Eagle Has Landed in Ch. 11
Vendor’s Business Never Took Off
by Mike Farrell -- Multichannel News, 11/25/2007 7:00:00 PM
After slugging it out in the Internet-protocol television space for the past couple of years, Eagle Broadband has thrown in the towel. The League City, Texas-based supplier of IPTV equipment and services filed for Chapter 11 bankruptcy protection Nov. 14 in U.S. Bankruptcy Court for the Southern District of Texas in Galveston.
In its bare-bones filing, Eagle listed assets of about $2.8 million and $8.8 million in liabilities. Tops among those liabilities is about $3 million the company owes to its former chairman, H. Dean Cubley, who sued Eagle in August 2006 for nonpayment of a $1.9 million promissory note the company owed him in lieu of stock options tied to his employment.
| The Eagle’s Nest | |
|---|---|
| Eagle Broadband filed for Chapter 11 bankruptcy protection on Nov. 14. A snapshot: | |
| SOURCE: Company and bankruptcy court reports |
|
| Assets | $2.8 million |
| Liabilities | $8.8 million |
| Employees | N/A |
| Headquarters | 101 Courageous Drive, League City, Texas |
| 3Q Revenue | $808,000 |
| 3Q Net Loss | $7.3 million |
Eagle did not say in its filing why it chose the bankruptcy route. It said in a separate Securities and Exchange Commission filing that it intends to continue to operate as a debtor-in-possession business.
But the IPTV market, once thought to be a high-growth area, has been a struggle for those companies that supply the industry.
While some cable operators have paid lip service to the technology, to date, the largest company to embrace IPTV is AT&T. And while AT&T announced its U-Verse product in 2004 with much fanfare — it planned on making the service available to about 17 million homes by the end of 2007 — so far the rollout has been much slower than expected. In the third quarter, AT&T said that U-verse was available in about 5.5 million homes and had about 126,000 customers.
Leichtman Research Group president Bruce Leichtman said that the challenge for IPTV service providers and vendors is that unless they are doing business with AT&T, the pickings are slim, mainly relegated to small rural telcos.
“Obviously, your opportunity is limited there,” Leichtman said.
Eagle was formed in 1996 as Eagle Telecom International, providing equipment and software to the paging and wireless personal communications markets. In later years, it changed focus to broadband wired and wireless equipment and services for the Internet, multimedia set-top-boxes, wireless messaging, and specialized mobile radio equipment. A perennial penny stock — the company went public in 1997 and trades over-the-counter — in the past year, its stock price has ranged from 70 cents per share to its close on Nov. 19 of four-tenths of one cent each.
In 2005, new CEO David Micek attempted to transform Eagle into a pure IPTV company, splitting it into three divisions — IPTV Solutions, Satellite Communications and Broadband Services — to serve what was then expected to be a burgeoning IPTV market.
But after two years of continued losses, Eagle began to sell off assets. In October it sold its satellite-telephony repeater business, called SatMax, for $100,000 and its IPTV set-top box business for $4.7 million. Most of the proceeds from those sales apparently went to settle lawsuits. In conjunction with the set-top box divestiture, Eagle announced that it had reached a settlement with former investor Dutchess Private Equity Fund for $4.3 million in cash and a three-year $1.3 million promissory note.
In August, Micek stepped down as CEO to pursue acquisition and divesture opportunities for Eagle Broadband.
But even as early as the second quarter, the handwriting appeared to be on the wall. Micek said on an April conference call to discuss its financial results that the market for IPTV services wasn’t developing as expected.
“The entire IPTV industry has experienced growth at a much slower rate than expected. Eagle has been caught up in that slowdown,” Micek said on the call. “Just like other IPTV companies, we are seeing steady growth in IPTV, but not yet the frantic growth rates that analysts originally predicted.”
In the fiscal 2007 third quarter, revenue was up 1% to $808,000 (from $801,000) and net losses nearly tripled to $7.3 million from $2.5 million in 2006. In its 10-Q quarterly filing with the SEC, Eagle said that from its inception to May 31 it had accumulated losses of $256.1 million.
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