UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K
 

 
(Mark One)
 x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
 
OR
 
 ¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
 
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
 
COMMISSION FILE NUMBER 0 - 1325
 

 
 MULTIBAND CORPORATION
  (Exact name of registrant as specified in its charter)

MINNESOTA
(State or other jurisdiction of incorporation or organization)

  41-1255001
(IRS Employer Identification No.)

9449 Science Center Drive, New Hope, Minnesota 55428
(Address of principal executive offices)

Telephone (763) 504-3000 Fax (763) 504-3060

The Company's Internet Address: www.multibandusa.com

(Registrant's telephone number, facsimile number, and Internet address)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock (no par value)
 
Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x

Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K § 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨ Yes x No

As of June 30, 2009, (the most recently completed fiscal second quarter), the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants’ most recently completed second fiscal quarter was approximately $19,349.

As of March 15, 2010, there were 9,804,396 outstanding shares of the registrant's common stock, no par value stock.


 
Table of Contents

   
Page
 
Part I
Item 1.
Business
    2  
             
 
Item 1A.
Risk Factors
    4  
             
 
Item 1B.
Unresolved Staff Comments
    8  
             
 
Item 2.
Properties
    8  
             
 
Item 3.
Legal Proceedings
    8  
             
 
Item 4.
Submission of Matters to a Vote of Security Holders
    9  
             
Part II
           
             
 
Item 5.
Market for the Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
    9  
             
 
Item 6.
Selected Consolidated Financial Data
    13  
             
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
    14  
             
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
    25  
             
 
Item 8.
Consolidated Financial Statements and Supplementary Data
    25  
             
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    25  
             
 
Item 9A.
Disclosure Controls and Procedures
    25  
             
 
Item 9B.
Other Information
    26  
             
Part III
           
             
 
Item 10.
Directors, Executive Officers, and Corporate Governance
    26  
             
 
Item 11.
Executive and Director Compensation
    31  
             
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management
    34  
             
 
Item 13.
Certain Relationships, Related Transactions and Director Independence
    35  
             
 
Item 14.
Principal Accountant Fees and Services
    35  
             
 
Item 15.
Exhibits and Financial Statement Schedules
    36  
             
   
Signatures
    39  
 
Page 1

 
Item 1

Business

Multiband Corporation (the Company), is a Minnesota corporation formed in September 1975.  The Company has two operating segments: 1) Home Service Provider (HSP), which primarily installs and maintains video services for residents of single family homes and 2) Multi-Dwelling Unit (MDU, which sells voice, data and video services to residents of multiple dwelling units).  Both segments encompass a variety of different corporate entities.

The Company completed an initial public offering in June 1984.  In November 1992, the Company became a non-reporting company under the Securities Exchange Act of 1934.  In July 2000, the Company regained its reporting company status.  In December 2000, the Company stock began trading on the NASDAQ stock exchange under the symbol VICM.  In July 2004, the symbol was changed to MBND concurrent with the Company’s name change from Vicom, Incorporated to Multiband Corporation.

The Company’s website is located at: www.multibandusa.com ..

From its inception until December 31, 1998, the Company operated as a telephone interconnect company only. Effective December 31, 1998, the Company acquired the assets of the Midwest region of Enstar Networking Corporation (ENC), a data cabling and networking company. In late 1999, in the context of a forward triangular merger, the Company, to expand its range of computer products and related services, purchased the stock of Ekman, Inc. d/b/a Corporate Technologies, and merged Ekman, Inc. into the newly formed surviving corporation, Corporate Technologies USA, Inc. (MBS).  MBS provided voice, data and video systems and services to business and government.  The MBS business segment was sold effective April 1, 2005.  The Company’s MDU segment (formally known as MCS) began in February 2000.  MDU provides voice, data and video services to multiple dwelling units, including apartment buildings, condominiums and time share resorts. During 2004, the Company purchased video subscribers in a number of separate transactions, the largest one being Rainbow Satellite Group, LLC. During 2004, the Company also purchased the stock of Minnesota Digital Universe, Inc. (MNMDU), which made the Company the largest master service operator in MDU’s for DirecTV satellite television in the United States.  During 2006 and 2007, the Company strategically sold certain assets at multiple dwelling properties where only video services were primarily deployed.  The Company continues to operate properties where multiple services were deployed.  To remain competitive, the Company in future periods intends to continue to own and operate properties at locations where multiple services can be deployed and manage properties where one or more services are deployed.  Consistent with that strategy the Company during 2006, 2007, and 2008, expanded its servicing of third party clients (other system operators) through its call center.  At March 15, 2010, the Company had approximately 120,000 owned and managed subscriptions, with an additional 50,000 subscriptions supported by the call center.

During 2008, the Company became involved in the business of installing video services in single family homes by acquiring 51% of the outstanding stock of Multiband NC Incorporated (NC) (formerly Michigan Microtech, Incorporated (MMT a former subsidiary of Directech Holding Company Inc. (DTHC))), a fulfillment agent for a national satellite television company, DirecTV, which specializes in the providing of satellite TV to single family homes. This acquisition was followed up by the acquisition of an 80% interest in a group of companies which were the former operating subsidiaries of DTHC, (Multiband NE Incorporated (NE), Multiband SC Incorporated (SC), Multiband EC Incorporated (EC), Multiband DV Incorporated (DV) and Multiband Security Incorporated (Security)).  The Company also purchased an additional 29% ownership interest in Multiband NC Incorporated, of which it previously owned 51%, effective on January 2, 2009.  The remaining 20% of those operating entities were purchased in December 2009.

The Company’s rationale for acquiring the aforementioned operating subsidiaries is as listed below.

 
1.
The operating entities are potentially accretive to our business model as they have the:
 
 
a.
Same line of business (DirecTV)
 
 
b.
Ability to leverage systems and management
 
 
c.
Ability to leverage core competencies in support center, software, and engineering
 
 
d.
Ability to expand geographic presence with ample technician capacity
 
 
e.
Size, scale, and scope of combined business enterprise more in line with growth necessary to support public entity
 
 
f.
Potential for accretive positive cash flow and capacity for net income.
 
 
2.
Also, new business opportunities may be integrated into an existing installation process which touches over 5,000 homes per day.  Multiband Enterprise Manager software application is capable of modification to support “bundled billing” attributes resulting from new sales opportunity.
 
 
3.
Furthermore, the transaction produced a strong barrier to entry to other potential competitors which creates potential for longevity and exclusivity.
 
Page 2

 
 
4.
Other reasons for the acquisition included:
 
a.      Strong financial performance by DirecTV which provides security and continued growth potential for Multiband.
 
b.      Strong DirecTV balance sheet and liquidity which provides comfort for continued, successful operations.
 
c.      Multiband’s public company reporting status provides an excellent platform to support and motivate new human resource asset.
 
d.      Multiband’s management is, we believe, capable of “rightsizing” operating expense structure of DTHC operating entities to provide increased cash flow and earning potential over a short
period of time; and
 
e.      Opportunity for significant shareholder appreciation when comparing industry valuation metrics to pre-existing Multiband market values.

This purchase was a significant event for the Company. The purchase materially increased the size and scope of the Company’s operations.  The Company has now expanded its operations into 16 states with 32 field offices. The Company now employs approximately 2,800 people. Multiband is now the second largest independent DirecTV field services provider in the United States.

Home Service Provider (HSP Segment)
 
The Company, through its HSP segment, receives net cash payments for the installation and service of DirecTV video programming for residents of single family homes.  These video subscribers are billed by DirecTV. The HSP segment functions as a fulfillment arm for DirecTV.  As a result, Multiband generally does not directly compete with other providers for DirecTV’s business.  Although DirecTV competes with DISH, the other leading satellite television provider and incumbent providers of phone and telephone services for pay television customers, DirecTV has its own marketing and competitive programs of which the Company is merely an indirect and passive recipient.

Multi-Dwelling Unit (MDU Segment)
 
Since 2004, the Company, through its MDU segment, serves as a master service operator for DirecTV, a provider of satellite television service. DirecTV is the largest provider of satellite television services in the United States with approximately 18 million subscribers.  DirecTV competes with the leading cable companies and with DISH, America's second largest provider of satellite television.  The master service operator arrangement allows the Company to offer satellite television services to residents of multi-dwelling-units through a network of affiliated operators.

Since 2000, Multiband has also offered voice, data and video services directly to residents of the multi-dwelling unit (MDU) market.  Our experience in this market suggests that property owners and managers are currently looking for a solution that will satisfy two market demands from customers.  The first market demand from customers is how to satisfy the residents who desire to bring satellite television service to the unit without being visually unattractive or a structural/maintenance problem.  The second is how to provide competitive access for local and long distance telephone, cable television and internet services.  Our service offering addresses these demands and provides the consumer several benefits, including:

o Lower Cost Per Service
 
o Blended Satellite and Cable Television Package
 
o Multiple Feature Local Phone Services (features such as call waiting, call forwarding and three-way calling)
 
o Better than Industry Average Response Times
 
o One Number for Billing and Service Needs
 
o One Bill for Local, Long Distance Cable Television and Internet
 
o “Instant On" Service Availability

In late 2005, the Company began to use its internal support center and billing platform to service third party clients.

In late 2006, DirecTV provided the Company with the right to bill DirecTV services directly to end users.  The Company is providing such billing services to a certain number of customers.

As we develop and market this package, we keep a marketing focus on two levels of customers for this product.  The primary decision-makers are the property owners/managers.  Their concerns are focused on delivering their residents reliability, quality service, short response times, minimized disruptions on the property, minimized alterations to the property and value added services.  Each of these concerns is addressed in our contracts with the property owner, which includes annual reviews and 10 year terms as service providers on the property.  The secondary customer is the end-user.  We provide the property with on-going marketing support for their leasing agents to deliver clear, concise and timely information on our services.  This will include simple sign up options that should maximize our penetration of the property.
 
Page 3


When taken as a whole, and based on Multiband’s interpretations of U.S. Census Bureau statistics, cable television, telephone and internet services currently generate over $170 billion of revenues annually in the U.S, with an estimated 26 million households living in MDUs.  We believe these statistics indicate stable growing markets with demand that is likely to deliver significant value to businesses that can obtain a subscriber base of any meaningful size.

Multiband Consumer Industry Analysis and Strategy
 
MDU offers video and, in some cases, data and voice to residents of Multiple-Dwelling Units primarily throughout the Midwest and the Southeast.  Our primary competition in this market comes from the local incumbent providers of telephone and cable television services.  The leading competitors in these services are the former Bell System Companies such as Verizon Communications (Verizon) and Qwest Communications International, Inc. (Qwest) and national cable companies such as Comcast Corporation (Comcast) and Time Warner.  These regional and national rivals have significant resources and are strong competitors.  Nonetheless, we believe as a largely unregulated entity, we can be competitive on both price and service.

Regarding video services, we believe we have a significant consumer benefit in that we are establishing private rather than public television systems, which allows us to deliver a package not laden with local "public access" stations that clog the basic service package.  In essence, we will be able to deliver a customized service offering to each property based upon pre-installation market research that we perform.  The pricing of our service is also untariffed which allows for flexible and competitive "bundling" of services.

Regarding data services, the general concern among consumers is the quality of the connection and the speed of the download.  We believe our design provides the highest broadband connection speeds currently available.  The approach we market is "blocks of service".  Essentially, we deliver the same high bit rate service in small, medium and large packages, with an appropriate per unit cost reduction for those customers that will commit to a higher monthly expenditure.

Market Description
 
We are currently marketing Multiband services to MDU properties primarily throughout the Midwest and Southeast.  We will target properties that range from 50 to 150 units on a contiguous MDU property for television and internet access only.  We will survey properties that exceed 150 units for the feasibility of local and long distance telephone services.

We are initially concentrating on middle to high-end rental complexes.  We are also pursuing resort area condominiums.  A recent U.S. Census Bureau table indicates there are more than 65,000 properties in the United States which fit this profile.  Assuming an average of 100 units per complex, our focus is on a potential subscriber base of 6,500,000.

A recent Property Owners and Manager Survey, published by the U.S. Census Bureau, shows rental properties are focusing on improving services and amenities available to their tenants.  These improvements are being undertaken to reduce tenant turnover, relieve pricing pressures on rents and attract tenants from competing properties.  We believe most of these owners or managers are not interested in being "in the technology business" and will use the services that we are offering.  Various iterations of this package will allow the owners to share in the residual income stream from the subscriber base.

Number of Units/Customers
 
At March 15, 2010, the Company had approximately 120,000 owned and managed subscriptions, with an additional 50,000 subscribers supported by the support center.

Employees
 
As of March 15, 2010, Multiband employed 71 full-time employees, including 9 management employees, 37 finance personnel, 19 information technology employees, 5 human resource employees and 1 employee in an administrative position.  HSP employed 2,609 full-time employees consisting of 85 management employees, 4 human resource employees, 72 administrative personnel, 251 customer service employees, 2,108 technicians and 89 warehouse employees.  As of that same date, MDU had 169 full-time employees, consisting of 3 in sales and marketing, 3 in technical positions, 18 technicians, 141 in customer service and related support, 2 in management positions, and 2 administrative personnel.

Item 1A

Risk Factors (in thousands)
 
Our operations and our securities are subject to a number of risks, including but not limited to those described below.  If any of the following risks actually occur, the business, financial condition or operating results of Multiband and the trading price or value of our common stock could be materially adversely affected.

Page 4


General
 
Multiband, as noted earlier herein, since 1998, has taken several significant steps to reinvent and reposition itself to take advantage of opportunities presented by a shifting economy and industry environment.

Recognizing that voice, data and video technologies in the late twentieth century were beginning to systematically integrate as industry manufacturers were evolving technological standards from "closed" proprietary networking architectures to a more "open" flexible and integrated approach, Multiband, between 1998 and 2001, purchased three competitors which, in the aggregate, possessed expertise in data networking, voice and data cabling and video distribution technologies.

In early 2000, Multiband created its MDU division, employing the aforementioned expertise, to provide communications and entertainment services (local dial tone, long distance, high-speed internet and expanded satellite television services) to residents in MDUs on one billing platform, which the Company developed internally.  In 2004, the Company added its master system operator agreement and in 2008, its HSP segment.

The specific risk factors, as detailed below, should be analyzed in the context of the Company's evolving business model.

Net Income (Loss) Attributable to Multiband Corporation and Subsidiaries
 
The Company had net loss attributable to Multiband Corporation and subsidiaries of $9,650 for the year ended December 31, 2009 and a net income attributable to Multiband Corporation and subsidiaries of $945 for the year ended December 31, 2008 and a net loss attributable to Multiband Corporation and subsidiaries of $6,088 for the year ended December 31, 2007.  Included in our 2008 net income are amounts earned under certain contractual arrangements with DTHC prior to the date we acquired majority ownership of DTHC’s operating subsidiaries (see Note 2).

The effects of accumulated losses without additional funding may restrict our ability to pursue our business strategy.  Unless our business plan is successful, an investment in our common stock may result in a complete loss of an investor's capital.

If we cannot achieve continued profitability from operating activities, we may not be able to meet:
 
o           our capital expenditure objectives;
 
o           our debt service obligations; or
 
o           our working capital needs.

Working Capital
 
The Company had a working capital deficit of $28,596 as of December 31, 2009 primarily due to the acquisition of the former DTHC operating entities.  As of December 31, 2008, the Company had working capital of $2,457 due to the acquisition of MMT.

Long-lived Assets
 
The Company reviews its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or exceeds its fair value.  The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

For the HSP segment, the income approach was used to measure fair value for those long-lived assets.  For the MDU segment, the market approach considering market multiples from comparable transactions were used to measure fair value of those long-lived assets.  There was no impairment noted for either segment at December 31, 2009 or 2008.  However, should the Company in future periods experience a significant decline in profitability and/or should the market value for the Company’s long-lived assets decrease, some impairment to these  assets could occur.  If an impairment occurs it could be materially adverse to the Company’s results of operations in those future periods.

Goodwill and Intangible Assets
 
Annually, the Company tests for impairment its goodwill and intangible assets without a defined life.  We tested impairment for the HSP and MDU segments which had goodwill at December 31, 2009 using standard fair value measurement techniques.  The Company concluded there was no goodwill impairment as of December 31, 2009.  For the year ended December 31, 2008, the Company recorded an impairment of $50 on the goodwill related to the US Install purchase and impaired the remaining goodwill balance of $17 from a previous acquisition.  Also, pursuant to the abandonment of a right of entry intangible asset, the Company recorded an impairment charge of $65 for the year ended December 31, 2008.  However, should the Company in future periods experience a significant decline in profitability and/or should the business climate for satellite providers deteriorate, some impairment to its goodwill could occur.  If an impairment occurs it could be materially adverse to the Company’s results of operations in those future periods.
 
Page 5


Group Health and Workers’ Compensation Insurance Coverage
 
The Company uses a combination of self-insurance and third-party carrier insurance with predetermined deductibles that cover certain insurable risks. The Company’s share of its workers compensation plan are recorded for the aggregate liabilities for claims reported, based on historical experience. The Company also estimates the cost of health care claims that have been incurred but not reported, based on historical experience.

Insurance and claims accruals reflect the estimated cost for group health and workers’ compensation claims not covered by insurance.  The insurance and claims accruals are recorded at the estimated ultimate payment amounts.  Such insurance and claims accruals are based upon individual case estimates and estimates of incurred-but-not-reported losses using loss development factors based upon past experience.

During 2009, in certain states, the Company is self-insured for workers’ compensation liability claims up to $100, plus administrative expenses, for each occurrence involving workers’ compensation claims since February 1, 2009.  Effective January 1, 2010, the Company is self-insured for workers compensation claims up to $250 plus administrative expenses, for each occurrence involving workers compensation claims since that date.

The Company is self-insured for health insurance covering the range of liability under which management expects most claims to occur.  If any liability claims are substantially in excess of coverage amounts, such claims are covered under premium-based policies issued by insurance companies to coverage levels that management considers adequate.  However, if the Company experiences claims that in the aggregate become castatrophic, those claims may not be covered entirely by its premium based policies and as such the Company could experience expenses that would be materially adverse to its results of operations in future periods.

Debt
 
The Company has related party debt of approximately $30,000 which will be due in January 2013.  We will need to seek additional financing to pay this debt if there is not adequate cash flow from operations.  Sources of additional financing, if needed in future, may include further debt financing or the sale of equity (including the issuance of preferred stock) or other securities.  We cannot assure you that any additional sources of financing or new capital will be available to us, available on acceptable terms, or permitted by the terms of our current debt.  In addition, if we sell additional equity to raise funds, all outstanding shares of common stock will be diluted.

Deregulation
 
Several regulatory and judicial proceedings have recently concluded, are underway or may soon be commenced that address issues affecting our operations and those of our competitors, which may cause significant changes to our industry.  We cannot predict the outcome of these developments, nor can we assure you that these changes will not have a material adverse effect on us.  Historically, we have been a reseller of products and services, not a manufacturer or carrier requiring regulation of its activities.  Pursuant to Minnesota statutes, our Multiband activity is specifically exempt from the need to tariff our services in MDU's.  However, the Telecommunications Act of 1996 provides for significant deregulation of the telecommunications industry, including the local telecommunications and long-distance industries.  This federal statute and the related regulations remain subject to judicial review and additional rule-makings of the Federal Communications Commission, making it difficult to predict what effect the legislation will have on us, our operations, and our competitors.

Dependence on Strategic Alliances
 
Several suppliers or potential suppliers of Multiband, such as McLeod, WorldCom, WS Net, XO Communications and others have filed for bankruptcy in recent years.  While the financial distress of its suppliers or potential suppliers could have a material adverse effect on Multiband's business, Multiband believes that enough alternate suppliers exist to allow the Company to execute its business plans.  The Company is also highly dependent on its Master System Operator agreement with DirecTV.  The initial term of the agreement expired in August 2008, and provided for two additional two-year renewals if the Company had a minimum number of paying video subscribers in its system operator network.  The Company did meet the requirements and has entered into the first two year automatic renewal period.  The Company also has a home service provider agreement with DirecTV ending May 1, 2013.  The term of this agreement with DirecTV will automatically renew for additional one year periods unless either the Company or DirecTV gives written notice of termination at least 90 days in advance of expiration of the then current term.  Although an alternate provider of satellite television services, Echostar, exists, the termination of any or all of its HSP dealer agreements with DirecTV would have a material adverse effect on Multiband's business.

Changes in Technology
 
A portion of our projected future revenue is dependent on public acceptance of broadband and expanded satellite television services.  Acceptance of these services is partially dependent on the infrastructure of the internet and satellite television which is beyond Multiband's control.  In addition, newer technologies, such as video-on-demand, are being developed which could have a material adverse effect on the Company's competitiveness in the marketplace if Multiband is unable to adopt or deploy such technologies.
 
Page 6


Attraction and Retention of Employees
 
Multiband's success depends on the continued employment of certain key personnel, including executive officers. If Multiband were unable to continue to attract and retain a sufficient number of qualified key personnel, its business, operating results and financial condition could be materially and adversely affected. In addition, Multiband's success depends on its ability to attract, develop, motivate and retain highly skilled and educated professionals with a wide variety of management, marketing, selling and technical capabilities. Competition for such personnel is intense and is expected to increase in the future.

Intellectual Property Rights
 
Multiband relies on a combination of trade secret, copyright and trademark laws, license agreements, and contractual arrangements with certain key employees to protect its proprietary rights and the proprietary rights of third parties from which Multiband licenses intellectual property.  Multiband also relies on agreements with owners of multi-dwelling units which grant the Company rights of access for a specific period to the premises whereby Multiband is allowed to offer its voice, data, and video services to individual residents of the property.  If it was determined that Multiband infringed the intellectual property rights of others, it could be required to pay substantial damages or stop selling products and services that contain the infringing intellectual property, which could have a material adverse effect on Multiband's business, financial condition and results of operations.  Also, there can be no assurance that Multiband would be able to develop non-infringing technology or that it could obtain a license on commercially reasonable terms, or at all. Multiband's success depends in part on its ability to protect the proprietary and confidential aspects of its technology and the products and services it sells.  There can be no assurance that the legal protections afforded to Multiband or the steps taken by Multiband will be adequate to prevent misappropriation of Multiband's intellectual property.

Variability of Quarterly Operating Results
 
Variations in Multiband's revenues and operating results occur from quarter to quarter as a result of a number of factors, including customer engagements commenced and completed during a quarter, the number of business days in a quarter, employee hiring and utilization rates, the ability of customers to terminate engagements without penalty, the size and scope of assignments and general economic conditions.  Because a significant portion of Multiband's expenses are relatively fixed, a variation in the number of customer projects or the timing of the initiation or completion of projects could cause significant fluctuations in operating results from quarter to quarter.

Certain Anti-Takeover Effects
 
Multiband is subject to Minnesota statutes regulating business combinations and restricting voting rights of certain persons acquiring shares of Multiband.  These anti-takeover statutes may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of Multiband's securities, or the removal of incumbent management.

Volatility of Multiband's Common Stock
 
The trading price of our common stock has been and is likely to continue to be volatile.  The stock market has experienced extreme volatility, and this volatility has often been unrelated to the operating performance of particular companies.  Prices for our common stock are determined in the marketplace and may be influenced by many factors, including variations in our financial results, changes in earnings estimates by industry research analysts, investors' perceptions of us and general economic, industry and market conditions.

Future Sales of Our Common Stock May Lower Our Stock Price
 
If our existing shareholders sell a large number of shares of our common stock, the market price of the common stock could decline significantly.  The perception in the public market that our existing shareholders might sell shares of common stock could depress our market price.

National Market for Stock
 
There is no assurance that the Company’s common stock will continue to trade on the Nasdaq Stock Market or other national stock exchange due to ongoing listing criteria for such exchanges.

Competition
 
We face competition from others who are competing for a share of the MDU market, including other satellite companies, cable companies and telephone companies.  Some of these companies have significantly greater assets and resources than we do.

Uncertain Effects of the Acquisition
 
During 2009, the Company completed its acquisition of the former operating subsidiaries of DTHC (see Note 2).  The DTHC operating entity business as merged into the Multiband business may not achieve the operating results and growth anticipated by management in structuring the transaction.
 
Page 7

 
General Economic Conditions
 
As of this writing, the United States is experiencing overall adverse economic conditions.  While we believe this environment may actually assist the Company in that consumers may stay home more for entertainment, there is no guarantee that consumers will continue to purchase the Company’s services at a constant level if the country’s recession becomes prolonged.

Forward-Looking Statements
This document contains forward-looking statements within the meaning of federal securities law.  Terminology such as "may," "will," "expect," "anticipate," "believe," "estimate," "continue," "predict," or other similar words, identify forward-looking statements.  These statements discuss future expectations, contain projections of results of operations or of financial condition or state other forward-looking information.  Forward-looking statements appear in a number of places in this Form 10-K and include statements regarding our intent, belief or current expectation about, among other things, trends affecting the industries in which we operate, as well as the industries we service, and our business and growth strategies.  Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties.  Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including those set forth in "Risk Factors."

Item 1B

Unresolved Staff Comments
 
None.

Item 2

Properties (in thousands)
 
Multiband and its subsidiaries lease principal offices located at 2000 44th Street SW, Fargo, ND 58103 and 9449 Science Center Drive, New Hope, Minnesota 55428. We have no foreign operations. The Fargo office lease is made up of three separate leases expiring in 2010, 2013 and 2017 and covers approximately 17 square feet. The Fargo total base rent is $15 per month. The New Hope office lease expires in 2013 and covers approximately 47 square feet. The New Hope base rent ranges from $22 to $25 per month.  Our HSP principal office is located in at 2185 East Remus Road, Mount Pleasant, MI.  This lease expires in 2010 and covers approximately 6 square feet with base rent of $5 per month.  All leases have provisions that call for the tenants to pay net operating expenses, including property taxes, related to the facilities.  All offices have office, warehouse and training facilities.  In addition, the Company leases warehouses in its various markets of operation to facilitate storage of inventory and technician interface.  These warehouses have lease terms ranging from month to month to five years in duration with lease terms expiring through 2015.  The base rents at these facilities range from $1 to $8 per month.  The Company considers its current facilities adequate for its current needs and believes that suitable additional space would be available as needed.

Item 3

Legal proceedings
 
The Company is subject to claims, regulatory processes and lawsuits that arise in the ordinary course of business.  The Company accrues for such matters when a loss is considered probable and the amount of such loss, or a range of loss, can be reasonably estimated. The Company’s defense costs are expensed as incurred.  The Company has recorded $8,706 of accrued liabilities as of December 31, 2009 for claims and potential settlements associated with existing litigation and known settlement.  The majority of the accrual relates to claims for back overtime wages alleged in a number of cases filed between 2006 to 2008 entitled Lachiev v. JBM (S.D. Ohio); Davis v. JBM (S.D. Ohio); Gruchy v. DirecTech Northeast (D. Mass); Stephen v. Michigan Microtech (E.D. Mich); and In re DirecTECH Southwest, Inc. (E.D. La).  Effective December 31, 2009, the Company settled in principal the majority of these claims. While the Company and its predecessors denied the allegations underlying the lawsuits, it agreed to a settlement to avoid significant legal fees, the uncertainty of a jury trial, and other expenses and management time that would have to be devoted to protracted litigation.  The Company recorded the settlement of $6,729, net of imputed interest of $575 and including administration fees and estimated payroll taxes.  The aforementioned settlement will be paid in equal installments of $291 over a 24 month period beginning January 15, 2010.

In connection with the purchase of the operating subsidiaries of DTHC, the Company has the right to offset a portion of certain claims against the note to DTHC, in relation to the settlement noted above, the Company offset $3,904 during the year ended December 31, 2009.  The Company has recorded a receivable of $1,011 as of December 31, 2009 which represents an estimate of the amount that could potentially be recovered from DTHC including legal fees for the remaining litigation.

Page 8

 
In December 2009, the US Department of Labor (DOL) sued various individuals that are either shareholders, directors, trustees and/or advisors to DirecTECH Holding Company (DTHC) and its Employee Stock Ownership Plan (ESOP).  Multiband Corporation was not named in this complaint.  Various defendants in this matter have made requests to Multiband for advancement or reimbursement of legal fees to defend the case.  The basis for these requests are certain corporate indemnification agreements that were entered into by the former DTHC operating subsidiaries and Multiband itself.  To date, Multiband has denied all requests for indemnification of legal fees in this matter for, in part, the following reasons: 1) Similar indemnification agreements as the ones in question here were declared illegal under Federal law by a California federal appeals court; 2) The Company believes the primary remedy the DOL is seeking from the defendants is one of “disgorgement” from the individual DTHC shareholders.  Multiband has no obligation to indemnify DTHC individual shareholder conduct.  Notwithstanding the above, the outcome of the matter is uncertain at present and Multiband cannot definitively predict based on the current facts known to it, whether it ultimately will have any material expense in the matter.

Additionally, the Company is subject to pending claims, regulatory processes and lawsuits for which losses are not probable and amounts cannot be reasonably estimated.  Those losses could ultimately be material to the Company’s financial position, results of operations and cash flows.

Item 4

Submission of Matters to a Vote of Security Holders

A special meeting of Multiband shareholders was held on December 17, 2009.  There were present or present by proxy at the meeting 3,633,102 votes, the number necessary to hold a quorum.

The meeting resulted in the following votes related to the proxy item:

 
1.
Approval of the acquisition of the remaining 20% of the stock of the DirecTECH Holding Co., Inc. (DTHC) operating entities by Multiband via issuance of ten million dollars worth of Series J Preferred Stock pursuant to that certain Stock Purchase Agreement dated November 3, 2008, between Multiband and DTHC.

   
Number of votes
 
For
    3,620,194  
Against
    12,880  
Abstain
    28  

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, 2009 and December 31, 2008 as provided by NASDAQ.

Quarter Ended
 
High Bid
   
Low Bid
 
March 31, 2009
   
2.24
     
1.15
 
June 30, 2009
   
3.70
     
1.85
 
September 30, 2009
   
2.50
     
1.81
 
December 31, 2009
   
2.66
     
1.67
 
March 31, 2008
   
3.33
     
1.63
 
June 30, 2008
   
1.99
     
.69
 
September 30, 2008
   
1.87
     
.70
 
December 31, 2008
   
1.80
     
1.00
 

Page 9


As of March 15, 2010, Multiband had 998 shareholders of record of its common stock and 9,804,396 shares of common stock outstanding. As of that date, five shareholders held a total of 14,171 of Class A Preferred, one shareholder held 1,070 shares of Class B Preferred, four shareholders held a total of 112,580 shares of Class C Preferred, three shareholders held a total of 220,000 shares of Class E Preferred, one shareholder held a total of 150,000 shares of Class F Preferred, three shareholders held a total of 11,595 shares of Class G Preferred, five shareholders held a total of 1.25 shares of Class H Preferred and one shareholder held a total of 100 shares of Class J Preferred.

Recent Sales of Unregistered Securities (in thousands, except for share amounts)
 
In December 2009, the Company issued 3,333 shares of common stock worth $17 in connection with the conversion of notes payable.

In December 2009, the Company issued 1,667 shares of common stock worth $8 in connection with the conversion of Class H preferred stock from an investor.

In October 2009, the Company issued 100,000 shares of common stock worth $193 in connection with the conversion of notes payable.

In October 2008, the Company issued 37,880 shares of common stock worth $102 in connection with the acquisition of US Install.

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

In June 2008, the Company issued 22,500 shares of common stock worth $24 in connection with the issuance of restricted stock to Company executives.

In June 2008, the Company issued 6,250 shares of common stock worth $50 in connection with the conversion of Class G preferred stock from various investors.

In March 2008, the Company issued 526,667 shares of common stock worth $3,745 in connection with the conversion of Class I preferred stock.

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

In January 2008, the Company issued 12,500 shares of common stock worth $100 in connection with the conversion of Class G preferred stock from various investors.

In December 2007, the Company issued 14,500 shares of common stock worth $116 in connection with the conversion of Class G preferred stock from various investors.

In November 2007, the Company issued 30,000 shares of common stock worth $84 in connection with the acquisition of equipment.

In August 2007, the Company issued 27,000 shares of common stock worth $52 in lieu of payment for consulting services.

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

In June 2007, the Company issued 15,000 shares of common stock worth $113 in lieu of payment for investor relations services.

In connection with these sales, we relied on the exemption from registration provided by Sections 4(2) and 4(6) of the Securities Act of 1933, as well as Rule 506 of Regulation D based on (i) our belief that the issuances did not involve a public offering, (ii) the transactions involved fewer than 35 purchasers, and (iii) because we had a reasonable basis to believe that each of the shareholders were either accredited or otherwise had sufficient knowledge and sophistication, either alone or with a purchaser representative, to appreciate and evaluate the risks and merits associated with their investment decision.

Common Stock
 
Holders of common stock are entitled to one vote per share in all matters to be voted upon by shareholders.  There is no cumulative voting for the election of directors, which means that the holders of shares entitled to exercise more than 50% of the voting rights in the election of directors are able to elect all of the directors.  Multiband's Articles of Incorporation provide that holders of the Company's common stock do not have preemptive rights to subscribe for and to purchase additional shares of common stock or other obligations convertible into shares of common stock which may be issued by the Company.
 
Holders of common stock are entitled to receive such dividends as are declared by Multiband's Board of Directors out of funds legally available for the payment of dividends.  Multiband presently intends not to pay any dividends on the common stock for the foreseeable future.  Any future determination as to the declaration and payment of dividends will be made at the discretion of the Board of Directors.  In the event of any liquidation, dissolution or winding up of Multiband, and subject to the preferential rights of the holders of the various classes of Multiband’s preferred stocks, the holders of common stock will be entitled to receive a pro rata share of the net assets of Multiband remaining after payment or provision for payment of the debts and other liabilities of Multiband.
 
Page 10


All of the outstanding shares of common stock are fully paid and non-assessable.  Holders of common stock of Multiband are not liable for further calls or assessments.

The Company's Board of Directors has not declared any dividends on our common stock since our inception, and does not intend to pay out any cash dividends on our common stock in the foreseeable future.  We presently intend to retain all earnings, if any, to provide for our growth.  The payment of cash dividends in the future, if any, will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, our financial condition and other factors deemed relevant by our Board of Directors.

Preferred Stock (in thousands, except for share amounts)
 
In December 2009, the Company issued 100 shares worth $10,000 of Class J preferred stock.

In December 2009, $8 worth of Class H preferred stock from various stockholders was converted into common stock at a price of $10.00 per share.

In December 2009, the Company issued 10,000 shares worth $100 of Class E preferred stock.

In November 2009, the Company issued 10,000 shares worth $50 of Class E preferred stock to two different shareholders.

In September 2009, the Company issued 150,000 shares worth $1,500 of Class E preferred stock.

In September 2009, the Company issued 50,000 shares worth $500 of Class E preferred stock.

In June 2008, $50 worth of Class G preferred stock from various stockholders was converted into common stock at a price of $10.00 per share.

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

In January 2008, $100 worth of Class G preferred stock from various stockholders was converted into common stock at a price of $10.00 per share.

During the fourth quarter of 2007, $116 worth of Class G preferred stock from various stockholders was converted into common stock at a price of $10.00 per share.

During the third quarter of 2007, $1,800 worth of Class I preferred stock was converted into common stock at a price of $100.00 per share.
 
Page 11


Dividends on Class A, Class B, Class C, Class D, Class F, Class G, and Class H cumulative convertible preferred stock are payable quarterly at 8%, 10%, 10%, 14%, 10%, 8% and 6% per annum, respectively.  Dividends on Class E cumulative preferred stock are payable monthly at 15% per annum, which shall be adjusted after 180 days with an increase of 83 basis points.   Dividends on Class J cumulative preferred stock are cumulative and payable quarterly at 8% per annum, in cash or common stock at the Company’s sole discretion.  Cumulative convertible preferred stock can be converted into common shares at any time as follows: Class A and Class B - five shares, Class C - two shares, Class D - two and one-half shares, Class F- five shares, Class G- six and one quarter shares, Class H is convertible at $1.00 per share and Class I is convertible at $1.50 per share (subject to adjustment for reverse stock split).  Class E is not convertible.  The intrinsic value of any beneficial conversion option is recorded as preferred stock dividends at the time of preferred stock issuance.  Dividends on Class B preferred are cumulative and payable monthly at 10% per annum.  The Class B preferred was offered to certain note payable holders at a conversion of $10 per Class B preferred share.  The dividends are based on $10.00 per share for Class A, B, C, D, E, F and G cumulative preferred stock.  Dividends for Class G stock are payable in common stock at a fixed rate of $1.60 per share which is higher rate than fair market value.  Dividends for Class H cumulative preferred stock are based on 6% of the stated liquidation preference amount per share per annum.  They are payable in common stock at a fixed rate of $1.00 per share which is higher than market value.  Dividends on Class J preferred stock are payable in common stock at a fixed rate of $2.00 per share.  All preferred stock is non-voting.  Warrants to purchase shares of the Company's common stock were given with the issuance of Class A, Class B, Class D, Class G and Class H preferred stock and were valued at fair value using the Black Scholes pricing model.  The Company may, but is not obligated to, redeem the preferred stock at $10.50 per share for Class A and Class B and $10.00 per share for Class C, Class D, Class E and Class F whenever the Company's common stock price exceeds certain defined criteria as defined in the preferred stock agreements, except as noted below.  The Class H shares can be redeemed for $100,000 per share.  Upon the Company's call for redemption, the holders of the preferred stock called for redemption have the option to convert each preferred share into shares of the Company's common stock.  Holders of preferred stock cannot require the Company to redeem their shares with the exception of Class H shares, Class J shares and the 50,000 shares of Class F converted into mandatory redeemable preferred stock (see below).  The liquidation preference is the same as the redemption price for each class of preferred stock where redeemable.

The single Class F shareholder, at its sole discretion pursuant to a put option, can force the Company to redeem up to 50,000 Class F Preferred Shares (the equivalent of $500 worth).  This has been redeemed already.  Class H shareholders have the right to convert all or a portion of preferred shares upon the occurrence of a major transaction or triggering event as defined in the agreement and Multiband has the sole option to pay the redemption price in cash or shares of the Company’s common stock.  Class J shares have forced redemption rights at par, upon the occurrence of a major transaction or triggering event as defined in the agreement.  Classes G, I and J have no redemption “call” price).  Upon Multiband's call for redemption, the holders of the preferred stock called for redemption will have the option to convert each share of preferred stock into shares of common stock until the close of business on the date fixed for redemption, unless extended by Multiband in its sole discretion.  Preferred stock not converted would be redeemed.

 
Page 12

 
Item 6

Selected Consolidated Financial Data
 
The following selected financial data should be read in conjunction with our consolidated financial statements including the accompanying notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations".  The data has been derived from our consolidated financial statements and accompanying notes included elsewhere in this report.  The Statement of Operations data for the years ended December 31, 2006 and 2005 and the Balance Sheet data at December 31, 2007, 2006 and 2005 have been derived from our audited consolidated financial statements which are not contained in this filing.  In the financial data below, the Company reclassed the operations related to the MBS segment to discontinued operations.  The Company sold this segment in the first quarter of 2005.

Statement of Operations Data
 (in thousands except share and per share amounts)
   
2009
     
2008
     
2007
     
2006
     
2005
 
Revenues
 
$
268,994
   
$
42,986
   
$
15,086
   
$
18,052
   
$
16,515
 
Cost of products and services (exclusive of depreciation and amortization listed separately below)
 
$
207,533
   
$
28,426
   
$
8,340
   
$
8,281
   
$
7,850
 
Cost of products and services as % of revenue
   
77.21%
     
66.13
%
   
55.3
%
   
45.9
%
   
47.5
%
Selling, general and administrative expenses
 
$
57,778
   
$
10,500
   
$
8,888
   
$
11,481
   
$
9,723
 
Selling, general and administrative as % of revenues
   
21.55
%
   
24.43
%
   
58.9
%
   
63.6
%
   
58.9
%
Depreciation and amortization
 
$
10,906
   
$
3,025
   
$
3,624
   
$
5,168
   
$
4,780
 
Impairment of assets
 
$
-
   
$
132
   
$
-
   
$
2,262
   
$
-
 
Income (loss) from operations
 
$
(7,223
)
 
$
903
   
$
(5,766
)
 
$
(9,140
)
 
$
(5,838
)
Other income (expense), net
 
$
(3,748
)
 
$
1,826
   
$
(322
)
 
$
(1,046
)
 
$
(1,655
)
Income (loss) before income taxes and minority interest in subsidiary
 
$
(10,971
)
 
$
2,729
   
$
(6,088
)
 
$
(10,186
)
 
$
(7,493
)
Provision for income taxes
 
$
406
   
$
1,132
   
$
-
   
$
-
   
$
-
 
Income (loss) from continuing operations
 
$
(11,377
)
 
$
1,597
   
$
(6,088
)
 
$
(10,186
)
 
$
(7,493
)
Discontinued operations
 
$
-
   
$
-
   
$
-
   
$
2
   
$
18
 
Net income (loss)
 
$
(11,377
)
 
$
1,597
   
$
(6,088
)
 
$
(10,184
)
 
$
(7,475
)
Less: Net income (loss) attributable to the noncontrolling interest in subsidiairies
 
$
(1,727
)
   
652
     
-
     
-
     
-
 
Net Income (loss) attributable to Multiband Corporation and subsidiaries
 
$
(9,650
)
 
$
945
   
$
(6,088
)
 
$
(10,184
)
 
$
(7,475
)
Loss attributable to common stockholders
 
$
(10,020
)
 
$
(3,143
)
 
$
(8,389
)
 
$
(14,250
)
 
$
(10,827
)
Income (loss) from continuing operations
 
$
(1.04
)
 
$
(.34
)
 
$
(1.16
)
 
$
(2.11
)
 
$
(1.86
)
Income (loss) from discontinued operations
 
$
(.00
)
 
$
(.00
)
 
$
(.00
)
 
$
(.00
)
 
$
(.00
)
Loss attributable to common stockholders
 
$
(1.04
)
 
$
(.34
)
 
$
(1.16
)
 
$
(2.11
)
 
$
(1.86
)
Weighted average shares outstanding
   
9,665,316
     
9,302,570
     
7,237,473
     
6,757,643
     
5,819,585
 

Balance Sheet Data
   
2009
)
 
2008
   
2007
   
2006
   
2005
 
Working Capital (deficiency)
 
$
(28,596
 
$
2,457
   
$
(5,018
)
 
$
(5,294
)
 
$
(971
)
Total Assets
 
$
99,531
   
$
26,043
   
$
8,893
   
$
17,986
   
$
26,271
 
Mandatory Redeemable Preferred Stock (1)
 
$
-
   
$
150
   
$
220
   
$
280
   
$
333
 
Long-Term Debt, net (2)
 
$
34,709
   
$
338
   
$
119
   
$
2,970
   
$
3,817
 
Capital Lease Obligations, net (2)
 
$
491
   
$
317
   
$
249
   
$
492
   
$
453
 
Stockholders’ Equity
 
$
5,103
   
$
5,642
   
$
674
   
$
5,659
   
$
14,968
 
 

(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)

Page 13

 
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, 2009 and December 31, 2008

Results of Operations (in thousands)

The following table sets forth certain items.
 
   
2009
   
2008
 
Revenues
           
HSP
   
90.64
%
   
55.12
%
MDU
   
9.36
%
   
44.88
%
MBCorp
   
-
%
   
-
%
Total Revenues
   
100.00
%
   
100.00
%
                 
Cost of Products and Services (exclusive of depreciation and amortization)
               
HSP
   
70.94
%
   
37.83
%
MDU
   
6.21
%
   
28.30
%
MBCorp
   
-
%
   
-
%
Total Cost of Products and Services (exclusive of depreciation  and amortization)
   
77.15
%
   
66.13
%
Selling, General and Administrative Expenses
   
21.48
%
   
24.43
%
Depreciation and Amortization
   
4.06
%
   
7.04
%
Income (Loss) from Operations
   
(2.69)
%
   
2.10
%
Net Income (Loss)
   
(4.23)
%
   
3.72
%

Revenues
 
Total revenues from continuing operations increased 525.8% from $42,986 in 2008 to $268,994 in 2009.  HSP segment had revenues of $243,807 in 2009 and $23,696 in 2008, an increase of 928.9%.  This overall and HSP segment increase in revenues is due to the purchase of the former DirecTECH operating entities.  Multiband initially acquired 51% of NC on March 1, 2008, achieved 80% ownership of all the operating entities on January 2, 2009 and purchased the remaining 20% of those entities in December 2009 (see Note 2).  The Company expects HSP segment revenues will slightly decline in 2010, due in part, to the reduction in conversion to digital services which was mandated in 2009 by the Federal Government.  The MDU segment had revenues of $25,187 in 2009 and $19,290 in 2008, at an increase of 30.6%.  This overall increase of approximately $5,897 in the MDU segment is primarily due to a larger subscriber base, and increased activity from the call center.  The Company believes it can ultimately increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.  Due to demand for high definition television services and a larger subscriber base, MDU revenues are not expected to decline in 2010.  However due to other factors such as more stringent DTV credit standards and anticipated weakness in the general economy, the Company does not expect significant growth in the MDU segment in 2010.  In summary, the Company expects MDU revenues to be relatively constant in 2010.

Costs of Products and Services (exclusive of depreciation and amortization)
 
Total costs of products and services were $207,533 in 2009 compared to $28,426 in 2008.  Overall cost of products and services increased due to the purchase of 80% of the former DirecTECH operating entities in January 2009.  The remaining 20% of these entities were purchased in December 2009 (see Note 2).  Cost of products and services for the year ended December 31, 2009, were $190,818 for the HSP segment (initially acquired March 1, 2008 and significantly increased in January 2, 2009 with the purchase of DTHC operating entities), compared to the $16,261 for the ten months ended December 31, 2008, a 1073.5% increase.  This increase is due to the purchase of the former DirecTECH operating entities (see Note 2). During 2010, the Company expects HSP cost of products and services to drop in relation to revenues due to tighter inventory controls and a better mix of jobs (i.e. more installation work orders versus service calls which yield a higher margin).  Cost of products and services for the year ended December 31, 2009 were $16,715 for the MDU segment, compared to $12,165 in the prior year, a 37.4% increase.  The increase in cost of products and services in the MDU segment is primarily related to the purchase of MBMDU, one of the former DirecTECH operating entities.  The increase in costs is also related to the increase in revenue generated by the system operators due to a change in revenue mix and certain commission payments.  In 2010, the Company expects MDU cost of products and services to increase slightly as compared to 2009 due to certain commission payments.
 
Page 14

 
Selling, General and Administrative Expense
 
Selling, general and administrative expenses from continuing operations increased 450.3% to $57,778 in 2009, compared to $10,500 in 2008 due primarily to the acquisition of the former DirecTECH operating entities in 2009.  Selling, general and administrative expenses were, as a percentage of revenues, 21.5% for 2009 and 24.4% for 2008.  This percentage decrease is primarily due to a significant increase in revenues with proportionately less increases in payroll and administrative expenses.  Without the Multiband Corp segment which recorded in 2008, $1,285 of reimbursed payroll expenses for management consulting to DTHC, the decline in selling, general and administrative expenses would have been greater.  The Company’s management consulting agreement with DTHC ended on January 2, 2009 as a result of the acquisition of the majority ownership of former operating subsidiaries of DTHC (see Note 2).  The Company anticipates for 2010, selling, general and administrative expenses will remain consistent as a percentage of overall revenues.

Depreciation and Amortization
 
Depreciation and amortization expense increased 260.5% to $10,906 for the year ended December 31, 2009, as compared to $3,025 for the year ended December 31, 2008.  This increase in depreciation and amortization is largely due to the amortization of intangibles related to the DirecTECH purchase (see Note 2).  During 2010, depreciation and amortization expense is expected to remain at the same level as in 2009.

Income (Loss) from Operations
 
The Company, in 2009, incurred a loss from operations for its combined operating business segments of $7,223 compared to an income of $903 during 2008.  The HSP segment for the year ended December 31, 2009 had a loss from operations of $2,397, compared income from operations of $2,335 for the ten months ended December 31, 2008.  The HSP segment is expected to maintain its profitability by reaching incentive goals and continued improvement in job mix (i.e. more installation work orders versus service calls which yield a higher margin).  The MDU segment incurred a loss from operations of $1,038 in 2009 compared to profits of $1,511 in 2008.  The Company expects to mitigate its future losses in the MDU segment due to an expected increased in future subscriber activity at maturing properties and better control of administrative costs.  The Multiband Corporation segment, which has no revenues, showed a loss from operations of $3,788 in 2009 compared to a loss of $2,943 for the same period last year.  In 2008, the Multiband Corporation segment loss was reduced as a result of its management agreement with DTHC.  This agreement resulted in $1,285 of management consulting income as well as a management performance bonus of $2,366.  This agreement ended on January 2, 2009 as a result of the acquisition of the majority ownership of former operating subsidiaries of DTHC (see Note 2).  The Multiband Corporation loss is expected to increase in future periods as corporate overhead is expected to increase as a result of the acquisition of 100% ownership of DTHC’s operating subsidiaries (see Note 2).

Interest Expense
 
Interest expense was $4,104 for 2009 versus $657 for 2008, primarily due to an increase in interest expense incurred on the debt issued for the purchase of DirecTECH (see Note 3).  Imputed interest discount was $35 and $282 for the years ended December 31, 2009 and 2008, respectively.

Management consulting income
 
During the year ended December 31, 2008, Multiband recorded a performance bonus as part of the management consulting agreement with DTHC of $2,366 which was paid via reduction of the debt incurred in the acquisition of NC (see Note 2 and Note 17).  The Company recorded this consulting income as part of other income and expense on the statement of operations because the income does not constitute the entity’s ongoing major or central operations.  The consulting income was not a reimbursement of direct expenses.  In 2009, due to the acquisition of majority ownership of former subsidiaries of DTHC, the Company’s consulting agreement with DTHC was terminated and no income was earned during that comparable year.  This income is part of the Multiband Corp. business segment.

Noncontrolling Interest
 
Effective January 1, 2009, the Company adopted new accounting guidance related to accounting for noncontrolling interests in subsidiaries (see Note 2).  This resulted in the reclassification of minority interest of $3,471 at December 31, 2008 related to the 51% ownership of NC from the mezzanine section of the balance sheet to the noncontrolling interest in the equity section of the balance sheet.  As of January 2, 2009, Multiband purchased an additional 29% of the outstanding stock of NC.  $2,054 of noncontrolling interest was transferred to Multiband’s controlling interest related to this acquisition, leaving $1,417 as the remaining value of the noncontrolling interest.  In addition, Multiband purchased 80% of the outstanding stock of EC, NE, SC, DV, Security and MBMDU (see Note 2).  The Company recorded $6,306 of noncontrolling interest related to this acquisition. The net loss attributable to the noncontrolling interest in subsidiaries for the year ended December 31, 2009 was $1,727.  On December 17, 2009, the Company purchased the remaining 20% of the issued and outstanding shares of common stock of all of the DTHC operating subsidiaries (DirecTECH) and reclassified $5,996 of noncontrolling interest to Multiband’s controlling interest.
 
Page 15

 
Income taxes
 
In 2009, the Federal income tax return of Multiband Corporation will include the former subsidiaries of DirecTech Holding Company which were acquired by the Company.  The state tax expense reported is due to some of the subsidiaries having taxable income in states where the state requires filing separate company income tax returns instead of filing on a consolidated basis with members of the consolidated group.  Other state tax expense is associated with the tax liability being calculated off of gross receipts, capital, or some other non-income method of computation.  In 2008, for federal income tax purposes, NC was not included in the consolidated tax return of the Company due to less than 80% of ownership.  Components of income tax expense for the year ended December 31, 2008 relates to taxable income from the HSP segment and $45 of alternative minimum tax (AMT) in the Multiband Corp. segment:  Due to the Company’s purchase of 51% of NC’s stock, effective March 1, 2008, NC did not file consolidated tax returns in 2008 with its former parent DTHC but filed as a single entity as it no longer met the 80% ownership required for tax consolidation.  Effective with the additional stock purchased in 2009, NC expects to be able to utilize the tax loss carryforwards of Multiband Corporation.  For the years ended December 31, 2009 and 2008, the Company has recorded a provision for income tax of $406 and $1,132, respectively, which consisted primarily of provisions for state income taxes.

The Company has federal and state net operating losses of approximately $68,596 and $50,800, respectively, which, if not used, will begin to expire in 2018.  Changes in the stock ownership of the Company may place limitations on the use of these net operating loss carryforwards.  During 2009 the company performed an IRC 382 study and determined that an ownership change had occurred.  As a result of the ownership change, an annual limitation is in place on the use of the net operating loss carry forwards, the Company expects to utilize $41,613 of the net operating loss carryforwards before they expire.

Net Income (Loss)
 
The Company incurred a net loss of $11,377 in 2009.  The Company incurred a net income of $1,597 in 2008

Total Assets
 
The following table sets forth certain items.

Total Assets
 
2009
   
2008
 
HSP
 
$
84,474
   
$
13,005
 
MDU
   
12,547
     
7,471
 
MBCorp
   
2,510
     
5,567
 
Total Assets
 
$
99,531
   
$
26,043
 

Years Ended December 31, 2008 and December 31, 2007

Results of Operations (in thousands)
The following table sets forth certain items.

   
2008
   
2007
 
Revenues
           
HSP
   
55.12
%
   
-
%
MDU
   
44.88
%
   
100.00
%
MBCorp
   
-
%
   
-
%
Total Revenues
   
100.00
%
   
100.00
%
                 
Cost of Products and Services (exclusive of depreciation and amortization)
               
HSP
   
37.83
%
   
-
%
MDU
   
28.30
%
   
55.28
%
MBCorp
   
-
%
   
-
%
Total Cost of Products and Services (exclusive of depreciation  and amortization)
   
66.13
%
   
55.28
%
Selling, General and Administrative Expenses
   
24.43
%
   
58.92
%
Depreciation and Amortization
   
7.04
%
   
24.02
%
Income (Loss) from Operations
   
2.10
%
   
(38.22
)%
Net Income (Loss)
   
3.72
%
   
(40.36
)%
 
Page 16

 
Revenues
 
Total revenues from continuing operations increased 184.9% from $15,086 in 2007 to $42,986 in 2008.  This overall increase in revenues is primarily due to the purchase of NC in March 2008, with revenues for the ten month period ended December 31, 2008 of $23,696, offset by sales of approximately 23,000 owned subscriptions which occurred throughout 2007 in efforts to strategically sell unprofitable owned assets, utilizing the proceeds from those assets into facilitating growth in the Company’s managed subscriber services including our support center and our master system operator program.  The HSP segment had revenues of $23,696 made up entirely of NC (see Note 2).  The Company expects revenues in the HSP segment will continue to increase into 2009, as a result of the acquisition of the majority ownership of former operating subsidiaries of DTHC (see Note 2).  The MDU segment had revenues of $19,290 in 2008 and $15,086 in 2007, at an increase of 27.9%.  This overall increase of approximately $4,204 in the MDU segment is primarily due to the revenue earned for coordinating improvements of systems used to deliver enhanced programming services, and increased activity from a large system operator along with an increase in call center revenue offset by the aforementioned sales of owned subscriptions.  The Company believes it can ultimately increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.  Due to demand for high definition television services and the aforementioned revenue generated from coordinating system improvements to provide enhanced programming services, MDU revenues are expected to remain above 2008 levels in 2009.

Costs of Products and Services (exclusive of depreciation and amortization)
 
Total costs of products and services were $28,426 in 2008 compared to $8,340 in 2007.  Overall costs of products and services as a percentage of revenue did increase between 2007 and 2008 due, in part, to the purchase of NC, which makes up 100% of the HSP segment, with costs for the ten months ended December 31, 2008 of $16,261, along with specific vendor price increases without a corresponding increase in price to customers, certain commission payments, and allocation of certain support center costs to cost of products and services.   MDU segment costs of products and services were $12,165 in 2008 and $8,340 in 2007.  The increase in costs of products and services in the MDU segment is primarily related to an increase in revenue generated by a system upgrade subsidized by DirecTV, and performed by system operators along with a change in revenue mix, certain commission payments, and a decrease in programming and circuit charges between the comparable periods due to a decreased subscriber number.  The Company expects costs of products and services as a percentage of revenue to increase slightly in future periods due to the continued change in revenue mix.

Selling, General and Administrative Expense
 
Selling, general and administrative expenses from continuing operations increased 18.1% to $10,500 in 2008, compared to $8,888 in 2007 due primarily to the addition of the HSP segment resulting from the acquisition of NC in 2008 with costs for the ten months ended of $5,068, offset by a reduction in payroll and employee expenses, property maintenance expenses, and outside service expenses.  Selling, general and administrative expenses were, as a percentage of revenues, 24.43% for 2008 and 58.9% for 2007.  This percentage decrease is primarily due to a significant increase in revenues with only modest increases in payroll and administrative expenses.  Multiband Corp segment also recorded $1,285 of reimbursed payroll expenses for management consulting to DTHC per its management consulting agreement which ended at December 31, 2008 (see Note 18).  The Company anticipates that for 2009, selling, general and administrative expenses will remain consistent as a percentage of overall revenues.

Impairment of Assets
 
For the year ended December 31, 2008, the Company recorded impairment costs totaling $132, consisting of $50 of the goodwill related to the US Install purchase and the remaining goodwill balance of $17 from a previous acquisition.  Also, pursuant to the abandonment of a right of entry intangible asset, the Company recorded an impairment charge of $65 for the year ended December 31, 2008.

Depreciation and Amortization
 
Depreciation and amortization expense decreased 16.5% to $3,025 for the year ended December 31, 2008, as compared to $3,624 for the year ended December 31, 2007.  This decrease in depreciation and amortization is due to the sale of tangible and intangible assets in various states most of which occurred in 2007 (see Note 2), offset by the increase in amortization of intangible asset related to the NC purchase (see Note 2).  Depreciation and amortization expense is expected to increase in 2009 as a result of the acquisition of the former operating subsidiaries of DTHC.

Income (Loss) from Operations
 
The Company, in 2008, earned income from operations for its combined operating business segments of $903 compared to a loss of $5,766 during 2007.  The HSP segment for the ten months ended December 31, 2008, had a profit of $2,335, compared to the $0 in the prior year.  The HSP segment did not exist in 2007 so there are no comparable results to report (see Note 2).  The MDU segment showed a profit from operations of $1,511 in 2008 compared to a loss of $1,445 in 2007.  The Company expects the MDU segment profitability in future periods to decline slightly due to reduced activity related to system enhancements which were robust throughout 2008.  At the same time, the Company will look to add subscribers in its MDU division since the on-going selling, general and administrative expenses to service those subscribers is more variable than fixed.  The Multiband Corporation segment, which has no revenues, showed a loss from operations of $2,943 in 2008 compared to a loss of $4,321 for the same period last year.  In 2008, the Multiband Corporation segment loss was reduced as a result of its management agreement with DTHC.  This agreement resulted in $1,285 of management consulting income as well as a management performance bonus of $2,366.  This agreement ends in 2009 as a result of the acquisition of the majority ownership of former operating subsidiaries of DTHC (Note 2).  The Multiband Corporation loss is expected to increase in future periods as corporate overhead is expected to increase as a result of the acquisition of the majority ownership of DTHC’s operating subsidiaries (see Note 2).
 
Page 17


Interest Expense
 
Interest expense was $657 for 2008 versus $504 for 2007, reflecting primarily an increase in the Company’s debt issued for the purchase of 51% of NC (see Note 2) and related imputed interest discount expense.  Amortization of imputed interest discount was $282 and $0 for the years ended December 31, 2008 and 2007, respectively.

Management consulting income
 
During the year ended December 31, 2008, Multiband recorded a performance bonus as part of the management consulting agreement with DTHC of $2,366 which was paid via reduction of the debt incurred in the acquisition of NC (see Note 2 and Note 18).  The Company recorded this consulting income as part of other income and expense on the statement of operations because the income does not constitute the entity’s ongoing major or central operations.  The consulting income was not a reimbursement of direct expenses.  No income was earned during the comparable year ended December 31, 2007.  This income is part of the Multiband Corp. business segment.  In 2009, due to the acquisition of majority ownership of former subsidiaries of DTHC, the Company’s consulting agreement with DTHC was terminated.

Noncontrolling interest
 
Effective March 1, 2008, the Company purchased 51% of the stock of NC.  The noncontrolling interest on the statement of operations for the year ended December 31, 2008 was $652.  The minority interest represents DTHC’s 49% ownership of NC.  In 2008, NC made up 100% of the HSP segment.

Income taxes
 
Due to the Company’s purchase of 51% of NC’s stock, effective March 1, 2008, NC will no longer file consolidated federal tax returns with its former parent DTHC but will file as a single entity as it no longer meets the 80% ownership required for federal tax consolidation.  Therefore, NC will not be able to utilize the tax loss carryforwards of Multiband Corporation since Multiband owns less than 80% of NC.  For the year ended December 31, 2008, the Company has recorded a provision for income tax of $1,132.  NC currently makes up 100% of the HSP segment.

Net Income (Loss)
 
The Company incurred a net income of $1,597 in 2008.  The Company’s net loss in 2007 totaled $6,088.

Total Assets
 
The following table sets forth certain items.

Total Assets
 
2008
   
2007
 
HSP
 
$
13,005
   
$
-
 
MDU
   
7,471
     
7,621
 
MBCorp
   
5,567
     
1,272
 
Total Assets
 
$
26,043
   
$
8,893
 

Page 18

 
Related Party Transactions
 
During 2008, the Company did have certain transactions with DTHC as described above.  In January 2009, the Company purchased 80% of the operating subsidiaries of DTHC (see Note 2).  The following table is a condensed balance sheet as of December 31, 2008 and a condensed statement of operations for the year ended December 31, 2008, which presents the proforma financial results for the Company excluding all 2008 transactions with DTHC (unaudited):

   
As reported
   
Less: DTHC
Related
   
(unaudited)
Proforma
 
Accounts receivable, net
 
$
3,436
   
$
(771
)
 
$
2,665
 
Other receivable – related party
   
7,666
     
(7,666
)
   
-
 
Prepaid expenses and other
   
1,273
     
(518
)
   
755
 
Accounts payable
   
8,274
     
(1,127
)
   
7,147
 
                         
Revenues
   
42,986
     
(3,333
)
   
39,653
 
Cost of products and services (exclusive of depreciation and amortization shown separately below)
   
28,426
     
(2,895
)
   
25,531
 
Selling, general and administrative
   
10,500
     
750
     
11,250
 
Management consulting income
   
2,366
     
(2,366
)
   
-
 

Page 19

 
Unaudited Quarterly Results
 
The following table sets forth certain unaudited quarterly operating information for each of the eight quarters in the two-year period ending December 31, 2009.  This data includes, in the opinion of management, all normal recurring adjustments necessary for the fair presentation of the information for the periods presented when read in conjunction with the Company's consolidated financial statements and related notes thereto. Results for any previous fiscal quarter are not necessarily indicative of results for the full year or for any future quarter (in thousands, except per share amounts).

   
Dec. 31,
2009
   
Sept. 30,
2009
   
June 30,
2009
   
March 31,
2009
   
Dec. 31,
2008
   
Sept. 30,
2008
   
June 30,
2008
   
March 31,
2008
 
Revenues:
                                               
Multiband
  $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
MDU
  $ 6,562     $ 6,595     $ 6,705     $ 5,325     $ 6,407     $ 4,948     $ 4,201     $ 3,734  
HSP
  $ 61,457     $ 64,826     $ 60,691     $ 56,833     $ 7,718     $ 7,393     $ 6,605     $ 1,980  
Total Revenues
  $ 68,019     $ 71,421     $ 67,396     $ 62,158     $ 14,125     $ 12,341     $ 10,806     $ 5,714  
Cost of Products & services (exclusive of depreciation and amortization shown separately below)
  $ 48,678     $ 54,645     $ 56,894     $ 47,316     $ 9,656     $ 8,556     $ 6,394     $ 3,820  
SG&A Expense
  $ 14,755     $ 13,774     $ 15,509     $ 13,740     $ 3,326     $ 2,758     $ 2,561     $ 1,855  
Depreciation & Amortization
  $ 2,504     $ 2,414     $ 2,703     $ 3,285     $ 562     $ 846     $ 879     $ 738  
Impairment of assets
  $ -     $ -     $ -     $ -     $ 67     $ -     $ 7     $ 58  
Operating Income (Loss)
  $ 2,082     $ 588     $ (7,710 )     (2,183 )   $ 514     $ 181     $ 965     $ (757 )
Interest Expense
  $ (1,333 )   $ (1,026 )   $ (890 )   $ (855 )   $ (143 )   $ (301 )   $ (113 )   $ (100 )
Management Income
  $ -     $ -       -     $ -     $ 919     $ 1,447     $ -     $ -  
Other Income (Expenses)
  $ (87 )   $ 85     $ 101     $ 257     $ 37     $ 8     $ 32     $ 40  
Net Income (Loss) Before Income Taxes and Noncontrolling Interest In Subsidiaries
  $ 662     $ (353 )   $ (8,499 )   $ (2,781 )   $ 1,327     $ 1,335     $ 884     $ (817 )
Provision(benefit) for Income Tax
  $ (168 )   $ 372     $ 102     $ 100     $ 383     $ 286     $ 434     $ 29  
Net Income (Loss)
  $ 830     $ (725 )   $ (8,601 )   $ (2,881 )   $ 944     $ 1,049     $ 450     $ (846 )
Less: Net Income (Loss) Attributable to the Noncontrolling Interest in Subsidiaries
  $ 317     $ (266 )   $ (1,482 )   $ (296 )   $ 102     $ 138     $ 394     $ 18  
Net Income (Loss) attributable to Multiband Corporation and Subsidiaries
  $ 513     $ (459 )   $ (7,119 )   $ (2,585 )   $ 842     $ 911     $ 56     $ (864 )
Income (Loss) attributable to commons stockholders
  $ 357     $ (529 )   $ (7,190 )   $ (2,658 )   $ 802     $ 847     $ (47 )   $ (4,745 )
Income (Loss) per common share attributable to common stockholders – basic
  $ 0.04     $ (0.05 )   $ (0.75 )   $ (0.28 )   $ 0.08     $ 0.09     $ 0.00     $ (0.56 )
Income (Loss) per common share attributable to common stockholders – diluted
  $ 0.03     $ (0.05 )   $ (0.75 )   $ (0.28 )   $ 0.08     $ 0.09     $ 0.00     $ (0.56 )
Weighted average shares outstanding – basic
    9,701       9,659       9,651       9,650       9,634       9,562       9,499       8,498  
Weighted average shares outstanding – diluted
    10,763       9,659       9,651       9,650       9,865       9,797       9,499       8,498  

Page 20

 
Liquidity and Capital Resources (in thousands)

Year Ended December 31, 2009
 
During the years ended December 31, 2009 and 2008, the Company recorded a net loss of $11,377 and a net income of $1,597, respectively. Net cash used by operations in 2009 was $3,924 as compared to net cash provided by operations in 2008 of $3,303. Payments on short-term debt over the next 12 months are expected to total $1,411.  Principal payments on current long-term debt and capital lease obligations over the next 12 months are expected to total $717.

In May 2009, the Company paid off its then existing loan with Convergent Capital Partners I, L.P., and entered into a new five million dollar loan facility with a different lender due in December 2012. That new facility has a rolling quarterly positive EBITDA covenant which the Company was in compliance with as of December 31, 2009.

During the quarter ended June 30, 2009, the Company incurred a material operating loss primarily due to significant hiring and training expenses and inventory breakage related to changes in work order closure technology.  During the quarter ended September 30, 2009, the Company generated an operating profit of $588 as the aforementioned hiring, training and inventory breakage expenses were reduced.  During the quarter ended December 31, 2009, the Company generated an operating profit of $2,082.  Although the Company cannot definitively predict future quarter operating results, we have reason to believe second quarter operating results were atypical.

Cash and cash equivalents totaled $2,240 at December 31, 2009 versus $4,346 at December 31, 2008.  Working capital deficit at December 31, 2009 was $28,596 as compared to a positive working capital of $2,457 at December 31, 2008 primarily due to the acquisition of the former DTHC operating entities.  Total debt and capital lease obligations increased by $38,339 in the year ended December 31, 2009, due mainly to the addition of notes payable in order to purchase DirecTECH.  The Company had a material increase in accounts receivable, accounts payable and accrued liabilities for the year ended December 31, 2009 verses the year ended December 31, 2008 due to the acquisition of 100% of outstanding stock of the former DTHC operating entities.  Net cash used by investing activities totaled $3,452 for the period ended December 31, 2009, compared to net cash of $790 provided by investing activities for the period ended December 31, 2008, related to cash acquired in the acquisition of NC.

The Company experienced a material increase in revenues between the year ended December 31, 2009 and the year ended December 31, 2008.  The revenue increase, as stated previously, is primarily a result of the additional revenue obtained from the purchase of the former DTHC operating entities.  In 2010, the Company intends to focus on facilitating growth of its HSP business segment and its managed subscriber services including its support center and its master system operator program.  The Company believes it can increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.

The Company used $2,937 for capital expenditures during 2009, as compared to $171 in 2008.  Capital expenditures consisted of project build-outs and equipment acquired for internal use.  This increase was related to an expansion of company funded video and internet service build outs to MDU properties made during 2009.  In 2010, the Company estimates that it will have approximately $2,000 of additional capital expenditures which the Company intends to fund through leasing equipment and/or cash on hand.

Management anticipates that the impact of the actions listed below will generate sufficient cash flows to pay current liabilities, long-term debt and capital and operating lease obligations and fund the Company's operations for the next twelve months:
 
1.
Continued to improve mix of jobs (i.e. increase in higher paying installation work orders versus non or limited revenue producing service calls) which improves gross margins in its Home Service provider (HSP) segment by maintaining DirecTV exclusivity in its core markets.
   
2.
Reduce operating expenses by reducing inventory losses, reducing training costs through decreased technician turnover, managing professional fees, insurance and other general and administrative expenses.
   
3.
Evaluate factors such as anticipated usage and inventory turnover to maintain optimal inventory levels.
   
4.
Obtain senior debt financing with extended terms to refinance the Company’s note payable to DirecTECH Holding Company, Inc., which matures on January 1, 2013.
   
5.
Expand call center support with sales of call center services to both existing and future system operators and to buyers of the Company’s video subscribers.
   
6.
Solicit additional equity investment in the Company by issuing either preferred or common stock.

Page 21


The Company, as of December 31, 2009, needs to improve its working capital ratio over the next few quarters to adequately manage the size of its expanded operations.  Since the Company acquired significant assets in its purchase of 100% of the outstanding stock of the former DTHC operating entities, Multiband believes it has the capacity to leverage certain of those assets.  Management believes that through a combination of leveraging assets, its cash on hand, greater expense control, recent positive operating income, and potential sales of common and/or preferred stock,  it can meet its anticipated liquidity and capital resource requirements for the next twelve months.

Year Ended December 31, 2008
 
During the years ended December 31, 2008 and 2007, the Company recorded a net income of $1,597 and a net loss of $6,088 respectively.  Net cash provided by operations in 2008 was $3,303 as compared to net cash used by operations in 2007 of $1,391.  Principal payments on current long-term debt over the next 12 months are expected to total $1,609.  During the first three quarters of 2008, and as of December 31, 2007, the Company failed to meet the compliance covenants of its lender, Convergent Capital, with respect to having minimum net worth of five million dollars and positive EBITDA of $150.  Convergent Capital provided the Company with a waiver of both covenants for the year ended December 31, 2007 and for the first three quarters of 2008.  The Company paid $100 on the note during 2008.  At December 31, 2008, the Company was in compliance with the debt covenants.

Cash and cash equivalents totaled $4,346 at December 31, 2008 versus $944 at December 31, 2007.  Working capital for the year ended December 31, 2008 was $2,457 as compared to a working capital deficit of $5,018 at December 31, 2007, primarily due to the acquisition of NC.  Total debt and capital lease obligations increased by $331 in the year ended December 31, 2008, due mainly to the addition of notes payable in order to purchase NC and US Install.  The Company had a material increase in accounts receivable, accounts payable and accrued liabilities for the ten month period ended December 31, 2008 verses the year ended December 31, 2007 due to the acquisition of NC.  Net cash flows from investing activities totaled $709 compared to $2,277 for the comparable period due to the acquisition of NC.

The Company experienced a material increase in revenues between the year ended December 31, 2008 and the year ended December 31, 2007.  The revenue increase, as stated previously, is primarily a result of the additional revenue obtained from the purchase of NC, offset by the reduction of revenue resulting from the sale of unprofitable assets.  In 2009, the Company intends to focus on facilitating growth of its HSP business segment and its managed subscriber services including its support center and its master system operator program.  The Company believes it can increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.

The Company used $171 for capital expenditures during 2008, as compared to $384 in 2007.  Capital expenditures consisted of project build-outs and equipment acquired for internal use.  This decrease was related to a reduction of video and internet service build outs to MDU properties made during 2008.  Capital expenditures in 2009 are expected to increase due to the need to invest in networking infrastructure to integrate systems related to legacy and recently purchased operations and an expected increase in MDU property build outs.

Year Ended December 31, 2007
 
During the twelve months ended December 31, 2007 and 2006, the Company recorded a net loss of $6,088 and $10,184 respectively.  Net cash used by operations in 2007 was $1,391 as compared to net cash used by operations in 2006 of $650.  Principal payments on current long-term debt over the next 12 months are expected to total $158.  As of December 31, 2007, the Company failed to meet the compliance covenants of its lender, Convergent Capital, with respect to having minimum net worth of three million dollars and positive EBITDA for the quarter ended December 31, 2007 of $150.  Convergent Capital provided the Company with a waiver for both covenants for the quarter ended December 31, 2007.  The Company’s management believes it is probable that the violation will not be cured at measurement dates that are within the next twelve months.  The Company has therefore classified the debt as current as of December 31, 2007.

Cash and cash equivalents totaled $944 at December 31, 2007 versus $1,021 at December 31, 2006.  Working capital deficit for the twelve months ended December 31, 2007 decreased to $5,018 as compared to $5,294, at December 31, 2006, primarily due to net proceeds received from the sale of video assets to CSBS, DirecTECH and MDUC (see Note 2), during 2007.  Total debt and capital lease obligations were reduced by $2,910 in the twelve months ended December 31, 2007 as the Company continued to retire financing debt as certain notes were paid off in conjunction with asset sales.  The Company had a material decrease in accounts receivable for the period ended December 31, 2007 verses the period ended December 31, 2006 due to sales of assets.  Accounts payable and accrued liabilities combined remained relatively constant in total from December 31, 2006 to December 31, 2007.  Net cash flows from investing activities totaled $2,277 compared to ($335) for the comparable period reflecting the sale of video assets to CSBS, DirecTECH and MDUC, previously mentioned herein.

Page 22

 
The Company experienced a material decrease in revenues between the year ended December 31, 2007 and the year ended December 31, 2006. The revenue decrease, as stated previously, resulted from the sale of unprofitable assets.  In 2008, the Company intends to focus on facilitating growth of its managed subscriber services including its support center and its master system operator program.  The Company believes it can increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.

The Company used $384 for capital expenditures during 2007, as compared to $993 in 2006.  Capital expenditures consisted of project build-outs and equipment acquired for internal use.  This decrease was related to a reduction of video and internet service build outs to MDU properties made during 2007.

Critical Accounting Policies

Inventories
 
The Company’s inventories are segregated into three major categories.  Serialized DirecTV inventories consist primarily of satellite receivers and similar devices.  Non-serialized DirecTV inventories consist primarily of satellite dishes, poles and similar devices which are supplied by DirecTV.  Other inventory consists primarily of cable, switches and various small parts used in the installation of DirecTV satellite dishes.  Inventory is costed using a standard cost, which approximates actual costs, determined on a first-in first-out basis.

Impairment of Long-Lived Assets
 
The Company's long-lived assets include property, equipment, leasehold improvements and intangibles, subject to amortization.  At December 31, 2009, the Company had net property and equipment of $8,546 which represents approximately 8.3% of the Company's total assets.  At December 31, 2009, the Company had net intangibles of $22,677 which represented approximately 22.0% of the Company’s total assets (see Note 1).  The Company reviews its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or exceeds its fair value.  The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

For the HSP segment, the income approach was used to measure fair value for those long-lived assets.  The income approach was based on the present value of five years of future cash flows with an assumed growth of 0–3% while applying a discount rate.  For the MDU segment, the market approach considering market multiples from comparable transactions were used to measure fair value of those long-lived assets.  Comparable transactions were identified based on their similarities to the reporting unit with similar features, age of equipment, and length of ROE contracts.  There was no impairment noted for either segment at December 31, 2009 or 2008.

Impairment of Goodwill
 
In accordance with ASC Topic No. 350, Intangibles-Goodwill and Other, goodwill and intangible assets without a defined life shall not be amortized over a defined period, but instead must be tested for impairment at least annually.  Additionally, goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an entity below its carrying value.  The goodwill impairment test is a two-step impairment test.  In the first step, the Company compares the fair value of each reporting unit to its carrying value. The Company’s estimates may differ from actual results due to, among other things, economic conditions, changes to its business models, or changes in operating performance.  Significant differences between these estimates and actual results could result in future impairment charges and could materially affect the Company’s future financial results.  If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and the Company is not required to perform further testing.  If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill.  The activities in the second step include valuing the tangible and intangible assets and liabilities of the impaired reporting unit based on their fair value and determining the fair value of the impaired reporting unit’s goodwill based upon the residual of the summed identified tangible and intangible assets and liabilities.  Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses, which amounts to $38,067 as of December 31, 2009, may be impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.  During the year ended December 31, 2009, the Company did not record any impairment related to goodwill.  In 2008, the Company recorded an impairment of $50 on the goodwill related to the US Install purchase and the remaining goodwill balance of $17 from a previous acquisition.  During the year ended December 31, 2007, the Company did not record any impairment losses related to goodwill.

Page 23


Group Health and Workers’ Compensation Insurance Coverage
 
The Company uses a combination of self-insurance and third-party carrier insurance with predetermined deductibles that cover certain insurable risks. The Company’s share of its workers compensation plan are recorded for the aggregate liabilities for claims reported, based on historical experience. The Company also estimates the cost of health care claims that have been incurred but not reported, based on historical experience.

Insurance and claims accruals reflect the estimated cost for group health and workers’ compensation claims not covered by insurance.  The insurance and claims accruals are recorded at the estimated ultimate payment amounts.  Such insurance and claims accruals are based upon individual case estimates and estimates of incurred-but-not-reported losses using loss development factors based upon past experience.

During 2009, in certain states, the Company is self-insured for workers’ compensation liability claims up to $100, plus administrative expenses, for each occurrence involving workers’ compensation claims since February 1, 2009.  Effective January 1, 2010, the Company is self-insured for workers compensation claims up to $250 plus administrative expenses, for each occurrence involving workers compensation claims since that date.

The Company is self-insured for health insurance covering the range of liability under which management expects most claims to occur.  If any liability claims are substantially in excess of coverage amounts, such claims are covered under premium-based policies issued by insurance companies to coverage levels that management considers adequate.

Stock-Based Compensation

The Company accounts for its stock options using fair value for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors.  The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of variables.  These variables include, but are not limited to the Company’s expected stock price volatility, and actual and projected stock option exercise behaviors and forfeitures.

Income Taxes
 
The Company accounts for deferred tax assets and liabilities under the liability method.  Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years.  Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.  We assess the likelihood that our deferred tax assets will be recovered from future taxable income and record a valuation allowance to reduce our deferred tax assets to the amounts we believe to be realizable.  We concluded that a full valuation allowance against our U.S. deferred tax assets was appropriate as of December 31, 2009 and 2008.

Disclosures about Contractual Obligations and Commercial Commitments (in thousands)
 
The following summarizes our contractual obligations at December 31, 2009, and the effect these contractual obligations including interest payments are expected to have on our liquidity and cash flows in future periods:

   
Total
   
1 Year or Less
   
2-3 Years
   
Over 3
Years
 
Operating leases - buildings
 
$
4,631
   
$
1,775
   
$
2,257
   
$
599
 
Related party debt – short term
   
1,414
     
1,414
     
-
     
-
 
Long-term debt
   
7,524
     
1,046
     
6,421
     
57
 
Long-term debt, related party
   
37,433
     
2,582
     
4,995
     
29,856
 
Capital leases
   
1,092
     
563
     
524
     
5
 
Totals
 
$
52,094
   
$
7,380
   
$
14,197
   
$
30,517
 

Page 24

 
Forward Looking Statements
 
From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, and similar matters.  The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements including those made in this document.  In order to comply with the terms of the Private Securities Litigation Reform Act, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements.  The risks and uncertainties that may affect the operations, performance, developments and results of the Company's business include the following: national and regional economic conditions; pending and future legislation affecting the IT and telecommunications industry; market acceptance of the Company's products and services; the Company's continued ability to provide integrated communication solutions for customers in a dynamic industry; the Company’s ability to raise additional financing and other competitive factors.  Because these and other factors could affect the Company's operating results, past financial performance should not necessarily be considered as a reliable indicator of future performance, and investors should not use historical trends to anticipate future period results.

Item 7A

Quantitative and Qualitative Disclosure About Market Risk
 
None.

Item 8

Consolidated Financial Statements and Supplementary Data
 
The consolidated financial statements of Multiband and the reports of the independent registered public accounting firm, listed under Item 15, are submitted as a separate section of this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein.

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.

Item 9A

Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”).  Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issued and instances of fraud, if any, have been detected.

Based on this evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2009, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting
 
During 2009, the Company implemented the following major initiatives that serve to strengthen its system of internal control over financial reporting (“ICFR’).
 
The Company developed a computer database that provides for the identification, assessment and documentation of the Company’s system of internal control.  This system identifies all the control activities implemented to prevent or detect material misstatements in the accounts, disclosures and related assertions as referenced in the Company’s financial statements.  These control activities address relevant processes in all the Company’s segments and, as such, address the information technologies (IT) of the HSP segment as well as the controls related to the financial close and reporting process for the HSP segment. The database’s design facilitates an integrated depiction of a specific control activity process and its related system documentation.  Management evaluates quarterly the design and operating effectiveness all control activities in the database that are applicable to significant financial and compliance reporting processes.
 
Page 25


During the fourth quarter, the Company made certain improvements in its inventory accounting system with the purpose of providing a more detailed recording of inventory movements and improving the costing process.  These improvements were directed specifically at the inventories of the HSP segment.

Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act.  Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of an issuer’s financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of an issuer’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that an issuer’s receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of an issuer’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, the application of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate.

As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2009.  Management’s assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (“COSO”).  Based upon this evaluation, management concluded that the Company’s internal control was effective as of December 31, 2009.

The certifications of the Company’s Chief Executive Officer and Chief Financial Officer attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal controls over financial reporting.  Such certifications should be read in conjunction with the information contained in this Item 9A for a more complete understanding of the matters covered by such certifications.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

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, 2009.  Each director is elected for a term of one year.  Yearly elections are held at the annual meeting.

Name of Director and/or Executive Officer
  
Age
  
Position
  
Director Since
Steven M. Bell
 
50
 
General Counsel & Chief Financial Officer, Multiband Corporation
 
1994
Frank Bennett
 
53
 
President, Artesian Management, Inc.
 
2002
Jonathan Dodge
 
58
 
Senior Partner, Brunberg, Blatt and Company
 
1997
Eugene Harris
 
45
 
Managing Member, Step Change Advisors, LLC.
 
2004
James L. Mandel
 
52
 
Chief Executive Officer, Multiband Corporation
 
1998
Donald Miller
 
69
 
Chairman, Multiband Corporation
 
2001
Henry Block
 
52
 
Vice President of Marketing, Multiband Corporation
 
-
Dave Ekman
 
48
 
Chief Information Officer, Multiband Corporation
 
-
Kent Whitney
 
50
 
Chief Operating Officer, Multiband Corporation
 
-
 
Page 26

 
Steven M. Bell was general counsel of the Company from June 1985 through October 1994, at which time he also became Chief Financial Officer.  He is a graduate of the University of Minnesota and William Mitchell College of Law.

Frank Bennett has been a Director of Multiband Corporation since 2002 and is currently the Chairman of Multiband’s Audit Committee and the Nominating Committees.  Mr. Bennett is President of Artesian Management, Inc., a private equity investment firm based in Minneapolis.  Prior to founding Artesian Management in 1989, he was a Vice President of Mayfield Corporation, and a Vice President of Corporate Finance of Piper Jaffray & Hopwood and a Vice President of Piper Jaffray Ventures, Inc.

Jonathan Dodge is a senior partner in the firm of Brunberg, Blatt and Company.  Prior to that, he was a partner with McGladrey and Pullen and Dodge & Fox C.P.A. firm.  Mr. Dodge is a member of both the AICPA and the Minnesota Society of CPA’s where he has served on both the ethics and the tax conference committees.  He currently serves on four other boards in the Twin Cities.  Mr. Dodge is a member of the Audit and Compensation Committee.

Eugene Harris is the Managing Member of Step Change Advisors, LLC.  Step Change Advisors, LLC, provides portfolio management services and financial consulting to individuals and small businesses.  Prior to forming Step Change Advisors, LLC, Mr. Harris was Chief Operating Officer of Fulcrum Securities and President of Fulcrum Advisory Services.  Mr. Harris joined Fulcrum in 2007 after spending 4 years at Flagstone Securities running their private equity practice.  Mr. Harris joined Flagstone after 10 years as the majority shareholder of Eidelman, Finger, Harris & Co., a registered investment advisor.  Prior to joining Eidelman, Finger, Harris & Co., Mr. Harris held positions in general management and new business development for the Monsanto Company from 1990 to 1994.  He also was an Associate Consultant with Bain and Co. from 1986 to 1988.  Mr. Harris received a B.S. in Industrial Engineering from Stanford University in 1986 and an M.S. in Management from the Sloan School of Management at the Massachusetts Institute of Technology in 1990.  He is a Chartered Financial Analyst, holds series 24, 63, 65 and 7 securities licenses and is a member of the Financial Analysts Federation.  He is currently also on the Board of Directors at the Business Bank of St. Louis and Fulcrum Capital Corp.  Mr. Harris was appointed to the Company’s Board of Directors in April 2004.  Mr. Harris is Chairman of the Company’s Compensation Committee and a member of the Nominating Committee.

James Mandel has been the Chief Executive Officer and a Director of the Company since October 1, 1998.  From October 1991 to October 1996, he was Vice President of Systems for Grand Casinos, Inc., where his duties included managing the design, development, installation and on-going maintenance for the 2,000 room, $507 million Stratosphere Hotel, Casino and Tower in Las Vegas.  Mr. Mandel also managed the systems development of Grand Casino Mille Lacs, in Onamia, Minnesota, Grand Casino Hinckley in Hinckley, Minnesota and six other casinos nationwide.  Mr. Mandel is currently on the Board of Directors at New Market Technologies, GeoSpan Corporation, Independent Multi-Family Council and Western Capital Resources, Inc.

Donald Miller was appointed to the Company’s Board of Directors in September 2001 and was elected Chairman of the Board in April 2002.  Mr. Miller is also a member of the Audit and Compensation Committees.  Mr. Miller worked for Schwan’s Enterprises from 1962 to 2007, primarily as Chief Financial Officer.  He was appointed to the Board of Directors on January 1, 2008.  He is currently the Chairman of the Finance Committee and a member of the Audit and Risk Committees at Schwan’s Enterprises.  Mr. Miller is also on the Board of Directors of FoodShacks, Inc. and Webdigs, Inc. and on their Audit Committee.

Henry Block has been the Vice President of Marketing since January, 2008, acting on behalf of both Multiband and DirecTECH Holding Subsidiaries.  He served on the Board of Directors and oversaw all marketing functions and other duties for DirecTECH Holding Company, Inc. from 2005 to 2008. He also served as President of Michigan Microtech, Inc. (previously one of four separate Companies comprising DirecTECH Holdings Company, Inc.) from 1980 to 2005.  Mr. Block continues to serve on the Board of Directors for DirecTECH Holding Company, Inc. as its acting Treasurer.

Dave Ekman is the Chief Information Officer of Multiband.  Dave is a veteran in the computer hardware, software and internet industry, starting a computer company in 1981, and an internet ISP company in 1994.  The computer company subsequently merged with Vicom (now Multiband) in November 1999.  In addition, Dave has ownership interests in a travel agency, a storage company, two hotels, and commercial real estate in North Dakota.  He was awarded the State & Regional Young Entrepreneur of the Year in 1991.  He is a board of trustee member on the NDSU Development Foundation.

Page 27

 
Kent Whitney is the Chief Operating Officer of Multiband.  He joined Multiband in 2004 as Vice President of Operations.  Mr. Whitney began his satellite television career in 1980 and became one of DIRECTV's first retail TVRO dealers in 1994.  In 1996, he joined Pace Electronics in Rochester, MN where he was General Manager and later Vice President.  In 1998, Mr. Whitney co-founded Minnesota Digital Universe (MNMDU) and its Master System Operator program.  MNMDU was one of the first DIRECTV® MSOs and quickly became the largest by providing equipment and engineering support through Pace and the development of the MNMDU back office team.  Mr. Whitney trained and led the back office team of DIRECTV Commercial and MNMDU experts to support a national network of System Operators.  He was also responsible for IS development and on-line services for the System Operator network.  Mr. Whitney has served on the Board of Directors for the Satellite Broadcasting & Communications Association (SBCA) and has been on the Board of Directors for the Independent Multi-Family Communications Council (IMCC).  He graduated from Willmar, MN with a degree in electronics.  Multiband acquired MNMDU in 2004 and Kent joined the Multiband team.

The Company knows of no arrangements or understandings between a Director or nominee and any other person pursuant to which any person has been selected as a Director or nominee.  There is no family relationship between any of the nominees, directors or executive officers of the company.

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.  Both Messrs. Bennett and Harris have extensive backgrounds in investment banking, finance and capital raising.  They have been valuable to the Company in advising management how to structure various debt and equity offerings.  Mr. Miller was CFO for a large private company and advises the Company with regards to its financial and management reporting.  Mr. Dodge has extensive experience in the tax field and assists the Company on an ongoing basis with answering various tax questions and suggesting various tax strategies.

The Board of Directors met five times in 2009.  As permitted by Minnesota Law, the Board of Directors also acted from time to time during 2009 by unanimous written consent in lieu of conducting formal meetings.  Last year, there were three such actions and accompanying Board Resolutions passed.  The Board has designated an audit committee consisting of Jonathan Dodge, Donald Miller and Frank Bennett.  The Board also designated a Compensation committee consisting of Jonathan Dodge, Eugene Harris, and Donald Miller.  Frank Bennett and Eugene Harris were also designated to the nominating committee.  Bernard Schafer, who was elected to the Company’s Board at Multiband’s 2008 annual meeting of shareholders, served out his one year term and was not on the Company’s slate of directors submitted to its shareholders at the 2009 annual meeting of same.

To the best of the Company’s knowledge, none of the Company’s directors have been involved with any legal proceedings brought by the government or private individuals during the past ten years that involve allegation of securities law violations or other fraud.

Diversity
 
The Company has no formal board diversity policy at present.  The Company’s nominating committee, in assessing candidates for potential board membership, does examine whether those candidates have particular skill sets or elements in their background that would raise the board’s overall level of expertise and enhance the furtherment of the Company’s business plans and objectives.

Shareholder Communication with the Board
 
Our Board welcomes your questions and comments.  If you would like to communicate directly to our Board, or if you have a concern related to the Company’s business ethics or conduct, financial statements, accounting practices or internal controls, then you may contact our website via www.multibandusa.com , section Investor Relations.  All communications will be forwarded to our audit committee.

Directors’ attendance at Annual Meetings can provide shareholders with an opportunity to communicate with Directors about issues affecting the Company.  The Company does not have a policy regarding director attendance, but all Directors are encouraged to attend the Annual Meeting of Shareholders.  Five of our directors attended our Annual Meeting in 2009.

Audit Committee
 
Our audit committee:
 
·
recommends to our Board of Directors the independent registered public accounting firm to conduct the annual audit of our books and records;
   
·
reviews the proposed scope and results of the audit;
   
·
approves the audit fees to be paid;
   
·
reviews accounting and financial controls with the independent registered public accounting firm and our financial and accounting staff; and
   
·
reviews and approves transactions between us and our Directors, officers and affiliates.
 
Page 28

 
Our audit committee has a formal charter.

Our Audit Committee met five times during 2009.  The Audit Committee is comprised entirely of individuals who meet the independence and financial literacy requirements of NASDAQ listing standards.  Our Board has determined that all three members, Jonathan Dodge, Donald Miller, and Frank Bennett qualify as an "audit committee financial expert" independent from management as defined by Item 401(h)(2) of Regulation S-K under the Securities Act of 1933, as amended.  The Company acknowledges that the designation of the members of the audit committee as financial experts does not impose on them any duties, obligations or liability that are greater than the duties, obligations and liability imposed on them as a member of the audit committee and the Board of Directors in the absence of such designation.

Report of the Audit Committee
 
In accordance with its written charter adopted by the Board of Directors, the Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and financial reporting practices of the Company.  During the year ended December 31, 2009, the committee met five times, and Frank Bennett, as the Audit Committee chair and representative of the Audit Committee, discussed the interim financial information contained in quarterly and annual filings on Forms 10Q and 10K, respectively, with the Company’s Chief Financial Officer and the Company’s independent registered public accounting firm prior to public release.

In discharging its oversight responsibility as to the audit process, the audit committee obtained from the independent registered public accounting firm a formal written statement describing all relationships between the auditors and the Company that might bear on the auditors’ independence consistent with the Securities Acts and Standards of the Public Company Accounting Oversight Board, discussed with the auditors any relationships that may affect their objectivity and independence and satisfied itself as to the auditors’ independence.  The audit committee also discussed with management and the independent registered public accounting firm the quality and adequacy of the Company’s internal controls.  The audit committee reviewed with the independent registered public accounting firm their audit plans, audit scope, and identification of audit risks.

The audit committee discussed and reviewed with the Company’s independent registered public accounting firm all communications required by generally accepted auditing standards and, both with and without management present, discussed and reviewed the results of the independent registered public accounting firms’ examination of the Company’s consolidated financial statements.  The audit committee reviewed the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2009 with management and the independent registered public accounting firm.  Management has the responsibility for the preparation of the Company’s consolidated financial statements and the Company’s independent registered public accounting firm has the responsibility for the examination of those statements.

Based on the review referred to above and discussions with management and the independent registered public accounting firm, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the Securities and Exchange Commission.  The Audit Committee also recommended the reappointment, subject to shareholder approval, of the independent registered public accounting firm and the Board of Directors concurred in such recommendation.

Nominating Committee
 
The Nominating Committee was formed by our Board in April 2004 and consists of Frank Bennett and Eugene Harris.  The Nominating Committee's duties include adopting criteria for recommending candidates for election or re-election to our Board and its committees, considering issues and making recommendations considering the size and composition of our Board.  The Nominating Committee will also consider nominees for Director suggested by shareholders in written submissions to the Company's Secretary.

Director Nomination Procedures
 
DIRECTOR MANAGER QUALIFICATIONS.  The Company's Nominating Committee has established policies for the desired attributes of our Board as a whole.  The Board will seek to ensure that a majority of its members are independent as defined in the NASDAQ listing standards.  Each member of our Board must possess the individual qualities of integrity and accountability, informed judgment, financial literacy, high performance standards and must be committed to representing the long-term interests of the Company and the shareholders.  In addition, Directors must be committed to devoting the time and effort necessary to be responsible and productive members of our Board.  Our Board values diversity, in its broadest sense, reflecting, but not limited to, profession, geography, gender, ethnicity, skills and experience.
 
Page 29

 
IDENTIFYING AND EVALUATING NOMINEES.  The Nominating Committee regularly assesses the appropriate number of Directors comprising our Board, and whether any vacancies on our Board are expected due to retirement or otherwise.  The Nominating Committee may consider those factors it deems appropriate in evaluating Director candidates including judgment, skill, diversity, strength of character, experience with businesses and organizations comparable in size or scope to the Company, experience and skill relative to other Board members, and specialized knowledge or experience.  Depending upon the current needs of our Board, certain factors may be weighed more or less heavily by the Nominating Committee.  In considering candidates for our Board, the Nominating Committee evaluates the entirety of each candidate's credentials and, other than the eligibility requirements established by the Nominating Committee, does not have any specific minimum qualifications that must be met by a nominee.  The Nominating Committee considers candidates for the Board from any reasonable source, including current Board members, shareholders, professional search firms or other persons.  The Nominating Committee does not evaluate candidates differently based on who has made the recommendation.  The Nominating Committee has the authority under its charter to hire and pay a fee to consultants or search firms to assist in the process of identifying and evaluating candidates. 

CHARTER OF THE NOMINATING COMMITTEE.  A copy of the charter of the Nominating Committee is available on our website at www.multibandusa.com.

Code of Ethics for Senior Financial Management
 
Our Code of Ethics for Senior Financial Management applies to all of our executive officers, including our president and our chief financial officer, and meets the requirements of the Securities and Exchange Commission. We have posted our Code of Ethics for Senior Financial Management on our website at www.multibandusa.com ..  We intend to disclose any amendments to and any waivers from a provision of our Code of Ethics for Senior Financial Management on our website within four business days following the amendment or waiver.

Compensation Discussion and Analysis
 
Our compensation committee
 
·
reviews and recommends the compensation arrangements for management, including the compensation for our Chief Executive Officer; and
   
·
establishes and reviews general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals.

We are committed to attracting, hiring and retaining an experienced management team that can successfully sell and operate our services.  The fundamental policy of our compensation committee is to provide our executive officers with competitive compensation opportunities based upon their contribution to our development and financial success and long-term shareholder interest, as well as each officer’s personal performance.  The compensation package for each executive officer is comprised of three elements (i) base salary which reflects individual performance and is designed primarily to be competitive with salary levels in the industry; (ii) potential for cash bonus payments contingent upon specific corporate and individual milestones; and (iii) long-term stock-based incentive awards which strengthen the mutuality of interests between the executive officers and our shareholders.

At the beginning of each year, certain performance objectives are set by the compensation committee for management.  2009 corporate objectives included goals based on subscriber sales and certain financial metrics.  By year end, the compensation committee reviews the performance of the Company against the corporate objectives and reviews the performance of each executive officer against their individual objectives.  Based upon results achieved, the executive officers may receive part or all of a targeted bonus award.

Our compensation committee met four times during 2009.  The compensation committee is comprised entirely of non-employee Directors who meet the independence requirements of the NASDAQ listing standards.  The compensation committee is comprised of Jonathan Dodge, Eugene Harris, and Donald Miller.

Page 30

 
Item 11.
Executive and Director Compensation

The following table sets forth certain information relating to the remuneration paid by the Company to its executive officers whose aggregate cash and cash-equivalent remuneration approximated or exceeded $100 during the Company’s fiscal year ended December 31, 2009.
 
EXECUTIVE COMPENSATION (in thousands, except shares and per share amounts)
 
Name and principal
position
 
Year
 
Salary
   
Bonus
   
 
Stock
awards
   
(1)
Option
awards
   
Non-equity
incentive plan
compensation
   
Change in
pension value
and nonqualified
deferred
compensation
earnings
   
All other
Compensation
   
Total
 
James Mandel
Chief Executive Officer
 
2009
 
$
395
   
$
230
   
$
-
   
$
125
   
$
-
   
$
-
   
$
12
   
$
762
 
Steven Bell
President and Chief Financial Officer
 
2009
   
311
     
100
     
-
     
68
     
-
     
-
     
12
     
491
 
Henry Block
Vice President of Marketing
 
2009
   
338
     
-
     
-
     
-
     
-
     
-
     
-
     
338
 
Dave Ekman
Chief Information Officer
 
2009
   
158
     
13
     
-
     
-
     
-
     
-
     
5
     
176
 
Kent Whitney
Chief Operating Officer
 
2009
   
136
     
25
     
-
     
-
     
-
     
-
     
-
     
161
 
 
(1)
The amounts in this column are calculated based on fair value and equal the financial statement compensation expense as reported in our 2009 consolidated statement of operations for the fiscal year.

Director Compensation
 
Outside Directors were each paid an annual cash fee in lieu of restricted stock of $100, an annual retainer varying from $40 to $72, annual chair meeting fees of $8, $5 and $5 for audit, compensation and nominating meeting chairs, respectively and non-chair per meeting fees of $1 per meeting for all committees in 2009.  Awards or options to Directors are determined by the Board's Compensation Committee.  Each Director is entitled to reimbursement for his reasonable out of pocket expenses incurred in relation to travel to and from board meetings.

DIRECTOR COMPENSATION
 
Name
 
Fees earned
or paid in
cash
   
Stock awards
   
(1)
Option
awards
   
Non-equity
incentive plan
compensation
   
Change in
pension value
and nonqualified
deferred
compensation
earnings
   
(2)
All other
compensation
   
Total
 
F  Bennett
 
$
60
   
$
-
   
$
18
   
$
-
   
$
-
   
$
-
   
$
78
 
J   Dodge
   
59
     
-
     
18
     
-
     
-
     
1
     
78
 
E   Harris
   
57
     
-
     
18
     
-
     
-
     
1
     
76
 
D   Miller
   
71
     
-
     
18
     
-
     
-
     
1
     
90
 
 
(1)
The amounts in this column are calculated based on fair value and equal the financial statement compensation expense as reported in our 2009 consolidated statement of operations for the fiscal year.  Total board of directors options outstanding at December 31, 2009 are 244,400.
   
(2)
Represents payment of expenses incurred in conjunction with attending board meetings.

2009 Grants of Plan-Based Awards (in thousands, except shares and per share amounts)
 
The following table sets forth information on grants of plan-based awards in 2009 to the named executive officers.
       
Estimated Future Payouts Under Equity
Incentive Plan Awards
   
 All Other Stock
   
 All Other Option
   
Exercise or base price
   
 
Grant Date
 Fair
Value of
Stock and
Option
 
Name
 
Grant Date
 
Threshold
 (#)
   
Target
(#)
   
Maximum
 (#)
   
 Awards
 (#)
   
 Awards
 (#)
   
of award
 ($/sh)
   
 Awards
 ($)
 
Steven M. Bell
 
1/2/09
(1)    75,000       75,000       75,000       -       -     $ 1.25     $ 68  
James L. Mandel
 
1/2/09
(1)    138,500       138,500       138,500       -       -       1.25       125  
 
(1) 
The exercise price of these stock options is $1.25 with a grant date fair value of $.9027 per share based on the Black-Scholes option pricing model.
 
Page 31

 
Narrative to Summary Compensation Table and 2009 Grants of Plan-Based Awards Table
 
See the Compensation Discussion and Analysis, as well as the Employment Agreement and Other Compensation and Long-Term Incentive Plans Summaries for a complete description of compensation elements pursuant to which the amounts listed under the Summary Compensation Table and 2009 Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payments.

Stock Option Grants During 2009
 
The following table provides information regarding stock options granted during fiscal 2009 to the named executive officers in the Summary Compensation Table.
 
   
Number of
Securities
Underlying
Options Granted
   
Percent of
Total Options
Granted to
Employees in Fiscal Year
   
Exercise or
Base Price
 
Expiration
 
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
 Term (1)
 
Name
 
 (#)
   
 (%)
   
($/Share)
 
Date
   
5%
       
10%
  
James L. Mandel
    138,500       64.9     $ 1.25  
1/2/2016
  $ 70     $ 164  
Steven M. Bell
    75,000       35.1     $ 1.25  
1/2/2016
  $ 38     $ 89  
 
 (1)
The “potential realizable value” shown represents the potential gains based on annual compound stock price appreciation of 5% and 10% from the date of grant through the full option terms, net of exercise price, but before taxes associated with exercise.  The amounts represent certain assumed rates of appreciation only, based on the Securities and Exchange Commission rules.  Actual gains, if any, on stock option exercises are dependent on the future performance of the common stock, overall market conditions and the option holders, continued employment through the vesting period.  The amounts reflected in this table may not necessarily be achieved and do not reflect the Company’s estimate of future stock price growth.

Each option represents the right to purchase one share of common stock.  The options shown in this table are all non-qualified stock options.  To the extent not already exercisable, the options generally become exercisable in the event of a merger in which the Company is not the surviving corporation, a transfer of all shares of stock of the Company, a sale of substantially all the assets, or a dissolution or liquidation, of the Company.

Outstanding Equity Awards at Fiscal Year-End
 
The following table sets forth information regarding the outstanding equity awards held by our named executive officers as of December 31, 2009.
 
Option Awards
 
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable 
(#)
   
Number of
Securities
 Underlying
Unexercised
Options
Unexercisable 
(#)
   
Equity
Incentive 
Plan
Awards:
 Number of
Securities
Underlying
Unexercised
Unearned 
Options
 (#)
   
Option
Exercise
Price 
($)
 
Option
Expiration
Date
 
Number of
Shares or
 Units of
 Stock That
Have Not
Vested 
(#)
   
Market
 Value of
Shares or 
Units of 
Stock That 
Have Not
 Vested 
($)
   
Equity
 Incentive 
Plan Awards:
Number of 
Unearned 
Shares, Units
 or Other
 Rights That
 Have Not
Vested 
(#)
   
Equity 
Incentive 
Plan Awards: 
Market or 
Payout Value
 of Unearned
Shares, Units
 or Other 
Rights That 
Have Not 
Vested
 ($)
 
Steven M. Bell
   
2,000
(1)
   
-
     
-
   
$
22.00
 
1/31/2011
   
-
   
$
-
     
-
   
$
-
 
     
100
(2)
   
-
     
-
     
7.50
 
8/28/2011
   
-
     
-
     
-
     
-
 
     
10,000
(3)
   
-
     
-
     
5.50
 
1/8/2013
   
-
     
-
     
-
     
-
 
     
5,000
(4)
   
-
     
-
     
9.45
 
4/23/2014
   
-
     
-
     
-
     
-
 
     
10,000
(5)
   
-
     
-
     
7.25
 
6/18/2014
   
-
     
-
     
-
     
-
 
     
80,000
(6)
   
-
     
-
     
7.35
 
1/16/2015
   
-
     
-
     
-
     
-
 
     
75,000
(7)
   
-
     
75,000
     
1.25
 
1/2/2016
                               
                                                                   
David Ekman
   
100
(8)
   
-
     
-
     
7.50
 
8/28/2011
   
-
     
-
     
-
     
-
 
     
40,000
(9)
   
-
     
-
     
6.75
 
4/27/2015
   
-
     
-
     
-
     
-
 
                                                                   
James L. Mandel
   
100
(10)
   
-
     
-
     
7.50
 
8/28/2011
   
-
     
-
     
-
     
-
 
     
60,000
(11)
   
-
     
-
     
7.50
 
1/8/2013
   
-
     
-
     
-
     
-
 
     
20,000
(12)
   
-
     
-
     
7.25
 
6/18/2014
   
-
     
-
     
-
     
-
 
     
120,000
(13)
   
-
     
-
     
7.35
 
1/6/2015
   
-
     
-
     
-
     
-
 
     
138,500
(14)
   
-
     
138,500