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 1934


FOR THE
PERIOD ENDING SEPTEMBER 30,
2010


OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
      OF 1934


FOR THE
TRANSITION PERIOD FROM 
TO


COMMISSION
FILE NUMBER 0 – 1325





MULTIBAND
CORPORATION


(Exact
name of registrant as specified in its charter)





MINNESOTA


(State or
other jurisdiction of incorporation or organization)





41 - 1255001


(IRS
Employer Identification No.)





9449
Science Center Drive, New Hope, Minnesota 55428


(Address
of principal executive offices)





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





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  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§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  ̈      No  ̈





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





Large
accelerated filer  ̈  Accelerated
filer  ̈


Non-accelerated
filer x (do not
check if a smaller reporting company)  Smaller reporting company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈      No
x





On
November 5, 2010, there were 10,290,817 shares outstanding of the registrant's
common stock, no par value, and 483,237 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,
                          2010
                          (unaudited)
                        
                        
                        September 30,
                          2009
                          (unaudited)
                        
                        
                        September 30,
                          2010
                          (unaudited)
                        
                        
                        September 30,
                          2009
                          (unaudited)REVENUES
                        
                        $
                        69,875
                        
                        
                        $
                        71,421
                        
                        
                        $
                        195,011
                        
                        
                        $
                        200,975COSTS
      AND EXPENSESCost
      of products and services (exclusive of depreciation and amortization shown
      separately below)
                        
                        
                        49,425
                        
                        
                        
                        54,645
                        
                        
                        
                        137,192
                        
                        
                        
                        158,855Selling,
      general and administrative
                        
                        
                        14,680
                        
                        
                        
                        13,774
                        
                        
                        
                        41,698
                        
                        
                        
                        43,023Depreciation
      and amortization
                        
                        
                        2,027
                        
                        
                        
                        2,414
                        
                        
                        
                        6,609
                        
                        
                        
                        8,402Total
      costs and expenses
                        
                        
                        66,132
                        
                        
                        
                        70,833
                        
                        
                        
                        185,499
                        
                        
                        
                        210,280INCOME
      (LOSS) FROM OPERATIONS
                        
                        
                        3,743
                        
                        
                        
                        588
                        
                        
                        
                        9,512
                        
                        
                        
                        (9,305
                        )OTHER
      EXPENSEInterest
      expense
                        
                        
                        (1,026
                        )
                        
                        
                        (1,026
                        )
                        
                        
                        (3,215
                        )
                        
                        
                        (2,771
                        )Interest
      income
                        
                        
                        1
                        
                        
                        
                        9
                        
                        
                        
                        7
                        
                        
                        
                        19Other
      income
                        
                        
                        23
                        
                        
                        
                        76
                        
                        
                        
                        51
                        
                        
                        
                        424Total
      other expense
                        
                        
                        (1,002
                        )
                        
                        
                        (941
                        )
                        
                        
                        (3,157
                        )
                        
                        
                        (2,328
                        )NET
      INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST IN
      SUBSIDIARIES
                        
                        
                        2,741
                        
                        
                        
                        (353
                        )
                        
                        
                        6,355
                        
                        
                        
                        (11,633
                        )PROVISION
      FOR INCOME TAXES
                        
                        
                        1,573
                        
                        
                        
                        372
                        
                        
                        
                        3,756
                        
                        
                        
                        574NET
      INCOME (LOSS)
                        
                        
                        1,168
                        
                        
                        
                        (725
                        )
                        
                        
                        2,599
                        
                        
                        
                        (12,207
                        )LESS:
      NET LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN
      SUBSIDIARIES
                        
                        
                        -
                        
                        
                        
                        (266
                        )
                        
                        
                        -
                        
                        
                        
                        (2,044
                        )NET
      INCOME (LOSS) ATTRIBUTABLE TO MULTIBAND CORPORATION AND
      SUBSIDIARIES
                        
                        
                        1,168
                        
                        
                        
                        (459
                        )
                        
                        
                        2,599
                        
                        
                        
                        (10,163
                        )Preferred
      stock dividends
                        
                        
                        408
                        
                        
                        
                        70
                        
                        
                        
                        1,140
                        
                        
                        
                        214INCOME
      (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
                        
                        $
                        760
                        
                        
                        $
                        (529
                        )
                        
                        $
                        1,459
                        
                        
                        $
                        (10,377
                        )INCOME
      (LOSS) PER COMMON SHARE – BASIC:INCOME
      (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
                        
                        $
                        .08
                        
                        
                        $
                        (0.05
                        )
                        
                        $
                        .15
                        
                        
                        $
                        (1.08
                        )INCOME
      (LOSS) PER COMMON SHARE – DILUTED:INCOME
      (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
                        
                        $
                        .07
                        
                        
                        $
                        (0.05
                        )
                        
                        $
                        .15
                        
                        
                        $
                        (1.08
                        )Weighted
      average common shares outstanding – basic
                        
                        
                        10,084
                        
                        
                        
                        9,659
                        
                        
                        
                        9,930
                        
                        
                        
                        9,653Weighted
      average common shares outstanding - diluted
                        
                        
                        10,188
                        
                        
                        
                        9,659
                        
                        
                        
                        10,047
                        
                        
                        
                        9,653




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,
                    2010
                    (unaudited)
                  
                  
                  September 30,
                    2009
                    (unaudited)
                  
                  
                  September 30,
                    2010
                    (unaudited)
                  
                  
                  September 30,
                    2009
                    (unaudited)NET
      INCOME (LOSS)
                  
                  $
                  1,168
                  
                  
                  $
                  (725
                  )
                  
                  $
                  2,599
                  
                  
                  $
                  (12,207
                  )OTHER
      COMPREHENSIVE INCOME (LOSS), NET OF TAX:Unrealized
      gains (losses) on securities:Unrealized
      holding gains (losses) arising during period
                  
                  
                  1
                  
                  
                  
                  (29
                  )
                  
                  
                  (5
                  )
                  
                  
                  (37
                  )COMPREHENSIVE
      INCOME (LOSS) BEFORE
      NONCONTROLLING INTEREST IN SUBSIDIARIES
                  
                  
                  1,169
                  
                  
                  
                  (754
                  )
                  
                  
                  2,594
                  
                  
                  
                  (12,244
                  )COMPREHENSIVE
      LOSS ATTRIBUTABLE TO THE
      NONCONTROLLING INTEREST IN SUBSIDIARIES
                  
                  
                  -
                  
                  
                  
                  (266
                  )
                  
                  
                  -
                  
                  
                  
                  (2,044
                  )COMPREHENSIVE
      INCOME (LOSS) ATTRIBUTABLE
      TO MULTIBAND CORPORATION AND SUBSIDIARIES
                  
                  $
                  1,169
                  
                  
                  $
                  (488
                  )
                  
                  $
                  2,594
                  
                  
                  $
                  (10,200
                  )





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, 2010
                  (unaudited)
                
                
                December 31, 2009
                  (audited)CURRENT
      ASSETSCash
      and cash equivalents
                
                $
                4,912
                
                
                $
                2,240Securities
      available for sale
                
                
                2
                
                
                
                7Accounts
      receivable, net
                
                
                15,789
                
                
                
                14,336Other
      receivable – related party
                
                
                518
                
                
                
                518Inventories
                
                
                9,700
                
                
                
                8,561Prepaid
      expenses and other
                
                
                2,039
                
                
                
                549Current
      portion of notes receivable
                
                
                6
                
                
                
                6Total
      Current Assets
                
                
                32,966
                
                
                
                26,217PROPERTY
      AND EQUIPMENT, NET
                
                
                8,218
                
                
                
                8,546OTHER
      ASSETSGoodwill
                
                
                38,067
                
                
                
                38,067Intangible
      assets, net
                
                
                18,391
                
                
                
                22,677Other
      receivable – related party – long term
                
                
                985
                
                
                
                1,011Notes
      receivable – long-term, net of current portion
                
                
                24
                
                
                
                25Other
      assets
                
                
                6,446
                
                
                
                2,988Total
      Other Assets
                
                
                63,913
                
                
                
                64,768TOTAL
      ASSETS
                
                $
                105,097
                
                
                $
                99,531





See
accompanying notes to the unaudited condensed consolidated financial
statements


Page
4


MULTIBAND
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





LIABILITIES
AND STOCKHOLDERS' EQUITY


(in
thousands, except share and liquidation preference amounts)





September 30, 2010
                          (unaudited)
                        
                        
                        December 31, 2009
                          (audited)CURRENT
      LIABILITIESLine
      of credit
                        
                        $
                        48
                        
                        
                        $
                        49Short
      term debt
                        
                        
                        1,062
                        
                        
                        
                        66Related
      parties debt – short term
                        
                        
                        680
                        
                        
                        
                        1,345Current
      portion of long-term debt
                        
                        
                        -
                        
                        
                        
                        228Current
      portion of capital lease obligations
                        
                        
                        428
                        
                        
                        
                        489Accounts
      payable
                        
                        
                        28,606
                        
                        
                        
                        28,008Accrued
      liabilities
                        
                        
                        25,701
                        
                        
                        
                        22,026Deferred
      service obligations and revenue
                        
                        
                        2,193
                        
                        
                        
                        2,602Total
      Current Liabilities
                        
                        
                        58,718
                        
                        
                        
                        54,813LONG-TERM
      LIABILITIESAccrued
      liabilities – long term
                        
                        
                        3,441
                        
                        
                        
                        4,415Long-term
      debt, net of current portion and original issue discount
                        
                        
                        4,915
                        
                        
                        
                        4,853Related
      parties debt - long-term, net of current portion and original issue
      discount
                        
                        
                        29,536
                        
                        
                        
                        29,856Capital
      lease obligations, net of current portion
                        
                        
                        461
                        
                        
                        
                        491Total
      Liabilities
                        
                        
                        97,071
                        
                        
                        
                        94,428COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYCumulative
      convertible preferred stock, no par value:8%
      Class A (14,171 shares issued and outstanding, $148,796 liquidation
      preference)
                        
                        
                        213
                        
                        
                        
                        21310%
      Class B (470 and 1,370 shares issued and outstanding, $4,935 and
      $14,385 liquidation preference)
                        
                        
                        5
                        
                        
                        
                        1410%
      Class C (112,000 and 112,880 shares issued and outstanding, $1,120,000 and
      $1,128,800 liquidation preference)
                        
                        
                        1,453
                        
                        
                        
                        1,46510%
      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 (1.25 shares issued and outstanding, $125,000 liquidation
      preference)
                        
                        
                        -
                        
                        
                        
                        -8%
      Class J (100 shares issued and outstanding, $10,000,000 liquidation
      preference)
                        
                        
                        10,000
                        
                        
                        
                        10,00015%
      Class E cumulative preferred stock, no par value, (205,000 and 220,000
      shares issued and outstanding, $2,050,000 and  $2,200,000
      liquidation preference)
                        
                        
                        2,050
                        
                        
                        
                        2,200Common
      stock, no par value (10,165,057 and 9,722,924 shares issued and
      outstanding)
                        
                        
                        38,950
                        
                        
                        
                        38,054Stock
      subscriptions receivable
                        
                        
                        -
                        
                        
                        
                        (26
                        )Stock-based
      compensation and warrants
                        
                        
                        47,290
                        
                        
                        
                        46,572Accumulated
      other comprehensive income – unrealized gain on securities available for
      sale
                        
                        
                        2
                        
                        
                        
                        7Accumulated
      deficit
                        
                        
                        (93,485
                        )
                        
                        
                        (94,944
                        )Total
      Stockholders' Equity
                        
                        
                        8,026
                        
                        
                        
                        5,103TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                        
                        $
                        105,097
                        
                        
                        $
                        99,531




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 EndedSeptember 30, 2010
                        (unaudited)
                      
                      
                      September 30, 2009
                        (unaudited)OPERATING
      ACTIVITIESNet
      income (loss)
                      
                      $
                      2,599
                      
                      
                      $
                      (12,207
                      )Adjustments
      to reconcile net income (loss) to net cash provided (used) by operating
      activities:Depreciation
      and amortization
                      
                      
                      6,609
                      
                      
                      
                      8,402Loss
      on sale of assets
                      
                      
                      (1
                      )
                      
                      
                      (35
                      )Amortization
      of original issue discount
                      
                      
                      72
                      
                      
                      
                      35Amortization
      of imputed interest discount
                      
                      
                      -
                      
                      
                      
                      35Amortization
      of deferred financing costs
                      
                      
                      42
                      
                      
                      
                      15Interest
      receivable added to note receivable balance
                      
                      
                      3
                      
                      
                      
                      -Change
      in allowance for doubtful accounts on accounts receivable
                      
                      
                      (428
                      )
                      
                      
                      51Change
      in reserve for stock subscriptions and interest receivable
                      
                      
                      25
                      
                      
                      
                      43Expense
      related to repricing of warrants
                      
                      
                      -
                      
                      
                      
                      30Services
      provided in exchange for reduction of debt
                      
                      
                      (12
                      )
                      
                      
                      -Stock
      based compensation expense
                      
                      
                      649
                      
                      
                      
                      133Common
      shares issued for services
                      
                      
                      10
                      
                      
                      
                      -Changes
      in operating assets and liabilities:Accounts
      receivable
                      
                      
                      (1,025
                      )
                      
                      
                      (7,104
                      )Other
      receivables – related party
                      
                      
                      (40
                      )
                      
                      
                      -Inventories
                      
                      
                      (1,072
                      )
                      
                      
                      5,647Prepaid
      expenses and other
                      
                      
                      3,695
                      
                      
                      
                      (1,095
                      )Other
      assets
                      
                      
                      341
                      
                      
                      
                      (21
                      )Accounts
      payable and accrued liabilities
                      
                      
                      3,231
                      
                      
                      
                      1,463Deferred
      service obligations and revenue
                      
                      
                      (409
                      )
                      
                      
                      1,671Net
      cash flows provided (used) by operating activities
                      
                      
                      14,289
                      
                      
                      
                      (2,937
                      )INVESTING
      ACTIVITIESPurchases
      of property and equipment
                      
                      
                      (1,527
                      )
                      
                      
                      (2,166
                      )Checks
      issued in excess of bank balance with the purchase of 80% of outstanding
      stock of DirecTECH operating entities
                      
                      
                      -
                      
                      
                      
                      (369
                      )Purchases
      of intangible assets
                      
                      
                      (36
                      )
                      
                      
                      (175
                      )Collections
      on notes receivable
                      
                      
                      1
                      
                      
                      
                      37Net
      cash flows used by investing activities
                      
                      
                      (1,562
                      )
                      
                      
                      (2,673
                      )FINANCING
      ACTIVITIESPayments
      on short-term debt
                      
                      
                      (7,949
                      )
                      
                      
                      (25
                      )Payments
      on long-term debt
                      
                      
                      (278
                      )
                      
                      
                      (2,657
                      )Payments
      on related parties debt – short term
                      
                      
                      (665
                      )
                      
                      
                      -Payments
      on related parties debt - long term
                      
                      
                      (242
                      )
                      
                      
                      (1,400
                      )Payments
      on capital lease obligations
                      
                      
                      (426
                      )
                      
                      
                      (335
                      )Payments
      for debt issuance costs
                      
                      
                      -
                      
                      
                      
                      (144
                      )Net
      advances (repayments) on line of credit
                      
                      
                      (1
                      )
                      
                      
                      5Payments
      received on stock subscription receivable
                      
                      
                      (2
                      )
                      
                      
                      -Payment
      on mandatory redeemable preferred stock
                      
                      
                      -
                      
                      
                      
                      (150
                      )Proceeds
      from related parties debt – short term
                      
                      
                      -
                      
                      
                      
                      3,700Proceeds
      from issuance of preferred stock
                      
                      
                      -
                      
                      
                      
                      500Proceeds
      from issuance of long-term debt
                      
                      
                      -
                      
                      
                      
                      6,100Stock
      issuance costs
                      
                      
                      (15
                      )
                      
                      
                      -Redemption
      of preferred stock
                      
                      
                      (168
                      )
                      
                      
                      (18
                      )Preferred
      stock dividends
                      
                      
                      (309
                      )
                      
                      
                      (59
                      )Net
      cash flows provided (used) by financing activities
                      
                      
                      (10,055
                      )
                      
                      
                      5,517INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                      
                      
                      2,672
                      
                      
                      
                      (93)CASH
      AND CASH EQUIVALENTS - Beginning of Period
                      
                      
                      2,240
                      
                      
                      
                      4,346CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                      
                      $
                      4,912
                      
                      
                      $
                      4,253


See
accompanying notes to the unaudited condensed consolidated financial
statements




Page
6




MULTIBAND
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)





Nine Months EndedSeptember 30,
                    2010
                    (unaudited)
                  
                  
                  September 30,
                    2009
                    (unaudited)Cash
      paid for interest, net of amortization of OID and interest
      discount
                  
                  $
                  3,078
                  
                  
                  $
                  1,872Cash
      paid for federal and state income taxes
                  
                  
                  3,734
                  
                  
                  
                  611Non-cash
      investing and financing transactions:Purchase
      of property and equipment via increase in capital lease
      obligations
                  
                  
                  340
                  
                  
                  
                  562Increase
      in prepaid expense via increase in debt
                  
                  
                  36
                  
                  
                  
                  -Purchase
      of intangible assets via issuance of short-term notes payable and common
      stock
                  
                  
                  163
                  
                  
                  
                  -Intrinsic
      value of preferred dividends
                  
                  
                  3
                  
                  
                  
                  3Conversion
      of accrued interest into common stock
                  
                  
                  2
                  
                  
                  
                  2Conversion
      of accrued dividends into common stock
                  
                  
                  595
                  
                  
                  
                  166Increase
      in prepaid expense via short-term debt issued
                  
                  
                  8,806
                  
                  
                  
                  -Increase
      in other assets via issuance of common stock
                  
                  
                  180
                  
                  
                  
                  -Increase
      in short term debt via offset to accounts payable
                  
                  
                  -
                  
                  
                  
                  159Reduction
      in related party debt by other receivable – related party
                  
                  
                  66
                  
                  
                  
                  -Warrants
      issued for long-term notes payable
                  
                  
                  -
                  
                  
                  
                  372Warrants
      issued in lieu of dividends
                  
                  
                  57
                  
                  
                  
                  -Reduction
      of notes payable -related party with exchange for preferred
      stock
                  
                  
                  -
                  
                  
                  
                  1,500Reduction
      of accounts payable with proceeds from sale of intangible asset and
      equipment
                  
                  
                  -
                  
                  
                  
                  446Reduction
      in accounts payable and accrued expenses with issuance of long-term
      debt
                  
                  
                  -
                  
                  
                  
                  394Purchase
      of 80% of outstanding stock of DirecTECH operating entities via issuance
      of short and long term notes payable
                  
                  
                  -
                  
                  
                  
                  38,240Reduction
      in accrued compensation via issuance of stock options
                  
                  
                  113
                  
                  
                  
                  -Reduction
      of notes payable via reduction of related party receivable in connection
      with the purchase of outstanding stock of DirecTECH operating
      entities
                  
                  
                  -
                  
                  
                  
                  5,844Reduction
      of notes payable with issuance notes payable in connection with
      acquisition
                  
                  
                  -
                  
                  
                  
                  300Purchase
      of 29% of outstanding stock of NC (formerly MMT) via issuance of short and
      long term notes payable
                  
                  
                  -
                  
                  
                  
                  1,660Purchase
      of 80% of outstanding stock of DirecTECH operating entities via payment to
      escrow in 2008
                  
                  
                  -
                  
                  
                  
                  500





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, 2010 AND 2009


(in
thousands, except for share and per 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, 2009, 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, 2010, the Company
earned a net income of $2,599 versus the nine months ended September 30, 2009 in
which the Company incurred a net loss of $12,207.  At September 30,
2010, the Company had an accumulated deficit of $93,485.  The
Company's ability to continue as a going concern is dependent on it maintaining
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.
            Maintain
      continued profitability in the Company’s HSP
  segment.


2.
            Evaluate
      factors such as anticipated usage and inventory turnover to maintain
      optimal inventory levels.


3.
            Obtain senior debt financing with
      extended terms to refinance the Company’s note payable to DirecTECH
      Holding Company, Inc., which matures on January 1,
      2013.


4.
            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.


5.
            Solicit
      additional equity investment in the Company by issuing either preferred or
      common stock.





Principles
of Consolidation


The 2010
consolidated financial statements include the accounts of Multiband Corporation
(MBCorp) and its wholly owned subsidiaries, Minnesota Digital Universe, Inc.
(MNMDU), Multiband Subscriber Services, Inc. (MBSS), Multiband NC Incorporated
(NC) (formerly Michigan Microtech, Incorporated (MMT)), Multiband NE
Incorporated (NE), Multiband SC Incorporated (SC), Multiband EC Incorporated
(EC), Multiband MDU Incorporated (MBMDU), Multiband DV Incorporated (DV) and
Multiband Security Incorporated (Security).


Page
8


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





The 2009
consolidated financial statements include the accounts of all wholly-owned
subsidiaries including the newly acquired companies that were purchased,
effective January 2, 2009, when 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 NC, 51% of which was
previously purchased effective March 1, 2008 (see Note 3) and 80% of NE, SC, EC,
MBMDU, DV and Security (see Note 3)).  The noncontrolling interest in
subsidiaries on the consolidated balance sheet and consolidated statement of
operations represents DTHC’s 20% ownership of NE, SC, EC, NC, MBMDU, DV
Incorporated (DV) and Multiband Security from January 2, 2009 to December 17,
2009.  On December 17, 2009, the Company purchased the remaining 20%
of the issued and outstanding shares of common stock of all of the DTHC
operating subsidiaries (DirecTECH) and transferred $5,996 of noncontrolling
interest to Multiband’s controlling interest (see Note 4).  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.





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 has two operating segments.  The HSP segment (HSP) (companies
include NE, SC, EC, NC, DV and Security) provides the installation and service
of DirecTV video programming, internet and home security systems for residents
of single family homes. The MDU segment (MDU) (companies include MNMDU, MBSS and
MBMDU) 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
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 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.





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





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.


Page
9


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





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.





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.





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.





Long-lived
Assets


The
Company reviews its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable or exceeds its fair value.  The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset.  An impairment loss shall be measured as the amount by which
the carrying amount of a long-lived asset exceeds its fair
value.  Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.  There was no impairment
at September 30, 2010 or December 31, 2009.


Page
10


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





Goodwill
and Other Intangible Assets


In
accordance with ASC Topic No. 350, Intangibles-Goodwill and
Other, goodwill and intangible assets without a defined life shall not be
amortized over a defined period, but instead must be tested for impairment at
least annually.  Additionally, goodwill is tested for impairment between
annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of an entity below its carrying value.  The
goodwill impairment test is a two-step impairment test.  In the first step,
the Company compares the fair value of each reporting unit to its carrying
value. The Company’s estimates may differ from actual results due to, among
other things, economic conditions, changes to its business models, or changes in
operating performance.  Significant differences between these estimates and
actual results could result in future impairment charges and could materially
affect the Company’s future financial results.  If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that
reporting unit, goodwill is not impaired and the Company is not required to
perform further testing.  If the carrying value of the net assets assigned
to the reporting unit exceeds the fair value of the reporting unit, then the
Company must perform the second step in order to determine the implied fair
value of the reporting unit’s goodwill and compare it to the carrying value of
the reporting unit’s goodwill.  The activities in the second step include
valuing the tangible and intangible assets and liabilities of the impaired
reporting unit based on their fair value and determining the fair value of the
impaired reporting unit’s goodwill based upon the residual of the summed
identified tangible and intangible assets and liabilities.





At
September 30, 2010, the Company determined that there was no event which
occurred or circumstance changes that would more likely than not reduce the fair
value of its reporting units below their respective carrying
values.  Goodwill was $38,067 at September 30, 2010 and December 31,
2009, and is recorded as part of our MDU and HSP segments.





Goodwill
by business segment consists of the following:





MBCorp.
                    
                    
                    MDU
                    
                    
                    HSP
                    
                    
                    TotalBalance,
      December 31, 2009
                    
                    $
                    -
                    
                    
                    $
                    381
                    
                    
                    $
                    37,686
                    
                    
                    $
                    38,067Acquisitions/impairment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
      September 30, 2010
                    
                    $
                    -
                    
                    
                    $
                    381
                    
                    
                    $
                    37,686
                    
                    
                    $
                    38,067





Components of intangible assets are as
follows:


September 30, 2010
                
                
                December 31, 2009Gross
                  Carrying
                
                
                Accumulated
                
                
                Gross
                  Carrying
                
                
                AccumulatedAmount
                
                
                Amortization
                
                
                Amount
                
                
                AmortizationIntangible
      assets subject to amortizationRight
      of entry contracts
                
                $
                2,716
                
                
                $
                1,525
                
                
                $
                2,577
                
                
                $
                1,228Contracts
      with DirecTV
                
                
                36,902
                
                
                
                19,702
                
                
                
                36,902
                
                
                
                15,574Customer
      contracts
                
                
                102
                
                
                
                102
                
                
                
                102
                
                
                
                102Total
                
                $
                39,720
                
                
                $
                21,329
                
                
                $
                39,581
                
                
                $
                16,904





Amortization
of intangible assets was $1,302 and $1,759 for the three months ended September
30, 2010 and 2009, respectively.  For the nine months ended September
30, 2010 and 2009, amortization of intangibles assets was $4,485 and $6,469,
respectively.  Estimated amortization expense of intangible assets for
the remainder of the year ending December 31, 2010 and for the years ending
December 31, 2011, 2012, 2013, 2014, 2015 and thereafter is $953, $3,804,
$3,741, $3,629, $3,569, $2,630 and $52, 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 4.93 years with right of entry
average life of 3.98 years and contracts with DirecTV of 5.00 years as of
September 30, 2010, (this takes into account the renewal of the Company’s
DirecTV HSP contract which was extended on October 1, 2010 and now expires
September 30, 2014).





The
Company amortizes the right of entry contracts, contracts with DirecTV, and
customer contracts, over their estimated useful lives ranging from 15 to 115
months.


Page
11


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





The
Company’s HSP agreement with DirecTV was renewed on October 1, 2010 and ends
September 30, 2014.  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.





Group
Health and Workers’ Compensation Insurance Coverage


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





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





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





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





Stock-Based
Compensation


The
Company measures and recognizes compensation expense for all stock-based
payments at fair value.  The financial statements for the three and
nine months ended September 30, 2010 and 2009 recognize compensation cost for
the portion of outstanding awards which have vested during the
periods.  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, 2010 and 2009 total stock-based compensation expense of $195 ($.02
per share, basic and diluted) and $19 ($.00 per share, basic and diluted),
respectively, was included in selling, general and administrative
expenses.  For the nine months ended September 30, 2010 and 2009 total
stock-based compensation expense of $421 ($.04 per share, basic and diluted) and
$133 ($.01 per share, basic and diluted), respectively, was included in selling,
general and administrative expenses.  As of September 30, 2010, there
was $2,149 of total unrecognized compensation cost related to nonvested
stock-based compensation arrangements granted under the Plan.  That
cost is expected to be recognized over a weighted-average period of 2.61
years.  This is an estimate based on options currently outstanding and
therefore this projected expense could be more in the future.





The
Company’s determination of fair value of stock-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.





The
Company calculates expected volatility for stock options and awards using
historical volatility, as the Company believes the expected volatility will
approximate historical volatility.  The starting point for the
historical period used is July 1, 2001.  The Company estimates the
forfeiture rate for stock options using 5% for all employees.





The
risk-free rates for the expected terms of the stock options and awards and the
employee stock purchase plan is based on the U.S. Treasury yield curve in effect
at the time of grant.


Page
12


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





In
determining the compensation cost of the options granted during the three and
nine months ended September 30, 2010 and 2009, 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 as follows:





Three months ended
                  
                  
                  Nine months endedSeptember 30,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September 30,
                    2009Risk-free
      interest rate
                  
                  
                  1.46
                  %
                  
                  
                  *
                  
                  
                  
                  2.42
                  %
                  
                  
                  1.43
                  %Expected
      life of options granted
                  
                  5.0
      Years
                  
                  
                  
                  *
                  
                  
                  5.0
      Years
                  
                  
                  5.0
      YearsExpected
      volatility range
                  
                  
                  95.5
                  %
                  
                  
                  *
                  
                  
                  
                  95.2
                  %
                  
                  
                  95
                  %Expected
      dividend yield
                  
                  
                  0
                  %
                  
                  
                  *
                  
                  
                  
                  0
                  %
                  
                  
                  0
                  %





* - no
options were issued this period.





In
January 2010, the Company issued 50,000 shares of stock options with a
Black-Scholes valuation of $70 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 2010, the Company issued 84,375 shares of stock options with a
Black-Scholes valuation of $128 to an officer 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.





In
February 2010, the Company issued 59,211 shares of stock options with a
Black-Scholes valuation of $79 to an officer of the Company.  These
seven-year stock options vest immediately and were issued as long-term incentive
compensation pursuant to the Company’s 1999 Stock Compensation
Plan.





During
2010, the Company issued 1,687,500 shares of stock options with a Black-Scholes
valuation of $2,074 to various employees of the Company.  These
seven-year stock options vest over three years and were issued as long-term
incentive compensation pursuant to the Company’s 1999 Stock Compensation
Plan.





During
the nine months ended September 30, 2010, there were 71,367 options forfeited or
canceled.





Restricted
Stock


The
Company awards restricted common shares to selected
employees.  Recipients are not required to provide any consideration
other than services.  Company share awards are subject to certain
restrictions on transfer, and all or part of the shares awarded may be subject
to forfeiture upon the occurrence of certain events, including employment
termination.  The restricted stock is valued at the grant date fair
value of the common stock and expensed over the requisite service period or
vesting term of the awards.  For the three months ended September 30,
2010 and 2009, the Company recognized stock-based compensation expense of $43
and $0, respectively.  For the nine months ended September 30, 2010
and 2009, the Company recognized stock-based compensation expense of $228 and
$0, respectively.  At September 30, 2010 and December 31, 2009, there
was approximately $274 and $0, respectively, of unrecognized stock-based
compensation expense associated with the non-vested restricted stock
granted.  Stock-based compensation expense relating to these
restricted shares is being recognized over a weighted-average period of 2.86
years.  The total fair value of shares vested during the three and
nine months ended September 30, 2010 was $0 and $100, respectively.





The
following table sets forth a summary of restricted stock activity for the nine
months ended September 30, 2010:





Number of
                    Restricted Shares
                  
                  
                  Weighted-
                    Average Grant
                    Date Fair ValueOutstanding
      and not vested at January 1, 2010
                  
                  
                  -
                  
                  
                  $
                  -Granted
                  
                  
                  257,625
                  
                  
                  $
                  1.95Vested
                  
                  
                  (50,000
                  )
                  
                  $
                  2.00Outstanding
      and not vested at September 30, 2010
                  
                  
                  207,625
                  
                  
                  $
                  1.95




Page
13


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





In
January 2010, the Company awarded 50,000 shares of restricted stock in the
amount of $100 to four directors of the Company.  The value of the
restricted stock was established by the market price on the date of
grant.  These restricted shares were immediately vested and were
awarded as performance bonuses pursuant to the Company’s 2000 Non-employee
Directors Stock Compensation Plan.





In
January 2010, the Company awarded 84,375 shares of restricted stock in the
amount of $169 to an officer of the Company.  The value of the
restricted stock was established by the market price on the date of
grant.  These restricted shares vest over three years and are to be
awarded as performance bonuses pursuant to the Company’s 1999 Stock Compensation
Plan.





In
January 2010, the Company awarded 120,000 shares of restricted stock in the
amount of $228 to an officer of the Company.  The value of the
restricted stock was established by the market price on the date of
grant.  These restricted shares vest over two years and are to be
awarded as performance bonuses pursuant to the Company’s 1999 Stock Compensation
Plan.





In August
2010, the Company awarded 3,250 shares of restricted stock in the amount of $6
to certain employees of the Company.  The value of the restricted
stock was established by the market price on the date of grant.  These
restricted shares vest over three years and are to be awarded as performance
bonuses pursuant to the Company’s 1999 Stock Compensation Plan.





Income
(Loss) per Common Share


Basic
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
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 unvested restricted
stock) had been issued.  All options, warrants, convertible preferred
shares, and unvested restricted stock during the three and nine months ended
September 30, 2009 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.  Diluted income (loss) per share amounts are based upon the
weighted average number of common and common equivalent shares outstanding
during the period and are calculated using the treasury stock method for
equity-based compensation awards.  A reconciliation of the weighted
average number of common and common equivalent shares outstanding and awards
excluded from the diluted income (loss) per share calculation, as they were
anti-dilutive, are as follows:





Three Months Ended
                          
                          
                          Nine Months EndedSeptember 30,
                            2010
                            (unaudited)
                          
                          
                          September 30,
                            2009
                            (unaudited)
                          
                          
                          September
                            30, 2010
                            (unaudited)
                          
                          
                          September
                            30, 2009
                            (unaudited)Weighted
      average number of common shares outstanding - basic
                          
                          
                          10,084
                          
                          
                          
                          9,659
                          
                          
                          
                          9,930
                          
                          
                          
                          9,653Weighted
      average dilutive impact of equity-based compensation
awards
                          
                          
                          104
                          
                          
                          
                          -
                          
                          
                          
                          117
                          
                          
                          
                          -Weighted
      average number of common and common equivalent shares outstanding -
      diluted
                          
                          
                          10,188
                          
                          
                          
                          9,659
                          
                          
                          
                          10,047
                          
                          
                          
                          9,653Awards
      excluded from diluted income(loss) per share
                          
                          
                          7,188
                          
                          
                          
                          2,872
                          
                          
                          
                          7,193
                          
                          
                          
                          2,872





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, where the Company receives net cash payments for
the installation and service of DirecTV video programming, internet and home
security systems 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, internet and video
subscribers as a principal.


Page
14


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





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, 2010 and December
31, 2009.





Reclassifications


Certain
accounts in the prior year’s audited consolidated financial statements have been
reclassified for comparative purposes to conform to the current year’s
presentation.  The reclass was a change in presentation of accrued
liabilities (see Note 7) as of December 31, 2009 to reflect the current
classification.  These reclassifications had no effect on reported net
income (loss).







NOTE
      3 – Business Acquisitions





Effective
December 17, 2009, the Company purchased the remainder of the issued and
outstanding shares of common stock of all of the DTHC operating subsidiaries
(DirecTECH) (an additional 20% of NC (formerly MMT), 29% of which was
previously purchased effective January 2, 2009 and 51% purchased effective March
1, 2008 and 20% of NE, SC, EC, MBMDU, DV and Security, 80% of which was
previously purchased effective January 2, 2009).  DTHC, a fulfillment
agent for a national satellite television company, DirecTV, specialized 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 Company issued 100 shares
of Multiband Series J Preferred Stock with a fair value of $10,000 to purchase
the remaining 20% interest.  Because the Company already had a
controlling interest in these entities the purchase transaction is accounted for
as an equity transaction only.





The
carrying amount of the noncontrolling interest at December 17, 2009 was adjusted
to reflect the 100% ownership in the subsidiaries by reducing the accumulated
deficit. The difference between the amount of noncontrolling interest at
December 17, 2009 and the fair value of the preferred shares issued of $10,000
was also recorded as a reduction of accumulated deficit. The net effect to
equity was zero. No increase to goodwill or intangibles was recorded as part of
this acquisition.





On
January 2, 2009, the Company purchased 80% of NE, SC, EC, MBMDU, DV and
Security.  The purchase price totaled $40,400 plus other contingent
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 which
amount has not been paid as of December 31, 2009; 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 $6,344, for an offsetting receivable on Multiband’s books
as of December 31, 2008.  This reduced the amount of this promissory
note to $33,856.  As of December 31, 2009, the Company has offset an
additional $4,000 of receivables from DirecTECH related to legal claims
discussed below, which brings the remaining balance of the note to
$29,856.





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.


Page
15


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





Because
the Company had previously gained control of NC with its purchase of 51% of NC
in March 2008, Multiband recognized the acquisition of the 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.





In the
January 2, 2009 transaction to purchase the other 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
assets and liabilities purchased are all measured on a nonrecurring basis at
fair value.  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.





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, SC, MBMDU, DV, and
      Security
                      
                      $
                      38,740Assets
                      
                      $
                      33,444Intangible
      assets
                      
                      
                      27,634Goodwill
                      
                      
                      36,972Accounts
      payable and accrued liabilities
                      
                      
                      (53,004
                      )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 half of certain claims against the note to DTHC once those claims are
ultimately resolved, and therefore also allocated a note receivable – related
party of $2,290 which represented an estimate of the amount that could be
recovered from DTHC based on the preliminary legal contingency
accrual.  During the year ended December 31, 2009, the Company
increased the contingent legal accrual to $8,706 based on new information
received about facts and circumstances that existed as of the acquisition date
related to certain legal matters.  On December 31, 2009 the Company
settled in principal the majority of these claims, and recorded the settlement
of $6,729, net of imputed interest of $575 (see Note 9).  The
remaining contingent liability at December 31, 2009 was an estimated $1,977
related to this litigation.  At the time the settlement was recorded,
the Company also offset $3,904 of the note receivable – related party against
the note payable – related party to DTHC.  The remaining balance on
the note receivable of $1,011 at December 31, 2009 represented an estimate of
the amount that will 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.


Page
16


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





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 an average life for right of
entry contracts 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 9).  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 year ended
December 31, 2009.  Goodwill and intangible assets acquired are not
expected to be deductible for tax purposes.





At June
30, 2009, the Company revised the initial purchase price 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 December 31, 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.  At
December 31, 2009, the Company adjusted the majority of the contingencies due to
an actual settlement in principle of certain litigation (See Note
9).  In the fourth quarter, within the one-year measurement period,
the Company also increased accrued liabilities by $1,200 to reflect the
assumption of an insurance premium obligation.







NOTE
      4 – Noncontrolling Interest





Equity of
noncontrolling interest in subsidiaries:





September 30,
                  2010
                
                
                December 31,
                  2009Noncontrolling
      interest in subsidiaries, beginning balance
                
                $
                -
                
                
                $
                3,471Purchase
      of 80% of NE, SC, EC, MBMDU, DV & Security
                
                
                -
                
                
                
                6,306Purchase
      of 29% of NC from noncontrolling interest
                
                
                -
                
                
                
                (2,054
                )Net
      income(loss) attributable to the noncontrolling interest in
      subsidiaries
                
                
                -
                
                
                
                (1,727
                )Purchase
      remaining 20% of NC, NE, SC, EC MBMDU, DV & Security from
      noncontrolling interest
                
                
                -
                
                
                
                (5,996
                )Noncontrolling
      interest in subsidiaries, ending balance
                
                $
                -
                
                
                $
                -







NOTE
      5 – Inventories





Inventories
consisted of the following:


September 30,
                    2010
                  
                  
                  December 31,
                    2009DirecTV
      – serialized
                  
                  $
                  2,377
                  
                  
                  $
                  2,948DirecTV
      – nonserialized
                  
                  
                  4,170
                  
                  
                  
                  3,455Other
                  
                  
                  3,153
                  
                  
                  
                  2,158Total
                  
                  $
                  9,700
                  
                  
                  $
                  8,561





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.


Page
17


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)







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 Western Capital Resources, Inc. (WCRS) (previously URON,
a former subsidiary) 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
WCRS.  As a result, Multiband recorded the fair value of WCRS shares
based on quoted market prices as an unrealized gain.  At September 30,
2010 and December 31, 2009 the balance in securities available for sale was $2
and $7, respectively.





Securities
available for sale consisted of the following at:





September 30,
                    2010
                  
                  
                  December 31,
                    2009Beginning
      balance
                  
                  $
                  7
                  
                  
                  $
                  46Initial
      investment
                  
                  
                  -
                  
                  
                  
                  -Current
      period unrealized loss
                  
                  
                  (5
                  )
                  
                  
                  (39
                  )Ending
      balance
                  
                  $
                  2
                  
                  
                  $
                  7





Fair
value of securities available for sale consisted of the following:





September 30,
                    2010
                  
                  
                  December 31,
                    2009Cost
                  
                  $
                  -
                  
                  
                  $
                  -Unrealized
      gain
                  
                  $
                  2
                  
                  
                  $
                  7Fair
      value at period end
                  
                  $
                  2
                  
                  
                  $
                  7


Page
18


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)







NOTE
      7 – Accrued Liabilities





Accrued
liabilities consisted of the following:





September
      30,
                              2010
                            
                            
                            December
      31,
                              2009Payroll
      and related taxes
                            
                            $
                            6,120
                            
                            
                            $
                            6,971Accrued
      worker compensation claims
                            
                            
                            3,028
                            
                            
                            
                            457Accrued
      incurred but not reported health insurance claims
                            
                            
                            1,100
                            
                            
                            
                            1,088Accrued
      legal settlements, fees and contingencies (see Note 9)
                            
                            
                            6,902
                            
                            
                            
                            5,684Accrued
      preferred stock dividends
                            
                            
                            809
                            
                            
                            
                            626Accrued
      liability – vendor chargeback
                            
                            
                            40
                            
                            
                            
                            40Accrued
      contract labor
                            
                            
                            3,336
                            
                            
                            
                            2,002Accrued
      income taxes
                            
                            
                            318
                            
                            
                            
                            296Other
      – short term
                            
                            
                            4,048
                            
                            
                            
                            4,862Accrued
      liabilities – short term
                            
                            
                            25,701
                            
                            
                            
                            22,026Accrued
      worker compensation claims long term
                            
                            
                            1,709
                            
                            
                            
                            -Accrued
      legal settlement long term, 15 equal monthly installments remaining (see
      Note 9)
                            
                            
                            1,132
                            
                            
                            
                            3,615Multi-year
      insurance premium obligations
                            
                            
                            600
                            
                            
                            800Accrued
      liabilities – long term
                            
                            
                            3,441
                            
                            
                            
                            4,415Total
      accrued liabilities
                            
                            $
                            29,142
                            
                            
                            $
                            26,441







NOTE
      8 - 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 (MNMDU, MBSS, and MBMDU) 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, SC, EC, NC, DV and Security) provides the installation and service of
DirecTV (DTV) 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:





Three months ended September 30, 2010:
                  
                  MBCorp
                  
                  
                  MDU
                  
                  
                  HSP
                  
                  
                  TotalRevenues
                  
                  $
                  -
                  
                  
                  $
                  5,766
                  
                  
                  $
                  64,109
                  
                  
                  $
                  69,875Income
      (loss) from operations
                  
                  
                  (911
                  )
                  
                  
                  (993
                  )
                  
                  
                  5,647
                  
                  
                  
                  3,743Identifiable
      assets
                  
                  
                  9,293
                  
                  
                  
                  12,210
                  
                  
                  
                  83,594
                  
                  
                  
                  105,097Depreciation
      and amortization
                  
                  
                  149
                  
                  
                  
                  615
                  
                  
                  
                  1,263
                  
                  
                  
                  2,027Capital
      expenditures
                  
                  
                  114
                  
                  
                  
                  315
                  
                  
                  
                  21
                  
                  
                  
                  450





Three months ended September 30, 2009
                  
                  MBCorp
                  
                  
                  MDU
                  
                  
                  
                  HSP
                  
                  
                  TotalRevenues
                  
                  $
                  -
                  
                  
                  $
                  $6,595
                  
                  
                  $
                  64,826
                  
                  
                  $
                  71,421Loss
      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


Page
19


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





Nine months ended September 30, 2010:
                  
                  MBCorp
                  
                  
                  MDU
                  
                  
                  HSP
                  
                  
                  TotalRevenues
                  
                  $
                  -
                  
                  
                  $
                  16,804
                  
                  
                  $
                  178,207
                  
                  
                  $
                  195,011Income
      (loss) from operations
                  
                  
                  (3,071
                  )
                  
                  
                  (2,392
                  )
                  
                  
                  14,975
                  
                  
                  
                  9,512Identifiable
      assets
                  
                  
                  9,293
                  
                  
                  
                  12,210
                  
                  
                  
                  83,594
                  
                  
                  
                  105,097Depreciation
      and amortization
                  
                  
                  452
                  
                  
                  
                  2,385
                  
                  
                  
                  3,772
                  
                  
                  
                  6,609Capital
      expenditures
                  
                  
                  285
                  
                  
                  
                  1,186
                  
                  
                  
                  57
                  
                  
                  
                  1,528





Nine months ended September 30, 2009
                    
                    MBCorp
                    
                    
                    MDU
                    
                    
                    
                    HSP
                    
                    
                    TotalRevenues
                    
                    $
                    -
                    
                    
                    $
                    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







NOTE
      9 – 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’s defense costs are expensed as
incurred.  The Company has recorded $8,035 and $9,299 of accrued
liabilities as of September 30, 2010 and December 31, 2009, respectively, for
claims and known and potential settlements and legal fees 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).  Effective December 31, 2009, the Company settled in principal
the majority of these claims.  While the Company and its predecessors
denied the allegations underlying the lawsuits, it agreed to a settlement to
avoid significant legal fees, the uncertainty of a jury trial, and other
expenses and management time that would have to be devoted to protracted
litigation.  The Company recorded the settlement of $6,729, net of
imputed interest of $575 and including administration fees and estimated payroll
taxes (see Note 3).  The aforementioned settlement is being paid in
equal installments of $291 over a 24 month period beginning January 15,
2010.  The balance of the settlement as of September 30, 2010 is
$4,188.





In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset a portion of certain claims against the note to
DTHC.  In relation to the settlement noted above, the Company offset
$66 during the nine months ended September 30, 2010.  The Company has
recorded a receivable of $985 as of September 30, 2010 which represents an
estimate of the amount that will be recovered from DTHC including legal fees for
the remaining litigation.





In
December 2009, the US Department of Labor (DOL) sued various individuals that
are either shareholders, directors, trustees and/or advisors to DirecTECH
Holding Company (DTHC) and its Employee Stock Ownership Plan
(ESOP).  Multiband Corporation was not named in this
complaint.  Various defendants in this matter have made requests to
Multiband for advancement or reimbursement of legal fees to defend the
case.  Two of those Defendants, Robert Eddy and Woody Bilyeu, have
filed suit against DTHC, Multiband and certain Multiband operating subsidiaries
for reimbursement of said fees.  In an ancillary count, Bilyeu has
also filed suit seeking acceleration of his promissory note with DTHC which
totals approximately $9,600 as of this writing.  The basis for these
reimbursement requests are certain corporate indemnification agreements that
were entered into by the former DTHC operating subsidiaries and Multiband
itself.  To date, Multiband has denied all requests for
indemnification of legal fees in this matter for, in part, the following
reasons: 1) Similar indemnification agreements as the ones in question here were
declared illegal under Federal law by a California federal appeals court; 2) The
Company believes the primary remedy the DOL is seeking from the defendants is
one of “disgorgement” from the individual DTHC shareholders; 3) Multiband has no
obligation to indemnify DTHC individual shareholder
conduct.  Notwithstanding the above, the outcome of the matter is
uncertain at present and Multiband cannot definitively predict based on the
current facts known to it, whether it ultimately will have any material expense
in the matter.


Page
20


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





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 completed the
first two year automatic renewal period.  Currently the Company is on
a month-to-month term while the agreement is in the process of being
negotiated.





The
Company also has a separate home service provider agreement with DirecTV ending
September 30, 2014.  The term of this agreement with DirecTV will
automatically renew as of October 1, 2014 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 99.9% and 99.3% of total revenue for the three and nine months ended
September 30, 2010, respectively.  Revenues generated from DirecTV for
the three and nine months ended September 30, 2009 were 99.5% and 99.3% of total
revenue, respectively.  Accounts receivable from this customer were
86.6% and 88.5% of total accounts receivable as of September 30, 2010 and
December 31, 2009, 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 supplied by DirecTV, was $17,717 and $14,886 at September 30, 2010 and
December 31, 2009, respectively.





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, 2010 and December 31, 2009).  As of September 30, 2010
and December 31, 2009, the amount outstanding was $48 and $49,
respectively.  This line of credit is guaranteed by J. Basil
Mattingly, Vice President of Business Development of the Company.





Short-term
financing


The
Company has entered into a short-term financing agreement with First Insurance
Funding Corporation in the amount of $8,806 for workers compensation, business
and auto insurance.  This financing agreement carries an interest rate
of 6.12% and requires monthly payments of principal and interest of $1,004
through October 2010.  As of September 30, 2010, the amount
outstanding under the agreement was $998 which is included in short term debt in
the condensed consolidated balance sheet.





Equity
financing


On August
3, 2010, the Company signed a $10,000 purchase agreement to sell shares of the
Company’s common stock to Lincoln Park Capital Fund, LLC (LPC), an Illinois
limited liability company.  The Company plans to use any proceeds from
this agreement for working capital to support current operations and for other
general corporate purposes; which may involve expansion of those operations
and/or reduction of existing debt.  We also entered into a
registration rights agreement with LPC whereby we agreed to file a registration
statement related to the transaction with the U.S. Securities & Exchange
Commission (SEC) covering the shares that have been issued or may be issued to
LPC under the purchase agreement.  After the SEC has declared
effective the registration statement related to the transaction, we have the
right, in our sole discretion, over a 25-month period to sell our shares of
common stock to LPC in amounts up to $500 per sale, depending on certain
conditions as set forth in the purchase agreement, up to the aggregate
commitment of $10,000.  As of this writing, the registration statement
has not been declared effective but is pending under SEC
review.


Page
21


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





There are
no upper limits to the price LPC may pay to purchase our common stock and the
purchase price of the shares related to the $10,000 of future funding will be
based on the prevailing market prices of the Company’s shares immediately
preceding the time of sales without any fixed discount, and the Company will
control the timing and amount of any sales of shares to LPC.  LPC
shall not have the right or the obligation to purchase any shares of our common
stock on any business day that the purchase price would be below $1.40 per share
and we anticipate only selling to LPC when the purchase price is above $1.62 per
share, which is above the closing market price on August 2, 2010.





In
consideration for entering into the $10,000 agreement, we issued to LPC, 103,164
shares of our common stock as a commitment fee and shall issue 103,164 common
shares pro rata as LPC purchases the first $5,000 of the $10,000 aggregate
commitment.  The commitment fee of $190 is being amortized over the 25
month term of the agreement.  The purchase agreement may be terminated
by us at any time at our discretion without any cost to us.  There are
no negative covenants, restrictions on future fundings, penalties or liquidated
damages in the agreement.  The proceeds received by the Company under
the purchase agreement are expected to be used for working capital and other
general corporate purposes.





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 lease
as open ended 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.  For the three month and nine
months ended September 30, 2010, the Company recognized a gain on the sale of
vehicles of approximately $87 and $364, respectively.  For the three
and nine months ended September 30, 2009, the Company recognized a loss on the
sale of vehicles of approximately $65 and $137, respectively.  For the
three months ended September 30, 2010 and 2009, the Company’s operating lease
expense under the lease totaled approximately $1,985 and $1,813,
respectively.  For the nine months ended September 30, 2010 and 2009,
the Company’s operating lease expense under the lease totaled approximately
$5,931 and $5,550, respectively.  In addition, the Company has a
security deposit with the lessor in the amount of approximately $1,701 which is
included in other assets in the accompanying condensed consolidated balance
sheets as of September 30, 2010 and December 31, 2009,
respectively.  Outstanding leases at September 30, 2010 have in
service dates ranging from 2006 through 2010 and therefore are currently open
ended leases and could be terminated at will.





Bulk
Subsidy Reserve


Bulk
subsidy revenue is generated when bulk subscriber counts are greater than the
benchmark set by DirecTV.  The Company reviews the subscriber counts
associated with bulk properties on a periodic basis to determine bulk subscriber
counts over the total units at the property.  Based on its review, the
Company estimates that the result of this analysis will be a reduction to the
subscriber count of approximately 500 and 375 active bulk subscribers at
September 30, 2010 and December 31, 2009, respectively.  The Company
has recorded a bulk subsidy reserve of $100 and $75 at September 30, 2010 and
December 31, 2009, respectively.  This reserve is netted against
DirecTV estimated receivables on the consolidated balance sheets.







NOTE
      10 – Income Taxes





The
Company has federal and state net operating losses of approximately $67,000 and
$50,000, respectively, which, if not used, will begin to expire in
2018.  Changes in the stock ownership of the Company, has placed
limitations on the use of these net operating loss carryforwards
(NOLs).  During 2009, the Company performed an IRC 382 study and
determined that an ownership change had occurred.  As a result of the
ownership change, the amount of federal NOL available for future use is $41,613,
consisting of annual federal limitations of $6,294 for the next five years and
$634 for each year thereafter.  The Company has determined there are
also limitations on the state net operating loss carryforwards, but has not
completed the analysis to determine the amount of the limitation.  For
the three months ended September 30, 2010 and 2009, the Company has recorded
income tax expense of $1,573 and $372, respectively, related to federal and
state taxes.  For the nine months ended September 30, 2010 and 2009,
the Company has recorded income tax expense of $3,756 and $574, respectively,
related to federal and state taxes.


Page
22


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





The
Company’s effective tax rate was 57% and 59% for the three and nine months ended
September 30, 2010, respectively.  This varies from the expected
effective tax rate of 39% due to an increase in net deferred tax assets
(primarily related to amortization of intangibles (see Note 2) and workers
compensation loss reserves (see Note 2).)  Because the Company does
not believe that it is more likely than not that the net deferred tax assets
will be utilized, a full valuation allowance has been placed against the net
increase in deferred tax assets as of September 30,
2010.  Consequently, the tax rate is higher because the Company is
unable to realize a tax benefit of the deferred tax assets in the three and nine
months ended September 30, 2010.





The
Company’s effective tax rate was 105% and 5% for the three and nine months ended
September 30, 2009, respectively. Because of the taxable loss in 2009, the 2009
provision consists entirely of state income taxes that are based on factors
other than earnings.





Management
periodically evaluates the realizability of the Company’s net deferred tax
assets based on all available evidence, both positive and negative. The
realization of net deferred tax assets is solely dependent on the Company’s
ability to generate sufficient future taxable income during periods prior to the
expiration of tax statutes to fully utilize these assets.  The Company
intends to maintain the valuation allowance until sufficient positive evidence
exists to support reversal of the valuation allowance.





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 in
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 2007-2009.  The Company has no significant unrecognized tax
benefits as of September 30, 2010 and December 31, 2009 that would reasonably be
expected to affect our effective tax rate during the next twelve
months.







NOTE
      11 – Related Party
Transactions





On
September 1, 2009, the Company entered into an unsecured short term promissory
note in the amount of $800 with J. Basil Mattingly, Vice President of Business
Development of the Company.  The balance at September 30, 2010 and
December 31, 2009 is $115 and $745, respectively.  The note carries an
interest rate of 4% per annum and was extended to December 31,
2010.





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 $6,344 for an offsetting receivable which was on
Multiband’s books as of December 31, 2008.  This reduced the amount of
this promissory note to $33,856.  The Company has the right to offset
a portion of certain claims against the note to DTHC once those claims are
resolved.  As of December 31, 2009, the Company offset $4,000 of its
claims against the outstanding balance.  The balance as of September
30, 2010 and December 31, 2009 was $29,536 and $29,856, respectively (see Note 3
and 9).  The note is secured by the stock and assets of all of the
DTHC operating entities.  On January 2, 2009, the Company also entered
into a short-term non-interest bearing note of $500 which has not been paid (see
Note 3).





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. Basil
Mattingly, Vice President of Business Development of the Company.  The
balance of this note is $65 and $100 at September 30, 2010 and December 31,
2009, respectively.  The note carries an interest rate of 7% per annum
and was extended to December 31, 2010.





James
Mandel, CEO of Multiband, loaned DTHC $100 in a short-term unsecured
subordinated note, paying simple interest monthly at 10% and is due October
2008.  The loan was repaid in full in March 2010.


Page
23


MULTIBAND
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2010 AND 2009


(in
thousands, except for share and per share amounts)





The
Company had a note receivable due from a non-affiliated entity that was 50%
owned by a shareholder.  The carrying value of this note receivable
was $0 and $34 at September 30, 2010 and December 31, 2009,
respectively.





The
Company has a receivable due from a DTHC with no defined terms.  The
balance of this receivable was $518 at September 30, 2010 and December 31, 2009,
respectively.





In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset a portion of certain claims against the note to
DTHC.  The Company has recorded a receivable of $985 as of September
30, 2010 which represents an estimate of the amount that will be recovered from
DTHC including legal fees for the remaining litigation.





In 2009,
the Company issued 55,000 shares of preferred series E stock to director Eugene
Harris.  In the three and nine months ended September 30, 2010, the
Company has issued $20 and $75 of preferred stock dividends to this
director.  Payment has been in the form of cash and
warrants.





In 2009,
the Company issued 155,000 shares of preferred series E stock to director Frank
Bennett.  In the three and nine months ended September 30, 2010, the
Company has issued $57 and $215 of preferred stock dividends to this
director.  Payment has been in the form of cash, common stock and
warrants.


Page
24


FORWARD-LOOKING
STATEMENTS





From time
to time, the Company may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects, technological
developments, new products, and similar matters.  The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements including those made in this document.  In
order to comply with the terms of the Private Securities Litigation Reform Act,
the Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking
statements.





The risks
and uncertainties that may affect the operations, performance, developments and
results of the Company's business include the following: national and regional
economic conditions; pending and future legislation affecting the IT and
telecommunications industry; market acceptance of the Company's products and
services; the Company's continued ability to provide integrated communication
solutions for customers in a dynamic industry; the Company’s ability to raise
additional financing and other competitive factors.  Because these and
other factors could affect the Company's operating results, past financial
performance should not necessarily be considered as a reliable indicator of
future performance, and investors should not use historical trends to anticipate
future period results.





ITEM
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) Home Service
Provider (HSP), which primarily installs video services for residents of single
family homes and 2) Multi-Dwelling Unit (MDU), which sells voice, data and video
services to residents of multiple dwelling units.  Both segments
encompass a variety of different corporate entities.





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





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





From its
inception until December 31, 1998, the Company operated as a telephone
interconnect company only.  Effective December 31, 1998, the Company
acquired the assets of the Midwest region of Enstar Networking Corporation
(ENC), a data cabling and networking company. In late 1999, in the context of a
forward triangular merger, the Company, to expand its range of computer products
and related services, purchased the stock of Ekman, Inc. d/b/a Corporate
Technologies, and merged Ekman, Inc. into the newly formed surviving
corporation, Corporate Technologies USA, Inc. (MBS).  MBS provided
voice, data and video systems and services to business and
government.  The MBS business segment was sold effective April 1,
2005.  The Company’s MDU segment (formally known as MCS) began in
February 2000.  MDU provides voice, data and video services to
multiple dwelling units, including apartment buildings, condominiums and time
share resorts.  During 2004, the Company purchased video subscribers
in a number of separate transactions, the largest one being Rainbow Satellite
Group, LLC.  During 2004, the Company also purchased the stock of
Minnesota Digital Universe, Inc. (MNMDU), which made the Company the largest
master service operator in MDU’s for DirecTV satellite television in the United
States.  During 2006 and 2007, the Company strategically sold certain
assets at multiple dwelling properties where only video services were primarily
deployed.  The Company continues to operate properties where multiple
services were deployed.  To remain competitive, the Company intends to
continue to own and operate properties at locations where multiple services can
be deployed and manage properties where one or more services are
deployed.  Consistent with that strategy, beginning in 2006 and
continuing to the present, the Company expanded its servicing of third party
clients (other system operators) through its call center.  At October
29, 2010, the Company had approximately 104,000 owned and managed subscriptions,
with an additional 43,000 subscriptions supported by the call
center.


Page
25


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





The
Company has operations in 16 states with 32 field offices. The Company employs
approximately 2,800 people.  Multiband is the second largest
independent DirecTV field services provider in the United States.




SELECTED CONSOLIDATED FINANCIAL
DATA


DOLLAR AMOUNTS AS A PERCENTAGE OF REVENUESTHREE MONTHS ENDED
                    
                    
                    NINE MONTHS ENDEDSeptember 30,
                      2010
                      (unaudited)
                    
                    
                    September 30,
                      2009
                      (unaudited)
                    
                    
                    September 30,
                      2010
                      (unaudited)
                    
                    
                    September 30,
                      2009
                      (unaudited)REVENUES
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %COST
      OF PRODUCTS & SERVICES (Exclusive of depreciation and amortization
      shown below)
                    
                    
                    70.7
                    %
                    
                    
                    76.5
                    %
                    
                    
                    70.3
                    %
                    
                    
                    79.0
                    %SELLING,
      GENERAL & ADMINISTRATIVE
                    
                    
                    21.1
                    %
                    
                    
                    19.3
                    %
                    
                    
                    21.4
                    %
                    
                    
                    21.4
                    %DEPRECIATION
      & AMORTIZATION
                    
                    
                    2.9
                    %
                    
                    
                    3.4
                    %
                    
                    
                    3.4
                    %
                    
                    
                    4.2
                    %INCOME
      (LOSS) FROM OPERATIONS
                    
                    
                    5.3
                    %
                    
                    
                    .8
                    %
                    
                    
                    4.9
                    %
                    
                    
                    -4.6
                    %INTEREST
      EXPENSE & OTHER, NET
                    
                    
                    -1.4
                    %
                    
                    
                    -1.3
                    %
                    
                    
                    -1.6
                    %
                    
                    
                    -1.2
                    %INCOME
      (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST IN
      SUBSIDIARIES
                    
                    
                    3.9
                    %
                    
                    
                    -.5
                    %
                    
                    
                    3.3
                    %
                    
                    
                    -5.8
                    %PROVISION
      FOR INCOME TAXES
                    
                    
                    2.2
                    %
                    
                    
                    .5
                    %
                    
                    
                    2.0
                    %
                    
                    
                    .3
                    %NET
      INCOME (LOSS)
                    
                    
                    1.7
                    %
                    
                    
                    -1.0
                    %
                    
                    
                    1.3
                    %
                    
                    
                    -6.1
                    %LESS:
      NET INCOME (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN
      SUBSIDIARIES
                    
                    
                    -
                    
                    
                    
                    -.4
                    %
                    
                    
                    -
                    
                    
                    
                    -1.0
                    %NET
      INCOME (LOSS) ATTRIBUTABLE TO THE MULTIBAND CORPORATION AND
      SUBSIDIARIES
                    
                    
                    1.7
                    %
                    
                    
                    -.6
                    %
                    
                    
                    1.3
                    %
                    
                    
                    -5.1
                    %


Page
26


RESULTS
OF OPERATIONS





Revenues


Total
revenues decreased 2.2% to $69,875 for the quarter ended September 30, 2010 as
compared to $71,421 for the quarter ended September 30,
2009.  Revenues for the nine months ended September 30, 2010 decreased
2.9% to $195,011 from $200,975 for the same period in 2009.





HSP
segment revenues for the three months ended September 30, 2010, were $64,109 in
comparison to $64,826 for the same period in 2009, a decrease of
1.1%.  Revenues for the nine months ended September 30, 2010, for the
HSP segment, were $178,207 as compared to $182,350 for the same period in 2009,
a decrease of 2.3%. This decrease is due to a reduction in DirecTV work order
volume of approximately 12% partially offset by an increase in earned incentive
revenue of approximately $4,500.  Revenues in the HSP segment improved
in the third quarter over the second quarter.  The Company expects
fourth quarter revenues in the HSP segment to decrease to the normal seasonal
levels.





Revenues
in the third quarter of 2010 for the MDU segment decreased 12.6% to $5,765 as
compared to $6,595 in the third quarter of 2009.  Revenues for the
nine months ended September 30, 2010, for the MDU segment, decreased 9.8% to
$16,804 from $18,625 for the same period in 2009.  This decrease is
primarily due to reduced DTV subsidies of approximately $1,400 and reduced DTV
MDU subscriber activations as a result of more stringent DTV credit
standards.  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.  However, due to the aforementioned stringent DirecTV credit
standards, reduced DTV MDU subscriber activations and anticipated weakness in
the economy, the Company does not expect significant growth in the MDU segment
in 2010.





Cost
of Products and Services (exclusive of depreciation and
amortization)


The
Company's cost of products and services decreased by 9.6% to $49,425 for the
quarter ended September 30, 2010, as compared to $54,645 for the same quarter
last year.  For the nine months ended September 30, 2010, cost of
products and services were $137,192 compared to $158,855 in the prior year, a
13.6% decrease.  This reduction is attributable to improved inventory
controls which has decreased cost of products and services approximately $2,700
for the quarter ended September 30, 2010 as compared to the same quarter last
year, and a better mix of jobs (i.e. more installation work orders versus
service calls which yield a higher margin).





Cost of
products and services decreased by 9.5% for the HSP segment for the three months
ended September 30, 2010 and were $45,523 for the HSP segment, compared to the
$50,298 in the prior year quarter due to the aforementioned improvement in
inventory controls.  The reductions due to improved inventory controls
were partially offset by increases in tech wages over the prior year quarter of
approximately $1,500.  Although overall DirectTV work order volume was
down slightly for the quarter over the same period a year ago, the introduction
of new DirectTV services earlier in the year, primarily multiple room viewing,
required increase tech counts during the third quarter to meet
demand.





For the
nine months ended September 30, 2010, cost of products and services were
$126,114 for the HSP segment compared to $146,288 in the prior year, a 13.8%
decrease.  This decrease is the result of reduced costs due to the
decrease in volume and improvements in inventory controls.  During the
remainder of 2010, the Company expects HSP cost of products and services to
increase relative to revenue as the Company continues to hire and train new
technicians to service expected job volumes.





Cost of
products and services for the MDU segment for the current quarter were $3,902
compared to $4,347 in the same quarter last year, a 10.2%
decrease.  For the nine months ended September 30, 2010, cost of
products and services were $11,078 for the MDU segment, compared to $12,567 in
the prior year, an 11.8% decrease.  In 2010, the Company expects MDU
cost of products and services to be relatively constant in relation to
revenue.





Selling,
General and Administrative Expenses


Selling,
general and administrative expenses decreased 6.6% to $14,680 in the quarter
ended September 30, 2010, compared to $13,774 in the prior year’s
quarter.  Selling, general and administrative expenses were, as a
percentage of revenues, 21.0% for the quarter ended September 30, 2010 and 19.3%
for the same period a year ago.  For the nine months ended September
30, 2010, selling, general and administrative expenses decreased 3.1% to $41,698
compared to $43,023 for the nine months ended September 30, 2009.  As
a percentage of revenue, selling general and administrative expenses were 21.4%
for the nine months ended September 30, 2010, compared to 21.4% for the same
period in 2009.  Selling, general and administrative expenses as a
percentage of revenue is comparable primarily due to decreased insurance and
telephone expense of approximately $3,400 offsetting increases in wage and legal
expense.  In 2010, the Company renegotiated several contracts with
telephone providers as well as changed its mobile phone policies.  It
also changed its workers compensation policy.  The Company is
self-insured for workers compensation claims up to $250 plus administrative
expenses, for each occurrence involving workers compensation claims since the
beginning of 2010.  The Company anticipates that for the remainder of
2010, selling, general and administrative expenses will remain consistent with
third quarter levels.


Page
27


Depreciation
and Amortization


Depreciation
and amortization expense decreased 16.0% to $2,027 for the quarter ended
September 30, 2010 compared to $2,414 in the prior year’s
quarter.  For the nine months ended September 30, 2010, depreciation
and amortization decreased 21.3% to $6,609 compared to $8,402 for the nine
months ended September 30, 2009.  In May 2009, the Company signed a
new contract with DirecTV (see Note 3).  Due to the new contract, the
amortization period of the intangibles was increased from 40 months to 60
months.  Effective October 1, 2010, the Company extended the HSP
contract an additional 17 months bringing the amortization period to 77
months.  For the remainder of 2010, depreciation and amortization
expense is expected to decrease slightly due to certain assets becoming fully
amortized and extension of the aforementioned amortization period.





Income
(Loss) from Operations


The
Company, in the third quarter of 2010, earned income from operations of $3,743
versus an income from operations of $588 during the prior year’s comparable
period.  Income from operations was $9,512 during the first nine
months of 2010 compared to a loss from operations of $9,305 during the last nine
months of 2009.  For the third quarter of 2010, the HSP segment earned
income from operations of $5,647, compared to income of $1,528 in the same
period last year.  For the nine months ended September 30, 2010,
income from operations was $14,975 for the HSP segment, compared to a loss from
operations of $5,962 in the prior year.  This improvement is primarily
due to increased incentive revenue, improved inventory control and reduced
technician training expense.  The MDU segment showed a loss from
operations of $993 for the three months ended September 30, 2010 compared to
income from operations of $36 for the three months ended September 30,
2009.primarily due to reduced DTV subsidies and reduced DTV MDU subscriber
activations due to more stringent DirecTV credit standards.   For
the nine months ended September 30, 2010, loss from operations was $2,392 for
the MDU segment, compared to a loss from operations of $346 in the same period
last year.  The MBCorp segment, which has no revenues, incurred a loss
from operations of $911 for the three months ended September 30, 2010 and $3,071
for the nine months ended September 30, 2010 compared to losses of $976 and
$2,997 for the same periods last year.  The MBCorp segment loss is
expected to continue in future periods as corporate overhead is expected to
remain consistent with current levels.  The HSP segment is expected to
maintain its profitability throughout the balance of 2010.  The
Company plans to mitigate its loss in the MDU segment in future periods by
growing its subscriber base at existing properties since the on-going selling,
general and administrative expenses to service those subscribers is more fixed
than variable.





Interest
Expense


Interest
expense was $1,026 for the quarter ended September 30, 2010, and for the same
period a year ago.  Interest expense was $3,215 for the nine months
ended September 30, 2010 and $2,771 for the same period last year, primarily
reflecting an increase due to interest expense incurred on the Convergent debt
and interest expense related to a legal settlement (see Note 9).





Noncontrolling
Interest


The
noncontrolling interest in subsidiaries was $0 on September 30, 2010 and
December 31, 2009, after the Company purchased the remaining 20% of the issued
and outstanding shares of common stock of all of the DTHC operating subsidiaries
(DirecTECH) and reclassified $5,996 of noncontrolling interest to Multiband’s
controlling interest on December 17, 2009.  The net loss attributable
to the noncontrolling interest in subsidiaries for the three months ended
September 30, 2010 and 2009 was $0 and $266, respectively.  The net
loss attributable to the noncontrolling interest in subsidiaries for the nine
months ended September 30, 2010 and 2009 was $0 and $2,044,
respectively.





Income
taxes


The
Company has federal and state net operating losses of approximately $67,000 and
$50,000, respectively, which, if not used, will begin to expire in
2018.  Changes in the stock ownership of the Company, has placed
limitations on the use of these net operating loss carryforwards
(NOLs).  During 2009, the Company performed an IRC 382 study and
determined that an ownership change had occurred.  As a result of the
ownership change, the amount of federal NOL available for future use is $41,613,
consisting of annual federal limitations of $6,294 for the next five years and
$634 for each year thereafter.  The Company has determined there are
also limitations on the state net operating loss carryforwards, but has not
completed the analysis to determine the amount of the limitation.  For
the three months ended September 30, 2010 and 2009, the Company has recorded
income tax expense of $1,573 and $372, respectively, related to federal and
state taxes.  For the nine months ended September 30, 2010 and 2009,
the Company has recorded income tax expense of $3,756 and $574, respectively,
related to federal and state taxes.


Page
28


The
Company’s effective tax rate was 57% and 59% for the three and nine months ended
September 30, 2010, respectively. This varies from the expected effective tax
rate of 39% due to an increase in net deferred tax assets (primarily related to
amortization of intangibles (see Note 2) and workers compensation loss reserves
(see Note 2).) Because the Company does not believe that it is more likely than
not that the net deferred tax assets will be utilized, a full valuation
allowance has been placed against the net increase in deferred tax assets as of
September 30, 2010. Consequently, the tax rate is higher because the Company is
unable to realize a tax benefit of the deferred tax assets in the three and nine
months ended September 30, 2010.





The
Company’s effective tax rate was 105% and 5% for the three and nine months ended
September 30, 2009, respectively. Because of the taxable loss in 2009, the 2009
provision consists entirely of state income taxes that are based on factors
other than earnings.





Management
periodically evaluates the realizability of the Company’s net deferred tax
assets based on all available evidence, both positive and negative. The
realization of net deferred tax assets is solely dependent on the Company’s
ability to generate sufficient future taxable income during periods prior to the
expiration of tax statutes to fully utilize these assets.  The Company
intends to maintain the valuation allowance until sufficient positive evidence
exists to support reversal of the valuation allowance.





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 in
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 2007-2009.  The Company has no significant unrecognized tax
benefits as of September 30, 2010 and December 31, 2009 that would reasonably be
expected to affect our effective tax rate during the next twelve
months.





Net
Income (Loss)


In the
third quarter of fiscal 2010, the Company reported a net income of $1,168
compared to a net loss of $725 for the third fiscal quarter of
2009.  For the nine months ended September 30, 2010, the Company
recorded a net income of $2,599 compared to a net loss of $12,207 for the nine
months ended September 30, 2009.





Liquidity
and Capital Resources


During
the nine months ended September 30, 2010, the Company earned net income of
$2,599 compared with a net loss of $12,207 during the nine months ended
September 30, 2009.  Net cash provided by operations during the nine
months ended September 30, 2010 was $14,289 as compared to the net cash used by
operations during the nine months ended September 30, 2009 of
$2,937.  Principal payments on current long-term debt, short-term
debt, short-term debt to a related party and capital lease obligations over the
next 12 months are expected to total $2,170.





In May
2009, the Company paid off its then existing loan with Convergent Capital
Partners I, L.P., and entered into a new $5,000 loan facility with a different
lender due in December 2012.  That new facility has a rolling
quarterly positive EBITDA covenant which the Company was in compliance with as
of September 30, 2010.





The
Company, in lieu of a one-time payment for its business insurance, has entered
into a short-term financing agreement with First Insurance Funding Corporation
in the amount of $8,806 for workers compensation, business and auto
insurance.  This financing agreement carries an interest rate of 6.12%
and requires monthly payments of principal and interest of $1,004 through
October 2010.  As of September 30, 2010, the amount outstanding under
the agreement was $998.





Cash and
cash equivalents totaled $4,912 at September 30, 2010 versus $2,240 at December
31, 2009.  Working capital deficit at September 30, 2010 was $25,752
compared to $28,596 at December 31, 2009.  Net cash used by investing
activities totaled $1,562 for the period ended September 30, 2010, compared to
$2,673 for the period ended September 30, 2009.





For the
balance of 2010, the Company intends to focus on maintaining profitability in
its HSP business segment.  With regards to its MDU business segment,
the Company, for the balance of 2010, believes it can modestly grow both owned
and managed subscriber revenues through increased marketing and customer
penetrations of previously built out properties.  The Company believes
it can increase managed subscriber 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.


Page
29


The
Company used $1,527 for capital expenditures during the nine months ended
September 30, 2010, compared to $2,166 in the same period last
year.  Capital expenditures consisted of property build-outs and
equipment acquired for internal use.  This decrease was related
to  reduced company funded  build outs to MDU properties
made during 2010.  Throughout the remainder of 2010, the Company
estimates that it will have approximately $300 of additional capital
expenditures which the Company intends to fund through leasing and/or cash on
hand.





Management
anticipates that the impact of the actions listed below will generate sufficient
cash flows to pay current liabilities, long-term debt and capital and operating
lease obligations and fund the Company's operations for the next twelve
months:





1.
            Maintain
      continued profitability in the Company’s HSP
  segment.


2.
            Evaluate
      factors such as anticipated usage and inventory turnover to maintain
      optimal inventory levels.


3.
            Obtain senior debt financing with
      extended terms to refinance the Company’s note payable to DirecTECH
      Holding Company, Inc., which matures on January 1,
      2013.


4.
            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.


5.
            Solicit
      additional equity investment in the Company by issuing either preferred or
      common stock.





On August
3, 2010, the Company signed a $10,000 purchase agreement to sell shares of the
Company’s common stock to Lincoln Park Capital Fund, LLC (LPC), an Illinois
limited liability company.  The Company plans to use any proceeds from
this agreement for working capital to support current operations and for other
general corporate purposes; which may involve expansion of those operations
and/or reduction of existing debt.  We also entered into a
registration rights agreement with LPC whereby we agreed to file a registration
statement related to the transaction with the U.S. Securities & Exchange
Commission (SEC) covering the shares that have been issued or may be issued to
LPC under the purchase agreement.  After the SEC has declared
effective the registration statement related to the transaction, we have the
right, in our sole discretion, over a 25-month period to sell our shares of
common stock to LPC in amounts up to $500 per sale, depending on certain
conditions as set forth in the purchase agreement, up to the aggregate
commitment of $10,000 (see Note 9). As of this writing, the registration
statement has not been declared effective but is pending under SEC
review.




The
Company, as of September 30, 2010, needs to continue to improve its working
capital ratio over the next few quarters to adequately manage the size of its
expanded operations.  Since the Company acquired significant assets in
its purchase of 100% of the outstanding stock of the former DTHC operating
entities, Multiband believes it has the capacity to leverage certain of those
assets.  Management believes that through a combination of leveraging
assets, its cash on hand, greater expense control, recent positive operating
income, and potential sales of common and/or preferred stock, it can meet its
anticipated liquidity and capital resource requirements for the next twelve
months.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Inventories


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





Impairment
of Long-Lived Assets


The
Company's long-lived assets include property, equipment, leasehold improvements
and intangibles, subject to amortization.  At September 30, 2010, the
Company had net property and equipment of $8,218 which represents approximately
7.8% of the Company's total assets.  At September 30, 2010, the
Company had net intangibles of $18,391 which represented approximately 17.5% of
the Company’s total assets (see Note 1).  The Company reviews its
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable or exceeds its fair
value.  The carrying amount of a long-lived asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset.  An impairment loss shall
be measured as the amount by which the carrying amount of a long-lived asset
exceeds its fair value.  Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.


Page
30


Impairment
of Goodwill


In
accordance with ASC Topic No. 350, Intangibles-Goodwill and
Other, goodwill and intangible assets without a defined life shall not be
amortized over a defined period, but instead must be tested for impairment at
least annually.  Additionally, goodwill is tested for impairment
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of an entity below its carrying
value.  The goodwill impairment test is a two-step impairment
test.  In the first step, the Company compares the fair value of each
reporting unit to its carrying value. The Company’s estimates may differ from
actual results due to, among other things, economic conditions, changes to its
business models, or changes in operating performance.  Significant
differences between these estimates and actual results could result in future
impairment charges and could materially affect the Company’s future financial
results.  If the fair value of the reporting unit exceeds the carrying
value of the net assets assigned to that reporting unit, goodwill is not
impaired and the Company is not required to perform further
testing.  If the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit, then the Company
must perform the second step in order to determine the implied fair value of the
reporting unit’s goodwill and compare it to the carrying value of the reporting
unit’s goodwill.  The activities in the second step include valuing
the tangible and intangible assets and liabilities of the impaired reporting
unit based on their fair value and determining the fair value of the impaired
reporting unit’s goodwill based upon the residual of the summed identified
tangible and intangible assets and liabilities.  Future events could
cause us to conclude that impairment indicators exist and that goodwill
associated with our acquired businesses, which amounts to $38,067 as of
September 30, 2010, 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, 2010
and 2009, the Company did not record any impairment related to
goodwill.





Group
Health and Workers’ Compensation Insurance Coverage


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





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





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





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





Stock-Based
Compensation


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





Income
Taxes


The
Company accounts for deferred tax assets and liabilities under the liability
method.  Deferred tax liabilities are recognized for temporary
differences that will result in taxable amounts in future
years.  Deferred tax assets are recognized for deductible temporary
differences and tax operating loss and tax credit
carryforwards.  Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be realized or
settled.  We assess the likelihood that our deferred tax assets will
be recovered from future taxable income and record a valuation allowance to
reduce our deferred tax assets to the amounts we believe to be
realizable.  We concluded that a full valuation allowance against our
U.S. deferred tax assets was appropriate as of September 30, 2010 and December
31, 2009.


Page
31


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 has two operating segments.  The HSP segment (HSP) (companies
include NE, SC, EC, NC, DV and Security) provides the installation and service
of DirecTV video programming, internet and home security systems for residents
of single family homes.  The MDU segment (MDU) (companies include
MNMDU, MBSS, and MBMDU) 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
Company earns HSP segment revenue as follows:





1.      installation
and service of DirecTV video programming for residents of single family
homes


2.      installation
of home security systems and internet services





The
Company has a home services provider 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.





The
Company earns MDU segment revenue as follows:


.


1
            from
      voice, video and data communications products which are sold and
      installed2.
            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





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.





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.





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.


Page
32


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.





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.





ITEM
3.  QUANTITIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK





None.





ITEM
4.  CONTROLS AND PROCEDURES





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





Based on
this evaluation, our chief executive officer and chief financial officer
concluded that as of September 30, 2010, our disclosure controls and procedures
were effective at a reasonable assurance level to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and that such information is
accumulated and communicated to management, including the chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure.





Changes
in Internal Controls


There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2010 that have materially affected, or are
reasonable likely to materially affect, our internal control over financial
reporting.





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’s defense costs are expensed as
incurred.  The Company has recorded $8,035 and $9,299 of accrued
liabilities as of September 30, 2010 and December 31, 2009, respectively, for
claims and known and potential settlements and legal fees 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).  Effective December 31, 2009,
the Company settled in principal the majority of these claims.  While
the Company and its predecessors denied the allegations underlying the lawsuits,
it agreed to a settlement to avoid significant legal fees, the uncertainty of a
jury trial, and other expenses and management time that would have to be devoted
to protracted litigation.  The Company recorded the settlement of
$6,729, net of imputed interest of $575 and including administration fees and
estimated payroll taxes.  The aforementioned settlement is being paid
in equal installments of $291 over a 24 month period beginning January 15,
2010.  The balance of the settlement as of September 30, 2010 is
$4,188.





In
connection with the purchase of the operating subsidiaries of DTHC, the Company
has the right to offset a portion of certain claims against the note to
DTHC.  In relation to the settlement noted above, the Company offset
$66 during the nine months ended September 30, 2010.  The Company has
recorded a receivable of $985 as of September 30, 2010 which represents an
estimate of the amount that will be recovered from DTHC including legal fees for
the remaining litigation.


Page
33


In
December 2009, the US Department of Labor (DOL) sued various individuals that
are either shareholders, directors, trustees and/or advisors to DirecTECH
Holding Company (DTHC) and its Employee Stock Ownership Plan
(ESOP).  The Company was not named in this
complaint.  Various defendants in this matter have made requests to
the Company for advancement or reimbursement of legal fees to defend the
case.  Two of those Defendants, Robert Eddy and Woody Bilyeu, have
filed suit against DTHC, Multiband and certain Multiband operating subsidiaries
for reimbursement of said fees. In an ancillary count, Bilyeu has also filed
suit seeking acceleration of his promissory note with DTHC which totals
approximately $9,600 as of this writing.  The basis for these
reimbursement requests are certain corporate indemnification agreements that
were entered into by the former DTHC operating subsidiaries and the Company
itself.  To date, the Company has denied all requests for
indemnification of legal fees in this matter for, in part, the following
reasons: 1) Similar indemnification agreements as the ones in question here were
declared illegal under Federal law by a California federal appeals court; 2) The
Company believes the primary remedy the DOL is seeking from the defendants is
one of “disgorgement” from the individual DTHC shareholders; 3) Multiband has no
obligation to indemnify DTHC individual shareholder
conduct.  Notwithstanding the above, the outcome of the matter is
uncertain at present and the Company cannot definitively predict based on the
current facts known to it, whether it ultimately will have any material expense
in the matter.





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





ITEM 1A.  RISK
FACTORS (in thousands)





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





General





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





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





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





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





Net
Income (Losses)





Multiband
has had a history of inconsistent profitability. Continued uncertain
profitability may result in our curtailing or ceasing business
operations.





The
Company had a net income of $2,599 for the nine months ended September 30, 2010,
a net loss of $11,377 for the year ended December 31, 2009 and net income of
$1,597 for the year ended December 31, 2008.  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.  However, the last two fiscal quarters have
trended positively.  This mitigates the Company’s risk in being able
to meet our working capital needs and other ongoing operations.





Page
34


If we
cannot maintain 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





Multiband
has a significant working capital deficiency which, if continued, may result in
our curtailing or ceasing business operations.





The
Company had a working capital deficit of $25,752 and $28,596 at September 30,
2010 and December 31, 2009, respectively, due to the acquisition of
DirecTECH.





However,
Multiband has narrowed this working capital deficit over the past two quarters
and a continued reduction in that deficit will mitigate the risk.





Long-lived
Assets





Multiband
has significant long-lived assets which may not maintain their current value due
to changes in market conditions. Writing down those assets could adversely
affect the Company’s profitability in a material manner.





The
Company reviews its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable or exceeds its fair value.  The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset.  An impairment loss shall be measured as the amount by which
the carrying amount of a long-lived asset exceeds its fair
value.  Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.  There was no impairment
at September 30, 2010 or December 31, 2009.





For the
HSP segment, the income approach was used to measure fair value for those
long-lived assets.  For the MDU segment, the market approach
considering market multiples from comparable transactions were used to measure
fair value of those long-lived assets.  There was no impairment noted
for either segment at September 30, 2010 or December 31,
2009.  However, should the Company in future periods experience a
significant decline in profitability and/or should the market value for the
Company’s long-lived assets decrease, some impairment to these assets could
occur.  If an impairment occurs it could be materially adverse to the
Company’s results of operations in those future periods.





Goodwill
and Intangible Assets





Multiband
has significant intangibles and goodwill.  Lack of profitability
and/or changes in market conditions may result in an impairment of these assets
which adversely affect the Company’s profitability in a material
manner.





Annually,
the Company tests for impairment its goodwill and intangible assets without a
defined life.  We tested impairment for the HSP and MDU segments which
had goodwill at December 31, 2009 using standard fair value measurement
techniques.  The Company concluded there was no goodwill impairment as
of December 31, 2009.  However, should the Company in future periods
experience a significant decline in profitability and/or should the business
climate for satellite providers deteriorate some impairment to its goodwill
could occur.  If impairment occurs it could be materially adverse to
the Company’s results of operations in those future periods.  As of
September 30, 2010, the Company had goodwill of $38,067 and net intangibles of
$18,391 primarily related to the purchase of DirecTECH.  At September
30, 2010, the Company did not note any indications of impairment related to
goodwill or its intangible assets.





Group
Health and Workers’ Compensation Insurance Coverage





Excessive
insurance claims could have a material adverse impact on the Company’s future
profitability due to deductible charges potentially incurred under the contracts
with the insurance carriers.





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


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





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





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





Debt





The
Company has a significant amount of long –term debt due in
2013.  Failure to pay that debt when due could cause the secured
creditor to foreclose upon Company assets, making it unlikely the Company could
continue operating.





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





Dependence
on Strategic Alliances





The
Company is dependent on its relationship with DirecTV and a major alteration or
cessation of that relationship may force the Company to curtail or cease
operations.





The
Company is  highly dependent on its Home Service Provider (HSP) and on
its Master System Operator (MSO) agreements with DirecTV.  DirecTV
currently provides approximately 99% of the Company’s total
revenues.   The initial term of the MSO 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’s Master System Operator agreement is currently
on a month-to-month term as the agreement is in the process of being
negotiated.  The Company’s HSP agreement with DirecTV was renewed on
October 1, 2010 and ends September 30, 2014.  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. Furthermore,
DirecTV may change the terms of their agreements with us, among other things, to
change our service areas and/or pricing, both of which have occurred in the
past. Although an alternate provider of satellite television services, Echostar,
exists, the termination of its  dealer agreements with DirecTV would
have a material adverse effect on the Company’s business.





Changes
in Technology





The
Company is in the technology business and changes in technology could weaken our
competitiveness in the marketplace.





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 the Company's control.  In
addition, newer technologies, such as video-on-demand and delivery of
programming content over the internet, are being developed which could have a
material adverse effect on the Company's competitiveness in the marketplace if
the Company is unable to adopt or deploy such technologies.


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Attraction
and Retention of Employees





The
Company needs skilled and trained personnel to conduct its operations. Excessive
turnover of staff could materially weaken its operations.





The
Company's success depends on the continued employment of certain key personnel,
including executive officers. If the Company 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, the Company'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. The Company has traditionally experienced material technician churn
which has a significant impact on operations if the Company has an insufficient
number of techs at any given time to perform its backlog of jobs.





Intellectual
Property Rights





The
Company’s inability to adequately protect the confidential aspects of its
technology and the products and services it sells could materially weaken its
operations.





The
Company 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 the Company licenses intellectual property.  The Company also
relies on agreements with owners of multi-dwelling units which grant the Company
rights of access for a specific period to the premises whereby the Company is
allowed to offer its voice, data, and video services to individual residents of
the property.  If it was determined that the Company 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 the
Company's business, financial condition and results of
operations.  Also, there can be no assurance that the company would be
able to develop non-infringing technology or that it could obtain a license on
commercially reasonable terms, or at all. The Company'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 the company or the steps taken
by the Company will be adequate to prevent misappropriation of the Company's
intellectual property.





Variability
of Quarterly Operating Results





The
Company’s operations have historically fluctuated due to a number of seasonal
factors. As a result, Multiband’s results of operations may fluctuate
significantly from quarter to quarter.





Variations
in the Company'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 the Company'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.  For
example, the Company’s first quarter 2010 revenues were 16% lower than third
quarter 2010 revenues.





Certain
Anti-Takeover Effects





Certain
Minnesota laws and statutes may restrict the Company from making strategic moves
beneficially to the Company and its shareholders.





The
Company 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 the Company's securities, or the removal
of incumbent management.


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Volatility
of Multiband's Common Stock





The
Trading price of our common stock has been and is likely to continue to be
volatile.





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





Future
Sales of Our Common Stock





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. In the past, we
believe certain institutional investors have sold significant numbers of our
common shares. 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





We
may not continue to have a national market for trading of our
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. For example, in the past, we have temporarily
fallen below required NASDAQ shareholder equity levels.





Competition





Marketplace
pressures could curtail our operations.





We face
competition from others who are competing for a share of the HSP and MDU
markets, including other satellite companies, cable companies and telephone
companies.  Some of these companies have significantly greater assets
and resources than we do.  However, the Company’s strong performance
in HSP operations during 2010 has allowed us to maintain our market share in our
largest business segment year to date.





General
Economic Conditions





Nationwide
economic conditions may limit consumer’s abilities to purchase our products and
services in the future.





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





Legal
matters





Adverse
results in legal proceedings could have a material adverse effect on our
operations.





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 range of loss
can be reasonably estimated.  Some of these claims may be material to
the Company’s results of operations and have an adverse effect on the Company’s
cash position.See
legal proceedings herein.





Use
of Operating Loss Carryforwards Is Limited





We
may be limited or unable to use certain net operating loss
carryforwards.





As of
September 30, 2010, the Company has federal and state net operating losses of
approximately $67,000 and $50,000, respectively, which, if not used, will begin
to expire in 2018.  Changes in the stock ownership of the Company have
placed limitations on the use of these net operating loss carryforwards
(NOLs).  During 2009, the Company performed an IRC 382 study and
determined that an ownership change had occurred.  As a result of the
ownership change, the amount of federal NOL available for future use is $41,613,
consisting of annual federal limitations of $6,294 for the next five years and
$634 for each year thereafter.  The Company has determined there are
also limitations on the state net operating loss carryforwards, but has not
completed the analysis to determine the limitation.


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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
      12, 2010
                By:
                /s/
      James L. Mandel
                  Chief
      Executive OfficerDate:  November
      12, 2010
                By:
                /s/
      Steven M. Bell
                  Chief
      Financial Officer
                  (Principal
      Financial and Accounting
Officer)




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