UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 ___________
 FORM
10-Q
 
 (Mark
      One)
                x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
      OF 1934FOR
      THE PERIOD ENDING SEPTEMBER 30, 2009ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
      OF 1934FOR
      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
 Internet:   www.multibandusa.com
 
 (Registrant's
telephone number, facsimile number, and Internet address)


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 o
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
 Yes o    No o
 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 o  Accelerated
filer o
 Non-accelerated
filer x (do not
check if a smaller reporting company)  Smaller reporting company o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes o      No
x
 
 On,
November 5, 2009 there were 9,659,797 shares outstanding of the registrant's
common stock, no par value, and 490,418 outstanding shares of the registrant's
convertible preferred stock.
 
 
 
 PART
I.  FINANCIAL INFORMATION
 
 ITEM
1.  CONSOLIDATED FINANCIAL STATEMENTS
 
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (in
thousands, except per share amounts)
 
 Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30, 2009 (unaudited)
                
                
                September
      30, 2008 (unaudited)
                
                
                September
      30, 2009 (unaudited)
                
                
                September
      30, 2008 (unaudited)REVENUES
                
                $
                71,421
                
                
                $
                12,341
                
                
                $
                200,975
                
                
                $
                28,861COSTS
      AND EXPENSESCost
      of products and services (exclusive of depreciation and amortization shown
      separately below)
                
                
                54,645
                
                
                
                8,556
                
                
                
                158,855
                
                
                
                18,770Selling,
      general and administrative
                
                
                13,774
                
                
                
                2,758
                
                
                
                43,023
                
                
                
                7,173Depreciation
      and amortization
                
                
                2,414
                
                
                
                846
                
                
                
                8,402
                
                
                
                2,463Impairment
      of assets
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                66Total
      costs and expenses
                
                
                70,833
                
                
                
                12,160
                
                
                
                210,280
                
                
                
                28,472INCOME
      (LOSS) FROM OPERATIONS
                
                
                588
                
                
                
                181
                
                
                
                (9,305
                )
                
                
                389OTHER
      INCOME (EXPENSE)Interest
      expense
                
                
                (1,026
                )
                
                
                (301
                )
                
                
                (2,771
                )
                
                
                (514
                )Interest
      income
                
                
                9
                
                
                
                13
                
                
                
                19
                
                
                
                32Management
      consulting income
                
                
                -
                
                
                
                1,447
                
                
                
                -
                
                
                
                1,447Other
      income(expense)
                
                
                76
                
                
                
                (5
                )
                
                
                424
                
                
                
                48Total
      other income (expense)
                
                
                (941
                )
                
                
                1,154
                
                
                
                (2,328
                )
                
                
                1,013NET
      INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST IN
      SUBSIDIARIES
                
                
                (353
                )
                
                
                1,335
                
                
                
                (11,633
                )
                
                
                1,402PROVISION
      FOR INCOME TAXES
                
                
                372
                
                
                
                286
                
                
                
                574
                
                
                
                749NET
      INCOME (LOSS)
                
                
                (725
                )
                
                
                1,049
                
                
                
                (12,207
                )
                
                
                653LESS:
      NET INCOME (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN
      SUBSIDIARIES
                
                
                (266
                )
                
                
                138
                
                
                
                (2,044
                )
                
                
                550NET
      INCOME (LOSS) ATTRIBUTABLE TO MULTIBAND CORPORATION AND
      SUBSIDIARIES
                
                
                (459
                )
                
                
                911
                
                
                
                (10,163
                )
                
                
                103Preferred
      stock dividends
                
                
                70
                
                
                
                64
                
                
                
                214
                
                
                
                4,049INCOME
      (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
                
                $
                (529
                )
                
                $
                847
                
                
                $
                (10,377
                )
                
                $
                (3,946
                )INCOME
      (LOSS) PER COMMON SHARE – BASIC:INCOME
      (LOSS) ATTRIBUTABLE TO COMMON
                  STOCKHOLDERS
                
                $
                (0.05
                )
                
                $
                0.09
                
                
                $
                (1.08
                )
                
                $
                (0.43
                )INCOME
      (LOSS) PER COMMON SHARE – DILUTED:INCOME
      (LOSS) ATTRIBUTABLE TO COMMON
                  STOCKHOLDERS
                
                $
                (0.05
                )
                
                $
                0.09
                
                
                $
                (1.08
                )
                
                $
                (0.43
                )Weighted
      average common shares outstanding – basic
                
                
                9,659
                
                
                
                9,562
                
                
                
                9,653
                
                
                
                9,184Weighted
      average common shares outstanding – diluted
                
                
                9,659
                
                
                
                9,797
                
                
                
                9,653
                
                
                
                9,184
  See
accompanying notes to the unaudited condensed consolidated financial
statements
  Page
2
  MULTIBAND
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (in
thousands)
  Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30, 2009 (unaudited)
              
              
              September
      30, 2008 (unaudited)
              
              
              September
      30, 2009 (unaudited)
              
              
              September
      30, 2008 (unaudited)NET
      INCOME (LOSS)
              
              $
              (459
              )
              
              $
              911
              
              
              $
              (10,163
              )
              
              $
              103OTHER
      COMPREHENSIVE INCOME (LOSS), NET OF TAX:Unrealized
      gains (losses) on securities:Unrealized
      holding gains (losses) arising during period
              
              
              (29
              )
              
              
              -
              
              
              
              (37
              )
              
              
              152COMPREHENSIVE
      INCOME (LOSS)
              
              $
              (488
              )
              
              $
              911
              
              
              $
              (10,200
              )
              
              $
              255
 
 See
accompanying notes to the unaudited condensed consolidated financial
statements
  Page
3
  MULTIBAND
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  ASSETS
 (in
thousands)
 
 September
      30, 2009 (unaudited)
              
              
              December
      31, 2008 (audited)CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              4,253
              
              
              $
              4,346Securities
      available for sale
              
              
              9
              
              
              
              46Accounts
      receivable, net
              
              
              15,170
              
              
              
              3,437Other
      receivable – related party
              
              
              518
              
              
              
              7,666Inventories
              
              
              10,387
              
              
              
              1,903Prepaid
      expenses and other
              
              
              3,731
              
              
              
              1,273Current
      portion of notes receivable
              
              
              61
              
              
              
              61Total
      Current Assets
              
              
              34,129
              
              
              
              18,732PROPERTY
      AND EQUIPMENT, NET
              
              
              8,438
              
              
              
              2,033OTHER
      ASSETSGoodwill
              
              
              35,489
              
              
              
              1,095Intangible
      assets, net
              
              
              24,446
              
              
              
              3,668Other
      receivable – related party – long term
              
              
              3,169
              
              
              
              -Notes
      receivable – long-term, net of current portion
              
              
              32
              
              
              
              39Other
      assets
              
              
              2,197
              
              
              
              476Total
      Other Assets
              
              
              65,333
              
              
              
              5,278TOTAL
      ASSETS
              
              $
              107,900
              
              
              $
              26,043
 
 See
accompanying notes to the unaudited condensed consolidated financial
statements
  Page
4
  MULTIBAND
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
 (in
thousands, except share and liquidation preference amounts)
 
 September
      30, 2009 (unaudited)
              
              
              December
      31, 2008 (audited)CURRENT
      LIABILITIESMandatory
      redeemable preferred stock, 0 and 15,000 Class F preferred
      shares
              
              $
              -
              
              
              $
              150Line
      of credit
              
              
              50
              
              
              
              -Short
      term debt
              
              
              202
              
              
              
              -Short-term
      debt – related party
              
              
              1,400
              
              
              
              100Current
      portion of long-term debt
              
              
              456
              
              
              
              1,509Current
      portion of capital lease obligations
              
              
              523
              
              
              
              311Accounts
      payable
              
              
              34,610
              
              
              
              8,274Accrued
      liabilities
              
              
              24,427
              
              
              
              4,435Deferred
      service obligations and revenue
              
              
              3,246
              
              
              
              1,488Total
      Current Liabilities
              
              
              64,914
              
              
              
              16,267LONG-TERM
      LIABILITIESLong-term
      debt, net of current portion and original issue discount
              
              
              4,705
              
              
              
              46Long-term
      debt, net of current portion-related party
              
              
              33,715
              
              
              
              300Capital
      lease obligations, net of current portion
              
              
              539
              
              
              
              317Total
      Liabilities
              
              
              103,873
              
              
              
              16,930COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY (DEFICIT)Cumulative
      convertible preferred stock, no par value:8%
      Class A (14,171 shares issued and outstanding, $148,796 liquidation
      preference)
              
              
              213
              
              
              
              21310%
      Class B (1,670 and 2,570 shares issued and outstanding, $17,535 and
      $26,985 liquidation preference)
              
              
              17
              
              
              
              2610%
      Class C (113,480 and 114,080 shares issued and outstanding, $1,134,800 and
      $1,140,800 liquidation preference)
              
              
              1,469
              
              
              
              1,48210%
      Class F (150,000 shares issued and outstanding, $1,500,000 liquidation
      preference)
              
              
              1,500
              
              
              
              1,5008%
      Class G (11,595 shares issued and outstanding, $115,950 liquidation
      preference)
              
              
              48
              
              
              
              486%
      Class H (2.0 shares issued and outstanding, $200,000 liquidation
      preference)
              
              
              -
              
              
              
              -Class
      E, no par value, (200,000 and 0 shares issued and outstanding, $2,000,000
      and $0 liquidation preference)
              
              
              2,000
              
              
              
              -Common
      stock, no par value (9,659,797 and 9,642,374 shares issued and
      outstanding)
              
              
              37,856
              
              
              
              37,687Stock
      subscriptions receivable
              
              
              (40
              )
              
              
              (84
              )Options
      and warrants
              
              
              46,573
              
              
              
              46,038Accumulated
      other comprehensive income – unrealized gain on securities available for
      sale
              
              
              9
              
              
              
              46Accumulated
      deficit
              
              
              (91,297
              )
              
              
              (81,314
              )Total
      Stockholders' Equity (Deficit)
              
              
              (1,652
              )
              
              
              5,642Noncontrolling
      interest in subsidiaries
              
              
              5,679
              
              
              
              3,471Total
      Equity
              
              
              4,027
              
              
              
              9,113TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              107,900
              
              
              $
              26,043
 
 See
accompanying notes to the unaudited condensed consolidated financial
statements
  Page
5
  MULTIBAND
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)
 NINE
      MONTHS ENDED SEPTEMBER 30,2009
              
              
              2008(unaudited)
              
              
              (unaudited)OPERATING
      ACTIVITIESNet
      loss
              
              $
              (12,207
              )
              
              $
              653Adjustments
      to reconcile net loss attributable to Multiband Corporation and
      subsidiaries to net cash provided from operating
    activities:Depreciation
      and amortization
              
              
              8,402
              
              
              
              2,463Amortization
      of imputed interest discount
              
              
              35
              
              
              
              219Amortization
      of original issue discount related to warrants issued with long term
      debt
              
              
              35
              
              
              
              -Amortization
      of debt issuance costs
              
              
              15
              
              
              
              -Loss
      (gain)  on sale of property and equipment and intangible
      assets
              
              
              (35
              )
              
              
              52Gain
      on debt extinguishment
              
              
              -
              
              
              
              (30
              )Impairment
      of goodwill, intangibles and property and equipment
              
              
              -
              
              
              
              65Change
      in allowance for doubtful accounts on accounts receivable
              
              
              51
              
              
              
              (15
              )Change
      in reserve for stock subscriptions and interest receivable
              
              
              43
              
              
              
              8Expense
      related to repricing of warrants
              
              
              30
              
              
              
              -Stock
      based compensation expense for future services
              
              
              -
              
              
              
              153Stock
      based compensation expense for services
              
              
              133
              
              
              
              18Compensation
      expense of restricted stock award
              
              
              -
              
              
              
              24Management
      consulting income from DirecTECH
              
              
              -
              
              
              
              (1,447
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (7,104
              )
              
              
              887Inventories
              
              
              5,647
              
              
              
              221Prepaid
      expenses and other
              
              
              (1,095)
              
              
              
              (52
              )Other
      assets
              
              
              (21
              )
              
              
              120Accounts
      payable and accrued liabilities
              
              
              1,463
              
              
              
              (229
              )Deferred
      service obligations and revenue
              
              
              1,671
              
              
              
              781Net
      cash flows from (used by) operating activities
              
              
              (2,937
              )
              
              
              3,891INVESTING
      ACTIVITIESPurchases
      of property and equipment
              
              
              (2,166
              )
              
              
              (112
              )Checks
      issued in excess of bank balance with the purchase of 80% of outstanding
      stock of DirecTECH operating entities
              
              
              (369
              )
              
              
              -Cash
      acquired via purchase of NC (formerly Michigan Microtech, Inc.
      (MMT))
              
              
              -
              
              
              
              4,044Cash
      collected on other receivables – related party acquired with the purchase
      of NC (formerly Michigan Microtech, Inc. (MMT))
              
              
              -
              
              
              
              2,815Purchase
      of US Install
              
              
              -
              
              
              
              (101
              )Purchases
      of intangible assets
              
              
              (175
              )
              
              
              -Proceeds
      from sale of property and equipment and intangible assets
              
              
              -
              
              
              
              5Collections
      on notes receivable
              
              
              37
              
              
              
              5Net
      cash flows from (used in) investing activities
              
              
              (2,673
              )
              
              
              6,656FINANCING
      ACTIVITIESPayments
      on short-term debt
              
              
              (25
              )
              
              
              -Payments
      on long-term debt
              
              
              (2,657
              )
              
              
              (84
              )Payments
      on capital lease obligations
              
              
              (335
              )
              
              
              (152
              )Payments
      on note payable – related party
              
              
              (1,400
              )
              
              
              -Payments
      for debt issuance costs
              
              
              (144
              )
              
              
              -Net
      advances on line of credit
              
              
              5
              
              
              
              -Payment
      on mandatory redeemable preferred stock
              
              
              (150
              )
              
              
              (58
              )Payments
      for stock issuance costs
              
              
              -
              
              
              
              (25
              )Payments
      received on stock subscriptions receivable
              
              
              -
              
              
              
              3Proceeds
      from issuance of preferred stock
              
              
              500
              
              
              
              -Proceeds
      from note payable – related party
              
              
              3,700
              
              
              
              -Proceeds
      from issuance of long-term debt
              
              
              6,100
              
              
              
              100Redemption
      of preferred stock
              
              
              (18
              )
              
              
              (102
              )Preferred
      stock dividends
              
              
              (59
              )
              
              
              (81
              )Net
      cash flows from (used in) financing activities
              
              
              5,517
              
              
              
              (399
              )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (93
              )
              
              
              10,148CASH
      AND CASH EQUIVALENTS - Beginning of Period
              
              
              4,346
              
              
              
              944CASH
      AND CASH EQUIVALENTS - END OF PERIOD
              
              $
              4,253
              
              
              $
              11,092
    Page
6
  MULTIBAND
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)
 NINE
      MONTHS ENDED SEPTEMBER 30,2009
              
              
              2008(unaudited)
              
              
              (unaudited)Cash
      paid for interest, net of amortization of original issue discount and
      interest discount
              
              $
              1,872
              
              
              $
              199Cash
      paid for federal and state income taxes
              
              
              611
              
              
              
              682Non-cash
      investing and financing transactions:Conversion
      of Class I preferred stock to common stock
              
              
              -
              
              
              
              3,745Conversion
      of Class G preferred stock to common stock
              
              
              -
              
              
              
              150Conversion
      of accrued interest into common stock
              
              
              2
              
              
              
              2Conversion
      of accrued dividends into common stock
              
              
              166
              
              
              
              175Intrinsic
      value of preferred dividends
              
              
              3
              
              
              
              84Purchase
      of property and equipment via increase of capital lease
      obligations
              
              
              562
              
              
              
              47Warrants
      issued for long-term notes payable
              
              
              372
              
              
              
              -Debt
      reduced by reduction in other receivable from DirecTECH
              
              
              
              
              
              
              1,447Purchase
      of US Installs via increase in accrued expenses
              
              
              -
              
              
              
              103Acquisition
      of securities available for sale upon expiration of contingent
      rights
              
              
              -
              
              
              
              209Reduction
      of stock subscription receivable via cancellation of common
      stock
              
              
              -
              
              
              
              61Debt
      and accrued interest paid with issuance of common stock
              
              
              -
              
              
              
              20Purchase
      of 51% of MMT via issuance of notes payable and common stock, net of
      discount for imputed interest
              
              
              -
              
              
              
              5,783Increase
      in short-term debt via offset to accounts payable
              
              
              159
              
              
              
              -Purchase
      of 80% of outstanding stock of DirecTECH operating entities via issuance
      of short and long-term notes payable
              
              
              38,240
              
              
              
              -Reduction
      of notes payable via reduction of related party receivable in connection
      with the purchase of 80% of outstanding stock of DirecTECH operating
      entities
              
              
              5,844
              
              
              
              -Reduction
      of notes payable with issuance notes payable in connection with
      acquisition
              
              
              
              
              
              
              -Purchase
      of 29% of outstanding stock of NC (formerly MMT) with issuance of short
      and long-term notes payable
              
              
              1,660
              
              
              
              -Purchase
      of 80% of outstanding stock of DirecTECH operating entities with payment
      to escrow in 2008
              
              
              500
              
              
              
              -Reduction
      of notes payable with issuance notes payable in connection with
      acquisition
              
              
              300
              
              
              
              -Reduction
      of note payable – related party with exchange for preferred
      stock
              
              
              1,500
              
              
              
              -Reduction
      of accounts payable with proceeds from sale of intangible asset and
      equipment
              
              
              446
              
              
              
              -Reduction
      in accounts payable and accrued expenses with issuance of long-term
      debt
              
              
              394
              
              
              
              -Common
      stock issued for services to be rendered
              
              
              -
              
              
              
              158
 
 See
accompanying notes to the unaudited condensed consolidated financial
statements
  Page
7
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
  NOTE
      1 - Unaudited Consolidated Financial
Statements
 
 The
information furnished in this report is unaudited and reflects all adjustments
which are normal recurring adjustments and, which in the opinion of management,
are necessary to fairly present the operating results for the interim periods.
The operating results for the interim periods presented are not necessarily
indicative of the operating results to be expected for the full fiscal
year.  The unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and footnotes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008, previously filed with the Securities and Exchange
Commission.
 
 NOTE
      2 - Summary of Significant Accounting
Policies
 
 Nature of Business
 
 Multiband
Corporation and subsidiaries (the Company) was incorporated in Minnesota in
September 1975.  The Company provides voice, data and video services
to multi-dwelling unit and single family home customers.  The
Company's products and services are sold to customers located throughout the
United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern that contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business.  For the nine months ended September 30, 2009, the Company
incurred a net loss attributable to Multiband Corporation and subsidiaries of
$10,163 versus the nine months ended September 30, 2008 in which the Company
earned a net income attributable to Multiband Corporation and subsidiaries of
$103.  At September 30, 2009, the Company had an accumulated deficit
of $91,297.  The Company's ability to continue as a going concern is
dependent on it attaining profitability and/or raising additional
capital.  Management may sell, if prudent, certain assets on a
strategic basis for prices agreeable to the Company and/or obtain additional
debt or equity capital to meet all of its existing cash obligations and fund
commitments on planned Multiband projects; however, there can be no assurance
that the sources will be available or available on terms favorable to the
Company.  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.
              Initiate
      and grow its Home Service Provider (HSP) business by eliminating
      competitive HSP providers from certain of its core
  markets.2.
              Improve
      gross margin percentages by cycling technicians from training and placing
      them in a revenue generating role and by mitigating work order breakage
      expense.3.
              Reduce
      operating expenses by reducing training costs through the lowering of
      technician turnover, managing professional fees, insurance and other
      general and administrative expenses.4.
              Evaluate
      factors such as anticipated usage and inventory turnover to maintain
      optimal inventory levels.5.
              Obtain
      additional debt financing.6.
              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.7.
              Solicit
      additional equity investment in the Company by either issuing preferred or
      common stock.
 
 Principles of
Consolidation
 
 The 2008
consolidated financial statements include the accounts of Multiband Corporation
(MBCorp) and its wholly owned subsidiaries, Minnesota Digital Universe, Inc.
(MDU), Multiband Subscriber Services, Inc. (MBSS), and Multiband USA, Inc.
(MBUSA).  In addition, effective March 1, 2008, the Company acquired a
51% interest in Multiband NC, Inc. (NC) (formerly Michigan Microtech, Inc.
(MMT)) and have also included NC’s results of operations and cash flow for the
seven months ended September 30, 2008 in the consolidated financial statements
for that period.
 In
addition, effective January 2, 2009, the Company purchased 80% of the issued and
outstanding shares of common stock of all of the DirecTECH Holding Co. (DTHC)
operating subsidiaries (DirecTECH) (an additional 29% of Multiband NC, Inc.
(NC) (formerly Michigan Microtech, Inc. (MMT)), 51% of which was previously
purchased effective March 1, 2008 (see Note 3) and 80% of Multiband NE, Inc.
(NE), Multiband SW, Inc. (SW), Multiband EC, Inc. (EC), Multiband MDU, Inc.
(MBMDU), Multiband DC, Inc. (DC) and Multiband Security, Inc. (Security) (see
Note 3)).  The noncontrolling interest in subsidiaries on the
unaudited condensed consolidated balance sheet (formerly Minority Interest) and
unaudited condensed consolidated statement of operations represents DTHC’s 20%
ownership of Multiband NE, Inc. (NE), Multiband SW, Inc. (SW), Multiband EC,
Inc. (EC), Multiband NC, Inc. (NC), Multiband MDU, Inc. (MBMDU), Multiband DC,
Inc. (DC) and Multiband Security, Inc. (Security).  The 2009
consolidated financial statements include the accounts of all wholly-owned
subsidiaries and the newly acquired companies (DirecTECH).  The
Company pushes down applicable overhead, interest expense and amortization
expense from the parent company (MBCorp) to its subsidiaries.  All
significant intercompany transactions and balances have been eliminated in
consolidation.
  Page
8
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 Revenue
      Recognition
 
 The
Company recognizes revenue in accordance with the Securities Exchange
Commission’s Staff Accounting Bulletin No. 104 “Revenue Recognition” (“SAB
104”), which requires that four basic criteria be met before revenue can be
recognized: (i) persuasive evidence of a customer arrangement exists; (ii) the
price is fixed or determinable; (iii) collectability is reasonably assured; and
(iv) product delivery has occurred or services have been
rendered.  The Company recognizes revenue as services are performed
and completed.
 
 The
Company earns HSP segment revenue as follows:
 
 ·
              installation
      and service of DirecTV video programming for residents of single family
      homes
 ·
              installation
      of home security systems and internet
services
 
 The
Company has a home services provider (HSP) agreement with DirecTV which allows
the Company to install and activate DirecTV video programming services for
residents of single family homes.  As a DirecTV HSP, the Company earns
revenue for installing and servicing DirecTV video customers pursuant to
predetermined rates set by DirecTV which may vary from time to
time.  Revenue is recognized upon completion of the delivery and
installation of equipment.  DirecTV reimburses the Company for
substantially all DirecTV equipment used for customer installation related to
the HSP segment.
 
 MDU
segment user charges are recognized as revenues in the period the related
services are provided.  Any amounts billed prior to services being
provided are reported as deferred service obligations and revenues.
 
 The
Company earns MDU segment revenue as follows:
 
 1.
              from
      voice, video and data communications products which are sold and
      installed
 2.
              direct
      billing of user charges to multiple dwelling units, through the activation
      of, enhancement of, and residual fees on video programming services
      provided to residents of multiple dwelling
units
 
 Revenue
generated from activation of video programming services is earned in the month
of activation.  According to Multiband's Master System Operator
agreement with DirecTV, in the event that a customer cancels within the first 12
months of service, DirecTV has the right to chargeback the Company for a portion
of the activation fees received.  The Company has estimated the
potential charge back of commissions received on activation fees during the past
12 months based on historical percentages of customer cancellations and has
included that amount as a reduction of revenue.  Residual income is
earned as services are provided by DirecTV through its system
operators.  As a master system operator for DirecTV, the Company earns
a fixed percentage based on net cash received by DirecTV for recurring monthly
services, a variable amount depending on the number of activations in a given
month, and a variable amount for coordinating improvements of systems used to
deliver enhanced programming services.  The Company’s master system
operator contract with DirecTV also permits the Company to earn revenues through
its control of other system operators who are unable to provide DirecTV video
programming services without the Company’s performance.
  Page
9
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 The
Company reports the aforementioned MDU voice, data, and video revenues on a
gross basis based on the following factors: the Company has the primary
obligation in the arrangement with its customers; the Company controls the
pricing of its services; the Company performs customer service for the
agreements; the Company approves customers; and the Company assumes the risk of
payment for services provided. We offer some products and services that are
provided by third party vendors.  We review the relationship between
us, the vendor and the end customer on an individual basis to assess whether
revenue should be reported on a gross or net basis.  As an example,
our resold satellite digital television revenue is reported on a net
basis.
 
 MDU
segment revenue generated by the support center to service third party
subscribers by providing billing and call center support services is recognized
in the period the related services are provided.
 
 Customers
contract for both the purchase and installation of voice and data networking
technology products and certain video technologies products.  Revenue
is recognized when the products are delivered and installed and the customer has
accepted and has the ability to fulfill the terms of the contract.
 
 The
Company’s policy is to present taxes imposed on revenue-producing transactions
on a net basis which means any sales tax charged is not part of the Company’s
revenues.
 
 Deferred Revenue
 
 The
Company invoices for certain installation upgrade projects upon order of project
equipment.  Revenue is deferred on these projects until the equipment
is installed.
 
 Goodwill and Other Intangible
Assets
 
 The
Company periodically evaluates goodwill and other intangible and long-lived
assets for potential impairment indicators.  These judgments regarding
the existence of impairment indicators are based on legal factors, market
conditions and operational performance of the business
segments.  Future events could cause the Company to conclude that
impairment indicators exist and that goodwill and other intangible and
long-lived assets are impaired. Any resulting impairment loss could have a
material adverse impact on our financial condition and results of
operations.  Goodwill was $35,489 and $1,095 at September 30, 2009 and
December 31, 2008, respectively, and is recorded as part of our MDU and HSP
segments.  The increase in goodwill during 2009 is due to the purchase
of DirecTECH (see Note 3).
 
 Goodwill
by business segment consists of the following:
  MBCorp.
                
                
                MDU
                
                
                HSP
                
                
                TotalBalance,
      December 31, 2008
                
                $
                -
                
                
                $
                50
                
                
                $
                1,045
                
                
                $
                1,095Acquisitions
                
                
                -
                
                
                
                312
                
                
                
                34,082
                
                
                
                34,394Balance,
      September 30, 2009
                
                $
                -
                
                
                $
                362
                
                
                $
                35,127
                
                
                $
                35,489
  Page
10
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 Components
of intangible assets are as follows:
 September 30, 2009
              
              
              December 31, 2008Gross Carrying
              
              
              Accumulated
              
              
              Gross Carrying
              
              
              AccumulatedAmount
              
              
              Amortization
              
              
              Amount
              
              
              AmortizationIntangible
      assets subject to amortizationRight
      of entry contracts
              
              $
              2,583
              
              
              $
              1,087
              
              
              $
              801
              
              
              $
              526Contracts
      with DirecTV
              
              
              36,902
              
              
              
              13,952
              
              
              
              11,502
              
              
              
              8,060Customer
      contracts
              
              
              102
              
              
              
              102
              
              
              
              102
              
              
              
              86Total
              
              
              39,587
              
              
              
              15,141
              
              
              
              12,405
              
              
              
              8,672Impairment
      of intangibles
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              65Total
      including impairment
              
              $
              39,587
              
              
              $
              15,141
              
              
              $
              12,405
              
              
              $
              8,737
 
 Amortization
of intangible assets was $1,759 and $669 for the three months ended September
30, 2009 and 2008, respectively.  For the nine months ended September
30, 2009 and 2008, amortization of intangible assets was $6,469 and $1,851,
respectively.  Estimated amortization expense of intangible assets for
the remainder of the year ending December 31, 2009 and for the years ending
December 31, 2010, 2011, 2012, 2013, 2014 and thereafter is $1,778, $5,726,
$5,104, $5,058, $4,961, $1,714 and $92, respectively.  Right of entry
contracts contain $13 of contracts that have not been placed in service,
therefore no amortization expense has been recorded.  The weighted
average remaining life of the intangibles is 4.42 years, with right of entry
contracts average life of 4.38 years and contracts with DirecTV of 4.42 years as
of September 30, 2009.
 
 Debt Issuance Costs
 
 The
Company has incurred $145 of debt issuance costs during the nine months ended
September 30, 2009.  The Company amortizes the debt issuance costs over 43
months and includes these costs with other assets on the unaudited condensed
consolidated balance sheet.  Amortization of debt issuance costs of $10 and
$15 for the three and nine months ended September 30, 2009, respectively, is
included in interest expense.
 
 Stock-Based Compensation
 
 The
Company measures and recognizes compensation expense for all stock-based
payments at fair value.  The financial statements for the nine months
ended September 30, 2009 and 2008 recognize compensation cost for the portion of
outstanding awards which have vested during the year.  The Company
recognizes stock-based compensation costs on a straight-line basis over the
requisite service period of the award, which is generally the option vesting
term.  For the three months ended September 30, 2009 and 2008 total
share-based compensation expense of $19 ($.00 per share) and $209 ($.02 per
share), respectively, was included in selling, general and administrative
expenses.  For the nine months ended September 30, 2009 and 2008,
total share-based compensation expense of $133 ($.01 per share) and $153 ($.02
per share) was included in selling, general and administrative expenses,
respectively.  As of September 30, 2009, there was $183 of total
unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the Plan.  That cost is expected to be
recognized over a weighted-average period of 2.98 years.  This is an
estimate based on options currently outstanding and therefore this projected
expense could be more in the future.
 
 In
determining the compensation cost of the options granted during the three and
nine months ended September 30, 2009 and 2008, the fair value of each option
grant has been estimated on the date of grant using the Black-Scholes option
pricing model and the weighted average assumptions used in these calculations
are summarized as follows:
 
 Three
      months ended
              
              
              Nine
      months endedSeptember 30, 2009
              
              
              September 30, 2008
              
              
              September 30, 2009
              
              
              September 30, 2008Risk-free
      interest rate
              
              
              *
              
              
              
              3.15%
              
              
              
              1.43%
              
              
              
              3.15%Expected
      life of options granted
              
              
              *
              
              
              6.5
      Years
              
              
              5.0
      Years
              
              
              6.5
      YearsExpected
      volatility range
              
              
              *
              
              
              
              95%
              
              
              
              95%
              
              
              
              94%Expected
      dividend yield
              
              
              *
              
              
              
              0%
              
              
              
              0%
              
              
              
              0%
 
 * - no
options were issued this period.
  Page
11
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 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.  An option's expected term is the estimated period
between the grant date and the exercise date of the option.  As the
expected-term period increases, the fair value of the option and the
compensation cost will also increase.  The expected-term assumption is
generally calculated using historical stock option exercise data.  The
Company does not have historical exercise data to develop such an
assumption.  In cases where companies do not have historical data and
where the options meet certain criteria, the use of a simplified expected-term
calculation is allowed.  Accordingly, the Company calculated the
expected terms using the simplified method.
 
 In
January 2009, the Company issued 80 shares of stock options with a Black Scholes
valuation of $72 to four directors of the Company.  These seven year
stock options were immediately vested and were issued as long-term incentive
compensation pursuant to the Company’s 2000 Non-employee Directors Stock
Compensation Plan.
 
 In
January 2009, the Company issued 214 shares of stock options with a Black
Scholes valuation of $193 to two officers of the Company.  These seven
year stock options vest over four years and were issued as long-term incentive
compensation pursuant to the Company’s 1999 Stock Compensation
Plan.
 
 Net Income (Loss) per Common
Share
 
 Basic net
income (loss) per common share is computed by dividing the income (loss)
attributable to common stockholders by the weighted average number of common
shares outstanding for the reporting period.  Diluted income (loss)
per common share is computed by dividing income (loss) attributable to common
stockholders by the sum of the weighted average number of common shares
outstanding plus all additional common stock that would have been outstanding if
potentially dilutive common shares related to common share equivalents (stock
options, stock warrants, convertible preferred shares, and issued but not
outstanding restricted stock) had been issued.  All options, warrants,
convertible preferred shares, and restricted stock outstanding during the three
months September 30, 2009 and the nine months ended September 30, 2009 and 2008
were excluded from the calculation of diluted loss per share as their effects
were anti-dilutive due to the Company’s net losses for the periods. The three
months ended September 30, 2008 accounted for dilutive options, warrants,
preferred shares, and restricted stock.  For the three months ended
September 30, 2008, there were 2,138,244 shares of anti-dilutive shares related
to options and warrants that were not included in the denominator for diluted
earnings per share.
 
 The
following table sets forth the computation of basic and diluted earnings per
share:
 
 Three
      months ended
              
              
              Nine
      months endedSeptember 30, 2009
              
              
              September 30, 2008
              
              
              September 30, 2009
              
              
              September 30, 2008Numerator:
      Income (loss) attributable to common stockholders
              
              $
              (529
              )
              
              $
              847
              
              
              $
              (10,377
              )
              
              $
              (3,946
              )Denominator:Weighted-average
      shares outstanding
              
              
              9,659
              
              
              
              9,562
              
              
              
              9,653
              
              
              
              9,184Effect
      of dilutive securities
              
              
              
              
              
              
              235
              
              
              
              -
              
              
              
              -Denominator
      for diluted earnings per share
              
              
              9,659
              
              
              
              9,797
              
              
              
              9,653
              
              
              
              9,184Basic
      earnings (loss) per share
              
              $
              (0.05
              )
              
              $
              0.09
              
              
              $
              (1.08
              )
              
              $
              (0.43
              )Diluted
      earnings (loss) per share
              
              $
              (0.05
              )
              
              $
              0.09
              
              
              $
              (1.08
              )
              
              $
              (0.43
              )
  Page
12
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 Segment Reporting
 
 A
business segment is a distinguishable component of an enterprise that is engaged
in providing an individual product or service or a group of related products or
services and that is subject to risks and returns that are different from those
of other business segments. Management believes that the Company
has  two operating segments, HSP (Home Service Provider), where the
Company receives net cash payments for the installation and service of DirecTV
video programming for residents of single family homes; and  MDU,
where the Company acts as a master service operator for DirecTV, receives net
cash payments for managing video subscribers through its network of system
operators who are billed by DirecTV and also directly bills voice, data and
video subscribers as a principal.  The previously filed Form 10-K
business segments disclosed the MCS segment which is now reported within the MDU
segment.
 
 Recent Accounting
Pronouncements
  Effective
September 15, 2009, the Company adopted a new accounting standard that
establishes the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) as the exclusive reference to be applied in the
preparation of financial statements in conformity with GAAP. Accordingly, all
references to legacy guidance issued under previously recognized authoritative
literature have been removed in the third quarter of fiscal 2009. As the ASC was
not intended to change or alter existing GAAP, it did not have any impact on the
Company’s results of consolidated operations or financial position.
 
 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 September 30, 2009 and December
31, 2008.
 
 Reclassifications
 
 Certain
accounts in the prior quarter’s unaudited condensed consolidated financial
statements have been reclassified for comparative purposes to conform to the
current period presentation.  The reclass was a change in presentation
of minority interest related to noncontrolling interest in stockholders’ equity
(see Note 4).  Also, the MCS segment was combined with the MDU segment
in 2009.  These reclassifications had no effect on net income
(loss).
 
 NOTE
      3 – Business Acquisitions
 
 Effective
January 2, 2009, the Company purchased 80% of the issued and outstanding shares
of common stock of all of the DTHC operating subsidiaries (DirecTECH) (an
additional 29% of NC (formerly MMT), 51% of which was previously purchased
effective March 1, 2008 and 80% of NE, SW, EC, MBMDU, DC and
Security.  DTHC, a fulfillment agent for a national satellite
television company, DirecTV, specializes in the providing of satellite TV to
single family homes.  The purpose of this acquisition was to increase
the Company’s business of installing video services in single family homes (HSP
segment).  The purchase price totaled $40,400 plus other consideration
valued at $1,608 as of the acquisition date.  The $40,400 consists of
three parts; 1) $500 in cash which was paid at the initial closing date of
January 2, 2009 and in escrow as a deposit at December 31, 2008, 2) a
non-interest bearing note of $500 payable without interest as follows: $250
on demand on or after April 1, 2009 and $250 after the Company’s retention of
senior financing, as defined, no later than August 31, 2009 and 3) a
promissory note in the amount of $39,400, due January 1, 2013, bearing interest
at an annual rate of 8.25% (subject to adjustment in the event of a default),
plus the remaining $800 note payable from the purchase of 51% of
NC.  Subsequent to the closing, the Company and DTHC mutually agreed
to offset the $40,200 promissory note by the amount of $5,844, for an offsetting
receivable on Multiband’s books as of December 31, 2008.  This reduced
the amount of this promissory note to $34,356.
  Page
13
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 As part
of the agreement, Multiband has until December 31, 2009 to purchase the
remaining 20% of the issued and outstanding shares of common stock of all
DirecTECH.  The consideration for the 20% purchase will be $10,000 of
Multiband Series J Preferred Stock, whose issuance will require Multiband
shareholder approval. The closing on the remaining 20% stock transaction is
anticipated to occur on or before December 31, 2009.
 
 The
Company evaluates the purchase price allocation based on the fair value of the
assets acquired and liabilities assumed.  The Company recognizes
pre-acquisition contingencies at fair value, if fair value can be reasonably
determined.  If fair value cannot be reasonably determined, the
Company records the contingencies at its best estimate.
 
 Because
the Company had previously gained control of NC with its purchase of 51% of NC
in March 2008, Multiband recognized the acquisition of additional 29% ownership
interest in NC on January 2, 2009 as an equity transaction.  The
purchase price of $1,660 increased the accumulated deficit and the transfer of
$2,054 of noncontrolling interest to controlling interest decreased the
accumulated deficit.  No increase to goodwill or intangibles was
recorded as part of this acquisition.
 
 As it
relates to the purchase of the remainder of the DTHC operating subsidiaries, the
Company recognized the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with certain exceptions.  The
Company recognized goodwill as of the acquisition date, measured using an
income, market or cost approach, which in most types of business combinations
will result in measuring goodwill as the excess of the fair value of
consideration transferred plus the fair value of any noncontrolling interest in
the acquiree at the acquisition date over the fair value of the identifiable net
assets acquired or assumed.  A qualitative and quantitative analysis
of factors that make up recognized goodwill, such as DirecTECH’s assets,
liabilities and other contingent considerations, such as leases and other
off-balance sheet commitments, follows.  This analysis is preliminary
while the Company is still in its one year measurement period.
 
 A summary
of the transaction is as follows:
 Cash
      paid
              
              $
              500Short-term
      debt
              
              
              500Promissory
      note
              
              
              39,400Total
      consideration
              
              
              40,400Less
      consideration for 29% of NC (recorded separately as an equity
      transaction)
              
              
              (1,660
              )Consideration
      for 80% of outstanding stock of EC, NE, SW, MBMDU, DC, and
      Security
              
              $
              38,740Assets
              
              $
              31,348Intangible
      assets
              
              
              27,634Goodwill
              
              
              34,193Liabilities
              
              
              (48,129
              )Noncontrolling
      interest
              
              
              (6,306
              )$
              38,740
 
 The fair
value of the intangible assets of $27,634 and noncontrolling interest of $6,306
was obtained by management, using a fair value measurement which included
applying discount rates of 15%, a terminal value of $28,200, as well as a
noncontrolling discount of 30%.
 
 As part
of the acquisition, the Company preliminarily assessed a $5,040 contingent legal
accrual related to an existing litigation.  In connection with the
purchase of the operating subsidiaries of DTHC, the Company has the right to
offset 50% of certain claims against the note to DTHC once those claims are
settled and paid. The Company has recorded a receivable of $2,290 which
represents an estimate of the amount that can be recovered from DTHC based on
the preliminary legal estimate. The receivable is classified as long-term since
management intends to offset the receivable with any balance remaining on the
note payable to DTHC.  At present, the litigation is proceeding
through a discovery stage.  While the parties have made some
preliminary attempts to settle the matter there is no guarantee that the matter
can be settled out of court.  As a result there is no current timeline
under which the amount of the aforementioned accrual can be
finalized.
  Page
14
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 During
the three months ended September 30, 2009, the Company increased this contingent
legal accrual $1,500 which brings the total accrual to $6,540.  This
contingent accrual was increased due to new information obtained during the
quarter about facts and circumstances that existed as of the acquisition date
related tocertain
legal matters. This increased accrual produced a purchase price adjustment to
goodwill and receivables.  The Company intends to adjust the purchase
price allocation should more information become available as to the fair value
of the legal contingency during the measurement period.
 
 The
Company acquired $25,400 of intangible assets relating to contracts with DirecTV
as well as right of entry contracts of $2,234.  At the time of the
acquisition, the weighted average remaining life of the intangibles acquired was
2.57 years based on terms without renewals, with right of entry contracts
average life of 5.44 years and contracts with DirecTV of 2.33
years.  The weighted average remaining life of the intangibles
acquired was 3.49 years assuming one year term renewals, with right of entry
contracts average life of 5.44 years and contracts with DirecTV of 3.33
years.  In May 2009, the Company signed a new contract with DirecTV
(see Note 10).  The Company capitalizes material costs incurred to
renew or extend terms of intangible assets.  No costs have been
incurred to renew or extend the terms of intangible assets during the three and
nine months ended September 30, 2009.  Goodwill and intangible assets
acquired are not expected to be deductible for tax purposes.
 
 The
Company’s report on Form 10-K for the year ended December 31, 2008 contained a
preliminary estimated fair value of all the aforementioned assets and
liabilities related to the purchase.  At the time of the preliminary
estimate DirecTech had not completed its audit for the year ended December 31,
2008.  Nor at this time had the Company completed its procedures to
value and allocate the final purchase price to intangible and tangible assets
acquired in the acquisition.  The Company’s subsequent receipt of
final balance sheet information to the aforementioned Form 10-K filing,
necessitated a revision of the DirecTech purchase price
valuation.  This revision is reflected in this
footnote.  The revision consists of reallocations of goodwill and
other intangible assets related to the purchase.  More specifically,
goodwill assets were increased by $14,400 and intangible assets were decreased
by $9,066 from the original estimate, due to the additional purchase of 29% of
NC being treated as an equity transaction and therefore no additional assets
(including goodwill) or liabilities were allocated for NC in the purchase price
(see Note 4).  At June 30, 2009, the Company revised the fair value of
the contingent consideration from $1,608 to zero.  The Company
determined that the significant level 3 inputs previously used to determine the
contingent consideration were incomplete.  After further review, the
Company determined that it was appropriate to define this change as a
measurement period adjustment to the purchase price.  At September 30,
2009, the Company adjusted the contingencies estimated as a result of improved
information regarding circumstances that existed as of the acquisition date
which increased the liability by $1,090 and goodwill and receivables by
$545.
 
 Since the
transaction was effective January 2, 2009, there has been no change in the
September 30, 2009 balance sheet or income statement for the three and nine
months ended September 30, 2009.  The unaudited pro forma information
for the three and nine months ended September 30, 2008 does not purport to
represent what the Company’s results of operations would actually have been if
such transactions in fact had occurred at such date or to project the Company’s
results of future operations.
  Page
15
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 2008Consolidated
                as
      reported
              
              
              2008
                Pro
      FormaThree
      months ended September 30, 2008Revenues
              
              $
              12,341
              
              
              $
              60,018Income(loss)  from
      operations
              
              
              181
              
              
              
              1,566Net
      income attributable to Multiband Corp and subsidiaries
              
              
              911
              
              
              
              (45
              )Preferred
      stock dividends
              
              
              64
              
              
              
              64Income
      attributable to common shareholders
              
              $
              847
              
              
              $
              (109
              )Income
      (loss) attributable to common shareholders per common share –
      basic
              
              $
              0.09
              
              
              $
              (0.01
              )Income
      (loss) attributable to common shareholders per common share –
      diluted
              
              $
              0.09
              
              
              $
              (0.01
              )Weighted
      average shares outstanding – basic
              
              
              9,562
              
              
              
              9,562Weighted
      average shares outstanding – diluted
              
              9,797
              
              
              9,562Nine
      months ended September 30, 2008Revenues
              
              $
              28,861
              
              
              $
              171,759Income
      from operations
              
              
              389
              
              
              
              (3,303
              )Net
      income attributable to Multiband Corp and subsidiaries
              
              
              103
              
              
              
              (6,338
              )Preferred
      stock dividends
              
              
              4,049
              
              
              
              4,049Loss
      attributable to common shareholders
              
              $
              (3,946
              )
              
              $
              (10,387
              )Loss
      attributable to common shareholders per common share –
      basic  and diluted
              
              $
              (0.43
              )
              
              $
              (1.11
              )Weighted
      average shares outstanding – basic and diluted
              
              
              9,184
              
              
              
              9,353
  NOTE
      4 – Noncontrolling Interest
  September 30, 2009
              
              
              December 31, 2008Equity
      of noncontrolling interest (previously minority interest) in
      subsidiaries:Noncontrolling
      interest in subsidiaries, beginning balance
              
              $
              3,471
              
              
              $
              -Purchase
      of 51% of NC
              
              
              -
              
              
              
              2,819Purchase
      of 80% of NE, SC, EC, MBMDU, DC & Security
              
              
              6,306
              
              
              
              -Purchase
      of 29% NC from noncontrolling interest
              
              
              (2,054
              )
              
              
              -Net
      income(loss) attributable to the noncontrolling interest in
      subsidiaries
              
              
              (2,044
              )
              
              
              652Noncontrolling
      interest (previously minority interest) in subsidiaries, ending
      balance
              
              $
              5,679
              
              
              $
              3,471
  Page
16
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 NOTE
      5 – Inventories
  September 30, 2009
              
              
              December 31, 2008Inventories
      consisted of the following:DirecTV
      – serialized
              
              $
              3,956
              
              
              $
              813DirecTV
      – nonserialized
              
              
              4,309
              
              
              
              670Other
              
              
              2,122
              
              
              
              420Total
              
              $
              10,387
              
              
              $
              1,903
 
 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.  The large increase in inventory is due to the
purchase of DirecTECH (see Note 3).
 
 NOTE
      6 – Securities Available for Sale
 
 As of
December 31, 2007, Multiband had the voting rights for and was holding in trust
58,161 common shares of URON for various contingent rights holders whose rights
were tied to potential future warrant exercises or preferred stock
conversions.  The Company values these shares at fair
value.  Fair value is 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.  In determining fair value, the
Company values and records all investment securities transactions on a trade
date basis.  Securities listed on a national or regional securities
exchange are valued at their last reported sales price on the last business day
of the period.  Securities which are not traded on a major exchange or
for which no sale was reported on that date are valued at the average of their
last quoted "bid" price and "asked" price.  Short positions are valued
at the last quoted "asked" price.  Inputs used in the valuation
methods can be either readily observable, market corroborated, or generally
unobservable inputs.  Whenever possible the Company attempts to
utilize valuation methods that maximize the use of observable inputs and
minimizes the use of unobservable inputs.  The Company’s investments
in available-for-sale securities was determined based on quoted market prices in
active markets for identical assets and liabilities (level 1).  As of
February 4, 2008, certain aforementioned contingent rights were not exercised by
the various holders; therefore Multiband owns 37,994 shares of
URON.  As a result, Multiband recorded the fair value of URON shares
based on quoted market prices as an unrealized gain.  URON
subsequently changed their name to Western Capital Resources, Inc.  At
September 30, 2009 and December 31, 2008 the balance in securities available for
sale was $9 and $46, respectively.
 
 Securities
available for sale consisted of the following:
 September 30, 2009
              
              
              December 31, 2008Beginning
      balance
              
              $
              46
              
              
              $
              -Initial
      investment
              
              
              -
              
              
              
              122Current
      period unrealized loss
              
              
              (37
              )
              
              
              (76
              )Ending
      balance
              
              $
              9
              
              
              $
              46
 
 
 Fair
value of securities available for sale is as follows:
 Cost
              
              
              Unrealized
                Gain(Loss)
              
              
              Fair
      Value at
                Period EndSeptember
      30, 2009
              
              $
              -
              
              
              $
              9
              
              
              $
              9December
      31, 2008
              
              $
              -
              
              
              $
              46
              
              
              $
              46
  Page
17
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 NOTE
      7 – Notes Payable
 
 On May
26, 2009, the Company paid off its loan from Convergent Capital Partners I,
L.P., in the amount of $1,400. On May 27, 2009, the Company entered into a loan
agreement with Convergent Capital Partners, II, L.P. for $5,000. This loan
carries an interest rate of fourteen percent and requires monthly interest only
payments until December 2012 when the principal is due and payable in
full.  In connection with this loan, the Company paid a closing fee to
the lender of $100.  The Company also issued the lender 212,574 fully
vested five year warrants with an exercise price of $3.  The gross
proceeds were allocated between the note and the warrants based on the relative
fair value at the time of issuance.  The warrants were valued at $372
using the Black Scholes pricing model, recorded as original issue discount, and
amortized as interest expense over the term of the note.  The Company
expensed $27 and $35 during the three and nine months ended September 30, 2009,
respectively.  In the event the Company wishes to prepay the loan a
prepayment penalty will be assessed.  The loan gives the lender a
first security position in the Company’s assets.  The loan contains
certain covenants with regards to the Company’s quarterly earnings before
interest, taxes, depreciation and amortization.  The Company is in
compliance with this covenant at September 30, 2009.
 
 NOTE
      8 – Accrued Liabilities
 
 Accrued
liabilities consisted of the following:
 September 30, 2009
              
              
              December 31, 2008Payroll
      and related taxes
              
              $
              7,851
              
              
              $
              1,354Accrued
      legal settlements and contingencies
              
              
              6,420
              
              
              
              960Accrued
      preferred stock dividends
              
              
              614
              
              
              
              622Accrued
      contract labor
              
              
              3,250
              
              
              
              -Accrued
      income taxes
              
              
              445
              
              
              
              499Other
              
              
              5,847
              
              
              
              1,000Total
      Accrued Liabilities
              
              $
              24,427
              
              
              $
              4,435
  Page
18
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 NOTE
      9 - Business Segments
 
 The
Company has three reporting segments.  Multiband Corp. segment
(MBCorp) includes corporate expenses (e.g. corporate administrative costs),
interest income, interest expense, depreciation and amortization.  The
MDU segment (MDU, MBSS, MBMDU and MBUSA) represents results as the master
service operator for DirecTV and provides voice, data and video services to
residential multi-dwelling units as the principal to subscribers.  The
HSP segment (NE, SW, EC, NC, DC and Security) provides the installation and
service of DirecTV video programming, internet and home security systems for
residents of single family homes.  Segment disclosures by entity are
provided to the extent practicable under the Company's accounting
system.
 
 Segment
disclosures are as follows:
 MBCorp
                
                
                MDU
                
                
                HSP
                
                
                TotalThree
      months ended September 30, 2009:Revenues
                
                $
                -
                
                
                $
                6,595
                
                
                $
                64,826
                
                
                $
                71,421Income
      (loss) from operations
                
                
                (976
                )
                
                
                36
                
                
                
                1,528
                
                
                
                588Identifiable
      assets
                
                
                2,744
                
                
                
                12,868
                
                
                
                92,288
                
                
                
                107,900Depreciation
      and amortization
                
                
                99
                
                
                
                1,022
                
                
                
                1,293
                
                
                
                2,414Capital
      expenditures
                
                
                69
                
                
                
                636
                
                
                
                35
                
                
                
                740
  MBCorp
                
                
                MDU
                
                
                HSP
                
                
                TotalThree
      months ended September 30, 2008:Revenues
                
                $
                -
                
                
                $
                4,948
                
                
                $
                7,393
                
                
                $
                12,341Income
      (loss) from operations
                
                
                (547
                )
                
                
                164
                
                
                
                564
                
                
                
                181Identifiable
      assets
                
                
                4,675
                
                
                
                6,590
                
                
                
                12,877
                
                
                
                24,142Depreciation
      and amortization
                
                
                277
                
                
                
                560
                
                
                
                9
                
                
                
                846Capital
      expenditures
                
                
                21
                
                
                
                14
                
                
                
                11
                
                
                
                46
  MBCorp
                
                
                MDU
                
                
                HSP
                
                
                TotalNine
      months ended September 30, 2009:Revenues
                
                $
                -
                
                
                $
                18,625
                
                
                $
                182,350
                
                
                $
                200,975Loss
      from operations
                
                
                (2,997
                )
                
                
                (346
                )
                
                
                (5,962
                )
                
                
                (9,305
                )Identifiable
      assets
                
                
                2,744
                
                
                
                12,868
                
                
                
                92,288
                
                
                
                107,900Depreciation
      and amortization
                
                
                278
                
                
                
                3,049
                
                
                
                5,075
                
                
                
                8,402Capital
      expenditures
                
                
                215
                
                
                
                1,896
                
                
                
                55
                
                
                
                2,166
  MBCorp
                
                
                MDU
                
                
                HSP
                
                
                TotalNine
      months ended September 30, 2008:Revenues
                
                $
                -
                
                
                $
                12,884
                
                
                $
                15,977
                
                
                $
                28,861Income
      (loss) from operations
                
                
                (2,290
                )
                
                
                826
                
                
                
                1,853
                
                
                
                389Identifiable
      assets
                
                
                4,675
                
                
                
                6,590
                
                
                
                12,877
                
                
                
                24,142Depreciation
      and amortization
                
                
                693
                
                
                
                1,750
                
                
                
                20
                
                
                
                2,463Capital
      expenditures
                
                
                43
                
                
                
                58
                
                
                
                11
                
                
                
                112
 Page
19
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 NOTE
      10 – Commitments and Contingencies
 
 Legal
proceedings
 
 The
Company is subject to claims, regulatory processes and lawsuits that arise in
the ordinary course of business.  The Company accrues for such matters
when a loss is considered probable and the amount of such loss, or a range of
loss, can be reasonably estimated.  The Company has recorded $6,420 of
accrued liabilities as of September 30, 2009 for claims and potential
settlements associated with existing litigation.  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).  At present, the Company is vigorously defending those
claims.
 
 In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset 50% of certain claims, currently estimated at $5,975,
against the note to DTHC once those claims are settled and paid.  The
Company has recorded a receivable of $3,169 as of September 30, 2009 which
represents an estimate of the amount that potentially be recovered from DTHC
including legal fees.  The Company’s portion of defense costs are
expensed as incurred.  Additionally, the Company is subject to pending
claims, regulatory processes and lawsuits for which losses are not probable and
amounts cannot be reasonably estimated.  Those losses could ultimately
be material to the Company’s financial position, results of operations and cash
flows.
 
 Significant
relationship
 
 The
Company is a master agent for DirecTV pursuant to a system operator agreement
with DirecTV dated August 2005.  Under that agreement the Company is
required to ensure that its system operators meet minimum technical DirecTV
system standards so that the system operator subscribers may properly receive
DirecTV programming services.  The initial term of the agreement is
for three years and provides for two additional two-year renewals if the Company
has a minimum number of paying video subscribers in its system operator
network.  The Company has met the requirements and has entered into
the first two year automatic renewal period.
 
 The
Company also has a separate home service provider agreement with DirecTV ending
May 1, 2013.  The term of this agreement with DirecTV will
automatically renew as of May 1, 2013 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.  Termination
of the Company's DirecTV agreements would have a material adverse impact on the
Company's on-going operations.  Revenues generated from DirecTV
amounted to 99.5% and 99.3% of total revenue for the three and nine months ended
September 30, 2009, respectively.  Revenues generated from DirecTV for
the three and nine months ended September 30, 2008 were 93.5% and 91.4% of total
revenue, respectively.  Accounts receivable from this customer was
83.2% and 52.6% of total accounts receivable as of September 30, 2009 and
December 31, 2008, respectively.  The Company purchases a substantial
portion of its inventory from DirecTV.  DirecTV is the only supplier
of the major components (i.e., dishes and receivers) used in HSP segment
installations.  The total accounts payable to DirecTV, related to
inventory being supplied, was $17,606 and $3,034 at September 30, 2009 and
December 31, 2008, respectively.
 
 Gain
on extinguishment of debt
 
 In
January 2008, the Company negotiated payment of the remaining balance of the
note payable to Vern Swedin by issuing 7,500 shares of common stock at $2.60 per
share in settlement of this debt resulting in a gain on extinguishment of debt
of $30.  This amount is included in other income on the consolidated
statement of operations for the nine months ended September 30,
2008.
  Page
20
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 Line
of credit
 
 The
Company has a line of credit agreement with a bank that provides borrowings up
to $50, due on demand.  Amounts outstanding under this line of credit
carry an interest rate defined as the prime rate plus 3.0% (6.25% as of
September 30, 2009). As of September 30, 2009 and December 31, 2008, the amount
outstanding was $50 and $0, respectively. This line of credit is guaranteed by a
shareholder of the Company.
 
 Current
portion of long-term debt
 
 At
December 31, 2008, the Company was in compliance with all debt covenants of its
lender, Convergent Capital.  This loan was paid off May 26, 2009 (see
Note 7).  The Company is also in compliance with the new loan has debt
covenants for the three months ended September 30, 2009 (see Note
7).
 
 Operating
leases – vehicles
 
 The
Company leases substantially all of its fleet vehicles under operating leases
from one lessor.  Each lease commences upon the in-service date of the
vehicle and requires scheduled lease payments to be paid monthly for one
year.  After one year, the Company has the option to renew the open
ended lease for one year renewal periods or surrender the leased vehicle to the
lessor to be sold.  If the net proceeds of such sale exceed the
vehicle’s then depreciated value, the lessee receives the benefit of such
excess. If there is a deficiency upon such sale, then lessee is required to pay
the deficiency as additional rent to lessor.  The Company has entered
this agreement jointly and severally with various of its
subsidiaries.  For the three months ended September 30, 2009 the
Company recognized a loss on the sale of vehicles of $65 and a gain of $181 for
the three months ended September 30, 2008.  For the nine months ended
September 30, 2009 the Company recognized a loss on the sale of vehicles of $137
and a gain of $179 for the seven months ended September 30, 2008.  For
the three months ended September 30, 2009 and 2008 the Company’s operating lease
expense under the lease totaled approximately $1,813 and $381,
respectively.  For the nine months ended September 30, 2009 and seven
months ended September 30, 2008, the Company’s operating lease expense under the
lease totaled approximately $5,550 and $748, respectively.  In
addition, the Company has a security deposit with the lessor in the amount of
approximately $1,701 and $257 which is included in other assets in the
accompanying balance sheet as of September 30, 2009 and December 31, 2008,
respectively.
 
 Guaranty
 
 On March
1, 2006, Corporate Technologies, LLC (CTLLC), a subsidiary of North Central
Equity, LLC, the purchaser of the MBS business segment, signed a lease with
Lexstar Tower I Limited Partnership whereby CTLLC assumed the lease obligation
for substantially all of the first floor space the Company is renting in Fargo,
North Dakota for the period beginning March 1, 2006 to February 28, 2011.
Pursuant to the aforementioned lease, the Company entered into a guaranty
whereby the Company, in the event of a default or early termination of the lease
by CTLLC, is obligated to perform CTLLC’s lease obligation during months 43-60
of the lease.  This guaranty has no effect on the Company’s
consolidated financial statements for the nine months ended September 30, 2009
and 2008. However, should Multiband eventually have to perform on the guaranty
in the future, it could be liable for up to $349 in rent payments plus any
associated charges such as property taxes and common area
maintenance.  The Company has determined that it is not required to
record any obligations related to this guaranty.
  Page
21
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 NOTE
      11 – Income Taxes
 
 Due to
the Company’s purchase of 80% of the issued and outstanding shares of common
stock of all of the DTHC operating subsidiaries (DirecTECH) (an additional
29% of Multiband NC, Inc. (NC) (formerly Michigan Microtech, Inc. (MMT)), 51% of
which was previously purchased effective March 1, 2008 and 80% of Multiband NE,
Inc. (NE), Multiband SW, Inc. (SW), Multiband EC, Inc. (EC), Multiband MDU, Inc.
(MBMDU), Multiband DC, Inc. (DC) and Multiband Security, Inc. (Security)
effective January 2, 2009 the Company will file a 2009 consolidated tax return
which includes all of the newly acquired subsidiaries.  Therefore, the
Company may be able to utilize the tax loss carryforwards of Multiband
Corporation if there is taxable income, subject to known limitations of the use
of the tax loss carryforwards.  For the three months ended September
30, 2009 and 2008, the Company has recorded income tax expense of $372 and $286,
respectively, related to state taxes.  For the nine months ended
September 30, 2009 and 2008, the Company recorded income tax expense related to
state taxes of $574 and $749, respectively.
 
 The
Company assesses the uncertainty in the income taxes recognized in its financial
statements caused by the noncomparability in reporting tax assets and
liabilities by; (a) a consistent recognition threshold and (b) a measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and provides related
guidance on derecognition, classification, interest and penalties, accounting
interim periods, disclosure and transition.  To the extent interest
and penalties would be assessed by taxing authorities on any underpayment of
income taxes, such amounts would be accrued and classified as a component of
income tax expenses on the consolidated statement of operations  The
Company’s federal and state tax returns are potentially open to examinations for
years 2006-2008.  The Company has no significant unrecognized tax
benefits as of September 30, 2009 that would reasonably be expected to affect
our effective tax rate during the next twelve months.
 
 NOTE
      12 – Related Party Transactions
 
 On
September 30, 2009, the Company issued 50,000 shares of preferred series E stock
for $500 cash to director Eugene Harris.
  On
September 1, 2009, the Company entered into an unsecured short term promissory
note in the amount of $800 with J. Bas Mattingly, Vice President of Business
Development of Multiband.  The note carries an interest rate of 4% per
annum due.  Principal and interest is due and payable December 31,
2009.
  On May
26, 2009, the Company entered into a separate short-term loan with Mr. Bennett
in the amount of $1,400.  This loan was paid in full on May 28,
2009.  The term of the loan was approved by the disinterested members
of the Company’s audit committee.
 
 On April
15, 2009, the Company entered into an unsecured short term promissory note in
the amount of $1,500 with director Frank Bennett. The note carried an interest
rate of 6% with a 1% origination fee totaling $15, and was due May 15,
2009.  On May 4, 2009, the note was extended until June 15,
2009.  On June 15, 2009, the note was extended until June 14,
2011.  The terms of the loans were approved by the disinterested
members of the Company’s audit committee.  On September 30, 2009, this
note was effectively paid off with the issuance of 150,000 shares of preferred
series E stock for $1,500 to Frank Bennett.
 
 On
January 2, 2009, the Company entered into a promissory note in the amount of
$40,200 with DTHC, due January 1, 2013, bearing interest at an annual rate of
8.25% (subject to adjustment in the event of a default).  The note was
subsequently adjusted by $5,844 for an offsetting receivable which was on
Multiband’s books as of December 31, 2008.  This reduced the amount of
this promissory note to $34,356.  The Company has the right to offset
50% of certain claims against the note to DTHC once those claims are settled and
paid.  As of September 30, 2009, the Company has offset $641 of its
claims which brings the remaining balance of the note to $33,715.
 Proceeds
for the acquisition of US Install Inc. by the Company completed in February,
2008 were obtained via an unsecured promissory note in the amount of $100
between Multiband and Bas Mattingly Master, LLC, a trust controlled by J. Bas
Mattingly, chairman of DTHC, which is a 20% owner of DirecTECH.  The
note carries an interest rate of 7% per annum and is expected to be extended
through April 1, 2010.
 
 The
Company has a line of credit agreement with a bank that provides borrowings up
to $50 (see Note 10).  This line of credit is guaranteed by J. Bas
Mattingly, chairman of DTHC.
  Page
22
 MULTIBAND
CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 (in
thousands, except for share amounts)
 NC leases
warehouse space from two individuals that have ownership via related trusts in
DTHC.  DTHC owns 20% of DirecTECH as a noncontrolling interest
shareholder (see Note 3).  Lease payments amount to $9 per month plus
expenses, expiring in December 2010.
 
 Multiband
and its subsidiaries lease principal offices located at 2000 44th Street
SW, Fargo, ND 58013. The Fargo base rate is $14 per month.  The Fargo
property is owned in part by David Ekman, Chief Information Officer, of the
Company.
 
 Jim
Mandel, CEO of Multiband, loaned DTHC $100 in a short-term subordinated note
paying simple interest monthly at 10% and is due December 2012.
 
 In 2008,
Multiband and DTHC performed certain management and information systems
functions for one another pursuant to management consulting and employee leasing
agreements.  These agreements terminated concurrent with Multiband’s
purchase of the former DTHC operating entities (Note 3).  During the
three and nine months ended September 30, 2008, the Company has reduced selling,
general and administrative expenses $330 and $960 as a reimbursement of direct
expenses in relation to these management consulting agreements,
respectively.
 
 Prior to
the purchase of DirecTECH on January 2, 2009, Multiband provided support center
services to a then DirecTECH MDU (DTMDU), subsidiary of DTHC, currently
Multiband MDU, Inc. (MBMDU).  The Company recorded MDU segment revenue
of $115 and $254 from DTMDU for the three and nine months ended September 30,
2008, respectively.  DTMDU was also one of the system operators in the
MDU segment during 2008.  The Company has recorded MDU segment cost of
products and services of $659 and $1,681 for the three and nine months ended
September 30, 2008 related to this system operator, respectively.  The
Company had $771 in accounts receivable and $1,127 in accounts payable related
to these agreements at December 31, 2008.
 
 Multiband
also had receivable balances with various DTHC entities at December 31, 2008 of
$7,666.  Of this amount, $5,844 was subsequently offset in the first
quarter of 2009 against the purchase price note used to acquire majority
ownership of the operating subsidiaries of DTHC (Note 3).
 
 The
Company has a note receivable due from a non-affiliated entity that is 50% owned
by a shareholder.  The stated value of this note receivable is $12 and
$51 at September 30, 2009 and December 31, 2008, respectively.  The
note is non-interest bearing and is paid monthly beginning October 31, 2007
through maturity on December 31, 2009.  The Company has discounted
this note to its present value using the Company’s effective borrowing
rate.  The carrying value of this note receivable was $0 and $34 at
September 30, 2009 and December 31, 2008, respectively.  Interest
income on this note is immaterial and has not been recognized.
 
 In 2008,
Multiband earned a performance bonus as part of the aforementioned management
consulting agreement with DTHC of $1,447 which was paid via reduction of the
debt incurred in the acquisition of MMT (see Note 3).  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.
 
 NOTE
      13 – Subsequent Events
 
 In
connection with preparation of the condensed consolidated financial statements,
the Company evaluated subsequent events after the balance sheet date of
September 30, 2009 through November 16, 2009, the date these unaudited
consolidated financial statements were issued.
  Page
23
  FORWARD-LOOKING STATEMENTS
 
 From time
to time, the Company may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects, product
pricing, management for growth, integration of acquisitions, technological
developments, new products, and similar matters.  Words such as
“anticipates”, “may”, “will”, “should”, “believes”, “estimates”, “expects”,
“intends”, “plans”, “predicts”, “will likely result”, “will continue”, or
similar expressions identify forward-looking statements.  The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements including those made in this statement. 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 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 IT and
telecommunications industries; market acceptance of the Company's products and
services; 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 successfully integrate and operate recently
acquired operations, 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 anticipated future period
results.
 
 ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (in thousands)
 
 OUR
COMPANY
 
 Multiband
Corporation (the Company), is a Minnesota corporation formed in September 1975.
The Company has two operating segments: 1) Multi-Dwelling Unit (MDU), which
encompasses the subsidiary corporations Multiband Subscriber Services, Inc.,
Minnesota Digital Universe, Inc.; and Multiband MDU, Inc. (MBMDU), and 2) Home
Service Provider (HSP), which encompasses the following subsidiaries of which
Multiband owns an 80% interest in: Multiband NE, Inc. (NE), Multiband SW, Inc.
(SW), Multiband EC, Inc. (EC), Multiband DC, Inc. (DC) and Multiband Security,
Inc. (Security) (see Note 3).
 
 The
Company completed an initial public offering in June 1984.  In
November 1992, the Company became a non-reporting company under the Securities
Exchange Act of 1934.  In July 2000, the Company regained its
reporting company status.  In December 2000, the Company stock began
trading on the NASDAQ stock exchange under the symbol VICM.  In July
2004, the symbol was changed to MBND concurrent with the Company’s name change
from Vicom, Incorporated to Multiband Corporation.
 
 The Company’s website is located at:
www.multibandusa.com.
 
 From its
inception until December 31, 1998, the Company operated as a telephone
interconnect company only. Effective December 31, 1998, the Company
acquired the assets of the Midwest region of Enstar Networking Corporation
(ENC), a data cabling and networking company. In late 1999, in the context of a
forward triangular merger, the Company, to expand its range of computer products
and related services, purchased the stock of Ekman, Inc. d/b/a Corporate
Technologies, and merged Ekman, Inc. into the newly formed surviving
corporation, Corporate Technologies USA, Inc. (MBS).  MBS
provided voice, data and video systems and services to business and
government.  The MBS business segment was sold effective April 1,
2005.  The Company’s MCS segment (now known as MDU) began in February
2000.  MCS, the Company’s continuing operating division, provides
voice, data and video services to multiple dwelling units (MDU), 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., which made the Company
the largest master service operator in MDU’s for DirecTV satellite television in
the United States.  At October 31, 2009, the Company had approximately
135,000 owned and managed subscriptions with an additional 51,000 subscriptions
supported by the call center.
  Page
24
  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 NC (formerly
Michigan Microtech, Inc. (MMT a former subsidiary of 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, Inc. (NE), Multiband SW,
Inc. (SW), Multiband EC, Inc. (EC), Multiband DC, Inc. (DC) and Multiband
Security, Inc. (Security)).  The Company also purchased an additional
29% ownership interest in Multiband NC, of which it previously owned 51%,
effective on January 2, 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” attribute 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.
 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 4,000 people. Multiband is now the second
largest independent DirecTV field services provider in the United
States.
  Page
25
  SELECTED
      CONSOLIDATED FINANCIAL DATA
 
 DOLLAR
      AMOUNTS AS A PERCENTAGE OF REVENUES
              DOLLAR
      AMOUNTS AS A PERCENTAGE OF REVENUESTHREE
      MONTHS ENDED
              NINE
      MONTHS ENDEDSeptember 30, 2009
                (unaudited)
              September 30, 2008
                (unaudited)
              September 30, 2009
                (unaudited)
              September 30, 2008
                (unaudited)REVENUES
              100%
              100%
              100%
              100%COST
      OF PRODUCTS & SERVICES (Exclusive of depreciation and amortization
      shown below)
              76.5%
              69.3%
              79.0%
              65.0%SELLING,
      GENERAL & ADMINISTRATIVE
              19.3%
              22.3%
              21.4%
              24.9%DEPRECIATION
      & AMORTIZATION
              3.4%
              6.9%
              4.2%
              8.5%IMPAIRMENT
      OF ASSETS
              -
              -
              -
              0.2%INCOME
      (LOSS) FROM OPERATIONS
              .8%
              1.5%
              -4.6%
              1.4%INTEREST
      EXPENSE & OTHER, NET
              -1.3%
              9.3%
              -1.1%
              3.5%INCOME
      (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST IN
      SUBSIDIARIES
              -.5%
              10.8%
              -5.8%
              4.9%PROVISION
      FOR INCOME TAXES
              .5%
              2.3%
              .3%
              2.6%NET
      INCOME (LOSS)
              -1.0%
              8.5%
              -6.1%
              2.3%LESS:
      NET INCOME (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN
      SUBSIDIARIES
              -.4%
              1.1%
              -1.0%
              1.9%NET
      INCOME (LOSS) ATTRIBUTABLE TO MULTIBAND CORPORATION AND
      SUBSIDIARIES
              -.6%
              7.4%
              -5.1%
              .4%
 
 Page
26
 
 RESULTS
OF OPERATIONS
 
 Revenues
 
 Total revenues increased 478.7% to
$71,421 for the quarter ended September 30, 2009 as compared to $12,341 for the
quarter ended September 30, 2008.  Revenues for the nine month period
ended September 30, 2009 increased 596.4% to $200,975 from $28,861 for the same
period in 2008.  This overall increase in revenues is due to the
purchase of the former DirecTECH operating entities in January
2009.
 
 Revenues for the three months ended
September 30, 2009 for the HSP segment, were $64,826 in comparison to $7,393 for
the same period in 2008, an increase of 776.9%.  Revenues for the nine
month period ended September 30, 2009, for the HSP segment (acquired March 1,
2008), were $182,350 as compared to $15,977 for the same period in 2008, an
increase of 1041.3%. This increase is due to the purchase of the former
DirecTECH operating subsidiaries (see Note 3).  During the three
months ended September 30, 2009, the increased HSP segment revenue is due to
improved job mix and increased incentive revenue over prior
periods.  The Company expects that HSP segment fourth quarter revenues
will be slightly lower than the previous quarter due to typical
seasonality.
 
 Revenues in the third quarter of 2009
for the MDU segment increased 33.3% to $6,595 as compared to $4,948 in the third
quarter of 2008.  Revenues for the nine month period ended September
30, 2009, for the MDU segment, increased 44.6% to $18,625 from $12,884 for the
same period in 2008.  These increases are 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 expected to remain above 2008 levels for the balance of
2009.
 
 Cost
of Products and Services (Exclusive of depreciation and
amortization)
 
 The Company's cost of products and
services, increased by 538.7% to $54,645 for the quarter ended September 30,
2009, as compared to $8,556 for the similar quarter last year.  For
the nine months ended September 30, 2009, cost of products and services were
$158,855 compared to $18,770 in the prior year, a 746.3%
increase.  Overall cost of products and services increased due to the
purchase of the former DirecTECH operating entities in January
2009.
 
 Cost of products and services for the
HSP segment for the three months ended September 30, 2009 were $50,298 for the
HSP segment (acquired March 1, 2008), compared to $5,252 for the similar quarter
the prior year, an 857.7% increase.  For the nine months ended
September 30, 2009, cost of products and services were $146,288 for the HSP
segment (acquired March 1, 2008), compared to the $10,989 for the seven months
ended September 30, 2008, a 123.1% increase.  This increase is due to
the purchase of the former DirecTECH operating entities (see Note
3).
 
 Cost of products and services for the
MDU segment for the quarter were $4,347 compared to $3,304 in the same quarter
last year, a 31.6% increase.  For the nine months ended September 30,
2009, cost of products and services were $12,567 for the MDU segment, compared
to $7,780 in the prior year, a 61.5% 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 subsidiaries.  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 2009, the Company expects MDU cost of products and
services to increase slightly throughout the balance of the year due to certain
commission payments.
 
 During
the remainder of 2009, the Company expects HSP cost of products and services to
remain consistent with third quarter results in relation to
revenues.
  Page
27
  Selling,
General and Administrative Expenses
 
 Selling, general and administrative
expenses increased 399.6% to $13,774 in the quarter ended September 30, 2009,
compared to $2,758 in the prior year’s quarter due primarily to the acquisition
of DirecTECH in 2009.  Selling, general and administrative expenses
were, as a percentage of revenues, 19.3% for the quarter ended September 30,
2009 and 22.3% for the similar period a year ago.  For the nine months
ended September 30, 2009, selling, general and administrative expenses increased
499.8% to $43,023 compared to $7,173 for the nine months ended September 30,
2008, due primarily to the acquisition of DirecTECH in 2009.  As a
percentage of revenue, selling, general and administrative expenses were 21.4%
for the nine months ended September 30, 2009, compared to 24.9% for the same
period in 2008.  The decrease in selling, general and administrative
expenses as a percentage of revenue is primarily due to the significant increase
in revenues with proportionately less increases in payroll and administrative
expenses.  The Company anticipates that for the remainder of 2009,
selling, general and administrative expenses will remain consistent with third
quarter levels.
 
 Depreciation
and Amortization
 
 Depreciation and amortization expense
increased 185.3% to $2,414 for the quarter ended September 30, 2009 compared to
$846 in the prior year’s quarter.  For the nine months ended September
30, 2009, depreciation and amortization expense increased 241.1% to $8,402
compared to $2,463 for the nine months ended September 30, 2008.  This
increase is largely due to amortization of intangibles related to the DirecTECH
purchase (see Note 3).  Depreciation and amortization expense is
expected to remain at levels comparable to the third quarter through the
remainder of 2009.
 
 Income
(Loss) from Operations
 
 The Company, in the third quarter of
2009, incurred income from operations of $588 as compared to generating an
income of $181 during the prior year’s comparable period.  Loss from
operations was $9,305 during the first nine months of 2009 compared to an income
of $389 during the first nine months of 2008.  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.  Although the Company cannot definitively predict future
quarter operating results, we have reason to believe second quarter operating
results were atypical.
 The MDU segment generated an income
from operations of $36 for the three months ended September 30, 2009 and
incurred a loss from operations of $346 for the nine months ended September 30,
2009 compared to income from operations of $164 and $826 for the three and nine
months ended September 30, 2008.  The MBCorp segment, which has no
revenues, incurred a loss from operations of $976 for the three months ended
September 30, 2009 and $2,997 for the nine months ended September 30, 2009
compared to losses of $547 and $2,290 for the same periods last
year.  For the third quarter of 2009, the HSP segment generated an
income from operations of $1,528, compared to income from operations of $564 in
the same period last year, which included NC (MMT) only.  During the
three months ended September 30, 2009, the Company’s improved job mix and
earnings from incentives increased its revenue over prior periods. For the nine
months ended September 30, 2009, loss from operations was $5,962 for the HSP
segment, compared to an income from operations of $1,853 in the prior year which
included seven months of NC (MMT) only.  The MBCorp segment loss is
expected to continue in future periods as corporate overhead is expected to
remain consistent with current levels.  The Company believes it can
enhance profitability in its MDU division by growing its subscriber base at
existing properties since the on-going selling, general and administrative
expenses to service those subscribers is more variable than
fixed.  The HSP segment is expected maintain its profitability by
reaching incentive goals and continued improvement in job mix.
 
 Interest
Expense
 
 Interest expense was $1,026 for the
quarter ended September 30, 2009, versus $301 for the similar period a year
ago.  Amortization of original issue discount was $11 and $0 for the
three months ended September 30, 2009 and 2008.  Interest expense was
$2,771 for the nine months ended September 30, 2009 and $514 for the same period
last year, primarily reflecting an increase due to interest expense incurred on
the debt issued for the purchase of DirecTECH (see Note
3).  Amortization of original issue discount was $15 for the nine
months ended September 30, 2009, respectively and $0 for the same period last
year.
  Page
28
  Management
consulting income
 
 During the three months ended September
30, 2008, Multiband recorded a performance bonus as part of the management
consulting agreement with DTHC of $1,447 which was paid via reduction of the
debt incurred in the acquisition of MMT (see Note 3 and Note 12).  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 period ended September 30, 2009.  This income is part of
the Multiband Corp. business segment.
 
 Noncontrolling
Interest
 
 Effective
January 1, 2009, the Company transitioned from accounting for a minority
interest to accounting for noncontrolling interests in subsidiaries (see Note
4).  This resulted in the transferring 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, DC, Security and MBMDU (see Note 3).  The Company
recorded $6,306 of noncontrolling interest related to this acquisition. The net
loss attributable to the noncontrolling interest in subsidiaries for the three
and nine months ended September 30, 2009 was ($266) and ($2,044),
respectively.  For the three and nine months ended September 30, 2008,
net income attributable to the noncontrolling interest in subsidiaries was $138
and $550, respectively.
 
 Income
Taxes
 
 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 meets 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 three months ended September 30, 2009 and 2008, the Company
has recorded income tax expense of $372 and $286, respectively, related to state
taxes.  For the nine months ended September 30, 2009 and 2008, the
Company recorded income tax expense related to state taxes of $574 and $749,
respectively.
 
 Net
Income (Loss) Attributable to Multiband Corporation and
Subsidiaries
 
 In the
third quarter of fiscal 2009, the Company reported a net loss attributable to
Multiband Corporation and subsidiaries of $459 compared to a net income
attributable to Multiband Corporation and subsidiaries of $911 for the third
fiscal quarter of 2008.  For the nine months ended September 30, 2009,
the Company recorded a net loss attributable to Multiband Corporation and
subsidiaries of $10,163 compared to a net income attributable to Multiband
Corporation and subsidiaries of $103 for the nine months ended September 30,
2008.  The net income for the three and nine months ended September
30, 2008 was largely due to the addition of the HSP segment via the acquisition
of MMT, the sale of unprofitable subscribers in the MCS segment, the increase in
managed subscribers in the MDU segment, and the management consulting income in
Multiband Corp. segment.
 
 Liquidity
and Capital Resources
 
 During the nine months ended September
30, 2009, the Company incurred net losses attributable to Multiband Corporation
and subsidiaries of $10,163 compared to a net income attributable to Multiband
Corporation and subsidiaries of $103 for the nine months ended September 30,
2008.  Net cash used by operations during the nine months ended
September 30, 2009 was $2,937 as compared to the net cash from operations during
the nine months ended September 30, 2008 of $3,891.  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.  Although the Company cannot definitively predict future
quarter operating results, we have reason to believe second quarter operating
results were atypical.  As of September 30, 2009, the Company met the
compliance covenants of its lender, Convergent Capital.
  Page
29
  Cash and cash equivalents totaled
$4,253 at September 30, 2009 versus $4,346 at December 31,
2008.  Working capital deficit at September 30, 2009 was $30,785 as
compared to positive working capital of $2,465 at December 31, 2008, primarily
due to the acquisition of the former DTHC operating entities.  Total
debt and capital lease obligations increased by $38,957 in the nine months ended
September 30, 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 period ended
September 30, 2009 versus the period ended December 31, 2008 due to the
acquisition of 80% of outstanding stock of the former DTHC operating
entities.  Net cash used by investing activities totaled $2,673 for
the period ended September 30, 2009, compared to net cash of $6,656 provided by
investing activities for the period ended September 30, 2008, related to cash
acquired in the acquisition of NC (formerly MMT).
 
 The Company experienced a material
increase in revenues between the quarter ended September 30, 2009 and the
quarter ended September 30, 2008 as a result of the additional revenue obtained
from the purchase of the former DTHC operating entities.  For the
balance of 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 $2,166 for capital
expenditures during the nine months ended September 30, 2009, as compared to
$112 in the similar period last year.  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.  Throughout the
remainder of 2009, the Company estimates that it will have $500 of additional
capital expenditures.
 
 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.
              Initiate
      and grow its Home Service Provider (HSP) business by eliminating
      competitive HSP providers from certain of its core
  markets2.
              Improve
      gross margin percentages by cycling technicians from training and placing
      them in a revenue generating role and by mitigating work order breakage
      expense.3.
              Reduce
      operating expenses by reducing training costs through decreased technician
      turnover, managing professional fees, insurance and other general and
      administrative expenses.4.
              Evaluate
      factors such as anticipated usage and inventory turnover to maintain
      optimal inventory levels.5.
              Obtain
      additional debt financing.6.
              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.7.
              Solicit
      additional equity investment in the Company by issuing either preferred or
      common stock.
 The
Company, as of September 30, 2009, needs to improve its working capital ratio
over the next few quarters to adequately manage the size of its expanded
operations.  The Company, during the third quarter, did raise $2,000
in equity through the sale of preferred stock and sold intangible assets and
equipment for approximately $446.  Since the Company acquired
significant assets in its purchase of 80% 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,
positive operating income, combined with capital resources and the potential
ability to monetize intangible subscriber assets, it can meet its anticipated
liquidity and capital resource requirements for the next twelve
months.
 
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 Impairment of Long-Lived
Assets
 
 The
Company’s long-lived assets include property, equipment and leasehold
improvements.  At September 30, 2009, the Company had net property and
equipment of $8,438, which represents approximately 7.8% of the Company’s total
assets.  In assessing for potential impairment for these assets, the
Company considers future performance.  If these forecasts are not met,
the Company may have to record an impairment charge, which may be
material.  During the three and nine months ended September 30, 2009
and 2008, the Company did not record any impairment losses related to long-lived
assets.
  Page
30
  Impairment of
Goodwill
 
 At year
end, we test goodwill for impairment.  If indicators of impairment are
determined to exist, we test goodwill for impairment quarterly.  Our
judgments regarding the existence of impairment indicators are based on legal
factors, market conditions and operational performance of our operating
segments.  Future events could cause us to conclude that impairment
indicators exist and that goodwill associated with our operating segments which
amounts to $35,489 as of September 30, 2009, may be impaired.  Any
resulting impairment loss could have a material adverse impact on our financial
condition and results of operations.  During the three and nine months
ended September 30, 2009 and 2008, the Company did not record any impairment
losses related to goodwill.
 
 Impairment of Intangible
Assets
 
 The
intangible assets consist of rights of entry contracts, contracts with DirecTV
and customer contracts.  These intangibles are being amortized over
their estimated useful lives ranging from 3.5 to 119 months.  If
significant changes would occur to the estimated future cash flows associated
with these intangibles, the Company would determine if there is impairment and
reduce the value of intangibles based on the discounted present value of such
cash flows.  At September 30, 2009, the Company had net intangibles of
$24,446 which represented approximately 22.7% of the Company’s total
assets.  During the three and nine months ended September 30, 2009,
the Company did not record any impairment charge to intangible
assets.  During the three and nine months ended September 30, 2008,
the Company recorded an impairment charge to intangible assets of $0 and $66,
respectively.
 
 Inventories
 
 We value
our inventories at the lower of the actual cost or the current estimated market
value of the inventories. We regularly review inventory quantities on hand and
record a provision for excess and obsolete inventories. Rapid technological
change, frequent new product development, and rapid product obsolescence that
could result in an increase in the amount of obsolete inventory quantities on
hand characterize our industry.
 
 Share-Based
Payments
 
 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.  During the third quarter of 2008,
the Company evaluated the variables used in calculating its option values and
through their application has reduced the ongoing expense recorded related to
stock options.
 
 Revenue
Recognition
 
 The
Company recognizes revenue in accordance with the Securities Exchange
Commission’s Staff Accounting Bulletin No. 104 (SAB 104) “Revenue Recognition”,
which requires that four basic criteria be met before revenue can be recognized:
(i) persuasive evidence of a customer arrangement exists; (ii) the price is
fixed or determinable; (iii) collectability is reasonably assured; and (iv)
product delivery has occurred or services have been rendered.  The
Company recognizes revenue as services are performed and complete.
 
 The
Company earns HSP segment revenue as follows:
 
 ·
              installation
      and service of DirecTV video programming for residents of single family
      homes
 ·
              installation
      of home security systems and internet
services
 
 The
Company has home services provider (HSP) agreements with DirecTV which allow the
Company to install and activate DirecTV video programming services for residents
of single family homes.  As a DirecTV HSP, the Company earns revenue
for installing and servicing DirecTV video customers pursuant to predetermined
rates set by DirecTV which may vary from time to time.  Revenue is
recognized upon completion of the delivery and installation of
equipment.  DirecTV reimburses the Company for substantially all
DirecTV equipment used for customer installation related to the HSP
segment.
 HSP
segment installation and services revenues are recognized in the period the
related services are provided in accordance with SAB 104.  MDU segment
user charges are recognized as revenues in the period the related services are
provided in accordance with SAB 104.  Any amounts billed prior to
services being provided are reported as deferred service obligations and
revenues.
  Page
31
  The
Company earns MDU segment revenue as follows:
 
 ·
              from
      voice, video and data communications products which are sold and
      installed
 ·
              direct
      billing of user charges to multiple dwelling units, through the activation
      of, enhancement of, and residual fees on video programming services
      provided to residents of multiple dwelling
units
 
 Revenue
generated from activation of video programming services is earned in the month
of activation.  According to Multiband's Master System Operator
agreement with DirecTV, in the event that a customer cancels within the first 12
months of service, DirecTV has the right to chargeback the Company for a portion
of the activation fees received.  In accordance with Securities
Exchange Commission SAB 104, the Company has estimated the potential charge back
of commissions received on activation fees during the past 12 months based on
historical percentages of customer cancellations and has included that amount as
a reduction of revenue.  Residual income is earned as services are
provided by DirecTV through its system operators.  As a master system
operator for DirecTV, the Company earns a fixed percentage based on net cash
received by DirecTV for recurring monthly services, a variable amount depending
on the number of activations in a given month, and a variable amount for
coordinating improvements of systems used to deliver enhanced programming
services.  The Company’s master system operator contract with DirecTV
also permits the Company to earn revenues through its control of other system
operators who are unable to provide DirecTV video programming services without
the Company’s performance.
 
 The
Company reports the aforementioned MDU voice, data, and video revenues on a
gross basis based on the following factors: the Company has the primary
obligation in the arrangement with its customers; the Company controls the
pricing of its services; the Company performs customer service for the
agreements; the Company approves customers; and the Company assumes the risk of
payment for services provided. We offer some products and services that are
provided by third party vendors.  We review the relationship between
us, the vendor and the end customer on an individual basis to assess whether
revenue should be reported on a gross or net basis.  As an example,
our resold satellite digital television revenue is reported on a net
basis.
 
 MDU
segment revenue generated by the support center to service third party
subscribers by providing billing and call center support services is recognized
in the period the related services are provided.
 
 Customers
contract for both the purchase and installation of voice and data networking
technology products and certain video technologies products.  Revenue
is recognized when the products are delivered and installed and the customer has
accepted and has the ability to fulfill the terms of the contract.
 
 The
Company’s policy is to present taxes imposed on revenue-producing transactions
on a net basis which means any sales tax charged is not part of the Company’s
revenues.
 
 Deferred
Revenue
 
 The
Company invoices for certain installation upgrade projects upon order of project
equipment.  Revenue is deferred on these projects until the equipment
is installed.
  Page
32
 Disclosures about
Contractual Obligations and Commercial Commitments
 
 The
following summarizes our contractual obligations as of September 30, 2009, that
have changed materially since our annual 10-K filing.  The changes are
due to the acquisition of the DTHC operating subsidiaries (see Note 3) and the
effect these additional 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
                YearsOperating
      leases – buildings
              
              $
              4,805
              
              
              $
              1,743
              
              
              $
              2,311
              
              
              $
              751Operating
      leases – vehicles
              
              
              16,928
              
              
              
              6,615
              
              
              
              8,306
              
              
              
              2,007Short-term
      debt, related party
              
              
              1,421
              
              
              
              1,421
              
              
              
              -
              
              
              
              -Long-term
      debt
              
              
              7,934
              
              
              
              1,372
              
              
              
              6,509
              
              
              
              53Long-term
      debt, related party
              
              
              42,844
              
              
              
              3,566
              
              
              
              5,563
              
              
              
              33,715Capital
      lease obligations
              
              
              983
              
              
              
              473
              
              
              
              505
              
              
              
              5Totals
              
              $
              74,915
              
              
              $
              15,190
              
              
              $
              23,194
              
              
              $
              36,531
 
 ITEM
3.  QUANTITIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK
 
 The
Company is not subject to any material interest rate risk as all current lending
agreements are at fixed rates of interest.  The Convergent Capital
note of $1,400, which varied from 11% to 14%, dependent on the Company’s common
stock price was paid off on May 26, 2009.
 
 
 ITEM
4.  CONTROLS AND PROCEDURES
 
 As of the
end of the period covered by this quarterly report, the Company carried out an
evaluation, under the supervision and with the participation of the Company’s
management, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures pursuant to Rule 13a-14(c) of the Securities
Exchange Act of 1934.  As of September 30, 2009, the Company has not
tested the effectiveness of any controls or procedures with regards to its HSP
business segment due to the recent acquisition of same.  The Company
does intend to perform such testing prior to December 31, 2009.
 
 Based
upon that evaluation and the aforementioned acquisition, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are not effective in alerting them in a
timely basis to material information relating to the Company required to be
disclosed in the Company’s periodic SEC reports.  While the Company
believes its financial information as presented herein is materially accurate,
the Company is not prepared to conclude all of its key disclosure controls and
procedures are effective until it has completed its testing.  Based on
the Company’s detailed account reconciliation and analysis process, the Company
needs to improve certain inventory control procedures.  Currently the
Company is actively reviewing and updating those procedures.
 
 PART
II.  OTHER INFORMATION
 
 ITEM
1.  LEGAL PROCEEDINGS
 
 The
Company is subject to claims, regulatory processes and lawsuits that arise in
the ordinary course of business.  The Company accrues for such matters
when a loss is considered probable and the amount of such loss, or a range of
loss, can be reasonably estimated.  The Company has recorded $6,420 of
accrued liabilities as of September 30, 2009 for claims and potential
settlements associated with existing litigation.  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).  At present, the Company is vigorously defending those
claims.
 
 In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset 50% of certain third party claims against the purchase
price note to DTHC once those claims are settled and paid.  The
Company has recorded a receivable of $3,169 as of September 30, 2009, which
represents an estimate of the 50% portion to be offset against the note to DTHC
due to certain third party claims.  The Company’s portion of defense
costs are expensed as incurred.  Additionally, the Company is subject
to pending claims, regulatory processes and lawsuits for which losses are not
probable and amounts cannot be reasonably estimated.  Those losses
could ultimately be material to the Company’s financial position, results of
operations and cash flows.
  Page
33
  ITEM
1A.  RISK FACTORS
 
 Our
operations and our securities are subject to a number of risks, including but
not limited to those described below. If any of the following risks actually
occur, the business, financial condition or operating results of Multiband and
the trading price or value of our common stock could be materially adversely
affected.
 
 General
 
 Multiband
over the past decade has continued to reinvent and reposition itself as
technologies for communications and entertainment services continue to grow and
evolve. Multiband needs to continue to stay on the edge of changes in technology
if it is to remain competitive in its chosen marketplaces.
 
 Net Income (Losses)Attributable to Multiband Corporation
and Subsidiaries
 
 The
Company had a net loss attributable to Multiband Corporation and subsidiaries of
$10,163 for the nine months ended September 30, 2009, net income of $945 for the
year ended December 31, 2008 and net loss of $6,088 for the year ended December
31, 2007.  The Company may never be consistently
profitable.
 
 The
prolonged effects of generating 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 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 $30,785 at September 30, 2009 as
compared to positive working capital in the amount of $2,465 at December 31,
2008 due to the acquisition of DirecTECH.
 
 Goodwill
and Intangible Assets
 
 As of
September 30, 2009, the Company had goodwill of $35,489 and intangibles of
$24,446 primarily related to the purchase of DirecTECH.  At September
30, 2009 the Company did not note any indications of impairment related to
goodwill or its intangible assets.
 
 Deregulation
 
 Several
regulatory and judicial proceedings have recently concluded, are underway or may
soon be commenced that address issues affecting operations and those of our
competitors, which may cause significant changes to our industry. We cannot
predict the outcome of these developments, nor can we assure you that these
changes will not have a material adverse effect on us. Historically, we have
been a reseller of products and services, not a manufacturer or carrier
requiring regulation of its activities. Pursuant to Minnesota statutes, our
Multiband activity is specifically exempt from the need to tariff our services
in MDU's. However, the Telecommunications Act of 1996 provides for significant
deregulation of the telecommunications industry, including the local
telecommunications and long-distance industries. This federal statute and the
related regulations remain subject to judicial review and additional
rule-makings of the Federal Communications Commission, making it difficult to
predict what effect the legislation will have on us, our operations, and our
competitors.
  Page
34
  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.
 
 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 MDUs which grant the Company rights of access for a
specific period to MDU premises whereby Multiband is allowed to offer its voice,
data, and video services to individual residents of the MDUs.  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.
  Page
35
  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 be
volatile.  The stock market has experienced extreme volatility, and
this volatility has often been unrelated to the operating performance of
particular companies.  Investors may not be able to sell the common
stock at or above the price they paid for their common stock, or at
all.  Prices for the common stock will be 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 and HSP
markets, 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
the first quarter of 2009, the Company completed its Stock Purchase Agreement
(SPA) with DTHC (see Note 3).  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.
 
 General
Economic Conditions
 
 As of
this writing, the United States is experiencing overall adverse economic
conditions. While we believe this environment may actually benefit 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.
  Page
36
  ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 a)
              An
      annual meeting of Multiband shareholders was held on August 12, 2009.
      There were present or present by proxy at the meeting 3,590,673 votes, the
      number necessary to hold a quorum.
 
 b)
              The
      meeting resulted in the following votes related to the following proxy
      items:
 
 1.
              Election
      of directors: All directors were re-elected for a term serving until the
      next annual meeting with the votes in favor listed
  below:
 
 Director
              
              Number of votesBell
              
              
              3,590,617Bennett
              
              
              3,590,633Dodge
              
              
              3,590,633Harris
              
              
              3,590,633Mandel
              
              
              3,590,617Miller
              
              
              3,590,633
 
 2.
              Ratify
      the election of Baker Tilly Virchow Krause, LLP as independent registered
      public accounting firm of the Company for fiscal year
  2008.
 
 Number of votesFor
              
              
              3,590,553Against
              
              
              0Abstain
              
              
              120
 
 3.
              The
      approval of an amendment to Multiband’s 2000 Non-Employee Directors Stock
      Compensation Plan (the Directors Plan) to increase the total number of
      common stock shares reserved for awards to Non-Employee Directors under
      the plan from 160,000 to 5,000,000.
 
 Number of votesFor
              
              
              3,379,689Against
              
              
              210,736Abstain
              
              
              248
 
 4.
              The
      approval of an amendment to Multiband’s 1999 Stock Compensation Plan (the
      Employee Plan) to increase the total number of common shares reserved for
      awards to employees under the plan from 860,000 to
    15,000,000.
 
 Number of votesFor
              
              
              3,383,351Against
              
              
              207,074Abstain
              
              
              248
 
 
 5.
              The
      approval of an amendment to Multiband’s Articles of Incorporation to
      increase the authorized number of Multiband common shares from 20 million
      to 100 million.
 
 Number of votesFor
              
              
              3,383,628Against
              
              
              206,747Abstain
              
              
              298
 
 Page
37
 
 ITEM
6.  EXHIBITS
 
 (a)
              Exhibits
 
 31.1
                Certification
      of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the
      Exchange Act.
 
 31.2
                Certification
      of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the
      Exchange Act.
 
 32.1
                Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.
 
 32.2
                Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 MULTIBAND
      CORPORATION
                RegistrantDate:  November
      16, 2009
              By:
              /s/
      James L. Mandel
                Chief
      Executive OfficerDate:  November
      16, 2009
              By:
              /s/
      Steven M. Bell
                Chief
      Financial Officer
                (Principal
      Financial and Accounting Officer)
  Page
38