UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest reported) April 2, 2004
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Multiband Corporation
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(Exact name of registrant as specified in its chapter)
Minnesota 13529 41-1255001
----------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
9449 Science Center Drive
New Hope, Minnesota 55428
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 763-504-3000
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Vicom, Incorporated
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(Former name or former address, if changed since last report)
PART I
Acquisition of Assets
On April 2, 2004, Multiband Corporation (the Company), f/k/a Vicom,
Incorporated, completed its acquisition of Minnesota Digital Universe, Inc.
(MDU) for approximately 7.7 million dollars, half of which was paid for in
Multiband Corporation common stock, valued at $1.75 per share, ($3,850,000),
$1.1 million paid in cash and the balance in promissory notes due by January
2005. The consideration paid was based on the Company's analysis of likely
future net incomes to be generated over a six year period by the acquired
company. The cash was provided by funds the company had previously raised in a
private placement. The assets were acquired from Pace Electronics. Prior to the
transaction, there was no material relationship between the owners of MDU and
the Company other than the fact that Pace Electronics previously owned a 50%
interest in a company subsidiary, Multiband USA, Inc., which Vicom repurchased
the remaining 50% of ownership from Pace Electronics in January 2004 for 30,000
shares of the Company's common stock valued at $39,000.
With this acquisition, the Company became a nationwide agent for DirecTV. MDU
services nearly 40,000 video subscribers through a network of private cable
operators located throughout the United States. The purchase also permits the
Company to receive ongoing residual payments from DirecTV, during the term of
the master system operator agreement with DirecTV, which initially had
approximately 25 months remaining at the time of purchase. Any required proforma
information with regards this transaction will be filed as soon as available.
Item 7: Financial Statements and Exhibits:
7.1 Acquisition Agreement (previously filed)
a. Audited Financial Statements of Business Acquired for
the years ended December 31, 2003 and 2002. See
attached Exhibit 7.1(a)
b. Unaudited Financial Statements of Business acquired
for the three months ended March 31, 2004 and 2003.
c. Unaudited Proforma Financial Information. See
attached Exhibit 7.1(b)
2
ITEM 7.1(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
MINNESOTA DIGITAL UNIVERSE, INC.
Rochester, Minnesota
FINANCIAL STATEMENTS
INCLUDING INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 2003 AND 2002
3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Minnesota Digital Universe, Inc.
We have audited the accompanying balance sheets of Minnesota Digital
Universe, Inc., as of December 31, 2003 and 2002, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all
material respects, the financial position of Minnesota Digital Universe, Inc. as
of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
VIRCHOW, KRAUSE & COMPANY, LLP
Minneapolis, Minnesota
July 7, 2004
4
MINNESOTA DIGITAL UNIVERSE, INC.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 1,626,942 $ 1,329,932
Accounts receivable 825,106 388,900
Note receivable - stockholder 20,599 --
Current portion - note receivable related party 234,306 245,426
----------- -----------
Total current assets 2,706,953 1,964,258
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Automobiles 58,802 58,802
Furniture and equipment 1,822 --
Less: accumulated depreciation (11,622) --
----------- -----------
Total property and equipment, net 49,002 58,802
----------- -----------
OTHER ASSETS:
Note receivable related party, net of current portion -- 234,306
Other assets -- 245
Video subscriber list, net of amortization 65,200 85,789
----------- -----------
Total other assets 65,200 320,340
----------- -----------
$ 2,821,155 $ 2,343,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 83,115 $ 104,330
Accrued commissions 882,664 631,248
Notes payable - stockholders -- 54,300
Accrued liability 1,901,972 1,294,992
----------- -----------
Total current liabilities 2,867,751 2,084,870
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 2,500 shares authorized,
1333.34 shares issued and outstanding 588 588
Retained earnings (accumulated deficit) (47,184) 257,942
----------- -----------
Total stockholders' equity (deficit) (46,596) 258,530
----------- -----------
$ 2,821,155 $ 2,343,400
=========== ===========
See accompanying notes to financial statements.
5
MINNESOTA DIGITAL UNIVERSE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---------------------- ----------------------
Amount Percent Amount Percent
---------- -------- ---------- --------
REVENUES, NET $6,242,414 100.0 $5,956,729 100.0
COST OF SALES, NET 5,253,971 84.2 4,945,696 83.0
---------- -------- ---------- --------
GROSS PROFIT 988,443 15.8 1,011,033 17.0
GENERAL AND ADMINISTRATIVE EXPENSES 534,550 8.6 472,366 8.0
---------- -------- ---------- --------
INCOME FROM OPERATIONS 453,893 7.2 538,667 9.0
---------- -------- ---------- --------
OTHER INCOME
Interest income 15,644 .3 33,332 .6
---------- -------- ---------- --------
Other income 15,644 .3 33,332 .6
---------- -------- ---------- --------
NET INCOME $ 469,537 7.5 $ 571,999 9.6
========== ======== ========== ========
See accompanying notes to financial statements.
6
MINNESOTA DIGITAL UNIVERSE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Retained
Common Stock Earnings
--------------------- (accumulated
Shares Amount deficit) Total
-------- --------- ------------ ---------
BALANCES - DECEMBER 31, 2001 1,333.34 $ 588 $ 606,501 $ 607,089
Distributions to stockholders -- -- (920,558) (920,558)
Net income -- -- 571,999 571,999
-------- --------- --------- ---------
BALANCES - DECEMBER 31, 2002 1,333.34 588 257,942 258,530
Distributions to stockholders -- -- (774,663) (774,663)
Net income -- -- 469,537 469,537
-------- --------- --------- ---------
BALANCES - DECEMBER 31, 2003 1,333.34 $ 588 $ (47,184) $ (46,596)
======== ========= ========= =========
See accompanying notes to financial statements.
7
MINNESOTA DIGITAL UNIVERSE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 469,537 $ 571,999
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 32,456 17,648
Changes in operating assets and liabilities:
Accounts receivable (436,206) 71,170
Accounts payable (21,215) 73,431
Accrued commissions 251,416 338,369
Accrued liability 606,980 352,110
----------- -----------
Net cash flows from operating activities 902,968 1,424,727
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,822) (58,802)
Purchase of video subscriber list -- (102,947)
Advances on note receivable - related party
stockholder (20,599) --
Payments received on note receivable 245,426 251,613
----------- -----------
Net cash flows from investing activities 223,005 89,864
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable - stockholders (54,300) (25,000)
Proceeds from notes payable - stockholders -- 54,300
Distributions to stockholders (774,663) (920,558)
----------- -----------
Net cash flows from financing activities (828,963) (891,258)
----------- -----------
NET INCREASE IN CASH 297,010 623,333
CASH, BEGINNING OF YEAR 1,329,932 706,599
----------- -----------
CASH, END OF YEAR $ 1,626,942 $ 1,329,932
=========== ===========
See accompanying notes to financial statements.
8
MINNESOTA DIGITAL UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Minnesota Digital Universe, Inc. (the "Company") was
incorporated on July 1, 1997 in the state of Minnesota. The Company is located
in Rochester, Minnesota, and markets its services throughout the Midwest region
of the United States. The Company distributes television programming and
services and acts as a commissioned sales representative for DIRECTV to solicit
and take orders for DirecTV commissionable programming packages. Distribution
markets include residential multiple dwelling units (MDUs), hotels and hospitals
via satellite master antenna television (SMATV), and commercial businesses.
CONCENTRATION OF CREDIT RISK - The Company maintains its cash in high quality
financial institutions. The balances, at times, may exceed federally insured
limits.
ACCOUNTS RECEIVABLE - At December 31, 2003 and 2002, the Company did not have an
allowance for doubtful accounts. The Company believes all accounts receivable
are fully collectible. Accounts receivable over 60 days are considered past due.
The Company does not accrue interest on past due accounts. If accounts
receivable are determined uncollectible, they are charged to expense in the year
that determination is made. The Company extends unsecured credit to customers in
the normal course of business.
DEPRECIATION - Property and equipment are recorded at cost. Depreciation is
provided for using the straight-line method over the estimated useful life
ranging from three to five years. Maintenance, repairs and minor renewals are
expensed when incurred. Depreciation expense was $11,622 and $0 for the years
ended December 31, 2003 and 2002, respectively.
AMORTIZATION - The Company records video subscriber lists purchased at cost.
Amortization is provided using the straight-line method over a five year
estimated useful life. Amortization expense was $20,834 and $17,648 for the
years ended December 31, 2003 and 2002, respectively. Estimated amortization
expense of video subscriber lists for the years ending December 31, 2004, 2005,
2006 and 2007 is $20,589, $20,589, $20,589 and $3,433, respectively.
ACCRUED COMMISSIONS - Based on the Company's agreement with DirecTV, a portion
of the commissions received from activation fees may be charged back to the
Company if a customer does not maintain video programming services for 12 months
upon activation. The Company also has the right to charge back an appropriate
percentage of the commissions paid to system operators related to these charged
back activation fees. The Company has estimated the potential charge back of
commissions paid on activation fees during the past 12 months based on
historical percentages of customer cancellations and has included that amount in
accrued commissions.
ACCRUED LIABILITY - The Company has recorded an accrued liability for amounts
received from DirecTV in excess of the contract agreement.
9
MINNESOTA DIGITAL UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION - The Company earns revenue primarily through the activation
of and residual fees on video programming services.
Revenue generated from activation is earned in the month of activation.
According to the Company's agreement with DirecTV, in the event that a customer
cancels within the first 12 months of service, DirecTV has the right to charge
back the Company for a portion of the activation fees received. In accordance
with Securities Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition", the Company has estimated the potential charge back of commissions
received on activation fees during the past 12 months based on historical
percentages of customer cancellations and has included that amount as a
reduction of revenue.
Residual income is earned as services are provided by DirecTV through the system
operators. As a commissioned sales agent for DirecTV, the Company earns a fixed
percentage based on net cash received from DirecTV.
INCOME TAXES - The Company, with the consent of its stockholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of corporate
income taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal or state income taxes has been included in the financial
statements.
ADVERTISING COSTS - Advertising costs are charged to expense as incurred.
Advertising costs were $6,151 and $4,800 for the years ended December 31, 2003
and 2002, respectively.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(2) SIGNIFICANT RELATIONSHIP
SYSTEM OPERATOR AGREEMENTS
The Company is a master agent for DirecTV pursuant to a system operator
agreement with DirecTV dated May 22, 2003. The initial term of the agreement is
for three years and provides for two additional two-year renewals if the Company
has a minimum number of paying video subscribers in its system operator network.
Termination of the Company's DirecTV agreement would have a material adverse
impact on the Company's on-going operations. The percent of gross revenues
earned from DirecTV for years ended December 31, 2003 and 2002, were 92.1% and
82.3%, respectively.
10
MINNESOTA DIGITAL UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(3) RELATED PARTIES
Note Receivable Stockholder
The Company advanced funds to a stockholder, who is also an officer of the
Company, during 2003. These unsecured advances are due upon demand and bear no
interest. The balance at December 31, 2003 and 2002 was $20,599 and $0,
respectively.
Note Receivable Related Party
In October 2001, the Company loaned $792,520 to a company related through common
ownership. The loan was originally payable in 36 monthly installments of $23,931
including interest at 5.5%. In December 2002, the balance of $499,718 was
refinanced. The loan is unsecured, payable in 24 monthly installments of $21,756
including interest at 4.25%. The balance at December 31, 2003 and 2002 was
$234,306 and $479,732 with a current portion of $234,306 and $245,426,
respectively. Interest income totaled $15,644 and $33,332 for the years ended
December 31, 2003 and 2002, respectively.
The Company also paid office sharing expenses and commissions to this related
company. The total amount paid during the years ended December 31, 2003 and 2002
was $1,793,543 and $763,563, respectively. The unsecured amount due to this
related company at December 31, 2003 and 2002 was $83,115 and $96,500,
respectively and is included in accounts payable.
Notes Payable - Stockholders
During 2002, the Company borrowed $54,300 from two of its stockholders. The note
was unsecured and due on demand. This amount was repaid in May 2003. No interest
was paid on this short-term loan.
During 2003, the Company paid one of its stockholders $33,657 for consulting
services. It also paid for services provided by a company partially owned by
this stockholder in the amount of $14,161 and $28,758 which is included in
Selling, General and Administrative Expenses on the Statement of Operations for
the years ended December 31, 2003 and 2002, respectively.
(4) SUBSEQUENT EVENT
On April 2, 2004, certain assets of the Company were purchased and certain
liabilities assumed by Vicom, Incorporated. The purchase price was $7.0 million,
half of which was paid for in Vicom, Incorporated common stock, valued at $1.75
per share, $1 million paid in cash and the balance in unsecured promissory notes
due by January 2005. Promissory notes bear no interest and are to be paid in
three installments, the final one to be January 2, 2005.
11
MINNESOTA DIGITAL UNIVERSE, INC.
BALANCE SHEET
MARCH 31, 2004 DECEMBER 31,2003
(UNAUDITED) (AUDITED)
-------------- ----------------
ASSETS
CURRENT ASSETS:
Cash $ 1,004,546 $ 1,626,942
Accounts receivable 779,868 825,106
Note receivable - stockholder 300,000 20,599
Current portion - note receivable related party 171,305 234,306
----------- -----------
Total current assets 2,255,719 2,706,953
----------- -----------
PROPERTY AND EQUIPMENT, NET 44,102 49,002
OTHER ASSETS:
Video subscriber list, net of amortization 60,052 65,200
----------- -----------
Total other assets 60,052 65,200
----------- -----------
TOTAL ASSETS $ 2,359,873 $ 2,821,155
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 10,181 $ 83,115
Accrued commissions 1,051,029 882,664
Accrued liability 1,901,972 1,901,972
----------- -----------
Total current liabilities 2,963,182 2,867,751
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 2,500 shares
authorized
1333.34 shares issued and outstanding 588 588
Accumulated deficit (603,897) (47,184)
----------- -----------
Total stockholders' deficit (603,309) (46,596)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 2,359,873 $ 2,821,155
=========== ===========
See accompanying notes to financial statements.
12
MINNESOTA DIGITAL UNIVERSE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
(UNAUDITED) (UNAUDITED)
------------ ------------
REVENUES $ 1,616,537 $ 1,431,347
COSTS AND EXPENSES
COSTS OF PRODUCTS AND SERVICES 1,210,520 1,087,094
SELLING, GENERAL AND ADMINISTRATIVE 155,956 154,560
------------ ------------
COST OF SALES, NET 1,366,476 1,241,654
------------ ------------
INCOME FROM OPERATIONS 250,061 189,693
------------ ------------
OTHER INCOME
Interest income and other 2,267 4,884
------------ ------------
Total other income (expense) 2,267 4,884
------------ ------------
NET INCOME $ 252,328 $ 194,577
============ ============
See accompanying notes to financial statements.
13
MINNESOTA DIGITAL UNIVERSE, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31
(UNAUDITED)
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 252,328 $ 194,577
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 10,048 8,782
Changes in operating assets and liabilities:
Accounts receivable 45,238 (55,802)
Accounts payable (72,934) (91,893)
Accrued commissions 168,365 84,493
------------ ------------
Net cash flows from operating activities 403,045 140,157
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances on note receivable - related party
stockholder 0 5,000
Payments received on note receivable (216,400) 60,384
------------ ------------
Net cash flows from investing activities (216,400) 65,384
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders (809,041) (431,660)
------------ ------------
Net cash flows from financing activities (809,041) (431,660)
------------ ------------
NET DECREASE IN CASH (622,396) (226,119)
CASH, BEGINNING OF PERIOD 1,626,942 1,329,932
------------ ------------
CASH, END OF PERIOD $ 1,004,546 $ 1,103,813
============ ============
See accompanying notes to financial statements.
14
MINNESOTA DIGITAL UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - In the opinion of management, the accompanying condensed
unaudited financials statements include all adjustments (which consist only of
normal recurring adjustments) necessary for a fair presentation of its financial
position at December 31, 2003 and results of operations and cash flows for the
periods presented. Although Multiband Corporation (fka Vicom Incorporated)
believes that the disclosures in these financial statements are adequate to make
the information presented not misleading, certain information and disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted and should be read in conjunction with the Minnesota
Digital Universe, Inc.'s audited financial statements for the years ended
December 31, 2003 and 2002. Results of operations for the three months ended
March 31, 2004 are not necessarily indicative of results for the full year.
NATURE OF BUSINESS - Minnesota Digital Universe, Inc. (the "Company") was
incorporated on July 1, 1997 in the state of Minnesota. The Company is located
in Rochester, Minnesota, and markets its services throughout the Midwest region
of the United States. The Company distributes television programming and
services and acts as a commissioned sales representative for DIRECTV to solicit
and take orders for DirecTV commissionable programming packages. Distribution
markets include residential multiple dwelling units (MDUs), hotels and hospitals
via satellite master antenna television (SMATV), and commercial businesses.
ACCOUNTS RECEIVABLE - At March 31, 2004 and December 31, 2003, the Company did
not have an allowance for doubtful accounts. The Company believes all accounts
receivable are fully collectible. Accounts receivable over 60 days are
considered past due. The Company does not accrue interest on past due accounts.
If accounts receivable are determined uncollectible, they are charged to expense
in the year that determination is made. The Company extends unsecured credit to
customers in the normal course of business.
DEPRECIATION - Property and equipment are recorded at cost. Depreciation is
provided for using the straight-line method over the estimated useful life
ranging from three to five years. Maintenance, repairs and minor renewals are
expensed when incurred. Depreciation expense was $4,900 and $2,940 for the
three months ended March 31, 2004 and 2003, respectively.
AMORTIZATION - The Company records video subscriber lists purchased at cost.
Amortization is provided using the straight-line method over a five year
estimated useful life. Amortization expense was $5,148 and $5,842 for the three
months ended March 31, 2004 and 2003, respectively. Amortization expense was
$20,834 and $17,648 for the years ended December 31, 2003 and 2002,
respectively. Estimated amortization expense of video subscriber lists for the
years ending December 31, 2004, 2005, 2006 and 2007 is $20,589, $20,589, $20,589
and $3,433, respectively.
ACCRUED COMMISSIONS - Based on the Company's agreement with DirecTV, a portion
of the commissions received from activation fees may be charged back to the
Company if a customer does not maintain video programming services for 12 months
upon activation. The Company also has the right to charge back an appropriate
percentage of the commissions paid to system operators related to these charged
back activation fees. The Company has estimated the potential charge back of
commissions paid on activation fees during the past 12 months based on
historical percentages of customer cancellations and has included that amount in
accrued commissions.
ACCRUED LIABILITY - The Company has recorded an accrued liability for amounts
received from DirecTV in excess of the contract agreement.
15
MINNESOTA DIGITAL UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION - The Company earns revenue primarily through the activation
of and residual fees on video programming services.
Revenue generated from activation is earned in the month of activation.
According to the Company's agreement with DirecTV, in the event that a customer
cancels within the first 12 months of service, DirecTV has the right to charge
back the Company for a portion of the activation fees received. In accordance
with Securities Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition", the Company has estimated the potential charge back of commissions
received on activation fees during the past 12 months based on historical
percentages of customer cancellations and has included that amount as a
reduction of revenue.
Residual income is earned as services are provided by DirecTV through the system
operators. As a commissioned sales agent for DirecTV, the Company earns a fixed
percentage based on net cash received from DirecTV.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(2) SIGNIFICANT RELATIONSHIP
The Company is a master agent for DirecTV pursuant to a system operator
agreement with DirecTV dated May 22, 2003. The initial term of the agreement is
for three years and provides for two additional two-year renewals if the Company
has a minimum number of paying video subscribers in its system operator network.
Termination of the Company's DirecTV agreement would have a material adverse
impact on the Company's on-going operations.
16
MINNESOTA DIGITAL UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
(UNAUDITED)
(3) RELATED PARTIES
Note Receivable Stockholder
The Company advanced funds to a stockholder, who is also an officer of the
Company, during 2003. These unsecured advances are due upon demand and bear no
interest. The balance at March 31, 2004 and December 31, 2003 was $300,000 and
$20,599, respectively.
Note Receivable Related Party
In October 2001, the Company loaned $792,520 to a company related through common
ownership. The loan was originally payable in 36 monthly installments of $23,931
including interest at 5.5%. In December 2002, the balance of $499,718 was
refinanced. The loan is unsecured, payable in 24 monthly installments of $21,756
including interest at 4.25%. The balance at March 31, 2004 and December 31, 2003
was $171,305 and $234,306. Interest income totaled $2,267 and $4,884 for the
three months ended March 31, 2004 and 2003, respectively.
The Company also paid office sharing expenses and commissions to this related
company. The total amount paid during the three months ended March 31, 2004 and
March 31, 2003 was $330,420 and $240,500, respectively. The unsecured amount due
to the company at March 31, 2004 and December 31, 2003 was $0 and $83,115,
respectively, and is included in accounts payable.
During the three months ended March 31, 2003, the Company paid one of its
stockholders $33,657 for consulting services which was included in Selling,
General and Administrative Expenses on the Statement of Operations for the three
months ended March 31,2003. No consulting services were provided for the three
months ended March 31, 2004.
4. SUBSEQUENT EVENT
On April 2, 2004, certain assets of the Company were purchased and certain
liabilities assumed by Vicom, Incorporated. The purchase price was $7.7 million,
half of which was paid for in Vicom, Incorporated common stock, valued at $1.75
per share, $1 million paid in cash and the balance in unsecured promissory notes
due by January 2005. Promissory notes bear no interest and are to be paid in
three installments, the final one to be January 2, 2005.
17
================================================================================
MULTIBAND CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On April 2, 2004, certain assets of Minnesota Digital Universe, Inc. (MDU) were
purchased and certain liabilities assumed by Multiband Corporation, (f/k/a
Vicom, Incorporated). The purchase price was 7.7 million dollars, half of which
was paid for in Multiband Corporation common stock, valued at $1.75 per share,
$1.1 million paid in cash and the balance in promissory notes due by January
2005. Promissory notes bear no interest and are to be paid in three
installments, the final one to be January 2, 2005.
The unaudited pro forma balance sheet set forth as attached gives effect to the
purchase as if it had been consummated on March 31, 2004 and the unaudited pro
forma statements of operations set forth below gives effect to the purchase as
if it had been consummated on January 1, 2003. The pro forma adjustments
reflecting the consummation of the purchase are based upon the purchase method
of accounting and upon the assumptions set forth in the notes hereto. This pro
forma information should be read in conjunction with the audited and unaudited
financial statements and notes thereto of MDU.
The unaudited pro forma financial information is presented in accordance with
Article 11 of the Securities and Exchange Commission's regulation S-X.
The historical operating results may not be indicative of the future results of
MDU should it be operated as a stand alone entity. The pro forma adjustments do
not reflect any operating efficiencies and cost savings which may be achievable
with respect to the combined companies. In addition, the pro forma adjustments
do not reflect any operating inefficiencies or extra expenses which might occur
with respect to the combined companies.
These pro forma financial statements do not purport to present results, which
would actually have been obtained if the transaction had been in effect during
the period covered, or any future results which may in fact be realized.
For purposes of preparing the Company's consolidated financial statements, the
Company will establish a new basis for the business's acquired assets and
assumed liabilities based upon the fair values thereof. A final determination
of the required purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the pro forma
combined financial information are preliminary and have been made solely for
purposes of developing such pro forma combined financial information. The
Company will undertake a study to determine the fair value of the assets
acquired and liabilities assumed and will make appropriate purchase accounting
adjustments upon completion of that study. The actual financial position may
differ from the pro forma amounts reflected herein because of a variety of
factors, including access to additional information and changes in value.
18
PROFORMA FINANCIAL STATEMENTS
MULTIBAND CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEETS
MARCH 31, 2004
Multiband Minnesota Digital Eliminate Historical
Corporation Universe, Inc. MDU Balance Sheet
March 31, 2004 March 31, 2004 March 31, 2004
-------------- -------------- --------------
(unaudited) (unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,602,593 $ 1,004,546 $ (1,004,546)(C)
Certificate of deposit 250,000
Accounts receivable, net 2,039,841 779,868 (779,868)(C)
Inventories, net 1,951,218
Other current assets 103,152 471,305 (471,305)(C)
------------ ----------- -------------
TOTAL CURRENT ASSETS 5,946,804 2,255,719 (2,255,719)
------------ ----------- -------------
PROPERTY AND EQUIPMENT, NET 3,369,071 44,102 (44,102)(C)
------------ ----------- -------------
OTHER ASSETS
Intangible asset
Goodwill 2,761,245
Other 1,039,508 60,052 (60,052)(C)
------------ ----------- -------------
TOTAL OTHER ASSETS 3,800,753 60,052 (60,052)
------------ ----------- -------------
TOTAL ASSETS $ 13,116,625 $ 2,359,873 $ (2,359,873)
============ =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess of cash in bank $ 142,775
Wholesale line of credit 1,453,725
Current portion of long term debt 919,032
Current portion of note payable, stockholder 88,080
Current portion of capital lease obligations 56,143
Short-term notes payable - MDU purchase
Accounts payable 1,663,419 10,181 (10,181)(C)
Accrued commissions 1,051,029 (1,051,029)(C)
Accrued liabilities 1,101,155 1,901,972 (1,901,972)(C)
Deferred service obligations and revenue 332,255
------------
TOTAL CURRENT LIABILITIES 5,756,584 2,963,182 (2,963,182)
LONG TERM DEBT, NET 2,127,691
OTHER LONG TERM DEBT 222,700
NOTE PAYABLE, STOCKHOLDER, NET OF CURRENT PORTION 16,576
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 128,329
------------
TOTAL LIABILITIES 8,251,880 2,963,182 (2,963,182)
------------ ----------- -------------
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, no par value:
8% Class A (27,931 shares issued and outstanding,
$293,276 liquidation preference) 419,752
10% Class B (8,700 shares issued and outstanding,
$91,350 liquidation preference) 62,000
10% Class C (125,400 shares issued and
outstanding, $1,254,000 liquidation preference) 1,611,105
15% Class E (77,650 shares issued and outstanding,
$776,500 liquidation preference) 438,964
Common stock, no par value (19,450,294 shares
issued;
19,440,150 shares outstanding) 8,230,982
Minnesota Digital Universe net investment deficit (603,309) 603,309(C)
Stock subscriptions receivable (415,085)
Options and warrants 30,514,872
Unamortized compensation (88,136)
Accumulated deficit (35,909,709)
------------
TOTAL STOCKHOLDERS' EQUITY 4,864,745
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,116,625 $ 2,359,873 $ (2,359,873)
============ =========== =============
Record
Revised
Purchase Pro Forma
Accounting for Combined
MDU March 31, 2004
--- --------------
(audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ (1,069,730)(A) $ 532,863
Certificate of deposit 250,000
Accounts receivable, net 2,039,841
Inventories, net 1,951,218
Other current assets 103,149
------------
TOTAL CURRENT ASSETS (1,069,730) 4,877,071
-------------- ------------
PROPERTY AND EQUIPMENT, NET 3,369,071
------------
OTHER ASSETS
Intangible asset 9,551,831 (A) 9,551,831
Goodwill 2,761,245
Other 60,052 (A) 1,099,560
-------------- ------------
TOTAL OTHER ASSETS. 9,611,883 13,412,636
-------------- ------------
TOTAL ASSETS $ 8,542,153 $ 21,658,778
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess of cash in bank $ 142,775
Wholesale line of credit 1,453,725
Current portion of long term debt 919,032
Current portion of note payable, stockholder 88,080
Current portion of capital lease obligations 56,143
Short-term notes payable - MDU purchase 2,750,000 (A) 2,750,000
Accounts payable 40,181 (A) 1,703,600
Accrued commissions -
Accrued liabilities 1,901,972 (A) 3,003,127
Deferred service obligations and revenue 332,255
------------
TOTAL CURRENT LIABILITIES 4,692,153 10,448,737
LONG TERM DEBT, NET 2,127,691
OTHER LONG TERM DEBT 222,700
NOTE PAYABLE, STOCKHOLDER, NET OF CURRENT PORTION 16,576
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 128,329
------------
TOTAL LIABILITIES 4,692,153 12,944,033
-------------- ------------
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, no par value:
8% Class A (27,931 shares issued and outstanding,
$293,276 liquidation preference) 419,752
10% Class B (8,700 shares issued and outstanding,
$91,350 liquidation preference) 62,000
10% Class C (125,400 shares issued and
outstanding, $1,254,000 liquidation preference) 1,611,105
15% Class E (77,650 shares issued and outstanding,
$776,500 liquidation preference) 438,964
Common stock, no par value (19,450,294 shares
issued;
19,440,150 shares outstanding) 3,850,000 (A) 12,080,982
Minnesota Digital Universe net investment deficit --
Stock subscriptions receivable (415,085)
Options and warrants 30,514,872
Unamortized compensation (88,136)
Accumulated deficit (35,909,709)
------------
TOTAL STOCKHOLDERS' EQUITY 3,850,000 8,714,745
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,542,153 $ 21,658,778
============== ============
See notes to condensed consolidated financial statements.
19
MULTIBAND CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Three Months Ended
------------------
Minnesota Digital Pro Forma
Multiband Corporation Universe, Inc. Combined
March 31, 2004 March 31, 2004 Purchase Adjustments March 31, 2004
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------- ----------------- -------------------- --------------
REVENUES $ 5,747,474 1,616,537 $ 7,364,011
COSTS AND EXPENSES
Cost of products and services 4,348,949 1,210,520 5,559,469
Selling, general and administrative 2,596,853 155,956 397,993(D)(E) 3,150,802
------------ --------- -------- ------------
Total Costs and Expenses 6,945,802 1,366,476 397,993 8,710,271
INCOME/(LOSS) FROM OPERATIONS (1,198,328) 250,061 (397,993) (1,346,260)
OTHER INCOME/(EXPENSE)
Interest Expense (321,377) (41,250)(D) (362,627)
Interest Income 2,267 2,267
Other Income/(Expense) 2,841 2,841
------------ ------------
Total Other Income/(Expense) (318,536) 2,267 (41,250) (357,519)
NET INCOME(LOSS) (1,516,864) 252,328 (439,243) (1,703,779)
Preferred Stock Dividends (62,653) (62,653)
------------ ------------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (1,579,517) 252,328 (439,243) (1,766,432)
============ ============
LOSS PER SHARE - BASIC AND DILUTED (.08) N/A N/A $ (.08)
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 19,280,632 N/A N/A 21,456,188
See notes to condensed consolidated financial statements
20
MULTIBAND CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
MAY 31, 2004
1) DESCRIPTION OF THE TRANSACTION
On April 2, 2004, Multiband Corporation (f/k/a Vicom, Incorporated (the
Company) completed its acquisition of Minnesota Digital Universe, Inc.
(MDU) for approximately 7.7 million dollars, half of which was paid for in
Multiband Corporation common stock, valued at $1.75 per share, $1.1
million paid in cash and the balance in promissory notes due by January
2005. Promissory notes bear no interest and are to be paid in three
installments, the final one to be January 2, 2005. The consideration paid
was based on the Company's analysis of likely future net incomes to be
generated over a six year period by the acquired company. The cash was
provided by funds the Company had previously raised in a private
placement. The assets were acquired from Pace Electronics. Prior to the
transaction, there was no material relationship between the owners of MDU
and the Company other than the fact that Pace Electronics previously owned
a 50% interest in a Company subsidiary, Multiband USA, Inc., which
interest the Company repurchased from Pace Electronics in January 2004 for
30,000 shares of the Company's common stock valued at $39,000.
With this acquisition, the Company became a nationwide agent for DirecTV.
MDU services nearly 40,000 video subscribers through a network of private
cable operators located throughout the United States. The purchase also
permits the Company to receive ongoing residual payments from DirecTV,
during the term of the master system operator agreement with DirecTV,
which initially had approximately 25 months remaining at the time of
purchase.
Summary of the purchase transaction is as follows:
PURCHASE PRICE FINDER'S FEE TOTAL
-------------- ------------ ---------
Cash 1,000,000 100,000 1,100,000
Notes Payable 2,500,000 250,000 2,750,000
Vicom Common Stock 3,500,000 350,000 3,850,000
--------- ------- ---------
Total contract 7,000,000 700,000 7,700,000
========= ======= =========
2) DESCRIPTION OF PRO FORMA ADJUSTMENTS
(A) The carrying value assigned to the DirecTV contract ($9,551,831)
intangible assets, net is based on the purchase price over the amounts
assigned to the identifiable assets acquired and liabilities assumed. The
allocation of the purchase price is as follows:
Total cash / stock consideration $ 7,000,000
Add: transaction costs 730,000
Add: liabilities assumed 1,912,153
--------------
Total consideration $ 9,642,153
Less: Net tangible assets acquired (**) 90,322
Less: Goodwill 0
--------------
Intangible assets, net $ 9,551,831
==============
** Total net tangible assets acquired include cash and video
subscriber rights. The allocation to cash and video subscriber
rights based on fair value is $30,270 and $60,052, respectively. The
adjustment to cash of $1,069,730 is the net adjustment for the cash
received as part of the assets purchased $30,720, and the cash paid
at closing of $1,100,000.
(B) The other accrued expenses adjustment represents the accrued estimated
transaction costs to be incurred as a result of the purchase agreement.
The costs include a 10% finders fee payable in cash, Multiband Corporation
stock and short term notes payable as well as $30,000 for the Company's
legal, accounting, printing and similar expenses.
(C) Adjustments related to assets not acquired and liabilities not assumed
as part of the transaction.
(D) Amortization expense of $397,993 included in Seller's General and
Administrative is based on the estimated useful life of the intangibles
purchased from DirecTV of six years. Interest expense of $41,250 has been
adjusted for the short term notes payable to the former shareholders at an
imputed interest rate of 6%.
21
(E) With the purchase of MDU, the Company has entered into an operating
agreement with Pace Electronics to provide management and operation of
MDU. This agreement calls for a monthly management fee equal to 7.9% of
MDU's preceding month's revenues not to be less than $50,000 per month. No
adjustment has been made in the pro forma income statement for the impact
of this agreement as it is deemed to be comparable to the existing
selling, general and administrative expenses incurred by MDU.
22
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Form 8-K report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: August 6, 2004 Multiband Corporation
By James L. Mandel
-------------------------------
James L. Mandel
Chief Executive Officer
23