x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
(State
of incorporation)
|
|
84-1342898
(I.R.S.
Employer Identification No.)
|
|
|
|
60-D
Commerce Way, Totowa, New Jersey
(Address
of principal executive offices)
|
|
07512
(Zip
Code)
|
Class
|
|
Outstanding
at February 12, 2008
|
Common
Stock, $0.001 par value per share
|
|
51,821,733
shares
|
|
|
|
|
Page
|
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
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4
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Item
1.
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Financial
Statements
|
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4
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Condensed
Consolidated Balance Sheets - December 31, 2007 (unaudited) and September
30, 2007
|
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4
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Condensed
Consolidated Statements of Operations - Three Months Ended December
31,
2007 and 2006 (unaudited)
|
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5
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|
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Condensed
Consolidated Statement of Stockholders’ Equity - Three Months Ended
December 31, 2007 (unaudited)
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6
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|
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Condensed
Consolidated Statements of Cash Flows - Three Months Ended December
31,
2007 and 2006 (unaudited)
|
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7
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|
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|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
|
9
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Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
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13
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
|
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22
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Item
4T.
|
Controls
and Procedures
|
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23
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PART
II.
|
|
OTHER
INFORMATION
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23
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Item
1.
|
Legal
Proceedings
|
|
23
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Item
1A.
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Risk
Factors
|
|
23
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|
|
|
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|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
23
|
|
|
|
|
|
|
|
|
Item
3.
|
Defaults
upon Senior Securities
|
|
23
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|
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Item
4.
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Submission
of Matters to a Vote of Security Holders
|
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23
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Item
5.
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Other
Information
|
|
23
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Item
6.
|
Exhibits
|
|
24
|
Item 1. |
|
December
31,
2007
|
September
30,
2007
|
|||||
ASSETS
|
|
|
|||||
CURRENT
ASSETS
|
|
|
|||||
Cash
and cash equivalents
|
$
|
166,052
|
$
|
767,296
|
|||
Accounts
receivable-trade, net of an allowance of $218,345 and
$167,674
|
2,765,752
|
2,381,234
|
|||||
Prepaid
expenses and deposits
|
579,985
|
582,319
|
|||||
TOTAL
CURRENT ASSETS
|
3,511,789
|
3,730,849
|
|||||
|
|||||||
Telecommunications
equipment inventory
|
1,071,573
|
970,456
|
|||||
Property
and equipment, net of accumulated depreciation of $14,024,805 and
$12,784,932
|
22,078,880
|
22,046,390
|
|||||
Intangible
assets, net of accumulated amortization of $4,468,765 and
$4,153,493
|
3,858,417
|
4,186,809
|
|||||
Deferred
finance costs, net of accumulated amortization of $209,332 and
$144,979
|
599,387
|
513,740
|
|||||
TOTAL
ASSETS
|
$
|
31,120,046
|
$
|
31,448,244
|
|||
|
|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES
|
|||||||
Accounts
payable
|
$
|
1,900,946
|
$
|
1,818,594
|
|||
Other
accrued liabilities
|
1,032,415
|
1,301,307
|
|||||
Current
portion of deferred revenue
|
865,879
|
704,618
|
|||||
Current
portion of note payable
|
52,534
|
51,723
|
|||||
Current
portion of capital lease obligations
|
69,479
|
81,291
|
|||||
TOTAL
CURRENT LIABILITIES
|
3,921,253
|
3,957,533
|
|||||
|
|||||||
Deferred
revenue, net of current portion
|
449,768
|
408,640
|
|||||
Credit
line borrowing, net of debt discount
|
14,924,089
|
13,224,561
|
|||||
Note
payable, net of current portion
|
36,839
|
50,286
|
|||||
Capital
lease obligations, net of current portion
|
4,710
|
12,179
|
|||||
TOTAL
LIABILITIES
|
19,336,659
|
17,653,199
|
|||||
COMMITMENTS
AND CONTINGENCIES
|
|||||||
|
|||||||
STOCKHOLDERS’
EQUITY
|
|||||||
Preferred
stock, par value $0.001; 5,000,000 shares authorized, none issued
|
—
|
—
|
|||||
Common
stock, par value $0.001; 70,000,000 shares authorized, 51,585,712
and
51,556,989 shares issued and outstanding
|
51,585
|
51,556
|
|||||
Additional
paid-in capital
|
60,377,122
|
60,208,501
|
|||||
Accumulated
deficit
|
(48,645,320
|
)
|
(46,465,012
|
)
|
|||
TOTAL
STOCKHOLDERS’ EQUITY
|
11,783,387
|
13,795,045
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
31,120,046
|
$
|
31,448,244
|
Three
Months Ended December 31,
|
|||||||
2007
|
2006
|
||||||
|
|
||||||
REVENUE
|
$
|
5,268,439
|
$
|
3,934,350
|
|||
OPERATING
EXPENSES
|
|||||||
Direct
costs
|
2,429,204
|
1,538,981
|
|||||
Sales
expenses
|
338,340
|
332,774
|
|||||
Customer
service and operating expenses
|
1,443,623
|
1,132,803
|
|||||
General
and administrative expenses
|
1,196,447
|
1,160,734
|
|||||
Depreciation
and amortization
|
1,555,145
|
1,243,644
|
|||||
TOTALS
|
6,962,759
|
5,408,936
|
|||||
OPERATING
LOSS
|
(1,694,320
|
)
|
(1,474,586
|
)
|
|||
Other
income (expense)
|
|||||||
Interest
income
|
876
|
22,817
|
|||||
Interest
expense
|
(486,864
|
)
|
(206,242
|
)
|
|||
NET
LOSS
|
$
|
(2,180,308
|
)
|
$
|
(1,658,011
|
)
|
|
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
51,570,529
|
51,003,121
|
Common
stock
|
Additional
|
Accumulated
|
||||||||||||||
Shares
|
Amount
|
paid-in
capital
|
deficit
|
Total
|
||||||||||||
Balance,
October 1, 2007
|
51,556,989
|
$
|
51,556
|
$
|
60,208,501
|
$
|
(46,465,012
|
)
|
$
|
13,795,045
|
||||||
Issuance
of common stock for employee bonuses
|
3,285
|
3
|
2,231
|
2,234
|
||||||||||||
Issuance
of common stock through employee stock purchase plan
|
7,401
|
7
|
8,152
|
8,159
|
||||||||||||
Issuance
of restricted common stock for compensation for services
rendered
|
18,037
|
19
|
14,411
|
14,430
|
||||||||||||
Share-based
compensation - employees
|
143,827
|
143,827
|
||||||||||||||
Net
loss
|
(2,180,308
|
)
|
(2,180,308
|
)
|
||||||||||||
Balance,
December 31, 2007
|
51,585,712
|
$
|
51,585
|
$
|
60,377,122
|
$
|
(48,645,320
|
)
|
$
|
11,783,387
|
For
the Three Months
Ended
December 31,
|
|||||||
2007
|
2006
|
||||||
OPERATING
ACTIVITIES
|
|
|
|||||
Net
loss
|
$
|
(2,180,308
|
)
|
$
|
(1,658,011
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|||||||
Bad
debt provision
|
50,671
|
100,507
|
|||||
Depreciation
and amortization
|
1,555,145
|
1,243,644
|
|||||
Share-based
compensation expense - employees
|
143,827
|
220,619
|
|||||
Share-based
compensation expense - nonemployees
|
—
|
42,083
|
|||||
Charge
to interest expense for amortization of deferred finance costs and
debt
discount
|
78,163
|
39,969
|
|||||
Compensation
expense for issuance of common stock through employee stock purchase
plan
|
3,129
|
14,468
|
|||||
Compensation
expense for issuance of common stock for employee bonuses
|
—
|
27,473
|
|||||
Compensation
expense for issuance of common stock for employee services
|
—
|
33,945
|
|||||
Compensation
expense for issuance of restricted common stock for services
rendered
|
13,500
|
—
|
|||||
Compensation
expense accrued to be settled through the issuance of common stock
|
46,884
|
3,817
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(435,189
|
)
|
(463,818
|
)
|
|||
Prepaid
expenses and deposits
|
(11,166
|
)
|
(38,988
|
)
|
|||
Accounts
payable
|
82,352
|
(168,726
|
)
|
||||
Other
accrued liabilities
|
(299,112
|
)
|
(401,781
|
)
|
|||
Deferred
revenue
|
202,389
|
(26,974
|
)
|
||||
Net
cash used in operating activities
|
(749,715
|
)
|
(1,031,773
|
)
|
|||
INVESTING
ACTIVITIES
|
|||||||
Purchase
of property and equipment
|
(1,373,480
|
)
|
(1,447,502
|
)
|
|||
Refund
(Payment) of acquisition purchase price, adjustment to intangible
assets
|
13,120
|
(695,865
|
)
|
||||
Net
cash used in investing activities
|
(1,360,360
|
)
|
(2,143,367
|
)
|
|||
FINANCING
ACTIVITIES
|
|||||||
Net
proceeds from credit line borrowing
|
1,685,718
|
1,044,475
|
|||||
Deferred
financing costs
|
(150,000
|
)
|
—
|
||||
Payments
of notes payable
|
(12,636
|
)
|
(11,189
|
)
|
|||
Proceeds
from purchase of common stock through employee stock purchase
plan
|
5,030
|
3,915
|
|||||
Proceeds
from options exercised
|
—
|
75,254
|
|||||
Payments
of capital lease obligations
|
(19,281
|
)
|
(14,557
|
)
|
|||
Net
cash provided by financing activities
|
1,508,831
|
1,097,898
|
|||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(601,244
|
)
|
(2,077,242
|
)
|
|||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
767,296
|
3,238,939
|
|||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
166,052
|
$
|
1,161,697
|
For
the Three Months
Ended
December 31,
|
|||||||
2007
|
2006
|
||||||
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|||||
Issuance
of 256,258 shares of common stock for accrued compensation
|
$
|
—
|
$
|
158,879
|
|||
Issuance
of 3,285 and 151,799 shares of common stock for employee
bonuses
|
$
|
2,234
|
$
|
94,115
|
|||
Issuance
of 18,037 shares of restricted common stock for services
rendered
|
$
|
14,430
|
$
|
—
|
|||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
||||||
|
|||||||
Interest
paid
|
$
|
386,237
|
$
|
166,273
|
1. |
BASIS
OF PRESENTATION AND OTHER MATTERS
|
2. |
LOSS
PER COMMON SHARE
|
December
31,
2007
|
December
31,
2006
|
||||||
Warrants
|
1,847,363
|
5,385,550
|
|||||
Options
|
2,740,000
|
2,852,674
|
|||||
Potentially
dilutive common shares
|
4,587,363
|
8,238,224
|
3. |
COMMON
STOCK, STOCK OPTION AND WARRANT ACTIVITY
|
Three
Months Ended
December
31, 2007
|
Three
Months Ended
December
31, 2006
|
|
Expected
volatility
|
54%
|
52%
|
Risk-free
interest rate
|
4.43%
|
4.72%
|
Expected
option term
|
4.1
|
1
to 5
|
Expected
dividends
|
0%
|
0%
|
|
Number
of Options Outstanding
|
Weighted
Average Exercise Price Per Share
|
Weighted
Average Remaining Contractual Term (years)
|
Aggregate
Intrinsic Value
|
|||||||||
Outstanding
at September 30, 2007
|
2,743,340
|
$
|
1.82
|
||||||||||
Granted
(weighted average fair value of $0.20 per share)
|
605,000
|
0.45
|
|||||||||||
Expired
/ Forfeited (1)
|
(608,340
|
)
|
2.98
|
||||||||||
Exercised
|
—
|
—
|
$
|
—
|
|||||||||
Outstanding
at December 31, 2007
|
2,740,000
|
$
|
1.26
|
2.9
|
$
|
12,000
|
|||||||
Exercisable
at December 31, 2007
|
1,761,772
|
$
|
1.62
|
2.1
|
$
|
12,000
|
(1) |
Sheldon
Nelson forfeited back to the Company, without consideration, 600,000
stock
options with an exercise price of $3.01 per share and a fair market
value
of $1.94 per share for general use under the 2001 Stock Option
Plan, which
had very few options remaining for grant to other employees. Of
the
600,000 options, 558,333 were vested and $1,083,167 in non-cash
expense
had already been recognized in general and administrative expense
since
their issuance.
|
4. |
COMMITMENTS
AND CONTINGENCIES
|
5. |
CREDIT
FACILITY
|
7. |
SUBSEQUENT
EVENTS
|
·
|
Forward-Looking
Statements
|
Overview
|
|
·
|
Summary
of Results and Recent Events
|
·
|
Critical
Accounting Policies and Estimates
|
·
|
Recently
Issued and Not Yet Effective Accounting Pronouncements
|
·
|
Results
of Operations - Three Months Ended December 31, 2007 Compared to
Three
Months Ended December 30, 2006
|
·
|
Liquidity
and Capital Resources - Three Months Ended December 31, 2007
|
For
The Three Months Ended
December 31, |
|||||||
2007
|
2006
|
||||||
EBITDA
|
$
|
119,712
|
$
|
234,787
|
|||
Interest
expense
|
(408,701
|
)
|
(166,273
|
)
|
|||
Interest
expense - deferred finance costs and debt discount
amortization
|
(78,163
|
)
|
(39,969
|
)
|
|||
Provision
for doubtful accounts
|
(50,671
|
)
|
(100,507
|
)
|
|||
Depreciation
and amortization
|
(1,555,145
|
)
|
(1,243,644
|
)
|
|||
Share-based
compensation expense - employees
|
(143,827
|
)
|
(220,619
|
)
|
|||
Compensation
expense for issuance of common stock through employee stock purchase
plan
|
(3,129
|
)
|
(14,468
|
)
|
|||
Compensation
expense for issuance of common stock for employee bonuses
|
—
|
(27,473
|
)
|
||||
Compensation
expense for issuance of common stock for employee wages
|
—
|
(33,945
|
)
|
||||
Compensation
expense accrued to be settled through the issuance of common
stock
|
(46,884
|
)
|
(3,817
|
)
|
|||
Compensation
expense through the issuance of restricted common stock for services
rendered
|
(13,500
|
)
|
—
|
||||
Share-based
compensation expense - nonemployees
|
—
|
(42,083
|
)
|
||||
Net
Loss
|
$
|
(2,180,308
|
)
|
$
|
(1,658,011
|
)
|
Service
Type
|
Subscribers
as
of
Dec.
31, 2006
|
Subscribers
as
of
Mar. 31, 2007
|
Subscribers
as
of
June
30, 2007
|
Subscribers
as
of
Sept. 30, 2007
|
Subscribers
as
of
Dec.
31, 2007
|
|||||||||||
Bulk
DTH -DIRECTV
|
9,079
|
9,823
|
10,655
|
14,196
|
14,808
|
|||||||||||
DTH
-DIRECTV Choice/Exclusive
|
7,988
|
8,225
|
8,161
|
10,034
|
10,650
|
|||||||||||
Bulk
Private Cable
|
16,107
|
15,825
|
17,870
|
20,912
|
20,564
|
|||||||||||
Private
Cable Choice or Exclusive
|
1,219
|
1,397
|
1,376
|
2,684
|
3,211
|
|||||||||||
Bulk
BCA -DIRECTV
|
7,420
|
8,164
|
8,001
|
7,573
|
7,921
|
|||||||||||
Bulk
ISP
|
4,093
|
4,857
|
4,759
|
5,403
|
5,863
|
|||||||||||
ISP
Choice or Exclusive
|
2,933
|
3,090
|
3,225
|
3,541
|
3,875
|
|||||||||||
Voice
|
—
|
—
|
—
|
—
|
73
|
|||||||||||
Total
Subscribers
|
48,839
|
51,381
|
54,047
|
64,343
|
66,965
|
Bulk
Subscribers
|
Exclusive
Subscribers
|
Competitive
Subscribers
|
Total
Subscribers
|
||||||||||
New
construction “under contract” subscribers
as
of December 31, 2007:
|
2,500
|
180
|
617
|
3,297
|
|||||||||
Existing
conversion “under contract” subscribers as of December 31, 2007:
|
587
|
378
|
533
|
1,498
|
|||||||||
Total
“under contract” subscribers:
|
3,087
|
558
|
1,150
|
4,795
|
Three
Months Ended
December 31, 2007 |
Three
Months Ended
December 31, 2006 |
Change
($) |
Change
(%) |
||||||||||||||||
REVENUE
|
$
|
5,268,439
|
100
|
%
|
$
|
3,934,350
|
100
|
%
|
$
|
1,334,089
|
34
|
%
|
|||||||
Direct
costs
|
2,429,204
|
46
|
%
|
1,538,981
|
39
|
%
|
890,223
|
58
|
%
|
||||||||||
Sales
expenses
|
338,340
|
6
|
%
|
332,774
|
8
|
%
|
5,566
|
2
|
%
|
||||||||||
Customer
service and operating expenses
|
1,443,623
|
27
|
%
|
1,132,803
|
29
|
%
|
310,820
|
27
|
%
|
||||||||||
General
and administrative expenses
|
1,196,447
|
23
|
%
|
1,160,734
|
29
|
%
|
35,713
|
3
|
%
|
||||||||||
Depreciation
and amortization
|
1,555,145
|
30
|
%
|
1,243,644
|
32
|
%
|
311,501
|
25
|
%
|
||||||||||
OPERATING
LOSS
|
(1,694,320
|
)
|
-32
|
%
|
(1,474,586
|
)
|
-37
|
%
|
(219,734
|
)
|
15
|
%
|
|||||||
Total
other income
|
(485,988
|
)
|
-9
|
%
|
(183,425
|
)
|
-5
|
%
|
(302,563
|
)
|
165
|
%
|
|||||||
NET
LOSS
|
$
|
(2,180,308
|
)
|
-41
|
%
|
$
|
(1,658,011
|
)
|
-42
|
%
|
$
|
(522,297
|
)
|
32
|
%
|
Three
Months Ended
December
31,
|
|||||||
|
2007
|
2006
|
|||||
Private
Cable Programming Revenue
|
24%
|
|
23%
|
|
|||
DTH
Programming Revenue and Subsidy
|
56%
|
|
56%
|
|
|||
Internet
Access Fees
|
12%
|
|
12%
|
|
|||
Installation
Fees, Wiring and Other Sales
|
8%
|
|
9%
|
|
|
Three
Months Ended
December 31, 2007 |
Three
Months Ended
December 31, 2006 |
|||||||||||
Call
center expenses
|
$
|
355,355
|
25
|
%
|
$
|
374,654
|
33
|
%
|
|||||
General
operation expenses
|
466,475
|
32
|
%
|
354,452
|
31
|
%
|
|||||||
Property
system maintenance expenses
|
621,793
|
43
|
%
|
403,697
|
36
|
%
|
|||||||
Total
customer service and operating expenses
|
$
|
1,443,623
|
100
|
%
|
$
|
1,132,803
|
100
|
%
|
Three
Months
Ended
December 31,
|
|||||||
2007
|
2006
|
||||||
Total
general and administrative expenses
|
$
|
1,196,447
|
$
|
1,160,734
|
|||
Noncash
charges:
|
|||||||
Share
based compensation - nonemployees (1)
|
—
|
42,083
|
|||||
Share
based compensation - employees (1)
|
143,827
|
220,619
|
|||||
Compensation
expense through the issuance of restricted common stock for services
rendered
|
13,500
|
—
|
|||||
Excess
discount for the issuance of stock
|
3,129
|
14,468
|
|||||
Issuance
of common stock for bonuses
|
—
|
11,973
|
|||||
Provision
for compensation expense settled through the issuance of common
stock
|
45,807
|
—
|
|||||
Provision
for bad debt expense
|
50,671
|
100,507
|
|||||
Total
noncash charges
|
256,934
|
389,650
|
|||||
Total
general and administrative expense net of noncash charges
|
$
|
939,513
|
$
|
771,084
|
|||
Percent
of revenue
|
18
|
%
|
20
|
%
|
(1) |
Effective
October 1, 2005, the Company was required to adopt the provisions
of SFAS
123R which revised SFAS 123 and eliminated the option the Company
had been
using to account for options under the intrinsic value method pursuant
to
APB 25 in its historical financial statements. The pro forma disclosures
previously permitted under SFAS 123 are no longer an alternative
to
financial statement recognition. As a result of adopting the provisions
of
SFAS 123R, the Company recognized noncash share-based compensation
expense
for employees based upon the fair value at the grant dates for
awards to
employees for the three months ended December 31, 2007 and 2006
amortized
over the requisite vesting period of $143,827 and $220,619, respectively.
The total stock-based compensation expense not yet recognized and
expected
to vest over the next 35 months is approximately $345,000.
|
|
·
|
incur
other indebtedness;
|
|
·
|
incur
other liens;
|
|
·
|
undergo
any fundamental changes;
|
|
·
|
engage
in transactions with affiliates;
|
|
·
|
issue
certain equity, grant dividends or repurchase shares;
|
|
·
|
change
our fiscal periods;
|
|
·
|
enter
into mergers or consolidations;
|
|
·
|
sell
assets; and
|
|
·
|
prepay
other debt.
|
Item 4T. |
Item 1. |
LEGAL
PROCEEDINGS
|
Item 5. |
Item 6. |
EXHIBITS
|
MDU
COMMUNICATIONS INTERNATIONAL, INC.
|
||
|
|
|
Date:
February 13, 2008
|
By: | /s/ SHELDON NELSON |
Sheldon Nelson |
||
Chief
Financial Officer
|
MDU
COMMUNICATIONS INTERNATIONAL, INC.
|
||
|
|
|
Date:
February 13, 2008
|
By: | /s/ CARMEN RAGUSA, JR. |
Carmen Ragusa, Jr. |
||
Vice
President of Finance and Administration
|