Unassociated Document


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, 2008
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, 2008, (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 $9,664,859.

As of March 20, 2009, there were 9,641,821 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
7
       
 
Item 2.
Properties
8
       
 
Item 3.
Legal Proceedings
8
       
 
Item 4.
Submission of Matters to a Vote of Security Holders
8
       
Part II
 
 
 
       
 
Item 5.
Market for the Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
 8
       
 
Item 6.
Selected Consolidated Financial Data
  12
       
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
  13
       
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
  24
       
 
Item 8.
Consolidated Financial Statements and Supplementary Data
  24
       
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  24
       
 
Item 9A.
Disclosure Controls and Procedures
  24
       
 
Item 9B.
Other Information
  26
       
Part III
 
 
 
       
 
Item 10.
Directors, Executive Officers, and Corporate Governance
  26
       
 
Item 11.
Executive and Director Compensation
  29
       
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management
  33
       
 
Item 13.
Certain Relationships, Related Transactions and Director Independence
  34
       
 
Item 14.
Principal Accountant Fees and Services
  34
       
 
Item 15.
Exhibits and Financial Statement Schedules
  34
       
   
Signatures
  37
 
 
Page 1

 

Item 1

Business

Multiband Corporation (the Company), is a Minnesota corporation formed in September 1975. The Company has three operating segments: 1) Multiband Consumer Services (MCS, legally known as Multiband Subscriber Services, Inc.), 2) Multi-Dwelling Unit (MDU, legally known as Minnesota Digital Universe, Inc.); and 3) Home Service Provider (HSP, legally known as Michigan Microtech, Inc (MMT)).

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 MCS segment began in February 2000.  MCS 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., (MDU segment) 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 MCS 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 25, 2009, the Company had approximately 126,000 owned and managed subscriptions, with an additional 48,000 subscriptions supported by the call center.

To continue to expand services and offerings, the Company entered into the market of installing video services in single family homes.  Effective March 1, 2008, the Company purchased 51% of the outstanding stock of MMT. MMT installs DirecTV video services in single family homes. In January 2009, the HSP operating segment expanded significantly through an acquisition of the operating entities of DirecTECH Holding Co. (DTHC).

Minnesota Digital Universe, Inc. (MDU Segment)

The Company, through its MDU segment, also 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 17 million subscribers. DirecTV competes with the leading cable companies and with Echostar, America's second largest provider of satellite television. The Company, through its direct operations, markets DirecTV services. The MDU segment allows the Company to offer satellite television services to residents of multi-dwelling-units through a network of affiliated operators.

 
Page 2

 

Multiband Consumer Services (MCS Segment)

Since 2000, Multiband has offered voice, data and video services 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 MCS 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 include 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.

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.

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 is a fulfillment arm of DirecTV.  As a result, Multiband does not directly compete with other providers in this market arena.  Although DirecTV itself competes with Echostar, 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.

Multiband Consumer Industry Analysis and Strategy

MCS 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 that 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 that is 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.

 
Page 3

 

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 that are currently available. The approach that 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 that there are more than 65,000 properties in the United States that 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 that the rental properties are focusing on improving services and amenities that are 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 that 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 25, 2009, the Company had approximately 126,000 owned and managed subscriptions, with an additional 48,000 subscribers supported by the support center.

Employees

As of March 20, 2009, Multiband employed 5 full-time management employees, 14 accounting personnel, 15 information technology employees, 2 human resource employees and 2 in administrative positions. As of that same date, MCS had 89 full-time employees, consisting of 3 in sales and marketing, 7 in technical positions, 77 in customer service and related support, and 1 in both management and administrative positions.  MDU had 1 management employee, 1 administrative personnel and 9 customer service employees.  HSP employed 1 management employee, 3 human resource employees, 4 administrative personnel, 33 customer service employees, 384 technicians and 16 warehouse employees.  The Company added an additional 3,383 employees on January 2, 2009, as a result of the acquisition of the majority ownership of former subsidiaries of DTHC.

Item 1A

Risk Factors

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.

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.

 
Page 4

 

In early 2000, Multiband created its MCS 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 MDU segment 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)

The Company had net income of $944,931 for the year ended December 31, 2008 and a net loss of $6,088,353 for the year ended December 31, 2007 and a net loss of $10,183,723 for the year ended December 31, 2006.  In addition, 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 17).

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 working capital of $2,465,209 as of December 31, 2008 due to the acquisition of MMT.  As of December 31, 2007 the Company had a working capital deficiency of $5,018,177, respectively, primarily due to operating losses.

Goodwill and Intangible Assets

The Company applies the Financial Accounting Standards Board Statement (FASB) of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which sets forth financial and reporting standards for the acquisition of intangible assets, other than those acquired in a business combination, and for goodwill and other intangible assets subsequent to their acquisition.  For the year ended December 31, 2008, the Company recorded an impairment of $50,000 on the goodwill related to the US Install purchase and impaired the remaining goodwill balance of $16,757 from a previous acquisition.  Also, pursuant to the abandonment of a right of entry intangible asset, the Company recorded an impairment charge of $65,452 for the year ended December 31, 2008.

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.

 
Page 5

 

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, via MMT, also has a separate home service provider agreement with DirecTV ending April 30, 2011.  The term of the MMT contract with DirecTV will automatically renew as of May 1, 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.  In early 2009, the Company acquired other HSP providers formerly owned by DTHC.  These other providers have dealer agreements which are substantially similar to the MMT agreement.  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.

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.

 
Page 6

 

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 Stock Purchase Agreement with DTHC

During the fourth quarter of 2008, the Company entered into a Stock Purchase Agreement (SPA) with DTHC, the closing of which occurred in January 2009 (see Note 17). The results of this agreement may produce an uncertain effect on Multiband’s and DTHC’s business relationships, including their ability to retain key employees, suppliers and customers.  The DTHC operating entities combined into the Multiband entities may not achieve the operating results and growth anticipated by management.

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 10K 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.

 
Page 7

 

Item 2

Properties

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 main Fargo office lease expires in 2017 and covers approximately 16,500 square feet. The Fargo base rent is $15,236 per month. The New Hope office lease expires in 2013 and covers approximately 47,000 square feet. The New Hope base rent ranges from $21,512 to $25,167 per month.  Our HSP principal office is located in at 2185 East Remus Road, Mount Pleasant, MI.  This lease expires in 2009 and covers approximately 6,100 square feet with base rent of $3,300 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.  Multiband considers its current facilities adequate for its current needs and believes that suitable additional space would be available as needed.

Item 3

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 has accrued liabilities of $960,000, which net of indemnifications of $480,000, equal net expense of $480,000 for claims and potential settlements associated with litigation.  Defense costs are expensed as incurred.  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. The Company had no accrued legal contingencies at December 31, 2007.

Item 4

Submission of Matters to a Vote of Security Holders

The Company did not submit matters to a vote of security holders during the last quarter of the year covered by this report.

PART II

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, 2008 and December 31, 2007 as provided by NASDAQ (as adjusted for  the 1 for 5 reverse stock split issued August 2007).

Quarter Ended
 
High Bid
   
Low Bid
 
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  
March 31, 2007
    4.10       2.00  
June 30, 2007
    3.90       1.10  
September 30, 2007
    5.05       2.39  
December 31, 2007
    4.20       2.26  
 
 
Page 8

 

As of March 20, 2009, Multiband had 962 shareholders of record of its common stock and 9,641,821 shares of common stock outstanding. As of that date, five shareholders held a total of 14,171 of Class A Preferred, one shareholders held 2,270 shares of Class B Preferred, four shareholders held a total of 113,780 shares of Class C 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, and six shareholders held a total of 2 shares of Class H Preferred.

Recent Sales of Unregistered Securities

In October 2008, the Company issued 37,880 shares of common stock worth $101,516 in connection with the acquisition of US Install.

In August 2008, the Company issued 75,000 shares of common stock worth $128,250 in lieu of payment for consulting services.

In June 2008, the Company issued 22,500 shares of common stock worth $23,625 in connection with the issuance of restricted stock to Company executives.

In June 2008, the Company issued 6,250 shares of common stock worth $50,000 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 $3,744,600 in connection with the conversion of Class I preferred stock.

In February 2008, the Company issued 1,490,000 shares of common stock worth $3,854,000 in connection with the acquisition of Michigan Microtech, Inc.

In January 2008, the Company issued 12,500 shares of common stock worth $100,000 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 $116,000 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 $84,000 in connection with the acquisition of equipment.

In August 2007, the Company issued 27,000 shares of common stock worth $51,837 in lieu of payment for consulting services.

In July 2007, the Company issued 240,000 shares of common stock worth $1,706,400 in connection with a conversion of Class I preferred stock.

In June 2007, the Company issued 15,000 shares of common stock worth $112,500 in lieu of payment for investor relations services.

In July 2006, the Company issued 32,500 shares of common stock worth $162,500 in connection with an acquisition of video subscribers located in Ohio.

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.

 
Page 9

 

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.

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 June 2008, $50,000 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, $3,950,000 worth of Class I preferred stock was converted into common stock at a price of $100.00 per share.

In January 2008, $100,000 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, $116,000 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, $1,800,000 worth of Class I preferred stock was converted into common stock at a price of $100.00 per share.

During the fourth quarter of 2006, one of the Class I Preferred stockholders sold all of their shares to another accredited investor.

The holders of the Class A Preferred, Class B Preferred, Class C Preferred, Class D Preferred, Class E Preferred, Class F Preferred, Class G Preferred, Class H Preferred and Class I Preferred (collectively, "Preferred Stock") are entitled to receive out of the assets of the Company legally available for payment thereof, cumulative cash dividends calculated based on the per share stated value of the Preferred Stock. The per annum dividend rate is eight percent (8%) for the Class A Preferred and ten percent (10%) for the Class B Preferred, Class C Preferred and Class F Preferred, fourteen percent (14%) for the Class D Preferred, fifteen percent (15%) for the Class E Preferred, to be paid in kind, eight percent (8%) for the Class G Preferred, six percent (6%) for the Class H Preferred and variable rate tied to prime for the Class I Preferred dividends on the Class A Preferred, Class C Preferred, Class D Preferred, Class F Preferred and Class G Preferred are payable quarterly on March 31, June 30, September 30, and December 31 of each year. Dividends on the Class B and Class I Preferred are payable monthly on the first day of each calendar month. Dividends on the Class H Preferred are payable semiannually on June 30 and December 31 of each year. Dividends on the Preferred Stock accrue cumulatively on a daily basis until the Preferred Stock is redeemed or converted.

 
Page 10

 

In the event of any liquidation, dissolution or winding up of Multiband, the holders of the Class A Preferred and Class B Preferred will be entitled to receive a liquidation preference of $10.50 per share, and the holders of the Class C Preferred, Class D Preferred, Class E Preferred, Class F Preferred and Class G Preferred will be entitled to receive a liquidation preference of $10.00 per share, each subject to adjustment. Holders of the Class H Preferred will be entitled to receive a liquidation preference of $100,000 per share. Holders of the Class I Preferred will be entitled to receive a liquidation preference of $100.00 per share. Any liquidation preference shall be payable out of any net assets of Multiband remaining after payment or provision for payment of the debts and other liabilities of Multiband.

No holder of Preferred Stock can require Multiband to redeem his or her shares, except for a single Class F and Class H shareholders.  The single Class F shareholder who, at its sole discretion pursuant to a put option, can force the Company to redeem up to 15,000 Class F Preferred Shares (the equivalent of $150,000 worth as of December 31, 2008).  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.  Multiband, upon notice, may voluntarily redeem the Preferred Stock, in whole or in part, at a redemption price per class equal to the liquidation prices stated above provided the closing bid price of the common stock exceeds a certain share price, ($4.00 per share for Classes A, B and C; $2.75 per share for Class F; $2.00 per share for Class H; Classes G and I 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 11

 

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, 2005 and 2004 and the Balance Sheet data at December 31, 2006, 2005 and 2004 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
 
2008
   
2007
   
2006
   
2005
   
2004
 
Revenues
  $ 42,986,513     $ 15,085,604     $ 18,051,601     $ 16,515,426     $ 11,067,834  
Cost of products and services (exclusive of depreciation and amortization listed separately below)
  $ 28,425,926     $ 8,339,933     $ 8,280,666     $ 7,849,597     $ 5,943,395  
Cost of products and services as % of revenue
    66.13 %     55.3 %     45.9 %     47.5 %     53.7 %
Selling, general and administrative expenses
  $ 10,499,863     $ 8,887,883     $ 11,480,677     $ 9,723,132     $ 5,986,267  
Selling, general and administrative as % of revenues
    24.43 %     58.9 %     63.6 %     58.9 %     54.1 %
Depreciation and amortization
  $ 3,025,478     $ 3,623,903     $ 5,168,209     $ 4,780,436     $ 3,432,779  
Impairment of assets
  $ 132,209     $ -     $ 2,261,500     $ -     $ -  
Income (loss) from operations
  $ 903,037     $ (5,766,115 )   $ (9,139,451 )   $ (5,837,739 )   $ (4,294,607 )
Other income (expense), net
  $ 1,826,061     $ (322,238 )   $ (1,046,472 )   $ (1,655,088 )   $ (1,032,035 )
Income (loss) before income taxes and minority interest in subsidiary
  $ 2,729,098     $ (6,088,353 )   $ (10,185,923 )   $ (7,492,827 )   $ (5,326,642 )
Provision for income taxes
  $ 1,132,000     $ -     $ -     $ -     $ -  
Minority interest in net income of subsidiary
  $ 652,167     $ -                          
Income (loss) from continuing operations
  $ 944,931     $ (6,088,353 )   $ (10,185,923 )   $ (7,492,827 )   $ (5,326,642 )
Discontinued operations
  $ -     $ -     $ 2,200     $ 17,827     $ (4,457,320 )
Net income (loss)
  $ 944,931     $ (6,088,353 )   $ (10,183,723 )   $ (7,475,000 )   $ (9,783,962 )
Loss attributable to common stockholders
  $ (3,143,344 )   $ (8,388,855 )   $ (14,250,446 )   $ (10,827,229 )   $ (10,374,417 )
Income (loss) from continuing operations
  $ (.34 )   $ (1.16 )   $ (2.11 )   $ (1.86 )   $ (1.27 )
Income (loss) from discontinued operations
  $ (.00 )   $ (.00 )   $ (.00 )   $ (.00 )   $ (.96 )
Loss attributable to common stockholders
  $ (.34 )   $ (1.16 )   $ (2.11 )   $ (1.86 )   $ (2.23 )
Weighted average shares outstanding
    9,302,570       7,237,473       6,757,643       5,819,585       4,661,519  

Balance Sheet Data
 
2008
   
2007
   
2006
   
2005
   
2004
 
Working Capital (deficiency)
  $ 2,465,209     $ (5,018,177 )   $ (5,294,245 )   $ (971,418 )   $ (8,931,414 )
Total Assets
  $ 26,043,228     $ 8,893,429     $ 17,986,056     $ 26,271,405     $ 26,633,712  
Mandatory Redeemable Preferred Stock (1)
  $ 150,000     $ 220,256     $ 280,000     $ 333,334     $ 500,000  
Long-Term Debt, net (2)
  $ 345,874     $ 118,924     $ 2,969,764     $ 3,816,536     $ 3,498,657  
Capital Lease Obligations, net (2)
  $ 317,628     $ 249,469     $ 491,672     $ 452,649     $ 481,249  
Stockholders’ Equity
  $ 5,642,247     $ 673,838     $ 5,659,309     $ 14,968,295     $ 8,549,431  
(1) – mandatory redeemable preferred stock is included in working capital (deficiency)
(2) – current portion of long-term debt and capital lease obligations is included in working capital (deficiency)

 
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Item 7

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, 2008 and December 31, 2007

Results of Operations
The following table sets forth certain items.

 
 
2008
   
2007
 
Revenues
           
Multiband
    0.00 %     0.00 %
MCS
    8.68 %     34.06 %
MDU
    36.20 %      65.94 %
HSP
    55.12 %     - %
Total Revenues
    100.00 %     100.00 %
                 
Cost of Products and Services (exclusive of depreciation and amortization)
               
Multiband
    0.00 %     0.00 %
MCS
    6.19 %     23.09 %
MDU
    22.11 %     32.19 %
HSP
    37.83 %     - %
Total Cost of Products and Services (exclusive of depreciation  and amortization)
    66.13 %     55.28 %
Selling, General and Administrative Expenses
    24.43 %     58.92 %
Impairment of Assets
    0.31 %     0.00 %
Income (Loss) from Continuing Operations
    2.20 %     (40.36 )%
Net Income (Loss)
    2.20 %     (40.36 )%

Revenues
Total revenues from continuing operations increased 184.95% from $15,085,604 in 2007 to $42,986,513 in 2008.  This overall increase in revenues is primarily due to the purchase of MMT in March 2008, with revenues for the ten month period ended December 31, 2008 of $23,696,045, 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.  Revenue from the MCS segment decreased to $3,731,139 in 2008 from $5,137,756 in 2007 due to the aforementioned sales of owned subscriptions offset by an increase in call center revenue.  In 2009, MCS revenues will remain relatively consistent.  The MDU segment had revenues of $15,559,329 in 2008 and $9,947,848 in 2007, at an increase of 56.41%.  This overall increase of approximately $5,611,481 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.  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.  The HSP segment had revenues of $23,696,045.  This increase is due to the purchase of MMT (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 17).

 
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Costs of Products and Services (exclusive of depreciation and amortization)
Total costs of products and services were $28,425,926 in 2008 compared to $8,339,933 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 MMT with costs for the ten months ended December 31, 2008 of $16,260,954, 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.  MCS segment cost of products and services were $2,658,809 in 2008 and $3,483,153 in 2007.  The decrease in cost of products and services in the MCS segment is directly related to a decrease in programming and circuit charges between the comparable periods due to a decreased subscriber number.  MDU segment costs of products and services were $9,506,163 in 2008 and $4,856,780 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 and certain commission payments.   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 18.14% to $10,499,863 in 2008, compared to $8,887,883 in 2007 due primarily to the addition of the HSP segment resulting from the acquisition of MMT in 2008 with costs for the ten months ended of $5,067,987, 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 $1,285,000 of reimbursed payroll expenses for management consulting to DTHC per its management consulting agreement which ended at December 31, 2008 (see Note 16).  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 $132,209, consisting of $50,000 of the goodwill related to the US Install purchase and the remaining goodwill balance of $16,757 from a previous acquisition.  Also, pursuant to the abandonment of a right of entry intangible asset, the Company recorded an impairment charge of $65,452 for the year ended December 31, 2008.

Depreciation and Amortization
Depreciation and amortization expense decreased 16.51% to $3,025,478 for the year ended December 31, 2008, as compared to $3,623,903 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 MMT 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 $903,037 compared to a loss of $5,766,115 during 2007.  The MDU segment showed a profit from operations of $3,782,927 in 2008 compared to profits of $2,953,736 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 HSP segment for the ten months ended December 31, 2008, had a profit of $2,334,572, 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).  In 2008, the MCS segment showed a loss from operations of $2,271,821 compared to a loss of $4,399,150 for the prior year.  In addition to the sale of subscribers, the Company hopes that it can continue to mitigate its loss in the MCS segment by increasing the subscribers managed by the support center and reducing related payroll expenses.  The Multiband Corporation segment, which has no revenues, showed a loss from operations of $2,942,641 in 2008 compared to a loss of $4,320,701 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 $1,285,000 of management consulting income as well as a management performance bonus of $2,366,466.  This agreement ends in 2009 as a result of the acquisition of the majority ownership of former operating subsidiaries of DTHC (Note 17).  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 17).

Interest Expense
Interest expense was $657,289 for 2008 versus $503,887 for 2007, reflecting primarily an increase in the Company’s debt issued for the purchase of 51% of MMT (see Note 2) and related imputed interest discount expense.  Amortization of imputed interest discount was $282,100 and $0 for the years ended December 31, 2008 and 2007, respectively.

 
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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 $2,366,466 which was paid via reduction of the debt incurred in the acquisition of MMT (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.  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.

Minority Interest
Effective March 1, 2008, the Company purchased 51% of the stock of MMT.  The minority interest on the statement of operations for the year ended December 31, 2008 was $652,167.  The minority interest represents DTHC’s 49% ownership of MMT.  MMT currently makes up 100% of the HSP segment.

Income taxes
Due to the Company’s purchase of 51% of MMT’s stock, effective March 1, 2008, MMT 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, MMT will not be able to utilize the tax loss carryforwards of Multiband Corporation since Multiband owns less than 80% of MMT.  For the year ended December 31, 2008, the Company has recorded a provision for income tax of $1,132,000.  MMT currently makes up 100% of the HSP segment.

Net Income (Loss)
The Company incurred a net income of $944,931 in 2008.  The Company’s net loss in 2007 totaled $6,088,353.

Total Assets
The following table sets forth certain items.

Total Assets
 
2008
   
2007
 
Multiband
  $ 5,567,052     $ 1,272,271  
MCS
    3,373,305       2,968,249  
MDU
    4,098,137       4,652,909  
HSP
    13,004,734       -  
Total Assets
  $ 26,043,228     $ 8,893,429  

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 17).  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(1)
   
(unaudited)
Proforma
 
Accounts receivable, net
  $ 3,436,424     $ (771,427 )   $ 2,664,997  
Other receivable – related party
    7,666,295       (7,666,295 )     -  
Prepaid expenses and other
    1,273,083       (518,024 )     755,059  
Accounts payable
    8,274,003       (1,127,005 )     7,146,998  
                         
Revenues
    42,986,513       (3,333,119 )     39,653,394  
Cost of products and services (exclusive of depreciation and amortization shown separately below)
    28,425,926       (2,895,176 )     25,530,750  
Selling, general and administrative
    10,499,863       750,000       11,249,863  
Management consulting income
    2,366,466       (2,366,466 )     -  
 
(1)
All adjustments described in the paragraphs of Note 16
 
 
Page 15

 

Years Ended December 31, 2007 and December 31, 2006

This discussion does not include the results of discontinued operations.

Results of Operations
The following table sets forth certain items.

 
 
2007
   
2006
 
Revenues
           
Multiband
    0.00 %     0.00 %
MCS
    34.06 %     41.96 %
MDU
    65.94 %      58.04 %
Total Revenues
    100.00 %     100.00 %
                 
Cost of Products and Services (exclusive of depreciation and amortization)
               
Multiband
    0.00 %     0.00 %
MCS
    23.09 %     22.56 %
MDU
    32.19 %     23.31 %
Total Cost of Products and Services (exclusive of depreciation  and amortization)
    55.28 %     45.87 %
Selling, General and Administrative Expenses
    58.92 %     63.60 %
Impairment of Assets
    0.00 %     12.53 %
Loss from Continuing Operations
    (40.36 )%     (56.42 )%
Gain(Loss) from Discontinued Operations
    0.00 %     0.01 %
Net Loss
    (40.36 )%     (56.41 )%

Revenues
Total revenues from continuing operations decreased 16.4% from $18,051,601 in 2006 to $15,085,604 in 2007. This overall decrease in revenues is primarily due to sales of approximately 23,000 owned subscriptions which occurred throughout 2007 in efforts to strategically sell unprofitable owned assets as prudent and redeploy 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.  Revenue from the MCS segment decreased to $5,137,756 in 2007 from $7,573,799 in 2006 due to the aforementioned sales of owned subscriptions offset by an increase in call center revenue.  In 2008, MCS revenues will continue to decrease due to the 2007 sales of subscribers in the MCS portfolio.  The MDU segment had revenues of $9,947,848 in 2007 and $10,477,802 in 2006, at a decrease of 5.1%.  This overall decrease of approximately $530,000 in the MDU segment is primarily due to the aforementioned decrease in the number of owned subscribers which reduced revenue approximately $1,100,000.  The aforementioned revenue decrease was partially offset by an approximate increase of $570,000 generated by the system operators including a related decrease in DirecTV prepaid commissions rates.  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.

Costs of Products and Services (exclusive of depreciation and amortization)
Total costs of products and services were $8,339,933 in 2007 compared to $8,280,666 in 2006. Overall costs of products and services as a percentage of revenue did increase between 2006 and 2007 due to 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.  In 2006, those support center costs were immaterial due to the small number of subscribers supported by the call center.  MCS segment cost of products and services were $3,483,153 in 2007 and $4,073,165 in 2006.  The decrease in cost of products and services in the MCS segment is directly related to a decrease in programming and circuit charges between the comparable periods due to a decreased subscriber number.  MDU segment costs of products and services were $4,856,780 in 2007 and $4,207,501 in 2006.  The increase in costs of products and services in the MDU segment is primarily related to an increase in revenue generated by the system operators.   The Company expects costs of products and services as a percentage of revenue to increase slightly in future periods due to the change in revenue mix.

 
Page 16

 

Selling, General and Administrative Expense
Selling, general and administrative expenses from continuing operations decreased 22.7% to $8,887,883 in 2007, compared to $11,480,677 in 2006.  Selling, general and administrative expenses were, as a percentage of revenues, 58.9% for 2007 and 63.6% for 2006. This decrease is primarily due to decreases in payroll and employee expenses, property maintenance expenses, and stock option expense between the comparable periods. The Company anticipates that selling, general and administrative expenses, exclusive of stock option expenses, will continue to decrease in 2008 due to reduced payroll expenses from the sale of subscribers throughout 2007, subject, however, to potential acquisition activity in 2008.

Impairment of Assets
Pursuant to the sale of video assets to Consolidated Smart Broadband Systems, LLC., (CSBS) (see Note 2), the Company recorded an impairment charge of $2,261,500 for the year ended December 31, 2006.  This charge was determined based upon the excess net book value of assets sold over the known proceeds from the sale as of March 1, 2007.  The impairment charge was allocated in the amount of $417,465 to goodwill, $1,539,633 to intangible assets and $304,402 to fixed assets.

Loss from Operations
The Company, in 2007, incurred a loss from operations for its combined operating business segments of $5,766,115 compared to a loss of $9,139,451 during 2006. The MDU segment showed a profit from operations of $2,953,736 in 2007 compared to profits of $4,066,850 in 2006. In 2007, the MCS segment showed a loss from operations of $4,399,150 compared to a loss of $8,492,405, including an impairment charge of $2,261,500 for the prior year.  The Multiband Corporation segment, which has no revenues, showed a loss from operations of $4,320,701 in 2007 compared to a loss of $4,713,896 for the same period last year. The Multiband Corporation loss is expected to continue in future periods as corporate overhead is expected to remain consistent with current levels. The Company expects the MDU segment profitability in future periods to stabilize as the year to date reduction in profits for this segment has been significantly impacted by agent fees paid for owned subscriber sales.  These sales have now been completed.  In addition to the sale of subscribers, the Company hopes that it can continue to mitigate its loss in the MCS segment by reducing related payroll expenses.  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 can be more variable than fixed.

Interest Expense
Interest expense was $503,887 for 2007 versus $1,206,196 for 2006, reflecting primarily a decrease in the Company’s debt and original issue discount expense.  Amortization of original issue discount was $30,413 and $436,106 for the years ended December 31, 2007 and 2006, respectively.

Net Loss
The Company incurred a net loss of $6,088,353 in 2007.  The Company’s net loss in 2006 totaled $10,183,723, which included an impairment charge of $2,261,500 incurred due to the sale of video assets located in California (see Note 2).

Total Assets
The following table sets forth certain items.

Total Assets
 
2007
   
2006
 
Multiband
  $ 1,272,271     $ 2,478,638  
MCS
    2,968,249       9,063,793  
MDU
    4,652,909       6,443,625  
Total Assets
  $ 8,893,429     $ 17,986,056  
 
 
Page 17

 

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, 2008.  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.
 
   
Dec. 31,
2008
   
Sept. 30,
2008
   
June 30,
2008
   
March 31,
2008
   
Dec. 31,
2007
   
Sept. 30,
2007
   
June 30,
2007
   
March 31,
2007
 
Revenues:
                                               
Multiband
    -       -       -       -       -       -       -       -  
MCS
  $ 1,242,666     $ 799,445     $ 840,466     $ 848,562     $ 797,164     $ 1,084,114     $ 1,404,398     $ 1,852,080  
MDU
  $ 5,164,136     $ 4,148,786     $ 3,360,696     $ 2,885,711     $ 2,328,159     $ 2,569,486     $ 2,517,328     $ 2,532,875  
HSP
  $ 7,719,116     $ 7,392,428     $ 6,604,545     $ 1,979,956     $ -     $ -     $ -     $ -  
Total Revenues
  $ 14,125,918     $ 12,340,659     $ 10,805,707     $ 5,714,229     $ 3,125,323     $ 3,653,600     $ 3,921,726     $ 4,384,955  
Cost of Products & services (exclusive of depreciation and amortization shown separately below)
  $ 9,655,989     $ 8,556,168     $ 6,393,571     $ 3,820,198     $ 1,944,754     $ 2,345,895     $ 1,871,238     $ 2,178,046  
SG&A Expense
  $ 3,326,506     $ 2,757,319     $ 2,560,755     $ 1,855,283     $ 1,829,947     $ 2,360,254     $ 2,308,426     $ 2,389,256  
Depreciation & Amortization
  $ 562,399     $ 846,317     $ 879,055     $ 737,707     $ 808,922     $ 770,215     $ 995,068     $ 1,049,698  
Impairment of assets
  $ 66,757       -     $ 7,406     $ 58,046       -       -       -       -  
Operating Income (Loss)
  $ 514,267     $ 180,855     $ 964,920     $ (757,005 )   $ (1,458,300 )   $ (1,822,764 )   $ (1,253,006 )   $ (1,232,045 )
Interest Expense
  $ (142,804 )   $ (300,826 )   $ (113,000 )   $ (100,659 )   $ (73,623 )   $ (108,847 )   $ (168,010 )   $ (153,407 )
Management Income
    919,528       1,446,938       -       -       -       -       -       -  
Other Income (Expenses)
  $ 36,185     $ 8,109     $ 32,407     $ 40,183     $ 4,288     $ 13,267     $ 141,037     $ 23,057  
Net Income (Loss) Before Taxes and Minority Interest
  $ 1,327,176     $ 1,335,076     $ 884,327     $ (817,481 )   $ (1,527,635 )   $ (1,918,344 )   $ (1,279,979 )   $ (1,362,395 )
Income Tax Provision
  $ 382,542     $ 286,658     $ 434,300     $ 28,500       -       -       -       -  
Minority Interest
  $ 102,409     $ 137,755     $ 393,586     $ 18,417       -       -       -       -  
Net Income (Loss)
  $ 842,225     $ 910,663     $ 56,441     $ (864,398 )   $ (1,527,635 )   $ (1,918,344 )   $ (1,279,979 )   $ (1,362,395 )
Income (Loss) attributable to commons stockholders
  $ 802,646     $ 846,649     $ (47,221 )   $ (4,745,418 )   $ (1,674,439 )   $ (3,711,641 )   $ (1,400,453 )   $ (1,602,322 )
Income (Loss) per common share attributable to common stockholders – basic
  $ 0.08     $ 0.09     $ 0.00     $ (0.56 )   $ (0.23 )   $ (.50 )   $ (.20 )   $ (.23 )
Income (Loss) per common share attributable to common stockholders – diluted
  $ 0.08     $ 0.09     $ 0.00     $ (0.56 )   $ (0.23 )   $ (.50 )   $ (.20 )   $ (.23 )
Weighted average shares outstanding – basic
    9,634,174       9,561,718       9,499,469       8,497,734       7,415,629       7,356,413       7,093,071       7,079,781  
Weighted average shares outstanding – diluted
    9,865,287       9,796,685       9,499,469       8,497,734       7,415,629       7,356,413       7,093,071       7,079,781  

 
Page 18

 

Liquidity and Capital Resources

Year Ended December 31, 2008

During the years ended December 31, 2008 and 2007, the Company recorded a net income of $944,931 and a net loss of $6,088,353 respectively. Net cash provided by operations in 2008 was $3,688,819 as compared to net cash used by operations in 2007 of $1,390,996. Principal payments on current long-term debt over the next 12 months are expected to total $1,608,778.  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 $150,000.  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 $100,000 on the note during 2008.  At December 31, 2008, the Company was in compliance with the debt covenants.

Cash and cash equivalents totaled $4,346,377 at December 31, 2008 versus $944,456 at December 31, 2007.  Working capital for the year ended December 31, 2008 was $2,465,209 as compared to a working capital deficit of $5,018,177 at December 31, 2007, primarily due to the acquisition of MMT.  Total debt and capital lease obligations increased by $330,910 in the year ended December 31, 2008, due mainly to the addition of notes payable in order to purchase MMT 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 MMT.  Net cash flows from investing activities totaled $404,032 compared to $2,277,400 for the comparable period due to the acquisition of MMT.

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 MMT, 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 $171,133 for capital expenditures during 2008, as compared to $383,834 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.

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 through 2009:

1.
Reduction of operating expenses by controlling payroll, professional fees and other general and administrative expenses.
2.
Delivery of video services to residents of single family homes.  Effective March 1, 2008 the Company purchased 51% of the outstanding stock of Michigan Microtech, Inc. (MMT), formerly a wholly owned subsidiary of DTHC.  MMT installs DirecTV video services in single family homes.  Historically, MMT has been profitable.  In 2008, by combining MMT operations with Multiband operations, Multiband achieved a beneficial impact to its consolidated cash flows and operating results.  In January 2009, Multiband significantly expanded its single family home video installation business by purchasing the former operations of DTHC.  However, there is no guarantee that the results of the HSP business segment will be favorable to the Company in future periods.
3.
Solicit additional equity investment in the Company by either issuing preferred or common stock.
4.
Continue to market Multiband services and acquire additional multi-dwelling unit customers.
5.
Control capital expenditures by contracting Multiband services and equipment through a landlord-owned equipment program.
6.
Expansion of call center support via sales of call center services to both existing and future system operators and to buyers of the Company’s video subscribers.
7.
Sale of video assets on a strategic basis. The Company, based on recent transactions, believes there is an active market for its video subscriber assets. The Company believes it can sell these assets, under certain circumstances, at prices at or above their current carrying value. However, there is no guarantee these sales will ultimately be favorable to the Company.

 
Page 19

 

As of this writing, general economic conditions in the United States continue to be adverse.  Even though no business is immune from general economic conditions, demand for the company’s video services remained constant throughout the fourth quarter of 2008.  In early 2009, the Company has greatly expanded its capabilities to deliver video and other services through the acquisition of the majority ownership of DTHC’s operating subsidiaries.  The Company believes that even in a recession, the demand for video services throughout 2009 should remain relatively constant and may even be enhanced as consumers stay home more for entertainment.  Expanding video services in 2008 produced improved income results and working capital ratios for the Company.  Provided sales volumes stay constant in 2009, the Company believes it can generate sufficient cash flows to meet its needs. While the profitability of all the former operating subsidiaries of DTHC (excluding  MMT) has been inconsistent in prior periods and while the DTHC operating subsidiaries as a whole (excluding MMT) were unprofitable in 2008, Multiband management, through management services agreements conducted throughout 2008 helped, in conjunction with legacy DTHC management, enact significant changes to those subsidiaries’ expense structure, management  and operating practices. These aforementioned changes had a material improvement in the operating results of the DTHC operating subsidiaries (excluding MMT) during the second half of 2008 as selling, general and administrative expenses (as adjusted for certain one time expenses such as legal accruals and transaction expenses related to the Multiband acquisition)  dropped significantly. The Company believes the changes made to the former DTHC operating subsidiaries throughout 2008, combined with stay at home consumers robust entertainment demands, will continue to lead to materially improved operating results for those subsidiaries during 2009.
 
In conclusion, based on the aforementioned, Management of Multiband believes that the cash on hand, positive operating income, combined with capital resources and the potential ability to monetize intangible subscriber assets, will be adequate to meet the anticipated liquidity and capital resource requirements for the next twelve months.

Year Ended December 31, 2007

During the twelve months ended December 31, 2007 and 2006, the Company recorded a net loss of $6,088,353 and $10,183,723 respectively. Net cash used by operations in 2007 was $1,390,996 as compared to net cash used by operations in 2006 of $649,986. Principal payments on current long-term debt over the next 12 months are expected to total $158,342.  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 $150,000.  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.  In accordance with EITF 86-30 “Classification of obligations when a violation is waived by the creditor”, the Company has classified the debt as current as of December 31, 2007.

Cash and cash equivalents totaled $944,456 at December 31, 2007 versus $1,020,975 at December 31, 2006.  Working capital deficit for the twelve months ended December 31, 2007 decreased to $5,018,177 as compared to $5,294,245, at December 31, 2006, primarily due to net proceeds received from the sale of video assets to CSBS, Dtech and MDUC (see Note 2), during 2007.  Total debt and capital lease obligations were reduced by $2,910,325 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 $2,277,400 compared to ($335,372) for the comparable period reflecting the sale of video assets to CSBS, Dtech and MDUC, previously mentioned herein.

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 $383,834 for capital expenditures during 2007, as compared to $993,108 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.

Year Ended December 31, 2006

Working capital deficit for 2006 increased to $5,294,245 primarily due to increase in current portion of long term debt and operating losses.  Accounts receivable, net, decreased by $347,812 in 2006 primarily due to improved collections procedures and related bad debt write-offs.  Current liabilities increased in 2006 by $1,956,386 due primarily to the increases in accounts payables and accrued liabilities. Current maturities of long-term debt increased by $639,734 as of December 31, 2006 versus December 31, 2005 due to scheduled pay down of debt. Inventories increased slightly from year to year due to inventory on hand at year end being staged for impending installations.

Total long term debt and capital lease obligations increased by $96,974 during the year ended December 31, 2006. Multiband paid out $235,517 related to capital lease obligations and $871,076 related to long term debt during the year ended December 31, 2006 versus $2,907,349 paid out in 2005.

 
Page 20

 

The Company used $993,108 for capital expenditures during 2006, as compared to $976,477 in 2005. This increase was related to additional purchases required and additional build out of video and internet services to MDU properties as a result of the business acquisitions made during 2005.

Net cash used by operations in 2006 was $649,986 as compared to cash used by operations in 2005 of $3,817,058. This differential in the use of cash between years largely reflects the payoff of a wholesale line of credit in 2005, related to the sale of the Company’s MBS division and related reductions in accounts payables.   During the years ended December 31, 2006 and December 31, 2005, the Company incurred significant net losses. Although the majority of the 2006 loss was due to non-cash expenses, in 2006, the Company continued to incur cash losses primarily due to general corporate expense. However, those cash operating losses decreased significantly in 2006 versus 2005 due to increases in agent fees and the on-going additions of MDU properties in the Company's portfolio which provided improved cash flows.

The Company continues to experience overall growth, primarily due to increased agent fees and due to increased subscriber related recurring revenues acquired from the various transactions previously mentioned herein. However, the Company is growing in its MDU segment while the MCS segment is shrinking due, in part, to sales of subscribers in that division during 2006. The Company is continuing to analyze the values that the equity capital marketplace is providing to its MCS directly owned subscribers in future periods, both to establish values for those subscribers and to provide additional liquidity.  Between August 1, 2006 and March 1, 2007, the Company has raised approximately $1.8 million dollars in gross proceeds related to sales of subscriber related assets.

Critical Accounting Policies

Impairment of Long-Lived Assets

The Company's long-lived assets include property, equipment and leasehold improvements. At December 31, 2008, the Company had net property and equipment of $2,033,067 which represents approximately 7.81% of the Company's total assets. The estimated fair value of these assets is dependent on the Company's future performance.  We evaluate our property, equipment, and leasehold improvements for impairment wherever indicators of impairment exist.  In assessing for potential impairment for these assets, the Company considers future performance. If these forecasts are not met, the Company may have to record an impairment charge not previously recognized, which may be material. In 2008 and 2007, the Company did not record any impairment of long-lived assets.  In 2006, an impairment charge of $304,402 was recorded related to the sale of video assets located in California (see Note 2).

Impairment of Goodwill

We annually test recorded goodwill for impairment. Our judgments regarding the existence of impairment is based on the estimated fair value of the reporting unit to which goodwill has been assigned.  Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses, which amounts to $1,095,166, as of December 31, 2008, may be impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.  In 2008, the Company recorded an impairment of $50,000 on the goodwill related to the US Install purchase and the remaining goodwill balance of $16,757 from a previous acquisition.  During the year ended December 31, 2007, the Company did not record any impairment losses related to goodwill.  In 2006, the Company recorded an impairment charge to goodwill of $417,465 (see Note 1), due to the sale of video assets located in California (see Note 2).

Impairment of Intangible Assets

The intangible assets consist of rights of entry contracts, customer cable lists, domain name and access contracts.  These intangibles are being amortized over their estimated useful lives ranging from 12 to 108 months.  If significant changes would occur to the estimated future cash flow associated with these intangibles, the Company would determine if there is impairment and reduce the value of the intangibles based on the reduction of such cash flows.  At December 31, 2008, the Company had net intangibles of $3,667,866 which represented approximately 14% of the Company’s total assets (see Note 1).  Pursuant to the abandonment of a right of entry intangible asset, the Company recorded an impairment charge of $65,452 for the year ended December 31, 2008.  In 2007, the Company did not record an impairment related to the intangible assets.  In 2006, the Company recorded an impairment charge to intangible assets of $1,539,633.

 
Page 21

 

Stock-Based Compensation

The Company applies Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on fair values. The Company’s determination of fair value of share-based payment awards is based on the date of grant using an option-pricing model which incorporates a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility and estimates regarding projected employee stock option exercise behaviors and forfeitures. The Company recognizes the expense related to the fair value of the award straight-line over the vesting period.

Income Taxes

We account for income taxes under the liability method in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”).  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, 2008.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).  This statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, during February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2 which deferred the effective date of certain provisions of SFAS 157 until fiscal years beginning after November 15, 2008.  We adopted the provisions of SFAS 157 that were not deferred under FSP No. 157-2 effective January 1, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  This statement permits entities to choose to measure many financial instruments and certain other items at fair value.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  The adoption of SFAS 159 on January 1, 2008 had no impact on our consolidated financial statements.

During December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS 160”).  This statement establishes accounting and reporting standards for noncontrolling interests in subsidiaries and for the deconsolidation of subsidiaries and clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  This Statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary.  SFAS 160 is effective for fiscal years beginning on or after December 15, 2008.  The Company does believe that the adoption of SFAS 160 will have a material effect on its consolidated results of operations or financial position due to our acquisition of majority ownership of the operating entities of DTHC.

During December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141 (Revised 2007)”).  While this statement retains the fundamental requirement of SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations, SFAS 141 (Revised 2007) now establishes the principles and requirements for how an acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree; recognizes and measures the goodwill acquired in the business combination or the gain from a bargain purchase; and determines what information should be disclosed in the financial statements to enable the users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141 (Revised 2007) is effective for fiscal years beginning on or after December 15, 2008.  The Company has adopted SFAS 141 (Revised 2007) and used this to account for the acquisition described in Note 18.

 
Page 22

 

During March 2008, the FASB issued the SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," ("SFAS 161") which required enhanced disclosures about an entity's derivative and hedging activates.  The Standard requires entities to disclose the fair values of derivative instruments and their gains and losses in a tabular format to provide financials statement users with a more complete picture of the location in the entities financial statements of both the derivative positions existing at years-end and the effect of using derivatives during the reporting period.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and it related interpretations, and (c) how derivative instrument and related hedged items affect an entity's statements issued for fiscal years beginning after November 15, 2008.  The Company does not believe the adoption of SFAS 161 will have a material effect on its consolidated statement of operations, financial positions or cash flows.

Disclosures about Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations at December 31, 2008, 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
  $ 2,335,000     $ 625,000     $ 944,000     $ 766,000  
Operating leases - vehicles
    3,412,000       1,060,000       1,814,000       538,000  
Capital leases
    722,370       368,639       349,948       3,783  
Long-term debt
    2,255,589       1,721,198       40,597       493,794  
Totals
  $ 8,724,959     $ 3,774,837     $ 3,148,545     $ 1,801,577  

Off-Balance Sheet Arrangements

The Company has one off-balance sheet arrangements involving non-cancellable fleet vehicle operating leases.  The Company has entered into an agreement with Donlen Trust jointly and severally with various subsidiaries of DTHC.  The following is a schedule of DTHC consolidated future minimum lease payments for non-cancellable fleet vehicle operating leases as of December 31, 2008 for which the Company is obligated jointly and severally with DTHC and its subsidiaries:

  Year
 
Amount
 
2009
    6,397,000  
2010
    5,640,000  
2011
    4,501,000  
2012
    1,667,000  
2013
    451,000  
Thereafter
    901,000  
    $ 19,557,000  

Effective January 2, 2009, Multiband Corporation will become the successor in interest to DTHC pursuant to the aforementioned lease agreement

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.

 
Page 23

 

Item 7A

Quantitative and Qualitative Disclosure About Market Risk

The Company is not subject to any material interest rate risk as any current lending agreements are at a fixed rate of interest except for the Convergent Capital note of $1,400,000, which varies from 11% to 14%, dependent on the Company’s common stock price.  Each 1% change in interest impacts the statement of operations $14,000 annually.

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, 2008, 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

There have been no changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except as specifically noted below.

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.

 
Page 24

 

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, 2008. 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”).  Our assessment did identify material weaknesses as of December 31, 2008.

Under SEC rules, management may assess its internal control over financial reporting as effective if there are no identified material weaknesses at the reporting date. A “material weakness” is a deficiency (within the meaning of PCAOB Auditing Standard No. 5), or combination of deficiencies in internal control over financial reporting such, that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis by employees in the normal course of their assigned functions.  A material weakness in internal control over financial reporting does not imply that a material misstatement of the financial statements has occurred, but rather, that there is a reasonable possibility that a material misstatement could occur.

Management has identified the following material weaknesses and has reported them to the audit committee:
Lack of properly designed and implemented controls and controls not operating effectively related to the information technologies (IT) of the HSP segment.  The Company purchased 51% of this operating subsidiary from DTHC in March 2008.  The HSP segment did not have a stand alone IT system separate from DTHC, which retained a 49% ownership.
Lack of properly designed and implemented controls and controls not operating effectively related to the financial close and reporting process for the HSP segment, whose basic accounting functions were performed at a remote site via an outsourced management agreement.

Both material weaknesses arose in the context of a “step” acquisition of the DTHC operating entities, which began in March, 2008 and which was completed in January 2009. This step acquisition made the proper design and implementation of internal controls over financial reporting as of December 31, 2008 inherently complex.  Because of the material weaknesses described above, management believes that, as of December 31, 2008, our internal controls over financial reporting with regards to our HSP segment were not effective. Notwithstanding the above, management further believes, to the best of its knowledge, that no material misstatements of the Company’s financial statements has occurred as of December 31, 2008.

Subsequent to January 1, 2009, the Company has made two significant improvements with regards to its HSP segment financial reporting processes: 1) HSP IT processes and practices are being standardized with and integrated into the IT practices with accompanying controls that exist with regards to the other Multiband business segments; and 2) the HSP segment accounting department has been primarily re-located from Kentucky to Minnesota where overall corporate accounting and headquarters reside. The Company anticipates that the combination of more direct oversight of the HSP segment accounting functions combined with imposition of effective and uniform IT controls will act to remediate the material weaknesses.

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.

 
Page 25

 

Item 9B              Other Information

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, 2008.  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 Bell
 
49
 
President & Chief Financial Officer, Multiband Corporation
 
1994
Frank Bennett
 
52
 
President, Artesian Management, Inc.
 
2002
Jonathan Dodge
 
57
 
Partner, Dodge & Fox C.P.A. Firm
 
1997
Eugene Harris
 
44
 
Managing Director, Flagstone Securities
 
2004
James L. Mandel
 
51
 
Chief Executive Officer, Multiband Corporation
 
1998
Donald Miller
 
68
 
Chairman, Multiband Corporation
 
2001
Bernard Schafer
 
49
 
Director, DirecTECH Holding Company, Inc.
 
2008

Steven Bell was general counsel and Vice President of the Company from June 1985 through October 1994, at which time he became Chief Financial Officer.  He was also named President in July 1997.  He is a graduate of the 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 and nominating/governance committees.  Mr. Bennett is President of Artesian Management, Inc., a private equity investment firm based in Minneapolis. Prior to founding Artesian Management, Inc. 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 has been the Senior Partner of the C.P.A. firm of Dodge & Fox since its inception in March 1997.  Prior to that, he was a partner in the CPA firm of Misukanis and Dodge from 1992 to March 1997.  Mr. Dodge is a member of both the AICPA and the Minnesota Society of CPA’s. He is currently also on the Board of Directors at First Tee of St Paul, Austin Mutual Insurance Co., Epien Medical, and Citizens Observer, LLC.  Mr. Dodge is a member of the audit and compensation committee.

Eugene Harris is currently managing director for Fulcrum Securities.  From 2004 to 2007 he was Senior Managing Director of Flagstone Securities.  Mr. Harris, joined Flagstone Securities in 2004 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 and a member of the Financial Analysts Federation.  He is currently also on the Board of Directors at Business Bank of St. Louis.  Mr. Harris was appointed to the Company’s Board of Directors in April 2004.  Mr. Harris is also Chairman of the Company’s compensation 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.
 
 
Page 26

 

Donald Miller worked for Schwan’s enterprises between 1962 and 2001, primarily as Chief Financial Officer.  He was appointed to the Company’s Board of Directors in September 2001 and was elected Chairman of the Board in April 2002.  He is currently also on the Board of Directors at FoodShacks, Inc., and Schwan’s enterprises where he is a Chairman of the Finance Committee and a member of the Audit Committee.  Mr. Miller is a member of Multiband’s audit and compensation committee.

Bernard Schafer has been a director of the Company since February 2008.  He is also currently a director of DirecTECH Holding Company, Inc. (DTHC).  Multiband owns fifty-one percent of Michigan Microtech, Inc. (MMT), of which DTHC owns the other forty-nine percent. He graduated from Central Michigan University with a business degree.  He worked in the retail field as a salesman then site manager.  In 1982 he purchased a percentage of MMT, currently a DirecTV fulfillment provider.  Mr. Schafer helped oversee MMT’s merger with DTHC in 2005 and the growth of DTHC to new regions.  Mr. Schafer has been involved in all aspects of the satellite television business, with most of his 26 years in operations.  Mr. Schafer is a member of Multiband’s nominating committee.

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.
 
Board of Directors and its Committees

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.

The Board of Directors met four times in 2008.  As permitted by Minnesota Law, the Board of Directors also acted from time to time during 2008 by unanimous written consent in lieu of conducting formal meetings.  Last year, there were four 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.

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.  Six of our directors attended our Annual Meeting in 2008.

Audit Committee

Our audit committee:

·
recommends to our Board of Directors the independent registered public accountants 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 accountants and our financial and accounting staff; and
·
reviews and approves transactions between us and our Directors, officers and affiliates.

Our audit committee has a formal charter.

Our Audit Committee met four times during 2008. 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.

 
Page 27

 

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, 2008, the committee met four 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 10K and 10Q, respectively, with the Company’s Chief Financial Officer and the Company’s independent registered public accountants prior to public release.

In discharging its oversight responsibility as to the audit process, the audit committee obtained from the independent auditors 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 auditors the quality and adequacy of the Company’s internal controls.  The audit committee reviewed with the independent auditors their audit plans, audit scope, and identification of audit risks.

The audit committee discussed and reviewed with the Company’s independent auditors all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees” and, both with and without management present, discussed and reviewed the results of the independent auditors’ 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, 2008 with management and the independent auditors.  Management has the responsibility for the preparation of the Company’s consolidated financial statements and the Company’s independent auditors have the responsibility for the examination of those statements.

Based on the review referred to above and discussions with management and the independent auditors, 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, 2008 for filing with the Securities and Exchange Commission.  The Audit Committee also recommended the reappointment, subject to shareholder approval, of the independent auditors 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, Eugene Harris and Bernard Schafer. 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.

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.

 
Page 28

 

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. 2008 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 2008.  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.
 
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 $100,000 during the Company’s fiscal year ended December 31, 2008.
 
 
Page 29

 
 
EXECUTIVE COMPENSATION

Name and principal
position
 
Year
 
Salary
   
Bonus
   
(1)
Stock
awards
   
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
 
2008
  $ 259,615     $ 155,500     $ 15,750     $ -     $ -     $ -     $ 7,848     $ 438,713  
Steven Bell
Chief Financial Officer
 
2008
    208,814       7,000       7,875       -       -       -       7,848       231,537  
Dave Ekman
Chief Information Officer
 
2008
    155,764       2,183       -       -       -       -       5,000       162,947  

(1)
The amounts in this column are calculated based on FAS 123R and equal the financial statement compensation expense as reported in our 2008 consolidated statement of operations for the fiscal year.
 
Director Compensation

Outside Directors were each paid a cash fee of $10,000 annually in 2008.  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 and attendance at 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
  $ 10,000     $ -     $ 8,694     $ -     $ -     $ 2,216     $ 20,910  
J   Dodge
    10,000       -       8,694       -       -       -       18,694  
E   Harris
    10,000       -       8,694       -       -       3,754       22,448  
D   Miller
    10,000       -       17,387       -       -       1,251       28,638  

(1)
The amounts in this column are calculated based on FAS 123R and equal the financial statement compensation expense as reported in our 2008 consolidated statement of operations for the fiscal year.  Total board of directors options outstanding at December 31, 2008 are 164,400
(2)
Represents payment of expenses incurred in conjunction with attending board meetings.
 
Stock Option Grants During 2008

There were no stock options granted during fiscal 2008 to any executive officers.

 
Page 30

 
 
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, 2008.
 
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
   
-
     
-
     
-
     
-
 
                                                                   
David Ekman
   
30,000
(7)
   
-
     
-
     
10.00
 
12/29/2009
   
-
     
-
     
-
     
-
 
     
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
   
-
     
-
     
-
     
-
 

(1)
The stock option was granted January 31, 2001 and is fully vested.
(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 December 29, 1999 and is fully vested.
(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.

Option Exercises and Stock Vested

None of our named Executive Officers exercised any options in 2008.  Restr