and the options are
exercisable for a period not to exceed ten years from award date.
Employee
Stock Purchase Plan
The
Company has a 2000 Employee Stock Purchase Plan, which allows for the sale of
80,000 shares of Company common stock to qualified employees. At
December 31, 2009 and 2008, no shares were issued under the Plan.
Stock
Subscriptions Receivable
The
Company has a stock subscription from the issuance of common stock,
collateralized by the stock, due to the Company of $123 and $123 at December 31,
2009 and 2008, respectively. This agreement requires monthly interest
only payments at interest of 2% on the outstanding receivable
balance. Interest receivable amounted to $3 and $1 at December 31,
2009 and 2008, respectively. This stock subscription has an extended
due date of June 2010. At December 31, 2009 and 2008, the Company has
reserved $100 and $71 related to this stock subscription and interest receivable
deemed to be uncollectible. The outstanding balance at December 31,
2009 and 2008 was $26 and $53, respectively.
The
Company had another stock subscription receivable from the issuance of common
stock, collateralized by the stock, due to the Company of $0 and $123 at
December 2009 and 2008, respectively. This subscription receivable was
reduced $61 for 60,000 common shares returned to the Company in February
2008. At December 31, 2008, the Company had reserved $92 related to
this stock subscription and interest receivable deemed to be
uncollectible. The outstanding balance at December 31, 2009 and 2008
was $0 and $31, respectively. The subscription receivable was fully
reserved for in 2009.
Restricted
Stock
The
Company awards restricted common shares to selected
employees. Recipients are not required to provide any consideration
other than services. Company share awards are subject to certain
restrictions on transfer, and all or part of the shares awarded may be subject
to forfeiture upon the occurrence of certain events, including employment
termination. The fair value at the date of grant related to the
shares awarded is generally amortized over three years, the vesting term of the
awards. In May 2008, the Company issued 22,500 shares of restricted
stock in the amount of $23 to two officers of the Company. The value
of the restricted stock was established by the market price on the date of
grant. These restricted shares were immediately vested and were
issued as performance bonuses pursuant to the Company’s Employee Stock
Compensation Plan.
Stock
Options
Stock
option activity is as follows for the years ended December 31:
|
Options
|
Weighted-Average
Exercise Price
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Outstanding,
January 1
|
663,032
|
659,832
|
613,331
|
$
|
7.05
|
$
|
7.15
|
$
|
7.55
|
|||||||||||||||
|
Granted
|
293,500
|
41,500
|
57,600
|
1.25
|
1.87
|
2.75
|
||||||||||||||||||
|
Cancelled
|
(48,015
|
)
|
(8,300
|
)
|
(11,099
|
)
|
19.35
|
3.82
|
5.66
|
|||||||||||||||
|
Expired
|
-
|
(30,000
|
)
|
-
|
-
|
3.00
|
-
|
|||||||||||||||||
|
Outstanding,
December 31
|
908,517
|
663,032
|
659,832
|
$
|
4.97
|
$
|
7.05
|
$
|
7.15
|
|||||||||||||||
F-35
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
The
weighted average grant date fair value of options granted during the years ended
December 31, 2009, 2008, and 2007 was $0.90, $1.48, and $2.75,
respectively. Options exercisable at December 31, 2009, 2008, and
2007 were 675,985, 625,601, and 521,931, respectively. The weighted
average price of exercisable options for the years ended December 31, 2009,
2008, and 2007 was $6.24, $7.34, and $9.04, respectively.
In
January 2009, the Company issued 80 shares of stock options with a Black Scholes
valuation of $72 to four directors of the Company. These seven-year
stock options were immediately vested and were issued as long-term incentive
compensation pursuant to the Company’s 2000 Non-employee Directors Stock
Compensation Plan.
In
January 2009, the Company issued 214 shares of stock options with a Black
Scholes valuation of $193 to two officers of the Company. These
seven-year stock options vest over four years and were issued as long-term
incentive compensation pursuant to the Company’s 1999 Stock Compensation
Plan.
Options
outstanding and exercisable as of December 31, 2009 are as follows:
|
Outstanding
|
Exercisable
|
||||||||||||||||||||||||||
|
Weighted
- Average
|
Weighted-
|
||||||||||||||||||||||||||
|
Range of Exercise Prices
|
Options
|
Exercise
Price
|
Remaining
Contractual
Life-Years
|
Options
|
Average
Exercise
Price
|
||||||||||||||||||||||
|
$
|
0.96
|
to
|
$
|
3.85
|
385,300
|
$
|
1.52
|
4.52
|
152,768
|
$
|
1.85
|
||||||||||||||||
|
$
|
4.25
|
to
|
$
|
6.90
|
158,580
|
6.13
|
4.79
|
158,580
|
6.13
|
||||||||||||||||||
|
$
|
7.00
|
to
|
$
|
8.60
|
343,670
|
7.37
|
4.54
|
343,670
|
7.37
|
||||||||||||||||||
|
$
|
9.25
|
to
|
$
|
14.38
|
7,100
|
10.32
|
3.57
|
7,100
|
10.32
|
||||||||||||||||||
|
$
|
21.57
|
to
|
$
|
33.75
|
13,867
|
25.81
|
0.48
|
13,867
|
25.81
|
||||||||||||||||||
|
$
|
0.96
|
to
|
$
|
33.75
|
908,517
|
$
|
4.97
|
4.51
|
675,985
|
$
|
6.24
|
||||||||||||||||
Using the
closing stock price of $2.00, $1.19, and $2.71, respectively, on December 31,
2009, 2008 and 2007, the number of options outstanding with an intrinsic value
was 307,900, 5,100, and 0, respectively, with an intrinsic value of $385, $5,
and $0, respectively.
Using
those same closing stock prices of $2.00, $1.19, $2.71, respectively, on
December 31, 2009, 2008 and 2007, the numbers of options exercisable was 84,800,
0, and 0, respectively, with an intrinsic value of $106, $0, and $0,
respectively.
The
intrinsic value of options exercised in 2009, 2008 and 2007 amounted to $0, $0,
and $0, respectively.
Stock
Warrants
Stock
warrants activity is as follows for the years ended December 31:
|
Outstanding
|
Weighted
- Average Exercise Price
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Outstanding,
January 1
|
1,485,833
|
3,088,873
|
3,488,329
|
$
|
7.25
|
$
|
7.64
|
$
|
8.05
|
|||||||||||||||
|
Granted
|
212,574
|
2,920
|
24,202
|
3.00
|
2.20
|
2.96
|
||||||||||||||||||
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Forfeited
|
(30,134
|
)
|
(1,605,960
|
)
|
(423,658
|
)
|
5.52
|
7.85
|
10.62
|
|||||||||||||||
|
Outstanding,
December 31
|
1,668,273
|
1,485,833
|
3,088,873
|
$
|
6.56
|
$
|
7.25
|
$
|
7.64
|
|||||||||||||||
The
weighted-average grant-date fair value of warrants granted during the years
ended December 31, 2009, 2008, and 2007 was $1.75, $0.56, and $0.96,
respectively.
F-36
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Warrants
outstanding and exercisable as of December 31, 2009, are as
follows:
|
Weighted - Average
|
||||||||||||||||||
|
Range
of Exercise
Prices
|
Warrants
|
Remaining
contractual
life
|
Exercise
prices
|
|||||||||||||||
|
$
|
2.06
|
to
|
$
|
5.50
|
447,294
|
2.54
|
$
|
3.43
|
||||||||||
|
$
|
6.25
|
to
|
$
|
6.50
|
722,981
|
0.38
|
6.05
|
|||||||||||
|
$
|
7.00
|
to
|
$
|
8.25
|
67,273
|
0.54
|
7.60
|
|||||||||||
|
$
|
10.00
|
to
|
$
|
11.25
|
430,725
|
0.75
|
10.35
|
|||||||||||
|
$
|
2.06
|
to
|
$
|
11.25
|
1,668,273
|
1.03
|
$
|
6.56
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Issuance
of debenture payable
|
212,574
|
-
|
-
|
|||||||||
|
Services
rendered
|
-
|
2,920
|
24,202
|
|||||||||
|
212,574
|
2,920
|
24,202
|
||||||||||
During
the year ended December 31, 2009, the Company issued 212,574 four-year and seven
month warrants in connection with the debenture payable (see Note 8) with a
weighted average exercise price of $3.00. These warrants were valued
at $347 using the Black Scholes pricing model.
During
the year ended December 31, 2008, the Company issued 2,920 three-year warrants
for services related to sales commissions with a weighted average exercise price
of $2.20. These warrants were valued at $2 using the Black Scholes
pricing model.
During
the year ended December 31, 2007, the Company issued 13,800 four-year warrants
for services related to investor relations with a weighted average exercise
price of $3.00. These warrants were valued at $41 using the Black
Scholes pricing model.
During
the year ended December 31, 2007, the Company issued 10,000 three-year warrants
for services related to consulting with a weighted average exercise price of
$2.57. These warrants were valued at $25 using the Black Scholes
pricing model.
During
the year ended December 31, 2007, the Company issued 402 three-year warrants for
services related to sales commissions with a weighted average exercise price of
$11.00. These warrants were valued at $1 using the Black Scholes
pricing model.
During
the year ended December 31, 2008, the Company evaluated the variables used in
calculating its option and warrant values. The Company has applied
these revised assumptions to warrants issued beginning in 2008. The
fair value of stock warrants is the estimated present value at grant date using
the Black Scholes pricing model with the following weighted-average assumptions
(see Note 1):
|
2009
|
2008
|
2007
|
||||||||||
|
Risk-free
interest rate
|
2.00%
|
1.12%
|
4.58%
|
|||||||||
|
Expected
life
|
4
years
|
3
years
|
3
years
|
|||||||||
|
Expected
volatility
|
95%
|
95%
|
244%
|
|||||||||
|
Expected
dividend rate
|
0%
|
0%
|
0%
|
|||||||||
F-37
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
12 – Noncontrolling Interest
Equity of
noncontrolling interest (previously minority interest) in subsidiaries consisted of the
following at December 31:
|
2009
|
2008
|
|||||||
|
Noncontrolling
interest in subsidiaries, beginning balance
|
$ | 3,471 | $ | - | ||||
|
Purchase
of 51% of NC
|
- | 2,819 | ||||||
|
Purchase
of 80% of NE, SC, EC, MBMDU, DV & Security
|
6,306 | - | ||||||
|
Purchase
of 29% of NC from noncontrolling interest
|
(2,054 | ) | - | |||||
|
Net
income(loss) attributable to the noncontrolling interest in
subsidiaries
|
(1,727 | ) | 652 | |||||
|
Purchase
remaining 20% of NC, NE, SC, EC MBMDU, DV & Security from
noncontrolling interest
|
(5,996 | ) | - | |||||
|
Noncontrolling
interest (previously minority interest) in subsidiaries, ending
balance
|
$ | - | $ | 3,471 | ||||
NOTE
13– Business Segments
The
Company has three reporting segments. Multiband Corp. segment
(MBCorp) includes corporate expenses (e.g. corporate administrative costs),
interest income, interest expense, depreciation and amortization. The
MDU segment (MNMDU, MBSS, MBMDU and MBUSA) represents results as the master
service operator for DirecTV and provides voice, data and video services to
residential multi-dwelling units as the principal to subscribers. The
HSP segment (NE, SC, EC, NC, DV and Security) provides the installation and
service of DirecTV video programming, internet and home security systems for
residents of single family homes. Segment disclosures by entity are
provided to the extent practicable under the Company's accounting
system.
Segment
disclosures are as follows:
|
Year
ended December 31, 2009
|
MBCorp
|
MDU
|
HSP
|
Total
|
||||||||||||
|
Revenues
|
$
|
-
|
$
|
25,187
|
$
|
243,807
|
$
|
268,994
|
||||||||
|
Income
(loss) from operations
|
(3,788
|
)
|
(1,038
|
)
|
(2,397
|
)
|
(7,223
|
)
|
||||||||
|
Identifiable
assets
|
2,510
|
12,547
|
84,474
|
99,531
|
||||||||||||
|
Depreciation
and amortization
|
417
|
4,066
|
6,423
|
10,906
|
||||||||||||
|
Capital
expenditures
|
270
|
2,611
|
56
|
2,937
|
||||||||||||
|
Year
ended December 31, 2008
|
MBCorp
|
MDU
|
HSP
|
Total
|
||||||||||||
|
Revenues
|
$
|
-
|
$
|
19,290
|
$
|
23,696
|
$
|
42,986
|
||||||||
|
Income
(loss) from operations
|
(2,943
|
)
|
1,511
|
2,335
|
903
|
|||||||||||
|
Identifiable
assets
|
5,567
|
7,471
|
13,005
|
26,043
|
||||||||||||
|
Depreciation
and amortization
|
698
|
2,295
|
32
|
3,025
|
||||||||||||
|
Capital
expenditures
|
60
|
87
|
24
|
171
|
||||||||||||
|
Year
ended December 31, 2007
|
MBCorp
|
MDU
|
HSP
|
Total
|
||||||||||||
|
Revenues
|
$
|
-
|
$
|
15,086
|
$
|
-
|
$
|
15,086
|
||||||||
|
Income
(loss) from operations
|
(4,321
|
)
|
(1,445
|
)
|
-
|
(5,766
|
)
|
|||||||||
|
Identifiable
assets
|
1,272
|
7,621
|
-
|
8,893
|
||||||||||||
|
Depreciation
and amortization
|
239
|
3,385
|
-
|
3,624
|
||||||||||||
|
Capital
expenditures
|
5
|
379
|
-
|
384
|
||||||||||||
F-38
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
14 - Income Taxes
The
Company has federal and state net operating losses of approximately $68,964 and
$51,163, respectively, which, if not used, will begin to expire in
2018. Changes in the stock ownership of the Company may place
limitations on the use of these net operating loss carryforwards
(NOLs). During 2009, the Company performed an IRC 382 study and
determined that an ownership change had occurred. As a result of the
ownership change, $41,613 of the Company’s NOLs are limited, consisting of annual
federal limitations of $6,294 for the next five years and $634 for each year
thereafter. The Company has determined there are also limitations on
the state net operating loss carryforwards, but has not completed the analysis
to determine the limitation.
Because
the Company believes it is more likely than not that it will be unable to fully
utilize the deferred tax assets, a full valuation allowance against its deferred
tax assets has been recorded. The change in the valuation allowance
was $(5,897), $(1,147), and $2,435 for the years ended December 31, 2009, 2008
and 2007, respectively. The change in the valuation allowance shown
in the effective tax rate reflects the current year’s activity. It
does not include a change in the valuation allowance due to adjustments in the
deferred items for adjustments, true-ups, and purchase accounting entries that
do not effect the current year’s tax provision.
In 2009,
the Federal income tax return of Multiband Corporation will include the former
operating entities of DirecTech Holding Company (see Note 2). The Company
acquired $10,191 of net deferred tax assets which included $24,158 in federal
net operating loss carryforwards, and $15,368 in state net operating loss
carryforwards. The acquired net deferred tax assets have a full
valuation allowance to fully reserve against those deferred tax assets as the
Company believes it is more likely then not that it will be unable to fully
utilize the acquired deferred tax benefits. In the event that the
Company determines that a valuation allowance is no longer required, any
benefits realized from the use of the NOLs and credits acquired will reduce its
deferred income tax expense.
The state
tax expense reported is due to some of the subsidiaries having taxable income in
states where the state requires filing separate company income tax returns
instead of filing on a consolidated basis with members of the consolidated
group. Other state tax expense is associated with the tax liability
being calculated off of gross receipts, capital, or some other non-income method
of computation. In 2008, for federal income tax purposes, NC was not
included in the consolidated tax return of the Company due to less than 80% of
ownership. Components of income tax expense for the year ended
December 31, 2008 relates to taxable income from the HSP segment and $45 of
alternative minimum tax (AMT) in the Multiband Corp. segment:
|
2009
Income tax expense
|
Federal
|
State
|
Total
|
|||||||||
|
Current
|
$
|
-
|
$
|
406
|
$
|
406
|
||||||
|
Deferred
|
-
|
-
|
-
|
|||||||||
|
Total
|
$
|
-
|
$
|
406
|
$
|
406
|
||||||
|
2008
Income tax expense
|
Federal
|
State
|
Total
|
|||||||||
|
Current
|
$
|
952
|
$
|
180
|
$
|
1,132
|
||||||
|
Deferred
|
-
|
-
|
-
|
|||||||||
|
Total
|
$
|
952
|
$
|
180
|
$
|
1,132
|
||||||
Components
of net deferred income taxes are as follows at December 31:
|
2009
|
2008
|
|||||||
|
Deferred
income tax assets:
|
||||||||
|
Net
operating loss carryforwards and tax credits
|
$
|
26,487
|
$
|
17,510
|
||||
|
Stock-based
compensation / compensation accruals
|
1,159
|
649
|
||||||
|
Accrued
liabilities/reserves
|
3,969
|
594
|
||||||
|
31,615
|
18,753
|
|||||||
|
Less
valuation allowance
|
(23,070
|
)
|
(17,173
|
)
|
||||
|
8,545
|
1,580
|
|||||||
|
Deferred
income tax liabilities:
|
||||||||
|
Prepaid
Expenses
|
(5)
|
-
|
||||||
|
Amortization
of intangibles and goodwill, including impairment
|
(8,436)
|
(1,376
|
)
|
|||||
|
Depreciation
|
(104
|
)
|
(204
|
)
|
||||
|
Net
deferred income tax assets
|
$
|
-
|
$
|
-
|
||||
F-39
Income
tax computed at the federal statutory rate reconciled to the effective tax rate
is as follows for the years ended December 31:
|
2009
|
2008
|
2007
|
||||||||||
|
Federal
statutory tax provision(benefit) rate
|
(34.0
|
)%
|
34.0
|
%
|
(34.0
|
)%
|
||||||
|
State
tax, net of federal benefit
|
(2.3
|
)
|
6.0
|
(6.0
|
)
|
|||||||
|
Change
in valuation allowance
|
40.0
|
2.0
|
40.0
|
|||||||||
|
Effective
tax rate
|
3.7
|
%
|
42.0
|
%
|
0.0
|
%
|
||||||
The
Company has the following net operating loss carryforwards at December 31, 2009,
for income tax purposes:
|
Year
of Expiration
|
Federal
Net
Operating
Loss
|
State
Net
Operating Loss
|
||||||
|
2018
|
-
|
1,303
|
||||||
|
2019
|
1,397
|
2,723
|
||||||
|
2020
|
4,839
|
1,629
|
||||||
|
2021
|
4,726
|
4,003
|
||||||
|
2022
|
4,353
|
3,737
|
||||||
|
2023
|
4,224
|
4,311
|
||||||
|
2024
|
6,052
|
3,202
|
||||||
|
2025
|
7,181
|
4,589
|
||||||
|
2026
|
5,249
|
3,061
|
||||||
|
2027
|
21,319
|
13,019
|
||||||
|
2028
|
9,256
|
3,708
|
||||||
|
2029
|
368
|
5,878
|
||||||
|
$
|
68,964
|
$
|
51,163
|
|||||
We
recognize the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax authority. As of December 31,
2009, we did not have any material uncertain tax positions.
It is our
practice to recognize interest and penalties related to income tax matters as a
component of income tax expenses on the consolidated statement of
operations. As of December 31, 2009, we had an immaterial
amount of accrued interest and penalties.
We are
subject to income taxes in the U.S. federal jurisdiction, and various state
jurisdictions. Tax regulations from each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. With few exceptions, we are no longer subject to U.S.
federal, state or local income tax examinations by tax authorities for the years
before 1999. Typically the statute of limitations is 3 years for the
federal and 5 years for the state tax
returns. Multiband’s statutes are open back to 1999 due to
net operating losses available from those years. We are not
currently under examination by any taxing jurisdiction.
We had no
significant unrecognized tax benefits as of December 31, 2009 that would
reasonably be expected to affect our effective tax rate during the next twelve
months.
F-40
NOTE 15
- Supplemental Cash Flows Information
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
paid for interest, net of amortization of OID and interest
discount
|
$
|
1,924
|
$
|
347
|
$
|
474
|
||||||
|
Cash
paid for federal and state income taxes
|
761
|
681
|
-
|
|||||||||
|
Non-cash
investing and financing transactions:
|
||||||||||||
|
Reduction
of related party debt with exchange for preferred
stock
|
1,500
|
-
|
-
|
|||||||||
|
Reduction
of accounts payable from sale of intangible assets and
equipment
|
446
|
-
|
-
|
|||||||||
|
Reduction
in related party debt by other receivable – related party for
legal settlement
|
3,904
|
1,946
|
-
|
|||||||||
|
Reduction
of related party debt by other receivable related party for insurance
payments made on behalf of Directech
|
96
|
-
|
-
|
|||||||||
|
Reduction
of stock subscription receivable via cancellation of common
stock
|
-
|
61
|
-
|
|||||||||
|
Reduction
of other receivable-related party with increase in fixed
assets
|
-
|
543
|
-
|
|||||||||
|
Purchase
of 51% of Michigan Microtech, Incorporated via issuance of notes payable
and common stock, net of discount for imputed interest
|
-
|
5,783
|
-
|
|||||||||
|
Purchase
of property and equipment via increase in capital lease
obligations
|
-
|
341
|
-
|
|||||||||
|
Purchase
of US Install via issuance of common stock
|
-
|
102
|
-
|
|||||||||
|
Acquisition
of securities available for sale upon expiration of contingent
rights
|
-
|
122
|
-
|
|||||||||
|
Intrinsic
value of preferred dividends
|
5
|
58
|
-
|
|||||||||
|
Conversion
of Class H preferred into common stock
|
8
|
-
|
-
|
|||||||||
|
Purchase
of 29% of outstanding stock of NC (formerly MMT) with issuance of short
and long-term notes payable
|
1,660
|
-
|
-
|
|||||||||
|
Interest
paid with the issuance of common stock
|
4
|
-
|
-
|
|||||||||
|
Increase
in prepaid expense via debt issued
|
17
|
-
|
-
|
|||||||||
|
Increase
in short term debt via offset to accounts payable
|
159
|
-
|
-
|
|||||||||
|
Purchase
80% of outstanding stock of DirecTECH operating entities via payment to
escrow in 2008
|
500
|
-
|
-
|
|||||||||
|
Note
payable issued for prepaid lease
|
-
|
-
|
44
|
|||||||||
|
Common
stock valued at $84, issued in lieu of cash for equipment, net of
reduction in accounts payable of $20
|
-
|
-
|
64
|
|||||||||
|
Conversion
of notes payable and accrued interest to common and preferred
stock
|
-
|
23
|
18
|
|||||||||
|
Conversion
of preferred stock to common stock
|
-
|
3,895
|
1,822
|
|||||||||
|
Capital
lease obligations related to property and equipment
|
622
|
-
|
-
|
|||||||||
|
Warrants
issued for long term financing
|
347
|
-
|
-
|
|||||||||
|
Conversion
of preferred stock dividends into common stock
|
264
|
179
|
637
|
|||||||||
|
Reduction
of notes payable via reduction of related party receivable in connection
with the purchase of 80% of outstanding stock of DirecTECH operating
entities
|
5,844
|
-
|
-
|
|||||||||
|
Purchase
80% of outstanding stock of DirecTECH operating entities via issuance of
short and long term notes payable
|
38,240
|
-
|
-
|
|||||||||
|
Reduction
of notes payable, net of imputed interest in connection with the sale of
intangible assets and related equipment
|
-
|
-
|
532
|
|||||||||
|
Common
stock issued for services to be rendered, recorded as a prepaid
asset
|
-
|
128
|
-
|
|||||||||
|
Purchase
of remaining 20% of outstanding stock of DirecTECH operating entities via
issuance of Class J preferred shares
|
10,000
|
-
|
-
|
|||||||||
|
Payment
of debt with issuance of common stock
|
106
|
-
|
-
|
|||||||||
|
Payment
of accrued expenses with the issuance of common stock
|
87
|
-
|
-
|
|||||||||
|
Conversion
of debt into common stock
|
17
|
-
|
-
|
|||||||||
|
Conversion
of accounts payable into debt
|
394
|
-
|
-
|
|||||||||
F-41
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
NOTE
16 - Retirement Savings Plan
The
Company has 401(k) profit sharing plan covering substantially all full-time
employees. Employee contributions are limited to the maximum amount
allowable by the Internal Revenue Code. The Company made no
discretionary contributions for any of the years presented.
NOTE
17 - Commitments and Contingencies
Operating
leases - buildings
The
Company has various operating leases for its corporate office space and
warehouses with lease terms expiring at various dates through August 2017. The
monthly base rents range from approximately $164 to $167. The leases
contain provisions for payments of real estate taxes, insurance and common area
costs.
Total
rent expense for the years ended December 31, 2009, 2008 and 2007 including
common area costs and real estate taxes was approximately $2,409, $584, and
$448, respectively.
Future
minimum rental payments, are as follows for the years ending December
31:
|
Year
|
Amount
|
|||
|
2010
|
$
|
1,775
|
||
|
2011
|
1,312
|
|||
|
2012
|
945
|
|||
|
2013
|
407
|
|||
|
2014
|
73
|
|||
|
Thereafter
|
119
|
|||
|
$
|
4,631
|
|||
Operating
leases - vehicles
The
Company leases substantially all of its fleet vehicles under operating leases
from one lessor. Each lease commences upon the in-service date of the
vehicle and requires scheduled lease payments to be paid monthly for one
year. After one year, the Company has the option to renew the lease
as open ended or surrender the leased vehicle to the lessor to be
sold. If the net proceeds of such sale exceed the vehicle’s then
depreciated value, the lessee receives the benefit of such excess. If there is a
deficiency upon such sale, then lessee is required to pay the deficiency as
additional rent to lessor. For the years ended December 31, 2009 and
2008, the Company recognized a loss on the sale of vehicles of approximately
$233 and $200, respectively. For the years ended December 31, 2009
and 2008, the Company’s operating lease expense under the lease totaled
approximately $7,930 and $1,080, respectively. In addition, the
Company has a security deposit with the lessor in the amount of approximately
$1,701 and $257 which is included in other assets in the accompanying
consolidated balance sheets as of December 31, 2009 and 2008,
respectively. All outstanding leases at December 31, 2009 have in
service dates of 2008 or before and therefore are currently open ended leases
and could be terminated at will.
On March
1, 2006, Corporate Technologies, LLC (CTLLC), a subsidiary of North Central
Equity, LLC, the purchaser of the MBS business segment, signed a lease with
Lexstar Tower I Limited Partnership whereby CTLLC assumed the lease obligation
for substantially all of the first floor space the Company is renting in Fargo,
North Dakota for the period beginning March 1, 2006 to February 28, 2011.
Pursuant to the aforementioned lease, the Company entered into a guaranty
whereby the Company, in the event of a default or early termination of the lease
by CTLLC, is obligated to perform CTLLC’s lease obligation during months 43-60
of the lease. This guaranty has no effect on the Company’s
consolidated financial statements for the years ended December 31, 2009, 2008
and 2007. However, should Multiband eventually have to perform on the guaranty
in the future, it could be liable for up to $271 in rent payments plus any
associated charges such as property taxes and common area
maintenance. The Company has determined that it is not required to
record any obligations related to this guaranty.
F-42
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Significant
Relationship
The
Company is a master agent for DirecTV pursuant to a system operator agreement
with DirecTV dated August 2005. Under that agreement the Company is
required to ensure that its system operators meet minimum technical DirecTV
system standards so that the system operator subscribers may properly receive
DirecTV programming services. The initial term of the agreement is
for three years and provides for two additional two-year renewals if the Company
has a minimum number of paying video subscribers in its system operator
network. The Company has met the requirements and has entered into
the first two year automatic renewal period.
The
Company also has a separate home service provider agreement with DirecTV ending
May 1, 2013. The term of this agreement with DirecTV will
automatically renew as of May 1, 2013 for additional one year periods unless
either the Company or DirecTV gives written notice of termination at least 90
days in advance of expiration of the then current term. Termination
of the Company's DirecTV agreements would have a material adverse impact on the
Company's on-going operations. Revenues generated from DirecTV
amounted to 99.2% and 91.32% of total revenue in 2009 and 2008,
respectively. Accounts receivable from this customer were 88.5% and
52.6% of total accounts receivable as of December 31, 2009 and December 31,
2008, respectively. The Company purchases a substantial portion of
its inventory from DirecTV. DirecTV is the only supplier of the major
components (i.e., dishes and receivers) used in HSP segment
installations. The total accounts payable to DirecTV, related to
inventory supplied by DirecTV, was $14,886 and $3,034 at December 31, 2009 and
December 31, 2008, respectively.
Bulk
Subsidy Reserve
Bulk
subsidy revenue is generated when bulk subscriber counts are greater than the
benchmark set by DirecTV. The Company reviews the subscriber counts
associated with bulk properties on a periodic basis to determine bulk subscriber
counts over the total units at the property. Based on its review, the
Company estimates that the result of this analysis will be a reduction to the
subscriber count of approximately 375 and 250 active bulk subscribers at
December 31, 2009 and 2008, respectively. The Company has recorded a
bulk subsidy reserve of $75 and $50 at December 31, 2009 and
2008. This reserve is netted against DirecTV estimated receivables on
the consolidated balance sheets and netted against revenues in the consolidated
statement of operations for the years ended December 31, 2009 and
2008.
Legal
proceedings
The
Company is subject to claims, regulatory processes and lawsuits that arise in
the ordinary course of business. The Company accrues for such matters
when a loss is considered probable and the amount of such loss, or a range of
loss, can be reasonably estimated. The Company’s defense costs are expensed as
incurred. The Company has recorded $8,706 of accrued liabilities as
of December 31, 2009 for claims and known and potential settlements associated
with existing litigation. The majority of the accrual relates to
claims for back overtime wages alleged in a number of cases filed between 2006
to 2008 entitled Lachiev v. JBM (S.D. Ohio); Davis v. JBM (S.D. Ohio); Gruchy v.
DirecTech Northeast (D. Mass); Stephen v. Michigan Microtech (E.D. Mich); and In
re DirecTECH Southwest, Inc. (E.D. La). Effective December 31, 2009,
the Company settled in principal the majority of these claims. While
the Company and its predecessors denied the allegations underlying the lawsuits,
it agreed to a settlement to avoid significant legal fees, the uncertainty of a
jury trial, and other expenses and management time that would have to be devoted
to protracted litigation. The Company recorded the settlement of
$6,729, net of imputed interest of $575 and including administration fees and
estimated payroll taxes. The aforementioned settlement will be paid
in equal installments of $291 over a 24 month period beginning January 15,
2010.
In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset a portion of certain claims against the note to DTHC, in
relation to the settlement noted above, the Company offset $3,904 during the
year ended December 31, 2009. The Company has recorded a receivable of $1,011 as
of December 31, 2009 which represents an estimate of the amount that could
potentially be recovered from DTHC including legal fees for the remaining
litigation.
In
December 2009, the US Department of Labor (DOL) sued various individuals that
are either shareholders, directors, trustees and/or advisors to DirecTECH
Holding Company (DTHC) and its Employee Stock Ownership Plan
(ESOP). Multiband Corporation was not named in this
complaint. Various defendants in this matter have made requests to
Multiband for advancement or reimbursement of legal fees to defend the
case. The basis for these requests are certain corporate
indemnification agreements that were entered into by the former DTHC operating
subsidiaries and Multiband itself. To date, Multiband has denied all
requests for indemnification of legal fees in this matter for, in part, the
following reasons: 1) Similar indemnification agreements as the ones in question
here were declared illegal under Federal law by a California federal appeals
court; 2) The Company believes the primary remedy the DOL is seeking from the
defendants is one of “disgorgement” from the individual DTHC
shareholders. Multiband has no obligation to indemnify DTHC
individual shareholder conduct. Notwithstanding the above, the
outcome of the matter is uncertain at present and Multiband cannot definitively
predict based on the current facts known to it, whether it ultimately will have
any material expense in the matter.
F-43
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Additionally,
the Company is subject to pending claims, regulatory processes and lawsuits for
which losses are not probable and amounts cannot be reasonably
estimated. Those losses could ultimately be material to the Company’s
financial position, results of operations and cash flows.
Line
of credit
The
Company has a line of credit agreement with a bank that provides borrowings up
to $50, due on demand. Amounts outstanding under this line of credit
carry an interest rate defined as the prime rate plus 3.0% (6.25% as of December
31, 2009). As of December 31, 2009 and 2008, the amount outstanding was $49 and
$0, respectively. This line of credit is guaranteed by J. Bas
Mattingly, Vice President of Business Development of the Company.
NOTE
18 – Related Party Transactions
On
November 17, 2009, the Company issued 5,000 shares of preferred series E stock
for $50 cash to director Eugene Harris.
On
November 17, 2009, the Company issued 5,000 shares of preferred series E stock
for $50 cash to director Frank Bennett.
On
September 30, 2009, the Company issued 50,000 shares of preferred series E stock
for $500 cash to director Eugene Harris.
The above
transactions were approved by the disinterested members of the Company’s audit
committee.
On
September 1, 2009, the Company entered into an unsecured short term promissory
note in the amount of $800 with J. Bas Mattingly, Vice President of Business
Development of the Company. The balance at December 31, 2009 is
$745. The note carries an interest rate of 4% per annum and is due
June 2010.
On May
26, 2009, the Company entered into a separate short-term loan with director
Frank Bennett in the amount of $1,400. This loan was paid in full on
May 28, 2009. The terms of the loan was approved by the disinterested
members of the Company’s audit committee.
On April
15, 2009, the Company entered into an unsecured short term promissory note in
the amount of $1,500 with director Frank Bennett. The note carried an interest
rate of 6% with a 1% origination fee totaling $15, and was due May 15,
2009. On May 4, 2009, the note was extended until June 15,
2009. On June 15, 2009, the note was extended until June 14,
2011. The terms of the loans were approved by the disinterested
members of the Company’s audit committee. On September 30, 2009, this
note was effectively paid off with the issuance of 150,000 shares of preferred
series E stock for $1,500 to Frank Bennett.
On
January 2, 2009, the Company entered into a promissory note in the amount of
$40,200 with DTHC, due January 1, 2013, bearing interest at an annual rate of
8.25% (subject to adjustment in the event of a default). The note was
subsequently adjusted by $6,344 for an offsetting receivable which was on
Multiband’s books as of December 31, 2008. This reduced the amount of
this promissory note to $33,856. The Company has the right to offset
a portion of certain claims against the note to DTHC once those claims are
resolved. As of December 31, 2009, the Company has offset $4,000 of
its claims which brings the remaining balance of the note to $29,856 (see Note 2
and 17). Secured by the stock and assets of all of the DTHC operating
entities.
Proceeds
for the acquisition of US Install Inc. by the Company completed in February,
2008 were obtained via an unsecured promissory note in the amount of $100
between Multiband and Bas Mattingly Master, LLC, a trust controlled by J. Bas
Mattingly, Vice President of Business Development of the Company. The
note carries an interest rate of 7% per annum and is due April 1,
2010.
The
Company has a line of credit agreement with a bank that provides borrowings up
to $50 (see Note 18). This line of credit is guaranteed by J. Bas
Mattingly, Vice President of Business Development of the Company.
NC leases
warehouse space in Mount Pleasant, MI. Lease payments amount to $9
per month plus expenses, expiring in December 2010. The property is
owned in part by Henry Block, Vice President of Marketing and Bernard Schafer,
Vice President of Business Development.
Multiband
and its subsidiaries lease principal offices located at 2000 44th Street
SW, Fargo, ND 58013. The Fargo base rate is $14 per
month. The Fargo property is owned in part by David Ekman, Chief
Information Officer of the Company.
F-44
MULTIBAND
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
(in
thousands, except for shares and per share amounts)
Jim
Mandel, CEO of Multiband, loaned DTHC $100 in a short-term unsecured
subordinated note, paying simple interest monthly at 10% and is due October 2008
The loan was repaid in full in March 2010.
In 2008,
Multiband and DTHC performed certain management and information systems
functions for one another pursuant to management consulting and employee leasing
agreements. These agreements terminated concurrent with Multiband’s
purchase of the former DTHC operating entities (Note 2). During the
year ended December 31, 2008, the Company has reduced selling, general and
administrative expenses $1,285 as a reimbursement of direct expenses in relation
to these management consulting agreements, respectively.
Prior to
the purchase of DirecTECH on January 2, 2009, Multiband provided support center
services to a then DirecTECH MDU (DTMDU), subsidiary of DTHC, currently
Multiband MDU, Incorporated (MBMDU). The Company recorded MDU segment
revenue of $416 and $70 from DTMDU for the years ended December 31, 2008 and
2007, respectively. DTMDU was also one of the system operators in the
MDU segment during 2008. The Company has recorded MDU segment revenue
of $2,917 and cost of products and services of $2,895 for the year ended
December 31, 2008 related to this system operator. The Company had
$771 in accounts receivable and $1,127 in accounts payable related to these
agreements at December 31, 2008.
Multiband
also had receivable balances with various DTHC entities at December 31, 2008 of
$7,666. Of this amount, $5,844 was subsequently offset in the first
quarter of 2009 against the purchase price note used to acquire majority
ownership of the operating subsidiaries of DTHC (Note 2).
The
Company has a note receivable due from a non-affiliated entity that is 50% owned
by a shareholder. The carrying value of this note receivable was $0
and $34 at December 31, 2009 and December 31, 2008, respectively.
In 2008,
Multiband earned a performance bonus as part of the aforementioned management
consulting agreement with DTHC of $1,447 which was paid via reduction of the
debt incurred in the acquisition of MMT (see Note 2). The Company
recorded this consulting income as part of other income and expense on the
statement of operations because the income does not constitute the entity’s
ongoing major or central operations. The consulting income was not a
reimbursement of direct expenses.
During
2009, the Company purchased 100% of the operating subsidiaries of DTHC (see Note
2). The following table is a condensed balance sheet as of December
31, 2008 and a condensed statement of operations for the year ended December 31,
2008, which presents the proforma financial results for the Company excluding
all 2008 transactions with DTHC (unaudited):
|
Multiband
Corporation
(as
filed)
|
Less:
DTHC
Related
(unaudited)
|
Proforma
(unaudited)
|
||||||||||
|
Accounts
receivable, net
|
$
|
3,437
|
$
|
(772
|
)
|
$
|
2,665
|
|||||
|
Other
receivable – related party
|
7,666
|
(7,666
|
)
|
-
|
||||||||
|
Prepaid
expenses and other
|
1,273
|
(518
|
)
|
755
|
||||||||
|
Accounts
payable
|
8,274
|
(1,127
|
)
|
7,147
|
||||||||
|
Revenues
|
42,986
|
(3,333
|
)
|
39,653
|
||||||||
|
Cost
of products and services (exclusive of depreciation and amortization shown
separately below)
|
28,426
|
(2,895
|
)
|
25,531
|
||||||||
|
Selling,
general and administrative
|
10,500
|
750
|
11,250
|
|||||||||
|
Management
consulting income
|
2,366
|
(2,366
|
)
|
-
|
||||||||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SUPPLEMENTARY
INFORMATION
To
Stockholders, Board of Directors and Audit Committee
Multiband
Corporation and subsidiaries
New Hope,
Minnesota
Under
date of March 31, 2010, we reported on the consolidated balance sheets of
Multiband Corporation and subsidiaries as of December 31, 2009 and 2008 and the
related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2009 as contained in the annual report on Form 10-K for the
year ended December 31, 2009, which report contained an unqualified opinion and
an explanatory paragraph related to certain contractual relationships between
the Company and DirecTECH Holding Company, Inc., which preceded a business
combination occurring on January 2, 2009. In connection with our
audits of the aforementioned consolidated financial statements, we have also
audited the related financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the
Company’s management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/
Baker Tilly Virchow Krause, LLP
Minneapolis,
Minnesota
March 31,
2010
F-46
MULTIBAND
CORPORATION AND SUBSIDIARIES
VALUATION
AND QUALIFYING ACCOUNTS
Years
Ended December 31, 2009, 2008 and 2007
(in
thousands)
|
Column
A
|
Column
B
|
Column
C
|
Column
D
|
Column
E
|
||||||||||||
|
Description
|
Balance
at
Beginning
of
Year
|
Additions
Charged
to
Costs
and
Expenses
|
Deductions
|
Balance
at
End
of Year
|
||||||||||||
|
ALLOWANCE
DEDUCTED FROM ASSET TO WHICH IT APPLIES
|
||||||||||||||||
|
Allowance
for doubtful accounts receivable:
|
||||||||||||||||
|
2009
|
$
|
60
|
$
|
750
|
$
|
-
|
$
|
810
|
||||||||
|
2008
|
75
|
-
|
15
|
(A)
|
60
|
|||||||||||
|
2007
|
229
|
-
|
154
|
(A)
|
75
|
|||||||||||
|
Stock
subscriptions and interest receivable
|
||||||||||||||||
|
2009
|
186
|
60
|
23
|
(A)
|
223
|
|||||||||||
|
2008
|
161
|
60
|
35
|
(A)
|
186
|
|||||||||||
|
2007
|
101
|
60
|
-
|
161
|
||||||||||||
|
(A)
|
Write-off
uncollectible receivables
|
F-47