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UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


**Washington,
      D.C. 20549**





**FORM
      10-K**




**(Mark
      One)**


x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934FOR
                THE PERIOD ENDED DECEMBER 31, 2005
              ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934FOR
                THE TRANSITION PERIOD FROM ____________ TO ____________COMMISSION
                FILE NUMBER 0 - 1325







**MULTIBAND
      CORPORATION**


(Exact
      name of registrant as specified in its charter)




**MINNESOTA**


(State
      or
      other jurisdiction of incorporation or organization)




**41
      -1255001**


(IRS
      Employer Identification No.)





**9449
      Science Center Drive, New Hope, Minnesota 55428**


(Address
      of principal executive offices)





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





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


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





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





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





Common
      Stock (no par value)




Indicated
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes
      | |
      No |X|





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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
      the preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days. Yes
      |X|
      No |_|





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





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





Large
      accelerated filer |_| Accelerated filer |_| Non-accelerated filer
      |X|





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





As
      of
      June 30, 2005, (the most recently completed fiscal second quarter), the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant computed by reference to the price at which
      the
      common equity was last sold, or the average bid and asked price of such common
      equity, as of the last business day of the registrants’ most recently completed
      second fiscal quarter was approximately $26,465,349.





As
      of
      March 21, 2006, there were 32,101,399 outstanding shares of the registrant's
      common stock, no par value stock.







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Documents
      Incorporated By Reference





Portions
      of the registrant's definitive proxy statement to be filed within 120 days
      after
      the end of the fiscal year covered by this report are incorporated by reference
      into Part III hereof.





Table
                of Contents PagePart
                I
            Item
                1.
            BusinessItem
                1A.
            Risk
                FactorsItem
                2.
            PropertiesItem
                3.
            Legal
                ProceedingsItem
                4.
            Submission
                of Matters to a Vote of Security HoldersPart
                IIItem
                5.
            Market
                for the Registrant's Common Equity Related
                Shareholder Matters and Issuer Purchases of Equity SecuritiesItem
                6.
            Selected
                Consolidated Financial DataItem
                7.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of OperationsItem
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                RiskItem
                8.
            Consolidated
                Financial Statements and Supplementary
                DataItem
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial DisclosureItem
                9A.
            Controls
                and ProceduresItem
                9B.
            NonePart
                IIIItem
                10.
            Directors,
                Executive Officers, Promoters and Control
                Persons of the RegistrantItem
                11.
            Executive
                CompensationItem
                12.
            Security
                Ownership of Certain Beneficial Owners and
                ManagementItem
                13.
            Certain
                Relationships and Related TransactionsItem
                14.
            Principal
                Accountant Fees and
                ServicesItem
                15.
            Exhibits
                and Financial Statement Schedules.Signatures






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***Item
      1:***





***Business***





Multiband
      Corporation (Multiband), (f/k/a Vicom, Incorporated), is a Minnesota corporation
      formed in September 1975. Multiband has two operating segments: 1) Multiband
      Consumer Services (MCS, legally known as Multiband Subscriber Services, Inc.),
      which encompasses the subsidiary corporations, Multiband USA, Inc., URON, Inc.,
      and Rainbow Satellite Group, LLC; and 2) Minnesota Digital Universe, Inc. (MDU).





Multiband
      completed an initial public offering in June 1984. In November 1992, Multiband
      became a non-reporting company under the Securities Exchange Act of 1934. In
      July 2000, Multiband regained its reporting company status. In December 2000,
      Multiband 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.





Multiband's
      website is located at: www.multibandusa.com .





From
      its
      inception until December 31, 1998, Multiband operated as a telephone
      interconnect company only. Effective December 31, 1998, Multiband 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, Multiband 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 March 31, 2005. All references to financial
      information and descriptions of business in this Form 10-K have been revised
      to
      reflect only our continuing operations and all references to our now
      discontinued Multiband Business Services have been eliminated. MCS segment
      began
      in February 2000. MCS provides voice, data and video services to multiple
      dwelling units (MDUs), 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. (MDU segment), which made the Company the largest master service operator
      in MDU's for DirecTV satellite television in the United States.





***Minnesota
      Digital Universe, Inc. (MDU Segment)***





The
      Company, through its MDU segment , also serves as a master service operator
      for
      DirecTV, a provider of satellite television service. DirecTV is the largest
      provider of satellite television services in the United States with
      approximately 16 million subscribers. DirecTV competes with the leading cable
      companies and with Echostar, America's second largest provider of satellite
      television. The Company, through its direct operations, markets DirecTV
      services. The MDU segment allows the Company to offer satellite television
      services to residents of multi-dwelling-units through a network of affiliated
      operators.





***Multiband
      Consumer Services (MCS Segment)***





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





o
      Lower
      Cost Per Service


o
      Blended
      Satellite and Cable Television Package


o
      Multiple Feature Local Phone Services (features such as call waiting, call
      forwarding and three-way calling)


o
      Better
      than Industry Average Response Times


o
      One
      Number for Billing and Service Needs


o
      One
      Bill for Local, Long Distance Cable Television and Internet


o
      “Instant On" Service Availability




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





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





***Multiband
      Consumer Industry Analysis***


***Strategy***





For
      the
      near future, the services described below will be offered primarily in New
      York,
      California, Minnesota, Florida, Illinois, Missouri and North Dakota. Our primary
      competition will come from the local incumbent providers of telephone and cable
      television services.





***Local
      Telephone Service***





We
      compete with the former Bell System companies such as Verizon Communications
      (Verizon) and Qwest Communications International, Inc. (Qwest) for local
      telephone services. Although those companies have become the standard for local
      telephone service, we believe we have the ability to under price their service
      while maintaining high levels of customer satisfaction.





***Cable
      Television Service***





We
      compete with Comcast Corporation (Comcast), Time Warner and others for pay-TV
      customers. Comcast and Time-Warner are national cable television service
      providers. We believe we have a significant consumer benefit in that we are
      establishing private rather than public television systems, which allows us
      to
      deliver a package that is not laden with local "public access" stations that
      clog the basic service package. In essence, we will be able to deliver a
      customized service offering to each property based upon pre-installation market
      research that we perform. The pricing of our service is also untariffed which
      allows for flexible and competitive "bundling" of services.





***Long
      Distance Telephone Service***





Cingular-Wireless,
      LLC (Cingular), MCI, Inc. (MCI), and Sprint Corporation (Sprint) are our
      principal competitors in providing long distance telephone service. They offer
      new products almost weekly. Our primary concern in this marketplace is to assure
      that we are competitive with the most recent advertised offerings in the "long
      distance wars." We will meet this challenge by staying within a penny of the
      most current offering, while still maintaining a high gross margin on our
      product. We accomplish this through various carrier agency associations. We
      expect to generate a high penetration in our long distance services amongst
      our
      local service subscribers because private property owners in the shared tenant
      environment (similar to a hotel environment) are not required to offer multiple
      long distance carriers to their tenants.





***Internet
      Access Service***





The
      clear
      frontrunners in this highly unregulated market are America Online, Inc., Comcast
      and Netzero. They compete with local exchange carriers, long distance carriers,
      Internet backbone companies and many local ISPs (Internet Service Providers).
      The general concern among consumers is the quality of the connection and the
      speed of the download. We believe our design provides the highest broadband
      connection speeds that are currently available. The approach that we will market
      is "blocks of service." Essentially, we deliver the same high bit rate service
      in small, medium and large packages, with an appropriate per unit cost reduction
      for those customers that will commit to a higher monthly
      expenditure.




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***Market
      Description***





We
      are
      currently marketing Multiband services to MDU properties primarily throughout
      Minnesota, North Dakota, Missouri, Florida, New York, California and Illinois.
      We will target properties that range from 50 to 150 units on a contiguous MDU
      property for television and Internet access only. We will survey properties
      that
      exceed 150 units for the feasibility of local and long distance telephone
      services.





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





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





***Number
      of Units/Customers***





At
      March
      25, 2006, MCS had 42,167 subscriptions for its services, (1,341 voice
      subscriptions, 36,673 video subscriptions and 4,153 internet subscriptions).
      At
      March 25, 2006, MDU had approximately 75,331 video subscriptions managed through
      its network of system operators.





***Employees***





As
      of
      March 25, 2006, Multiband employed three full-time management employees, eight
      accounting personnel, and eight information technology employees. As of that
      same date, MCS had 76 full-time employees, consisting of nine in sales and
      marketing, thirty-one in technical positions, thirty in customer service and
      related support, and six in management. MDU had two management employees.





***Item
      1A:***





***Risk
      Factors***





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





***General***





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





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





In
      early
      2000, Multiband created its MCS 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.





The
      specific risk factors, as detailed below, should be analyzed in the context
      of
      the Company's anticipated MCS related growth.




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***Net
      Losses***





The
      Company had net losses of $7,475,000 for the year ended December 31, 2005,
      $9,783,962 for the year ended December 31, 2004, and $4,365,004 for the year
      ended December 31, 2003. Multiband may never be profitable.




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





If
      we
      cannot achieve profitability from operating activities, we may not be able
      to
      meet:


o  our
      capital expenditure objectives;


o  our
      debt
      service obligations; or


o  our
      working capital needs.


***Working
        Capital Deficit***
 
 The
        Company had a working capital deficiency of ($971,418) and ($8,931,414),
        as of December
        31, 2005 and December 31, 2004, respectively; primarily due to operating
        losses
        and acquisition related debt. Although both operating losses and acquisition
        related debts were reduced during 2005, there is no assurance the Company
        will
        have positive working capital or be able to meet its working capital needs
        in
        future periods.


***Goodwill***





In
      June
      2001, the Financial Accounting Standards Board (FASB) adopted Statement of
      Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible
      Assets" which changed the amortization rules on recorded goodwill from a monthly
      amortization to a periodic "impairment" analysis for fiscal years beginning
      after December 15, 2001. In 2004, the Company recorded an impairment charge
      of
      $2,748,879 related to Multiband Business Services which is included in
      discontinued operations at December 31, 2004. As of December 31, 2005, the
      Company had remaining recorded goodwill of $954,871 primarily related to the
      purchase of Rainbow Satellite Group, LLC. and the purchase of certain assets
      of
      Dinamo Entertainment, Inc.





***Deregulation***





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





***Dependence
      on Strategic Alliances***





Several
      suppliers or potential suppliers of Multiband, such as McLeod, WorldCom, WS
      Net,
      XO Communications and others have filed for bankruptcy in recent years. While
      the financial distress of its suppliers or potential suppliers could have a
      material adverse effect on Multiband's business, Multiband believes that enough
      alternate suppliers exist to allow the Company to execute its business plans.
      The Company is also highly dependent on its Master System Operator agreement
      with DirecTV. The initial term of the agreement, which expires in August 2008,
      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. . Although an alternate provider of satellite television services,
      Echostar, exists, the termination of its agreements with DirecTV could have
      a
      material adverse effect on Multiband's business.





***Changes
      in Technology***





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




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***Attraction
      and Retention of Employees***





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





***Intellectual
      Property Rights***





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





***Variability
      of Quarterly Operating Results***





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





***Certain
      Anti-Takeover Effects***





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





***Volatility
      of Multiband's Common Stock***





The
      trading price of our common stock has been and is likely to be volatile. The
      stock market has experienced extreme volatility, and this volatility has often
      been unrelated to the operating performance of particular companies. We cannot
      be sure that an active public market for our common stock will continue after
      this offering. Investors may not be able to sell the common stock at or above
      the price they paid for their common stock, or at all. Prices for the common
      stock will be determined in the marketplace and may be influenced by many
      factors, including variations in our financial results, changes in earnings
      estimates by industry research analysts, investors' perceptions of us and
      general economic, industry and market conditions.





***Future
      Sales of Our Common Stock May Lower Our Stock Price***





If
      our
      existing shareholders sell a large number of shares of our common stock, the
      market price of the common stock could decline significantly. The perception
      in
      the public market that our existing shareholders might sell shares of common
      stock could depress our market price.




**Back
          to Table of Contents**


***Competition***





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





***Forward-Looking
      Statements***





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





***Item
      2:***





***Properties***





Multiband
      and its subsidiaries lease principal offices located at 2000 44th Street SW,
      Fargo, ND 58103 and 9449 Science Center Drive, New Hope, Minnesota 55428. We
      have no foreign operations. The main Fargo office lease expires in 2017 and
      covers approximately 22,500 square feet. The Fargo base rent ranges from $31,190
      to $31,985 per month. The New Hope office lease expires in 2013 and covers
      approximately 47,000 square feet. The New Hope base rent ranges from $19,443
      to
      $25,166 per month. Both the New Hope and Fargo leases have provisions that
      call
      for the tenants to pay net operating expenses, including property taxes, related
      to the facilities. Both offices have office, warehouse and training
      facilities.





Multiband
      considers its current facilities adequate for its current needs and believes
      that suitable additional space would be available as needed.





***Item
      3:***





***Legal
      Proceedings***





The
      Company is involved in legal actions in the ordinary course of business..
      However, as of December 31, 2005, Multiband was not engaged in any pending
      legal
      proceedings where, in the opinion of the Company, the outcome is likely to
      have
      a material adverse effect upon the business, operating results and financial
      condition of the Company.





***Item
      4:***





***Submission
      of Matters to a Vote of Security Holders***





The
      Company did not submit matters to a vote of security holders during the last
      quarter of the year covered by this report.




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          to Table of Contents**


***PART
      II***





***Item
      5:***





***Market
      for the Registrant's Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities***





Through
      May 17, 2000, Multiband's common stock was traded and quoted on the OTC Bulletin
      Board(R) ("OTCBB") under the symbol "VICM." From May 18, 2000 until August
      21,
      2000, the common stock was quoted under the VICM symbol on the Pink Sheets(R)
      operated by Pink Sheets LLC. From August 21, 2000, to December 12, 2000,
      Multiband's common stock was traded and quoted on the OTCBB under the VICM
      symbol. Since then, the stock has been traded and quoted on the NASDAQ Smallcap
      market system. In July 2004, the symbol was changed to MBND to coincide with
      the
      Company's name change to Multiband Corporation. The table below sets forth
      the
      high and low bid prices for the common stock during each quarter in the two
      years ended December 31, 2005 and December 31, 2004 as provided by
      NASDAQ.





**Quarter
                Ended**
            
            **High
                Bid**
            
            **Low
                Bid**March
                31, 2005
            
            $
            1.75
            
            $
            1.33June
                30, 2005
            
            
            1.50
            
            
            1.07September
                30, 2005
            
            
            1.55
            
            
            1.07December
                31, 2005
            
            
            1.52
            
            
            1.18March
                31, 2004
            
            
            1.68
            
            
            1.04June
                30, 2004
            
            
            2.70
            
            
            1.30September
                30, 2004
            
            
            1.45
            
            
            .96December
                31, 2004
            
            
            1.78
            
            
            1.01





As
      of
      March 21, 2006, Multiband had 595 shareholders of record of its common stock
      and
      32,101,399 shares of common stock outstanding. As of that date, seven
      shareholders held a total of 27,651 of Class A Preferred, two shareholders
      held
      8,300 shares of Class B Preferred, five shareholders held a total of 124,960
      shares of Class C Preferred, one shareholder held a total of 150,000 shares
      of
      Class F Preferred, 14 shareholders held a total of 45,245 shares of Class G
      Preferred, 6 shareholders held a total of 2 shares of Class H Preferred, and
      four shareholders held a total of 90,000 shares of Class I Preferred.





***Recent
      Sales of Unregistered Securities***





In
      2005,
      the Company issued ten million dollars worth of Preferred Stock to a group
      of
      institutional investors.





In
      2005,
      the Company issued $1,819,220 worth of common stock to various accredited
      investors.





In
      2004,
      the Company, via accredited investor purchasers of common stock, exercise of
      warrants, or other conversion into common stock, issued 2.3 million common
      shares at various prices, netting proceeds of approximately $3.2
      million.





The
      Company in 2004 issued $212,110 worth of its common stock to Pyramid Trading
      LP
      in connection with conversion of a note payable and accrued interest. The common
      stock was issued at various prices pursuant to a formula tied to the trading
      price of the Company's common stock.





The
      Company in 2004 issued $230,909 worth of its common stock to Laurus Master
      Fund
      Ltd in connection with conversion of a note payable. The common stock was issued
      at a conversion rate of $1.40.





At
      various other times in 2004, the Company issued $194,575 worth of common stock
      in connection with conversion of interest and notes payable. The common stock
      was issued at various prices pursuant to a formula tied to the trading price
      of
      the Company's common stock.





In
      2004
      the Company repurchased 27,500 shares of common stock for $62,975 from a former
      officer of the Company.





The
      Company, during 2004, issued $452,450 worth of Class G Preferred Stock and
      $1,083,341 worth of Class H Preferred Stock to various accredited
      investors.




**Back
          to Table of Contents**





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





***Common
      Stock***





Holders
      of common stock are entitled to one vote per share in all matters to be voted
      upon by shareholders. There is no cumulative voting for the election of
      directors, which means that the holders of shares entitled to exercise more
      than
      50% of the voting rights in the election of directors are able to elect all
      of
      the directors. Multiband's Articles of Incorporation provide that holders of
      the
      Company's common stock do not have preemptive rights to subscribe for and to
      purchase additional shares of common stock or other obligations convertible
      into
      shares of common stock which may be issued by the Company.





Holders
      of common stock are entitled to receive such dividends as are declared by
      Multiband's Board of Directors out of funds legally available for the payment
      of
      dividends. Multiband presently intends not to pay any dividends on the common
      stock for the foreseeable future. Any future determination as to the declaration
      and payment of dividends will be made at the discretion of the Board of
      Directors. In the event of any liquidation, dissolution or winding up of
      Multiband, and subject to the preferential rights of the holders of the various
      classes of Multiband’s preferred stocks, the holders of common stock will be
      entitled to receive a pro rata share of the net assets of Multiband remaining
      after payment or provision for payment of the debts and other liabilities of
      Multiband.





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





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





***Preferred
      Stock***





In
      December 1998, Multiband issued 2,550 shares of Class A Preferred for $23,638
      and 37,550 shares of Class B Preferred for $359,893. The Class B Preferred
      was
      offered to certain note holders at a conversion rate of $10.00 per share of
      Class B Preferred. Each share of Class A Preferred and Class B Preferred is
      non-voting (except as otherwise required by law) and convertible into five
      shares of common stock, subject to adjustment in certain circumstances. Each
      holder of a share of Class A Preferred or Class B Preferred has a five-year
      warrant to purchase one share of common stock at $3.00 per share, subject to
      adjustment. During 2001, Multiband issued 67,655 shares of Class A Preferred
      for
      $676,556.





In
      June
      2000, Multiband issued 80,500 shares of Class C Preferred for $805,000. The
      Class C Preferred was offered to certain note holders at a conversion rate
      of
      $10.00 a share. In September 2000, Multiband issued an additional 72,810 shares
      of Class C Preferred for $728,100. Each share of Class C Preferred is non-voting
      (except as otherwise required by law) and convertible into two shares of
      Multiband common stock, subject to adjustment in certain
      circumstances.





In
      November 2000, Multiband issued 72,500 shares of Class D Preferred for $490,332.
      The Class D Preferred was sold to eight accredited investors at $10.00 per
      share. Each share of Class D Preferred is non-voting (except as otherwise
      required by law) and convertible into two and one-half shares of Multiband
      Common Stock, subject to adjustment in certain circumstances.





In
      the
      second quarter of 2002, Preferred Class D stocks were redeemed; $100,000
      converted to Common Stock, and $300,000 converted to a Note
      Payable.





In
      the
      fourth quarter of 2002, Multiband issued 70,000 shares of Class E Preferred
      for
      $700,000, with $600,000 related to conversion of a note payable from a director
      of the Company into Preferred Stock.




In
      the
      first quarter of 2003, $72,000 worth of Class C Preferred Stock was issued
      to an
      officer of the Company in a conversion of accounts payable. Also in the first
      quarter of 2003, $76,500 worth of Class E Preferred Stock was issued to a member
      of the Board for his purchase of Multiband assets.




**Back
          to Table of Contents**





In
      the
      third quarter of 2003 $25,000 worth of Class B Preferred Stock was purchased
      by
      an accredited investor.





In
      addition, during 2003 $133,100 worth of Class C Preferred Stock was redeemed.





During
      the second quarter of 2004, $776,500 worth of Class E Preferred Stock was
      converted into Common Stock at a price of $1.25 per share. During the third
      quarter of 2004, two million dollars worth of Class F Preferred Stock was
      issued. During the fourth quarter of 2004, $452,450 worth of Class G Preferred
      Stock was issued and $1,083,341 worth of Class H Preferred Stock was issued.





In
      the
      first quarter of 2005, the Company issued $10,000,000 worth of Class I Preferred
      Stock.





The
      holders of the Class A Preferred, Class B Preferred, Class C Preferred, Class
      D
      Preferred, Class E Preferred, Class F Preferred, Class G Preferred Class H
      Preferred and Class I Preferred (collectively, "Preferred Stock") are entitled
      to receive, as and when declared by the Board, out of the assets of the Company
      legally available for payment thereof, cumulative cash dividends calculated
      based on the per share stated value of the Preferred Stock. The per annum
      dividend rate is eight percent (8%) for the Class A Preferred and ten percent
      (10%) for the Class B Preferred, Class C Preferred and Class F Preferred,
      fourteen percent (14%) for the Class D Preferred, fifteen percent (15%) for
      the
      Class E Preferred, to be paid in kind, eight percent (8%) for the Class G
      Preferred, six percent (6%) for the Class H Preferred and variable rate tied
      to
      prime for the Class I Preferred dividends on the Class A Preferred, Class C
      Preferred, Class D Preferred, Class F Preferred and Class G Preferred are
      payable quarterly on March 31, June 30, September 30, and December 31 of each
      year. Dividends on the Class B and Class I Preferred are payable monthly on
      the
      first day of each calendar month. Dividends on the Class H Preferred are payable
      semiannually on June 30 and December 31 of each year. Dividends on the Preferred
      Stock accrue cumulatively on a daily basis until the Preferred Stock is redeemed
      or converted.





In
      the
      event of any liquidation, dissolution or winding up of Multiband, the holders
      of
      the Class A Preferred and Class B Preferred will be entitled to receive a
      liquidation preference of $10.50 per share, and the holders of the Class C
      Preferred, Class D Preferred, Class E Preferred, Class F Preferred and Class
      G
      Preferred will be entitled to receive a liquidation preference of $10.00 per
      share, each subject to adjustment. Holders of the Class H Preferred will be
      entitled to receive a liquidation preference of $100,000 per share. Holders
      of
      the Class I Preferred will be entitled to receive a liquidation preference
      of
      $100. per share. Any liquidation preference shall be payable out of any net
      assets of Multiband remaining after payment or provision for payment of the
      debts and other liabilities of Multiband.





No
      holder
      of Preferred Stock can require Multiband to redeem his or her shares, except
      for
      a single Class F and Class H shareholders. The single Class F shareholder who,
      at its sole discretion pursuant to a put option, can force the Company to redeem
      up to 50,000 Class F Preferred Shares (the equivalent of $500,000 worth,
      $166,666 redeemed as of December 31, 2005). Class H shareholders have the right
      to convert all or a portion of preferred shares upon the occurrence of a major
      transaction or triggering event as defined in the agreement. Multiband, upon
      notice, may voluntarily redeem the Preferred Stock, in whole or in part, at
      a
      redemption price per class equal to the liquidation prices stated above provided
      the closing bid price of the common stock exceeds a certain share price, ($4.00
      per share for Classes A, B and C; $2.75 per share for Class F; and $2.00 per
      share for Class H. Classes G and I have no redemption “call” price. Classes D
      and E have been completely redeemed and extinguished as of December 31, 2005).
      Upon Multiband's call for redemption, the holders of the Preferred Stock called
      for redemption will have the option to convert each share of Preferred Stock
      into shares of common stock until the close of business on the date fixed for
      redemption, unless extended by Multiband in its sole discretion. Preferred
      Stock
      not converted would be redeemed.




**Back
          to Table of Contents**


***Item
      6:***





***Selected
      Consolidated Financial Data***





The
      following selected financial data should be read in conjunction with our
      consolidated financial statements including the accompanying notes and with
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations". The data for each of the fiscal years in the three year period
      ended December 31, 2005, have been derived from our consolidated financial
      statements and accompanying notes contained in this prospectus. The Statement
      of
      Operations Data for the years ended December 31, 2002 and 2001 and the Balance
      Sheet data at December 31, 2003, 2002 and 2001 have been derived from our
      audited consolidated financial statements which are not contained in this
      filing. In the financial data below, the Company reclassed the operations
      related to the MBS segment to discontinued operations. The Company sold this
      segment in the first quarter of 2005.





**Statement
                of Operations Data**
            **2005**
            **2004**
            **2003**
            **2002**
            **2001**Revenues
            $16,515,426
            $11,067,834
            $1,441,118
            $577,221
            $265,996Cost
                of products and services (exclusive of depreciation and amortization
                listed separately below)
            $7,849,597
            $5,943,395
            $884,536
            $418,093
            $226,432Selling,
                general and administrative expenses
            $9,723,132
            $5,986,267
            $2,647,870
            $1,971,584
            $2,555,144%
                of revenues
            58.9%
            54.1%
            183.7%
            341.6%
            960.6%Depreciation
                and amortization
            $4,780,436
            $3,432,779
            $1,065,650
            $1,193,306
            $1,165,610Loss
                from Operations
            $(5,837,739)
            $(4,294,607)
            $(3,156,938)
            $(3,005,762)
            $(3,681,190)Other
                expense net
            $(1,655,088)
            $(1,032,035)
            $(548,476)
            $(1,439,069)
            $(1,070,802)Minority
                interest in subsidiary
            $0
            $0
            $33,366
            $0
            $0Loss
                before income tax
            $(7,492,827)
            $(5,326,642)
            $(3,672,048)
            $(4,444,831)
            $(4,751,992)Income
                tax provision
            $0
            $0
            $0
            $0
            $0Loss
                from continuing operations
            $(7,492,827)
            $(5,326,642)
            $(3,672,048)
            $(4,444,831)
            $(4,751,992)Discontinued
                operations
            $17,827
            $(4,457,320)
            $(692,956)
            $6,772
            $(573,560)Net
                loss
            $(7,475,000)
            $(9,783,962)
            $(4,365,004)
            $(4,438,059)
            $(5,325,552)Loss
                attributable to common stockholders
            $(10,827,229)
            $(10,374,417)
            $(4,613,693)
            $(4,591,637)
            $(5,758,221)Loss
                from continuing operations
            $(.26)
            $(.23)
            $(.23)
            $(.38)
            $(.54)Loss
                from discontinued operations
            $      -
            $(.19)
            $(.04)
            $      -
            $(.07)Loss
                attributable to commons stockholders
            $(.37)
            $(.45)
            $(.29)
            $(.39)
            $(.66)Weighted
                average shares outstanding
            29,097,923
            23,307,594
            16,112,231
            11,735,095
            8,762,814





**Balance
                Sheet Data**
            **2005**
            **2004**
            **2003**
            **2002**
            **2001**Working
                Capital (deficiency)
            ($971,418)
            ($8,931,414)
            $1,118,792
            ($252,870)
            $426,549Total
                Assets
            $26,271,405
            $26,633,712
            $13,902,885
            $10,347,316
            $12,209,681Long-Term
                Debt, net
            $3,816,536
            $3,498,657
            $2,262,891
            $3,273,350
            $3,311,870Stockholders’
                Equity
            $14,968,295
            $8,549,431
            $5,807,711
            $2,642,285
            $4,184,001





**Back
          to Table of Contents**


***Item
      7:***





***Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation***





The
      following discussion of the financial condition and results of operations of
      Multiband should be read in conjunction with the Condensed Consolidated
      Financial Statements and the Notes thereto included elsewhere in this
      report.





***Years
      Ended December 31, 2005 and December 31, 2004***





This
      discussion does not include the results of discontinued operations.





*Results
      of Operations*




The
      following table sets forth certain items.


**Revenues**
            
            **2005**
            
            **2004**Multiband
            
            
            0.00
            %
            
            0.00
            %MCS
            
            
            48.10
            %
            
            47.23
            %MDU
            
            
            51.90
            %
            
            52.77
            %Total
                Revenues
            
            
            100.00
            %
            
            100.00
            %**Cost
                of Products and Services (exclusive of depreciation and
                amortization)**Multiband
            
            
            0.00
            %
            
            0.00
            %MCS
            
            
            26.23
            %
            
            24.68
            %MDU
            
            
            21.30
            %
            
            29.02
            %Total
                Cost of Products and Services (exclusive of depreciationand
                amortization)
            
            
            47.53
            %
            
            53.70
            %**Selling,
                General and Administrative Expenses**
            
            
            58.87
            %
            
            54.09
            %**Loss
                from Continuing Operations**
            
            
            (45.37
            %)
            
            (48.12
            %)**Income
                (Loss) from Discontinued Operations**
            
            
            .11
            %
            
            (40.27
            %)**Net
                Loss**
            
            
            (45.26
            %)
            
            (88.40
            %)





*Revenues:*


Total
      revenues from continuing operations increased 49.2 % from $11,067,834 in 2004
      to
      $16,515,426 in 2005. Revenue from the MCS segment increased to $7,943,266 in
      2005 from $5,227,696 in 2004. The MDU segment had revenues of $8,572,160 in
      2005
      and $5,840,138 in 2004. This significant increase in revenues is primarily
      due
      to the Company experiencing a full twelve months of revenues in 2005 related
      to
      material acquisitions made during the middle of 2004. The Company anticipates
      any revenue growth in 2006 will primarily come from adding services to new
      and
      existing properties versus further acquisitions.





*Costs
      of Products and Services:*


Total
      costs of products and services were $7,849,597 in 2005 compared to $5,943,395
      in
      2004. MCS segment cost of products and services were $4,332,111 in 2005 and
      $2,731,585 in 2004. MDU segment costs of products and services were $3,517,486
      in 2005 and $3,211,810 in 2004. The significant increase in costs of products
      and services resulted directly from a material increase in revenues in 2005
      over
      2004. The Company expects costs of products and services as a percentage of
      revenue to remain stable in future periods due to the relative predictability
      of
      the costs.





*Selling,
      General and Administrative Expense:*


Selling,
      general and administrative expenses from continuing operations increased 62.4
      %
      to $9,723,132 in 2005, compared to $5,986,267 in 2004. The increase in expenses
      was directly related to the Company’s increase in revenues. Furthermore, the
      Company’s integration of various accounting, information technology, marketing
      and customer service activities from its 2004 acquisitions produced material
      start up and additional expense. Selling, general and administrative expenses
      were, as a percentage of revenues, 58.9% for 2005 and 54.1% for 2004. The
      Company hopes these expenses will decline as a percentage of revenues throughout
      2006 as the aforementioned integration expenses should be
      mitigated.




**Back
          to Table of Contents**


*Interest
      Expense*


Interest
      expense was $1,882,910 for 2005 versus $1,055,488 for 2004, reflecting primarily
      an increase in original issue discount expense.





*Net
      Loss*


The
      Company, in 2005, showed a net loss of $7,475,000, inclusive of a gain from
      discontinued operations, which totaled $17,827. The Company’s net loss for 2004
      totaled $9,783,962, inclusive of the loss from discontinued operations which
      was
      $4,457,320.





***Years
      Ended December 31, 2004 and December 31, 2003***





This
      discussion does not include the results of discontinued operations.





*Results
      of Operations*




The
      following table sets forth certain items.


**Revenues**
            
            **2004**
            
            **2003**Multiband
            
            
            0.00
            %
            
            0.00
            %MCS
            
            
            47.23
            %
            
            100.00
            %MDU
            
            
            52.77
            %
            
            -
            %Total
                Revenues
            
            
            100.00
            %
            
            100.00
            %**Cost
                of Products and Services (exclusive of depreciation and
                amortization)**Multiband
            
            
            0.00
            %
            
            0.00
            %MCS
            
            
            24.68
            %
            
            61.38
            %MDU
            
            
            29.02
            %
            
            -
            %Total
                Cost of Products and Services (exclusive of depreciation and
                amortization)
            
            
            53.70
            %
            
            61.38
            %**Selling,
                General and Administrative Expenses**
            
            
            54.09
            %
            
            183.73
            %**Loss
                from Continuing Operations**
            
            
            (48.12
            %)
            
            (254.81
            %)**Loss
                from Discontinued Operations**
            
            
            (40.27
            %)
            
            (48.08
            %)**Net
                Loss**
            
            
            (88.40
            %)
            
            (302.89
            %)





*Revenues*


Total
      revenues from continuing operations increased 668.0% from $1,441,118 in 2003
      to
      $11,067,834 in 2004. Revenue from the MCS segment increased to $5,227,696 in
      2004 from $1,441,118 in 2003. The MDU segment had revenues of $5,840,138 in
      2004
      and $0 in 2003. This significant increase in revenues is primarily due to the
      Company’s acquisition of subscriber related assets in 2004 which produced a
      material increase in consumer recurring revenues. These acquisitions led
      primarily to the Company in 2004 growing from approximately 6,800 subscribers
      to
      approximately 30,000 subscribers. The Company’s revenues are expected to
      increase in 2005, even without further acquisitions, as the Company will
      experience a full year’s worth of revenues from these acquisitions made in
      2004.





*Cost
      of Products and Services*


The
      cost
      of products and services was $5,943,395 in 2004 compared to $884,536 in 2003.
      MCS segment cost of products and services were $2,731,585 in 2004 and $884,536
      in 2003. MDU segment costs of products and services were $3,211,810 in 2004
      and
      $0 in 2003. The significant increase in costs of products and services resulted
      from the revenue generated from acquisition of subscriber related assets. The
      Company expects costs of products and services as a percentage of revenue to
      remain stable in future periods due to the relative predictability of the
      costs.




**Back
          to Table of Contents**


*Selling,
      General and Administrative Expenses*


Selling,
      general and administrative expenses from continuing operations increased 126.1%
      to $5,986,267 in 2004, compared to $2,647,870 in 2003. The increase in expenses
      was directly related to the Company's increase in revenues. Furthermore, the
      Company's integration of various accounting, information technology and customer
      service activities from its 2004 acquisitions produced material start up and
      additional expense. Selling, general and administrative expenses were, as a
      percentage of revenues, 54.09 % for 2004 and 183.73% for 2003. The Company
      expects these expenses to decline as a percentage of revenues throughout 2005
      as
      the aforementioned integration expenses should be mitigated.





*Interest
      Expense*


Interest
      expense was $1,055,488 for 2004 versus $488,156 for 2003, reflecting an increase
      in debt related to acquisitions.





*Net
      Loss*


The
      Company, in 2004, showed a net loss of $9,783,962, inclusive of the loss from
      discontinued operations, which totaled $4,457,320. The Company's net loss in
      2003 totaled $4,365,004 which included a discontinued operations loss of
      $692,956. Included in the loss from discontinued operations was an impairment
      of
      goodwill of $2,748,879 for the year ended December 31, 2004 (see Note 1 to
      the
      consolidated financial statements for further detail).




**Back
          to Table of Contents**


***Un-audited
      Quarterly Results***


The
      following table sets forth certain un-audited quarterly operating information
      for each of the eight quarters in the two-year period ending December 31, 2005.
      This data includes, in the opinion of management, all normal recurring
      adjustments necessary for the fair presentation of the information for the
      periods presented when read in conjunction with the Company's consolidated
      financial statements and related notes thereto. Results for any previous fiscal
      quarter are not necessarily indicative of results for the full year or for
      any
      future quarter. The Company has historically experienced a seasonal fluctuation
      in its operating results, with a larger proportion of its revenues in the third
      quarter of the fiscal year.





Dec.
                31,
            Sept.
                30,
            Jun.
                30,
            Mar.
                31,
            Dec.
                31,
            Sept.
                30,
            Jun.
                30,
            Mar.
                31,2005
            2005
            2005
            2005
            2004
            2004
            2004
            2004Revenues:Multiband
            —
            —
            —
            —
            —
            —
            —
            —MCS
            1,817,584
            2,166,218
            2,081,147
            1,878,317
            1,631,643
            1,795,967
            1,037,431
            762,655MDU
            2,549,700
            2,091,442
            2,102,459
            1,828,559
            1,843,933
            2,122,375
            1,873,830
            —Total
                Revenues
            4,367,284
            4,257,660
            4,183,606
            3,706,876
            3,475,576
            3,918,342
            2,911,261
            762,655Costs
                of products & services (exclusive of depreciation and amortization
                shown separately below)
            1,963,215
            2,303,357
            1,703,517
            1,879,508
            1,889,980
            1,952,631
            1,712,280
            410,962SG&A
                expense
            2,745,235
            2,453,410
            2,377,575
            2,146,912
            2,148,570
            1,845,547
            1,137,780
            828,153Depreciation
                & amortization
            1,157,514
            1,255,188
            1,218,867
            1,148,867
            881,826
            1,048,031
            1,150,677
            352,245Operating
                loss
            (1,498,680)
            (1,754,295)
            (1,116,353)
            (1,468,411)
            (1,444,800)
            (927,867)
            (1,089,476)
            (828,705)Interest
                expense
            (288,196)
            (536,000)
            (373,013)
            (685,701)
            (382,854)
            (254,314)
            (188,986)
            (229,334)Other
                income (expenses)
            67,793
            77,737
            70,120
            12,172
            13,403
            (15,423)
            6,851
            14,863Minority
                expense
            —
            —
            —
            —
            —
            —
            —
            —Net
                loss before tax
            (1,719,083)
            (2,212,558)
            (1,419,246)
            (2,141,940)
            (1,814,251)
            (1,197,604)
            (1,271,611)
            (1,043,176)Income
                tax (benefit) provision
            —
            —
            —
            —
            —
            —
            —
            —Loss
                from continuing operations
            (1,719,083)
            (2,212,558)
            (1,419,246)
            (2,141,940)
            (1,814,251)
            (1,197,604)
            (1,271,611)
            (1,043,176)Discontinued
                operations
            87,954
            248,249
            122,892
            (441,268)
            (3,149,780)
            (653,989)
            (179,863)
            (473,688)Net
                loss
            (1,631,129)
            (1,964,309)
            (1,296,354)
            (2,583,208)
            (4,964,031)
            (1,851,593)
            (1,451,474)
            (1,516,864)Loss
                attributable to commons stockholders
            (2,018,460)
            (3,328,489)
            (1,965,988)
            (3,514,292)
            (5,012,847)
            (1,935,306)
            (1,846,747)
            (1,579,517)Loss
                from continuing operations
            $(.05)
            $(.08)
            $(.05)
            $(.08)
            $(.07)
            $(.05)
            $(.06)
            $(.05)Loss
                from discontinued operations
            $(.00)
            $.01
            $(.00)
            $(.01)
            $(.12)
            $(.02)
            $(.00)
            $(.03)Net
                loss
            $(.05)
            $(.07)
            (.05)
            $(.09)
            $(.19)
            $(.07)
            $(.06)
            $(.08)Loss
                attributable to commons stockholders
            $(.06)
            $(.11)
            (.07)
            $(.13)
            $(.20)
            $(.08)
            $(08)
            $(.08)Weighted
                average shares outstanding
            31,142,424
            29,352,257
            29,634,502
            27,216,574
            25,683,336
            25,480,077
            22,689,301
            19,280,632






**Back
          to Table of Contents**


***Liquidity
      and Capital Resources***





***Year
      Ended December 31, 2005***





Available
      working capital deficit for 2005 decreased to $971,418 primarily due to
      payment of acquisition related debt load. Accounts receivable decreased by
      $239,910 in 2005 primarily due to the Company’s asset sale of its MBS division
      and the liquidation of MBS receivables. Current liabilities decreased in 2005
      by
      $7,195,450 due primarily to the aforementioned MBS sale and retirement of
      short-term debt. In addition, current maturities of long-term debt decreased
      by
      $908,267 as of December 31, 2005 versus December 31, 2004 due to continued
      scheduled pay down of debt. Inventories decreased from year to year due to
      the
      Company's need to carry fewer inventories in its consumer services division
      versus its discontinued business services division.





Total
      long term debt and capital lease obligations decreased by $640,586 during the
      year ended December 31, 2005. Multiband paid out $216,583 related to capital
      lease obligations and $2,690,766 related to long term debt during the year
      ended
      December 31, 2005 versus $420,480 paid out in 2004.





The
      Company used $976,477 for capital expenditures during 2005, as compared to
      $748,704 in 2004. This increase was related to additional purchases required
      and
      additional build out of video and internet services to MDU properties as a
      result of the business acquisitions made during 2005. Capital expenditures
      in
      2006 are dependent on the Company obtaining debt or equity financings in
      2006.





Net
      cash
      used by operations in 2005 was $3,817,058 as compared to cash used by operations
      in 2004 of $2,289,645. This use of cash reflects significant reduction in
      accounts payable over the prior year and the payoff of a wholesale line of
      credit, both related to the sale of the Company’s MBS division and related
      reductions in current liabilities. During the years ended December 31, 2005
      and
      December 31, 2004, the Company incurred significant net losses. Although the
      majority of the 2005 loss was due to non-cash expenses, the Company in 2005
      still continued to incur cash losses as well due to general corporate expense.
      However, those cash operating losses decreased significantly in 2005 versus
      2004
      due to the increase in non-cash depreciation, amortization, and amortization
      of
      original issue discount as well as by the on-going additions of MCS properties
      in the Company's portfolio which provided improved cash flows.





In
      February 2005, the Company sold ten million dollars worth of Class I convertible
      preferred stock. Proceeds from this financing were used to secure ownership
      of
      previous acquisitions, perform new acquisitions and build out additional
      services to MDU properties. All these activities improved the Company’s
      operating performance. Continued improvement of Company operating performance
      and execution of our business strategy will require additional funding in 2006.
      The Company’s operating performance indicates that performance on a MDU property
      level improves when the Company offers two or three services at a property
      versus a single service. Although the Company believes it is possible to obtain
      additional financing to build infrastructure and add services in 2006 by
      leveraging its asset base, there is no assurance this financing will be
      obtained. Thus, the lack of additional funding combined with continued operating
      losses in 2006 may restrict our ability to continue to improve our operating
      performance by adding services at MDU properties. However as of December 31,
      2005, even without additional funding, based on current operating results,
      management believes existing cash and capital resources are adequate to meet
      anticipated liquidity requirements during 2006.





***Year
      Ended December 31, 2004***





Available
      working capital for 2004 decreased to $8,931,414 primarily due to acquisition
      related debt load. Accounts receivable increased by $1,160,198 in 2004 due
      to a
      significant increase in consumer revenues. Current liabilities increased in
      2004
      $8,298,728 due primarily to higher accounts payable and accrued liabilities
      directly related to the increase in consumer revenues. In addition, current
      maturities of long-term debt increased $525,714 and short-term debt increased
      $4,481,099 as of December 31, 2004 versus December 31, 2003, due to the
      short-term debt issued related to the 2004 acquisitions. Inventories decreased
      by $135,024 due to the Company's need to carry fewer inventories in its consumer
      services division versus its discontinued business services division.





Total
      long term debt and capital lease obligations increased by $2,422,157 during
      the
      year ended December 31, 2004. Multiband paid out $74,902 related to capital
      lease obligations and $345,578 related to long term debt during the year ended
      December 31, 2004 versus $276,069 paid out in 2003.




**Back
          to Table of Contents**





The
      Company used $748,704 for capital expenditures during 2004, as compared to
      $526,936 in 2003. This increase was related to additional purchases required
      as
      a result of the business acquisitions made during 2004. Capital expenditures
      in
      2005 are expected to be consistent with those in 2004.





In
      November 2004, the Company borrowed $2,166,667 from a group of accredited
      institutional investors. The notes are convertible into shares of common stock
      at $1.00 per share. The notes accrue interest at the rate of 6% per annum,
      which
      interest is payable semi-annual in cash or common stock at the Company's
      election.





Net
      cash
      used by operations in 2004 was $2,289,645 as compared to cash used by operations
      in 2003 of $2,580,248. This reduction reflects improved performance from
      operations, exclusive of non cash expenses. During the years ended December
      31,
      2004 and December 31, 2003, the Company incurred significant net losses.
      Although the majority of those losses were due to non-cash expenses, the Company
      in 2004 still continued to incur cash losses as well due to general corporate
      expense. However, those cash losses decreased significantly in 2004 versus
      2003
      by the on-going additions of MCS properties in the Company's portfolio which
      provided improved cash flows.





***Critical
      Accounting Policies***





***Impairment
      of Long-Lived Assets***





The
      Company's long-lived assets include property, equipment and leasehold
      improvement. At December 31, 2005, the Company had net property and equipment
      of
      $5,247,240, which represents approximately 20% of the Company's total assets.
      The estimated fair value of these assets is dependent on the Company's future
      performance. In assessing for potential impairment for these assets, the Company
      considers future performance. If these forecasts are not met, the Company may
      have to record an impairment charge not previously recognized, which may be
      material. In 2005, 2004 and 2003, the Company did not record any impairment.





***Impairment
      of Goodwill***





We
      periodically evaluate acquired businesses for potential impairment indicators.
      Our judgments regarding the existence of impairment indicators are based on
      legal factors, market conditions and operational performance of our acquired
      businesses. Future events could cause us to conclude that impairment indicators
      exist and that goodwill associated with our acquired businesses, which amounts
      to $954,871, as of December 31, 2005, may be impaired. Any resulting impairment
      loss could have a material adverse impact on our financial condition and results
      of operations. In 2004, the Company recorded an impairment charge of $2,748,879
      related to Multiband Business Services which is included in discontinued
      operations at December 31, 2004. During the years ended December 31, 2005 and
      2003, the Company did not record any impairment losses related to
      goodwill.





***Inventories***





We
      value
      our inventory at the lower of the actual cost or the current estimated market
      value of the inventory. We regularly review inventory quantities on hand and
      record a provision for excess and obsolete inventory. Rapid technological
      change, frequent new product development, and rapid product obsolescence that
      could result in an increase in the amount of obsolete inventory quantities
      on
      hand characterize our industry.





***Impairment
      of Intangible Assets***





The
      intangible assets consist of rights of entry contracts, customer cable lists,
      debt issuance costs, domain name and access contracts. These intangibles are
      being amortized over their estimated useful lives ranging from 36 to 120 months.
      If significant changes would occur to the estimated future cash flow associated
      with these intangibles, the Company would determine if there is impairment
      and
      reduce the value of the intangibles based on the reduction of such cash flows.
      At December 31, 2005, the Company had net intangibles of $13,923,542 which
      represented approximately 53% of the Company’s total assets. In 2005, 2004 and
      2003, the Company did not record an impairment related to the intangible
      assets.




**Back
          to Table of Contents**


***Recent
      Accounting Pronouncements***





In
      December 2004, Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share-Based
      Payment", that focuses primarily on accounting for transactions in which an
      entity obtains employee services in share-based payment transactions. This
      statement replaces SFAS No. 123, "Accounting for Stock-Based Compensation",
      and
      supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
      Beginning with the quarterly period that begins January 1, 2006, the Company
      will be required to expense the fair value of employee stock options and similar
      awards. As a public company, the Company is allowed to select from two
      alternative transition methods, each having different reporting implications.
      The impact of SFAS No. 123R for the year ending December 31, 2006 is estimated
      to be approximately $675,000 based on the value of the options outstanding
      as of
      December 31, 2005 that will vest during the year ending December 31, 2006.
      This
      estimate does not include any expenses for options that may be granted and
      vested during 2006.





In
      June
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”,
      a replacement of APB Opinion No. 20 and FASB Statement No. 3 The statement
      applies to all voluntary changes in accounting principle, and changes the
      requirements for accounting for and reporting of a change in accounting
      principle. SFAS No. 154 requires retrospective application to prior period’s
      financial statements of a voluntary change in accounting principle unless it
      is
      impracticable. SFAS No. 154 is effective for accounting changes and corrections
      of errors made in fiscal years beginning after December 15, 2005. The statement
      does not change the transition provisions of any existing accounting
      pronouncements, including those that are in a transition phase as of the
      effective date of this statement. The Company does not expect the adoption
      of
      SFAS No. 154 to have a material effect on its consolidated financial
      statements.





**Disclosures
      about Contractual Obligations and Commercial Commitments**





The
      following summarizes our contractual obligations at December 31, 2005, and
      the
      effect these contractual obligations including interest payments are expected
      to
      have on our liquidity and cash flows in future periods (in thousands):





Total
            1
                Year or Less
            2-3
                Years
            Over
                3 YearsOperating
                Lease
            $6,805,000
            $614,000
            $1,446,000
            $4,745,000Capital
                Leases
            705,139
            220,487
            462,386
            22,266Long-Term
                Debt
            6,542,228
            1,484,459
            2,071,280
            2,986,489Note
                Payable Stockholder
            32,837
            32,837
            —
            —**Totals**
            **$14,085,204**
            **$2,351,783**
            **$3,979,666**
            **$7,753,755**







***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; stability of foreign governments; 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.




**Back
          to Table of Contents**


***Item
      7A***





***Quantitative
      and Qualitative Disclosure About Market Risk***





Multiband
      is not subject to any material interest rate risk as any current lending
      agreements are at a fixed rate of interest except for the notes payable to
      Laurus Master Fund, Ltd., which is three percent over the prime interest rate
      and the Convergent Capital note of $2,500,000, which varies from 11% to 14%,
      dependent on the Company’s common stock price. Multiband also has variable rate
      % of Class I Convertible Preferred Stock which bears dividends based on a
      basis of prime.


**Back
          to Table of Contents**


***Item
      8.***





***Consolidated
      Financial Statements and Supplementary Data***








***MULTIBAND
      CORPORATION AND SUBSIDIARIES***





***TABLE
      OF CONTENTS***




Report
                of Independent Registered Public Accounting
                Firm
            1Financial
                StatementsConsolidated
                Balance Sheets
            2
                - 3Consolidated
                Statements of Operations
            4Consolidated
                Statements of Stockholders'
                Equity
            5
                - 13Consolidated
                Statements of Cash Flows
            14Notes
                to Consolidated Financial
                Statements
            15
                - 42Supplemental
                InformationReport
                of Independent Registered Public Accounting Firm on
                Supplementary Information
            43Valuation
                and Qualifying Accounts
            44






**Back
          to Table of Contents**


***REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM***








To
      Stockholders, Board of Directors, and Audit Committee


Multiband
      Corporation and subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Multiband Corporation
      and subsidiaries as of December 31, 2005 and 2004, and the related consolidated
      statements of operations, stockholders' equity and cash flows for each of the
      three years in the period ended December 31, 2005. These consolidated financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Multiband
      Corporation and subsidiaries as of December 31, 2005 and 2004, and the results
      of their operations and their cash flows for each of the three years in the
      period ended December 31, 2005, in conformity with accounting principles
      generally accepted in the United States of America.





/s/
      VIRCHOW, KRAUSE & COMPANY, LLP




Minneapolis,
      Minnesota


March
      8,
      2006




Page
          1
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          to Table of Contents**




**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**DECEMBER
      31, 2005 AND 2004**





***ASSETS***


**2005**
            
            **2004****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            3,100,427
            
            $
            726,553Certificate
                of deposit
            
            
            —
            
            
            650,000Accounts
                receivable, net
            
            
            2,367,864
            
            
            2,783,774Inventories
            
            
            241,015
            
            
            231,993Current
                assets of discontinued operations
            
            
            —
            
            
            634,307Prepaid
                expenses and other
            
            
            216,885
            
            
            146,334Current
                portion of notes receivable
            
            
            11,316
            
            
            —Total
                Current Assets
            
            
            5,937,507
            
            
            5,172,961**PROPERTY
                AND EQUIPMENT, NET**
            
            
            5,247,240
            
            
            4,372,474**OTHER
                ASSETS**Goodwill
            
            
            954,871
            
            
            812,366Intangible
                assets, net
            
            
            13,923,542
            
            
            16,081,635Other
                assets of discontinued operations
            
            
            —
            
            
            47,975Notes
                receivable - long-term, net
            
            
            61,341
            
            
            —Other
                assets
            
            
            146,904
            
            
            146,301Total
                Other Assets
            
            
            15,086,658
            
            
            17,088,277**TOTAL
                ASSETS**
            
            $
            26,271,405
            
            $
            26,633,712






See
      accompanying notes to the consolidated financial statements




Page
          2
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          to Table of Contents**





**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**DECEMBER
      31, 2005 AND 2004**





***LIABILITIES
      AND STOCKHOLDERS' EQUITY***


**2005**
            
            **2004****CURRENT
                LIABILITIES**Checks
                issued in excess of cash in bank
            
            $
            93,005
            
            $
            234,348Mandatory
                redeemable preferred stock, 33,334 and 50,000 Class F preferred
                shares
            
            
            333,334
            
            
            500,000Short-term
                debt
            
            
            —
            
            
            3,981,099Wholesale
                line of credit
            
            
            —
            
            
            926,201Current
                portion of long-term debt
            
            
            616,260
            
            
            1,524,527Current
                portion of note payable - stockholder
            
            
            32,837
            
            
            84,801Current
                portion of capital lease obligations
            
            
            179,932
            
            
            201,530Accounts
                payable
            
            
            1,761,249
            
            
            2,561,611Accrued
                liabilities
            
            
            2,741,054
            
            
            3,030,024Contingent
                liability
            
            
            —
            
            
            222,700Customer
                deposits
            
            
            64,161
            
            
            59,875Current
                liabilities of discontinued operations
            
            
            500,000
            
            
            370,921Deferred
                service obligations and revenue
            
            
            587,093
            
            
            406,738Total
                Current Liabilities
            
            
            6,908,925
            
            
            14,104,375**LONG-TERM
                LIABILITIES**Long-term
                debt, net
            
            
            3,816,536
            
            
            3,498,657Capital
                lease obligations, net of current portion
            
            
            452,649
            
            
            481,249Long-term
                liabilities of discontinued operations
            
            
            125,000
            
            
            —Total
                Liabilities
            
            
            11,303,110
            
            
            18,084,281**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                EQUITY**Cumulative
                convertible preferred stock, no par value:8%
                Class A ( 27,931 and 27,931 shares issued and outstanding, $293,276
                and
                $293,276 liquidation preference)
            
            
            419,752
            
            
            419,75210%
                Class B (8,390 and 8,700 shares issued and outstanding, $88,095 and
                $91,350 liquidation preference)
            
            
            58,900
            
            
            62,00010%
                Class C (125,050 and 125,400 shares issued and outstanding, $1,250,500
                and
                $1,254,000 liquidation preference)
            
            
            1,607,605
            
            
            1,611,10510%
                Class F (150,000 and 150,000 shares issued and outstanding, $1,500,000
                and
                $1,500,000 liquidation preference)
            
            
            1,500,000
            
            
            1,500,0008%
                Class G (45,245 and 45,245 shares issued and outstanding, $452,450
                and
                $452,450 liquidation preference)
            
            
            179,897
            
            
            179,8976%
                Class H (2.0 and 11.5 shares issued and outstanding, $200,000 and
                $1,150,000 liquidation preference)
            
            
            —
            
            
            —Variable
                rate % Class I (90,000 and 0 shares issued and outstanding, $9,000,000
                and
                $0 liquidation preference)
            
            
            —
            
            
            —Common
                stock, no par value (32,134,558 and 25,784,490 shares issued; 32,134,558
                and 25,781,818 shares outstanding)
            
            
            22,801,405
            
            
            16,888,291Stock
                subscriptions receivable
            
            
            (297,105
            )
            
            (391,264
            )Options
                and warrants
            
            
            44,259,540
            
            
            32,985,983Unamortized
                compensation
            
            
            (29,861
            )
            
            (1,724
            )Accumulated
                deficit
            
            
            (55,531,838
            )
            
            (44,704,609
            )Total
                Stockholders' Equity
            
            
            14,968,295
            
            
            8,549,431**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            26,271,405
            
            $
            26,633,712






See
      accompanying notes to the consolidated financial statements




Page
          3
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          to Table of Contents**


**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**YEARS
      ENDED DECEMBER 31, 2005, 2004 AND 2003**


**2005**
            
            **2004**
            
            **2003****REVENUES**
            
            $
            16,515,426
            
            $
            11,067,834
            
            $
            1,441,118**COSTS
                AND EXPENSES**Cost
                of products and services(exclusive of depreciation and amortization shown separately
                below)
            
            
            7,849,597
            
            
            5,943,395
            
            
            884,536Selling,
                general and administrative
            
            
            9,723,132
            
            
            5,986,267
            
            
            2,647,870Depreciation
                and amortization
            
            
            4,780,436
            
            
            3,432,779
            
            
            1,065,650Total
                costs and expenses
            
            
            22,353,165
            
            
            15,362,441
            
            
            4,598,056**LOSS
                FROM OPERATIONS**
            
            
            (5,837,739
            )
            
            (4,294,607
            )
            
            (3,156,938
            )**OTHER
                INCOME (EXPENSE)**Interest
                expense
            
            
            (1,882,910
            )
            
            (1,055,488
            )
            
            (488,156
            )Interest
                income
            
            
            126,158
            
            
            8,805
            
            
            10,406Other
                income
            
            
            101,664
            
            
            14,648
            
            
            (70,726
            )Total
                Other Expense
            
            
            (1,655,088
            )
            
            (1,032,035
            )
            
            (548,476
            )**LOSS
                BEFORE MINORITY INTEREST IN SUBSIDIARY**
            
            
            (7,492,827
            )
            
            (5,326,642
            )
            
            (3,705,414
            )Minority
                interest in subsidiary
            
            
            —
            
            
            —
            
            
            33,366**LOSS
                FROM CONTINUING OPERATIONS**
            
            
            (7,492,827
            )
            
            (5,326,642
            )
            
            (3,672,048
            )**GAIN
                (****LOSS)
                FROM DISCONTINUED OPERATIONS**
            
            
            17,827
            
            
            (4,457,320
            )
            
            (692,956
            )**NET
                LOSS**
            
            
            (7,475,000
            )
            
            (9,783,962
            )
            
            (4,365,004
            )Preferred
                stock dividends
            
            
            3,352,229
            
            
            590,455
            
            
            248,689**LOSS
                ATTRIBUTABLE TO COMMON STOCKHOLDERS**
            
            $
            (10,827,229
            )
            $
            (10,374,417
            )
            $
            (4,613,693
            )**BASIC
                AND DILUTED LOSS PER COMMON SHARE:****LOSS
                FROM CONTINUING OPERATIONS**
            
            $
            (.26
            )
            $
            (.23
            )
            $
            (.23
            )**GAIN
                (LOSS) LOSS FROM DISCONTINUED OPERATIONS**
            
            $
            —
            
            $
            (.19
            )
            $
            (.04
            )**NET
                LOSS**
            
            $
            (.26
            )
            $
            (.42
            )
            $
            (.27
            )**LOSS
                ATTRIBUTABLE TO COMMON****STOCKHOLDERS**
            
            $
            (.37
            )
            $
            (.45
            )
            $
            (.29
            )**WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING - BASIC AND
                DILUTED**
            
            
            29,097,923
            
            
            23,307,594
            
            
            16,112,231




See
      accompanying notes to the consolidated financial statements




Page
          4
 **Back
          to Table of Contents**





**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’
EQUITY**


**YEARS
      ENDED DECEMBER 31, 2005, 2004 AND 2003**


8%
                Class A
            
            10%
                Class B
            
            10%
                Class C
            
            15%
                Class EShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountBALANCES,
                December 31, 2002
            
            
            27,831
            
            $
            418,252
            
            
            6,200
            
            $
            62,000
            
            
            131,510
            
            $
            1,699,407
            
            
            70,000
            
            $
            395,778Stock
                issued:Cash
            
            
            100
            
            
            1,000
            
            
            2,500
            
            
            25,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            7,650
            
            
            76,500Conversion
                of accounts payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            7,200
            
            
            72,000
            
            
            —
            
            
            —Conversion
                of notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accrued interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (4,000
            )
            
            (40,000
            )
            
            —
            
            
            —Conversion
                of dividends payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            -Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9,310
            )
            
            (93,100
            )
            
            —
            
            
            —Intrinsic
                value of convertible feature
            
            
            —
            
            
            500
            
            
            —
            
            
            —
            
            
            —
            
            
            (27,202
            )
            
            —
            
            
            —Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            (25,000
            )
            
            —
            
            
            —
            
            
            —
            
            
            (33,314
            )Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Increase
                reserve
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Interest
                collected
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued:Preferred
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Debt
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Services
                rendered
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense related to stock options issued below fair market
                value
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Restricted
                stock:Forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Amortization
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Embedded
                value with Laurus warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —BALANCES,
                December 31, 2003
            
            
            27,931
            
            $
            419,752
            
            
            8,700
            
            $
            62,000
            
            
            125,400
            
            $
            1,611,105
            
            
            77,650
            
            $
            438,964






Page
          5
 **Back
          to Table of Contents**




8%
                Class A
            
            10%
                Class B
            
            10%
                Class C
            
            15%
                Class EShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountStock
                issued:Cash
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - remaining 50% ownership of MBUSA
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - URON, Inc.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Satellite Broadcasting Corporation and
                affiliates
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Minnesota Digital Universe, Inc.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Rainbow Satellite Group, LLC.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - 21st Century Satellite
                Communications
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Property
                and equipment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accrued interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (77,650
            )
            
            (438,964
            )Conversion
                of dividends payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for other current assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                repurchase
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock into mandatory redeemable preferred
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intrinsic
                value of convertible feature
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Interest
                collected
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued for debt modification
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense related to stock options issued below fair market
                value
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Restricted
                stock:Forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Amortization
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —BALANCES,
                December 31, 2004
            
            
            27,931
            
            $
            419,752
            
            
            8,700
            
            $
            62,000
            
            
            125,400
            
            $
            1,611,105
            
            
            —
            
            $
            —






Page
          6
 **Back
          to Table of Contents**




8%
                Class A
            
            10%
                Class B
            
            10%
                Class C
            
            15%
                Class EShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountStock
                issued:Cash
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Dinamo Entertainment, LLC.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Satellite Broadcasting Corporation and
                affiliates
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accrued interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of dividends payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for other current assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for deferred financing costs
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            (310
            )
            
            (3,100
            )
            
            (350
            )
            
            (3,500
            )
            
            —
            
            
            —Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Interest
                collected
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Increase
                in reserve
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued in connection with deferred compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Restricted
                stock forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —BALANCES,
                December 31, 2005
            
            
            27,931
            
            $
            419,752
            
            
            8,390
            
            $
            58,900
            
            
            125,050
            
            $
            1,607,605
            
            
            —
            
            $
            —






See
      accompanying notes to the consolidated financial statements




Page
          7
 **Back
          to Table of Contents**





**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**YEARS
      ENDED DECEMBER 31, 2005, 2004 AND 2003**


10%
                Class F
            
            
            8%
                Class G
            
            
            6%
                Class H
            
            
            %
                Class IShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Shares
            
            
            AmountBALANCES,
                December 31, 2002
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —Stock
                issued:Cash
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accounts payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accrued interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of dividends payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intrinsic
                value of convertible feature
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            ——
            
            
            —Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Increase
                reserve
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Interest
                collected
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued:Preferred
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Debt
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Services
                rendered
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense related to stock options issued below fair market
                value
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Restricted
                stock:Forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Amortization
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Embedded
                value with Laurus warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —BALANCES,
                December 31, 2003
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —






Page
          8
 **Back
          to Table of Contents**




10%
                Class F
            
            8%
                Class G
            
            6%
                Class H
            
            %
                Class IShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountStock
                issued:Cash
            
            
            —
            
            $
            —
            
            
            40,245
            
            $
            353,382
            
            
            11.5
            
            $
            984,173
            
            
            —
            
            $
            —Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - remaining 50% ownership of MBUSA
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - URON, Inc.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Satellite Broadcasting Corporation and
                affiliates
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Minnesota Digital Universe, Inc.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Rainbow Satellite Group, LLC.
            
            
            200,000
            
            
            2,000,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - 21st
                Century Satellite Communications
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Property
                and equipment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of notes payable
            
            
            —
            
            
            —
            
            
            5,000
            
            
            50,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accrued interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of dividends payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for other current assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                repurchase
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock intomandatory
                redeemable preferred stock
            
            
            (50,000
            )
            
            (500,000
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intrinsic
                value of convertible feature
            
            
            —
            
            
            —
            
            
            —
            
            
            (54,182
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            (169,303
            )
            
            —
            
            
            (984,173
            )
            
            —
            
            
            —Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Interest
                collected
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued for debt modification
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense related to stock options issued below fair market
                value
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deferred
                compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Restricted
                stock:
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Amortization
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —BALANCES,
                December 31, 2004
            
            
            150,000
            
            $
            1,500,000
            
            
            45,245
            
            $
            179,897
            
            
            11.5
            
            $
            —
            
            
            —
            
            $
            —






Page
          9
 **Back
          to Table of Contents**




10%
                Class F
            
            8%
                Class G
            
            6%
                Class H
            
            %
                Class IShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountStock
                issued:Cash
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            100,000
            
            $
            9,480,000Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptionsreceivable for fees related to equity transactions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Dinamo Entertainment, LLC.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Satellite Broadcasting Corporation and
                affiliates
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of accrued interest
            
            
            —
            
            
            —
            
            
            
            
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9.5
            )
            
            —
            
            
            (10,000
            )
            
            —Conversion
                of dividends payable
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for other current assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —In
                lieu of cash for deferred financing costs
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9,480,000
            )Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Interest
                collected
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Increase
                in reserve
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warrants
                issued in connection with deferred compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Restricted
                stock forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —BALANCES,
                December 31, 2005
            
            
            150,000
            
            $
            1,500,000
            
            
            45,245
            
            $
            179,897
            
            
            2
            
            $
            —
            
            
            90,000
            
            $
            —






See
      accompanying notes to the consolidated financial statements




Page
          10
 **Back
          to Table of Contents**


**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**YEARS
      ENDED DECEMBER 31, 2005, 2004 AND 2003**




Common
                Stock
            
            
            Stock
              Subscriptions
            
            
            Options
              and
            
            
            Unamortized
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Receivable
            
            
            Warrants
            
            
            Compensation
            
            
            Deficit
            
            
            TotalBALANCES,
                December 31, 2002
            
            
            13,110,477
            
            $
            4,465,832
            
            $
            (633,195
            )
            $
            26,632,299
            
            $
            (682,089
            )
            $
            (29,715,999
            )
            $
            2,642,285Stock
                issued:Cash
            
            
            4,477,279
            
            
            1,947,197
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,973,197Exercise
                of warrants
            
            
            258,790
            
            
            262,030
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            262,030Cashless
                exercise of warrants
            
            
            141,529
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of stock options
            
            
            3,000
            
            
            3,750
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,750Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            (36,977
            )
            
            36,977
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            76,500Conversion
                of accounts payable
            
            
            85,000
            
            
            120,690
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            192,690Conversion
                of notes payable
            
            
            654,202
            
            
            762,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            762,000Conversion
                of accrued interest
            
            
            63,539
            
            
            66,172
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            66,172Conversion
                of preferred stock
            
            
            66,666
            
            
            40,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of dividends payable
            
            
            187,164
            
            
            113,209
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            113,209Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (93,100
            )Intrinsic
                value of convertible feature
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (500
            )
            
            (27,202
            )Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (58,314
            )Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            105,806
            
            
            —
            
            
            —
            
            
            —
            
            
            105,806Increase
                reserve
            
            
            —
            
            
            —
            
            
            71,000
            
            
            —
            
            
            —
            
            
            —
            
            
            71,000Interest
                collected
            
            
            —
            
            
            —
            
            
            1,327
            
            
            —
            
            
            —
            
            
            —
            
            
            1,327Warrants
                issued:Preferred
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            58,314
            
            
            —
            
            
            —
            
            
            58,314Common
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            2,050,507
            
            
            —
            
            
            —
            
            
            2,050,507Debt
            
            
            —
            
            
            —
            
            
            —
            
            
            883,711
            
            
            —
            
            
            —
            
            
            883,711Services
                rendered
            
            
            —
            
            
            —
            
            
            —
            
            
            321,920
            
            
            —
            
            
            —
            
            
            321,920Deferred
                compensation expense related to stock options issued below fair market
                value
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            367
            
            
            —
            
            
            367Deferred
                compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            47,114
            
            
            —
            
            
            47,114Restricted
                stock:Forfeited
            
            
            (10,841
            )
            
            (17,398
            )
            
            —
            
            
            —
            
            
            17,398
            
            
            —
            
            
            —Amortization
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            400,000
            
            
            —
            
            
            400,000Embedded
                value with Laurus warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            568,121
            
            
            —
            
            
            —
            
            
            568,121Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (248,689
            )
            
            (248,689
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (4,365,004
            )
            
            (4,365,004
            )BALANCES,
                December 31, 2003
            
            
            19,036,805
            
            $
            7,726,505
            
            $
            (418,085
            )
            $
            30,514,872
            
            $
            (217,210
            )
            $
            (34,330,192
            )
            $
            5,807,711






Page
          11
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          to Table of Contents**




Common
                StockStock
                issued:
            
            Shares
            
            Amount
            
            Stock
              Subscriptions
              Receivable
            
            Options
              and
              Warrants
            
            Unamortized
              Compensation
            
            Accumulated
              Deficit
            
            TotalCash
            
            
            2,001,832
            
            $
            2,059,093
            
            $
            —
            
            $
            791,483
            
            $
            —
            
            $
            —
            
            $
            4,188,131Exercise
                of warrants
            
            
            273,403
            
            
            390,279
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            390,279Cashless
                exercise of warrants
            
            
            133,742
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            (17,320
            )
            
            17,320
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - remaining 50% ownership of MBUSA
            
            
            30,000
            
            
            39,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            39,000Acquisition
                of assets - URON, Inc.
            
            
            180,000
            
            
            235,800
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            235,800Acquisition
                of assets - Satellite Broadcasting Corporation and
                affiliates
            
            
            135,076
            
            
            270,152
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            270,152Acquisition
                of assets - Minnesota Digital Universe, Inc.
            
            
            2,300,000
            
            
            3,960,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,960,000Acquisition
                of assets - Rainbow Satellite Group, LLC.
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,000,000Acquisition
                of assets - 21st
                Century Satellite Communications
            
            
            230,333
            
            
            364,584
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            364,584Property
                and equipment
            
            
            11,800
            
            
            15,530
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            15,530Conversion
                of notes payable
            
            
            407,051
            
            
            580,909
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            630,909Conversion
                of accrued interest
            
            
            47,393
            
            
            56,687
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            56,687Conversion
                of preferred stock
            
            
            621,200
            
            
            776,500
            
            
            —
            
            
            —
            
            
            —
            
            
            (337,536
            )
            
            —Conversion
                of dividends payable
            
            
            156,110
            
            
            124,618
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            124,618In
                lieu of cash for services
            
            
            213,464
            
            
            329,581
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            329,581In
                lieu of cash for other current assets
            
            
            36,000
            
            
            42,120
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            42,120Stock
                repurchase
            
            
            (27,500
            )
            
            (62,975
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (62,975
            )Conversion
                of preferred stock intomandatory
                redeemable preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (500,000
            )Intrinsic
                value of convertible feature
            
            
            —
            
            
            —
            
            
            —
            
            
            457,500
            
            
            —
            
            
            54,182
            
            
            457,500Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            1,153,476
            
            
            —
            
            
            —
            
            
            —Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            6,731
            
            
            —
            
            
            —
            
            
            —
            
            
            6,731Interest
                collected
            
            
            —
            
            
            —
            
            
            2,770
            
            
            —
            
            
            —
            
            
            —
            
            
            2,770Warrants
                issued for debt modification
            
            
            —
            
            
            —
            
            
            —
            
            
            68,652
            
            
            —
            
            
            —
            
            
            68,652Deferred
                compensation expense related to stock options issued below fair market
                value
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            115
            
            
            —
            
            
            115Deferred
                compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            12,599
            
            
            —
            
            
            12,599Restricted
                stock:Forfeited
            
            
            (2,219
            )
            
            (2,772
            )
            
            —
            
            
            —
            
            
            2,772
            
            
            —
            
            
            —Amortization
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            200,000
            
            
            —
            
            
            200,000Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (307,101
            )
            
            (307,101
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9,783,962
            )
            
            (9,783,962
            )BALANCES,
                December 31, 2004
            
            
            25,784,490
            
            $
            16,888,291
            
            $
            (391,264
            )
            $
            32,985,983
            
            $
            (1,724
            )
            $
            (44,704,609
            )
            $
            8,549,431






Page
          12
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          to Table of Contents**




Common
                StockShares
            
            Amount
            
            Stock
              Subscriptions
              Receivable
            
            Options
              and
              Warrants
            
            Unamortized
              Compensation
            
            Accumulated
              Deficit
            
            TotalStock
                issued:Cash
            
            
            1,281,614
            
            $
            —
            
            $
            —
            
            $
            1,606,848
            
            $
            —
            
            $
            —
            
            $
            11,086,848Exercise
                of warrants
            
            
            23,000
            
            
            23,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            23,000Cashless
                exercise of warrants
            
            
            101,383
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercise
                of options
            
            
            2,000
            
            
            1,960
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,960Reduction
                of stock subscriptions receivable for fees related to equity
                transactions
            
            
            —
            
            
            (15,400
            )
            
            15,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —Acquisition
                of assets - Dinamo Entertainment, LLC
            
            
            475,000
            
            
            702,500
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            702,500Acquisition
                of assets - Satellite Broadcasting Corporation and
                affiliates
            
            
            70,000
            
            
            105,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            105,000Conversion
                of notes payable
            
            
            1,513,996
            
            
            1,541,996
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,541,996Conversion
                of accrued interest
            
            
            96,754
            
            
            104,194
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            104,194Conversion
                of preferred stock
            
            
            1,616,668
            
            
            1,898,001
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,898,001
            )
            
            —Conversion
                of dividends payable
            
            
            924,989
            
            
            1,278,625
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,278,625In
                lieu of cash for services
            
            
            13,000
            
            
            20,580
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            20,580In
                lieu of cash for other current assets
            
            
            200,000
            
            
            218,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            218,000In
                lieu of cash for deferred financing costs
            
            
            33,334
            
            
            36,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            36,000Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6,600
            )Discount
                on preferred stock related to warrants issued
            
            
            —
            
            
            —
            
            
            —
            
            
            9,480,000
            
            
            —
            
            
            —
            
            
            —Stock
                subscriptions receivable:Cash
                payments
            
            
            —
            
            
            —
            
            
            21,750
            
            
            —
            
            
            —
            
            
            —
            
            
            21,750Interest
                collected
            
            
            —
            
            
            —
            
            
            30,000
            
            
            —
            
            
            —
            
            
            —
            
            
            30,000Increase
                in reserve
            
            
            —
            
            
            —
            
            
            27,009
            
            
            —
            
            
            —
            
            
            —
            
            
            27,009Warrants
                issued for services
            
            
            —
            
            
            —
            
            
            —
            
            
            9,829
            
            
            —
            
            
            —
            
            
            9,829Warrants
                issued in connection with deferred compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            176,880
            
            
            (29,479
            )
            
            —
            
            
            147,401Restricted
                stockforfeited
            
            
            (1,670
            )
            
            (1,342
            )
            
            —
            
            
            —
            
            
            1,342
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,454,228
            )
            
            (1,454,228
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,475,000
            )
            
            (7,475,000
            )BALANCES,
                December 31, 2005
            
            
            32,134,558
            
            $
            22,801,405
            
            $
            (297,105
            )
            $
            44,259,540
            
            $
            (29,861
            )
            $
            (55,531,838
            )
            $
            14,968,295






See
      accompanying notes to the consolidated financial statements




Page
          13
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          to Table of Contents**





**MULTIBAND
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**YEARS
      ENDED DECEMBER 31, 2005, 2004 AND 2003**




**2005**
            
            **2004**
            
            **2003****OPERATING
                ACTIVITIES**Net
                loss
            
            $
            (7,475,000
            )
            $
            (9,783,962
            )
            $
            (4,365,004
            )Adjustments
                to reconcile net loss to cash flows from operating
                activities:Depreciation
                and Amortization
            
            
            5,095,561
            
            
            3,610,057
            
            
            996,379Amortization
                of deferred compensation
            
            
            147,401
            
            
            212,714
            
            
            447,481Amortization
                of original issue discount
            
            
            1,042,374
            
            
            718,166
            
            
            405,248Gain
                on sale of segment
            
            
            (253,356
            )
            
            —
            
            
            —Common
                stock issued for services
            
            
            20,580
            
            
            329,581
            
            
            —Warrants
                issued for services
            
            
            9,829
            
            
            —
            
            
            321,920Impairment
                of goodwill
            
            
            —
            
            
            2,748,879
            
            
            —Loss
                (gain) on sale of property and equipment
            
            
            (94,277
            )
            
            26,217
            
            
            79,394Write
                off of notes receivable and investment
            
            
            —
            
            
            —
            
            
            19,069Change
                in allowance for doubtful accounts on accounts receivable
            
            
            161,000
            
            
            2,000
            
            
            (13,000
            )Reserve
                for stock subscriptions and interest receivable
            
            
            27,009
            
            
            —
            
            
            71,000Interest
                receivable on stock subscription receivable
            
            
            —
            
            
            —
            
            
            1,327Minority
                interest in earnings of subsidiary
            
            
            —
            
            
            —
            
            
            (33,366
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            239,910
            
            
            (1,160,198
            )
            
            302,890Inventories
            
            
            (240,472
            )
            
            1,105,372
            
            
            (509,762
            )Prepaid
                expenses and other
            
            
            222,236
            
            
            (7,664
            )
            
            70,264Other
                assets
            
            
            (14,439
            )
            
            (13,675
            )
            
            (143,101
            )Wholesale
                line of credit
            
            
            (1,000,987
            )
            
            (50,113
            )
            
            (314,069
            )Accounts
                payable and accrued liabilities
            
            
            (1,482,170
            )
            
            (229,855
            )
            
            122,403Customer
                deposits
            
            
            4,286
            
            
            4,475
            
            
            —Liabilities
                of discontinued operations
            
            
            (375,000
            )
            
            —
            
            
            —Deferred
                service obligations and revenue
            
            
            148,457
            
            
            198,361
            
            
            (39,321
            )Net
                cash flows from operating activities
            
            
            (3,817,058
            )
            
            (2,289,645
            )
            
            (2,580,248
            )**INVESTING
                ACTIVITIES**Purchases
                of property and equipment
            
            
            (976,477
            )
            
            (748,704
            )
            
            (526,936
            )Purchases
                of intangible assets
            
            
            (244,894
            )
            
            —
            
            
            —Purchase
                of Dinamo Entertainment, LLC
            
            
            (726,525
            )
            
            —
            
            
            —Purchase
                of Ultravision
            
            
            (287,050
            )
            
            —
            
            
            —Purchase
                of Satellite Broadcasting Corporation
            
            
            (200,000
            )
            
            (221,624
            )
            
            —Purchase
                of Minnesota Digital Universe, Inc.
            
            
            —
            
            
            (1,009,730
            )
            
            —Purchase
                of Rainbow Satellite Group, LLC
            
            
            —
            
            
            (1,000,000
            )
            
            —Purchase
                of 21stCentury Satellite Communication, Inc.
            
            
            —
            
            
            (250,000
            )
            
            —Proceeds
                from sale of business segment
            
            
            1,682,184
            
            
            —
            
            
            —Proceeds
                from short-term note receivable
            
            
            400,000
            
            
            —
            
            
            —Proceeds
                from sale of intangible assets
            
            
            91,500
            
            
            —
            
            
            —Proceeds
                from certificate of deposit
            
            
            650,000
            
            
            —
            
            
            —Payments
                received on notes receivable
            
            
            2,843
            
            
            —
            
            
            —Proceeds
                from sale of property and equipment
            
            
            —
            
            
            2,712
            
            
            15,492Payments
                for investment in joint venture
            
            
            —
            
            
            —
            
            
            (64,878
            )Purchase
                of certificate of deposit
            
            
            —
            
            
            (400,000
            )
            
            (250,000
            )Net
                cash flows from investing activities
            
            
            391,581
            
            
            (3,627,346
            )
            
            (826,322
            )**FINANCING
                ACTIVITIES**Checks
                issued in excess of cash in bank
            
            
            (141,343
            )
            
            83,558
            
            
            147,398Payments
                on short-term debt
            
            
            (3,981,099
            )
            
            (2,688,900
            )
            
            —Payments
                on long-term debt
            
            
            (2,690,766
            )
            
            (345,578
            )
            
            (200,768
            )Payments
                on capital lease obligations
            
            
            (216,583
            )
            
            (74,902
            )
            
            (75,301
            )Payments
                on note payable to stockholder
            
            
            (51,964
            )
            
            (29,590
            )
            
            (9,609
            )Payments
                for debt issuance costs
            
            
            (25,000
            )
            
            (198,337
            )
            
            —Payment
                on mandatory redeemable preferred stock
            
            
            (166,666
            )
            
            —
            
            
            —Proceeds
                from long-term debt and warrants issued with long-term
                debt
            
            
            2,000,000
            
            
            2,471,688
            
            
            1,659,726Proceeds
                from issuance of stock and warrants
            
            
            11,086,848
            
            
            4,188,131
            
            
            4,023,704Payments
                received on stock subscriptions receivable
            
            
            51,750
            
            
            9,501
            
            
            105,806Proceeds
                from note payable - stockholder
            
            
            —
            
            
            —
            
            
            124,000Redemption
                of common stock
            
            
            (6,600
            )
            
            (62,975
            )
            
            —Redemption
                of preferred stock
            
            
            —
            
            
            —
            
            
            (93,100
            )Exercise
                of warrants
            
            
            23,000
            
            
            390,279
            
            
            262,030Preferred
                stock dividends
            
            
            (84,186
            )
            
            (45,291
            )
            
            (135,481
            )Exercise
                of stock options
            
            
            1,960
            
            
            —
            
            
            3,750Net
                cash flows from financing activities
            
            
            5,799,351
            
            
            3,697,584
            
            
            5,812,155**INCREASE
                (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            2,373,874
            
            
            (2,219,407
            )
            
            2,405,585CASH
                AND CASH EQUIVALENTS - Beginning of Year
            
            
            726,553
            
            
            2,945,960
            
            
            540,375**CASH
                AND CASH EQUIVALENTS - END OF YEAR**
            
            $
            3,100,427
            
            $
            726,553
            
            $
            2,945,960






See
      accompanying notes to the consolidated financial statements




Page
          14
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          to Table of Contents**





**MULTIBAND
      CORPORATION AND SUBSIDIARIES**




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


December
      31, 2005, 2004 and 2003








**NOTE
      1 - 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 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
      years ended December 31, 2005, 2004 and 2003, the Company incurred net losses
      of
      $7,475,000, $9,783,962, and $4,365,004, respectively. At December 31, 2005,
      the
      Company had an accumulated deficit of $55,531,838. The Company's ability to
      continue as a going concern is dependent on it ultimately achieving
      profitability and/or raising additional capital. Management intends to 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 lease obligations and fund the Company's future
      operations:





1.
            Continued
                reduction of operating expenses by controlling payroll, professional
                fees
                and other general and administrative
                expenses.


2.
            Solicit
                additional equity investment in the Company by either issuing preferred
                or
                common stock.


3.
            Continue
                to market Multiband services and acquire additional multi-dwelling
                unit
                customers.


4.
            Control
                capital expenditures by contracting Multiband services and equipment
                through a landlord-owned equipment
                program.


5.
            Establish
                market for wireless internet
                services.





***Principles
      of Consolidation***





The
      consolidated financial statements include the accounts of Multiband Corporation
      (MB) and its wholly owned subsidiaries, Corporate Technologies, USA, Inc. (CTU),
      URON, Inc., Minnesota Digital, Inc. (MDU), Rainbow Satellite Group, LLC
      (Rainbow) and Multiband, Inc. (Multiband) which provides voice, data and video
      services to residential multi-dwelling units. In February 2003, the Company
      formed a 50% owned subsidiary, Multiband USA, Inc. (MB USA) with Pace
      Electronics, Inc. (PACE) a video wholesaler, and provides the same services
      as
      Multiband). On January 1, 2004, the Company purchased the 50% PACE interest
      in
      Multiband USA. All significant intercompany transactions and balances have
      been
      eliminated in consolidation.





On
      January 1, 2004, the Company merged Multiband into CTU.





***Discontinued
      Operations***





During
      the first quarter of 2005, the Company sold certain assets and transferred
      certain liabilities related to its Multiband Business Services (a/k/a CTU).
      The
      Company began discussions and efforts to sell these assets in the fourth quarter
      of 2004. These assets met the requirements of the Financial Accounting Standards
      Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144,
“Accounting for Impairment or Disposal of Long-Lived Assets” as being held for
      sale. Operations and cash flows will be eliminated as a result of the sale
      and
      the Company will not have any significant involvement in the operations after
      the sale. In accordance with appropriate accounting rules, these results are
      presented on a historical basis as a separate line in the consolidated
      statements of operations and the consolidated balance sheets entitled
“Discontinued Operations”. All of the financial information in the notes to the
      consolidated financial statements reflects only the results of continuing
      operations (see Note 17).




Page
          15
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          to Table of Contents**


**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003




***Revenues
      and Cost Recognition***





The
      Company recognizes revenue in accordance with the Securities Exchange
      Commission’s Staff Accounting Bulletin No. 104 (SAB 104) “Revenue Recognition”,
      which requires that four basic criteria be met before revenue can be recognized:
      (i) persuasive evidence of a customer arrangement exists; (ii) the price is
      fixed or determinable; (iii) collectibility is reasonable assured; and (iv)
      product delivery has occurred or services have been rendered. Discontinued
      operations revenues were recognized as products were shipped based on
      FOB shipping point terms when title passed to customers.





The
      Company earns revenues from six sources: 1) Video and computer technology
      products which are sold but not installed, 2) Voice, video and data
      communication products which are sold and installed, 3) Service revenues related
      to communication products which are sold and both installed and not installed
      4)
      Multiband user charges to multiple dwelling units 5) MB USA user charges to
      timeshares, and 6) MDU earns revenue primarily through the activation of and
      residual fees on video programming services.





Revenues
      from video and computer technology products, which are sold but not installed,
      are recognized when delivered and the customer has accepted the terms and has
      the ability to fulfill the terms. Product returns and customer discounts are
      netted against revenues. This revenue has been included with discontinued
      operations.





Customers
      contract for both the purchase and installation of voice and data networking
      technology products and certain video technologies products on one sales
      agreement, as installation of the product is essential to the functionality
      of
      the product. Revenue is recognized when the products are delivered and installed
      and the customer has accepted the terms and has the ability to fulfill the
      terms. This revenue has been included with discontinued operations. Service
      revenues related to technology products including consulting, training and
      support are recognized when the services are provided. Service revenues
      accounted for less than 10% of total revenues for the years ended December
      31,
      2005, 2004 and 2003. The Company, if the customer elects, enters into equipment
      maintenance agreements for products sold once the original manufacturer's
      warranty has expired. Revenues from all equipment maintenance agreements are
      recognized on a straight-line basis over the terms of each contract. Costs
      for
      services are expensed as incurred. This revenue has been included with
      discontinued operations.





Revenue
      generated from activation on video programming services is earned in the month
      of activation. According to the Company's agreement with DirecTV, in the event
      that a customer cancels within the first 12 months of service, DirecTV has
      the
      right to chargeback the Company for a portion of the activation fees received.
      In accordance with Securities Exchange Commission SAB 104, the Company has
      estimated the potential charge back of commissions received on activation fees
      during the past 12 months based on historical percentages of customer
      cancellations and has included that amount as a reduction of revenue. Residual
      income is earned as services are provided by DirecTV through its system
      operators. As a master system operator for DirecTV, the Company earns a fixed
      percentage based on net cash received by DirecTV for recurring monthly services
      and a variable amount depending on the number of activations in a given month.
      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 has determined that the accounting policies for income recognition
      described above were in accordance with the Financial Accounting Standards
      Board
      Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as
      a Principal versus Net as an Agent”. EITF No. 99-19 employs multi-factor tests
      to determine whether amounts charged to customers in respect of certain expenses
      incurred should be included in revenues or netted against such
      expenses.




Page
          16
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          to Table of Contents**


**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003





The
      Company reports the aforementioned 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. The Company reports DirecTV revenue on a net basis.





Multiband,
      Rainbow, MDU and MB USA user charges are recognized as revenues in the period
      the related services are provided in accordance with SAB 104. Any amounts billed
      prior to services being provided are reported as deferred service obligations
      and revenues.





Warranty
      costs incurred on new product sales are substantially reimbursed by the
      equipment suppliers.





***Cash
      and Cash Equivalents***





The
      Company includes as cash equivalents, investments with original maturities
      of
      three months or less when purchased, which are readily convertible into known
      amounts of cash. The Company deposits its cash in high credit quality financial
      institutions. The balances, at times, may exceed federally insured
      limits.





***Certificate
      of Deposit***





The
      Company had a certificate of deposit which matured in December
      2005.





***Accounts
      Receivable***





The
      Company reviews customers' credit history before extending unsecured credit
      and
      establishes an allowance for uncollectible accounts based upon factors
      surrounding the credit risk of specific customers and other information. Credit
      risk on accounts receivable is minimized as a result of the large and diverse
      nature of the Company's customer base. Invoices are due 30 days after
      presentation. Accounts receivable over 30 days are considered past due. The
      Company does not accrue interest on past due accounts receivable. Receivables
      are written off only after all collection attempts have failed and are based
      on
      individual credit evaluation and specific circumstances of the customer.
      Accounts receivable are shown net of an allowance for uncollectible accounts
      of
      $386,000, and $225,000 at December 31, 2005 and 2004, respectively.





***Inventories***





Inventories,
      included as inventories and current assets of discontinued operations on the
      balance sheet, consisting principally of purchased telecommunication, networking
      and computer equipment and parts, are stated at the lower of cost or market.
      Cost is determined using an average cost method for telecommunication and
      networking equipment and the first-in, first-out (FIFO) method for computer
      equipment. Non-monetary exchanges of inventory items with third parties are
      recorded at the net book value of the items exchanged with no gains or losses
      recognized.





***Property
      and Equipment***





Property,
      equipment and leasehold improvements are recorded at cost. Improvements are
      capitalized while repairs and maintenance costs are charged to operations when
      incurred. Property and equipment is depreciated or amortized using the
      straight-line method over estimated useful lives ranging from three to seven
      years. Leasehold improvements are amortized using the straight-line method
      over
      the shorter of the lease term or the estimated useful life of the
      assets.




Page
          17
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**MULTIBAND
      CORPORATION AND SUBSIDIARIES**




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


December
      31, 2005, 2004 and 2003


***Debt
      Issuance Costs***





Debt
      issuance costs are amortized over the life of the loans of approximately 18
      to
      36 months using the straight-line method, which approximates the interest
      method.





***Goodwill
      and Other Intangible Assets***





The
      Company applies the FASB SFAS No. 142, “Goodwill and Other Intangible Assets,”
which sets forth new financial and reporting standards for the acquisition
      of
      intangible assets, other than those acquired in a business combination, and
      for
      goodwill and other intangible assets subsequent to their acquisition. This
      accounting standard requires that goodwill no longer be amortized but tested
      for
      impairment on a periodic basis.





The
      Company performed the required goodwill impairment test during the years ended
      December 31, 2005 and 2004. As part of compliance with this standard, the
      Company obtained an independent appraisal to assess the fair value of its
      business units to determine whether goodwill carried on its books was impaired
      and the extent of such impairment, if any for the year ended December 31, 2004.
      For the year ended December 31, 2004, the independent appraisal used the
      discounted future returns method; future benefits over a period of time are
      estimated and then discounted back to present value. Based upon this independent
      appraisal, the Company determined that it was partially impaired. The Company
      recorded an impairment of $2,748,879 related to the Corporate Technologies
      (CTU)
      acquisition during the year ended December 31, 2004 and the impairment is
      included in discontinued operations on the consolidated statement of operations.





The
      Company reviewed goodwill and determined it was not impaired and is fairly
      stated at December 31, 2005. The balance of goodwill at December 31, 2005 and
      2004 was $954,871 and $812,366, respectively (see Note 2).





Components
      of intangible assets are as follows:





December
                31, 2005
            
            December
                31, 2004Gross
                Carrying
            
            Accumulated
            
            Gross
                Carrying
            
            AccumulatedAmount
            
            Amortization
            
            Amount
            
            Amortization*Intangible
                assets subject to amortization*Domain
                name
            
            $
            83,750
            
            $
            72,583
            
            $
            83,750
            
            $
            55,833Access
                contracts
            
            $
            60,000
            
            $
            53,333
            
            $
            60,000
            
            $
            33,333Debt
                issuance costs
            
            $
            499,837
            
            $
            306,152
            
            $
            313,837
            
            $
            47,214Right
                of entry
            
            $
            17,376,699
            
            $
            4,806,401
            
            $
            17,226,759
            
            $
            1,933,294Customer
                cable lists
            
            $
            1,844,138
            
            $
            702,413
            
            $
            753,930
            
            $
            286,967Total
            
            $
            19,864,424
            
            $
            5,940,882
            
            $
            18,438,276
            
            $
            2,356,641*Intangible
                assets not subject to amortization*Goodwill
            
            $
            954,871
            
            $
            —
            
            $
            812,366
            
            $
            —





Amortization
      of intangible assets was $3,374,723, $2,301,016, and $33,291 for the years
      ended
      December 31, 2005, 2004 and 2003, respectively. Estimated amortization expense
      of intangible assets for the years ending December 31, 2006, 2007, 2008, 2009
      ,
      2010 and 2011 is $3,471,076,$3,203,471, $3,021,413, $2,895,843, $1,104,026,
      and
      $227,705 , respectively. The weighted average remaining life of the intangibles
      is 4.1 years with right of entry average life of 5.6 years and customer cable
      lists of 4.0 years. The change in goodwill for 2005 relates to $150,000 of
      goodwill resulting from the asset purchase of Dinamo Entertainment, Inc. and
      a
      reduction of goodwill of $7,495 related to the sale of subscribers to Satellite
      Broadcasting Corporation (see Note 2). The Company believes the goodwill
      recorded of $954,871 will be deductible for tax purposes.




Page
          18
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


The
      Company amortizes a domain name acquired during the year ended December 31,
      2001
      over its estimated useful life of five years using the straight-line method.
      The
      Company amortizes access contracts and customer cable lists, on an average,
      over
      their useful estimated lives ranging from two to five years. The Company is
      amortizing the right of entry contracts, on an average, over their estimated
      useful lives ranging from 36 to 120 months.





***Advertising
      Costs***





Advertising
      costs are charged to expense as incurred. Advertising costs were $202,701,
      $176,592, and $146,906, for the years ended December 31, 2005, 2004 and 2003,
      respectively, and are included in selling, general and administrative expenses
      in the consolidated statements of operations.





***Shipping
      and Handling Costs***





In
      accordance with Emerging Issues Task Force (EITF) Issue 00-10, "Accounting
      for
      Shipping and Handling Fees and Costs," the Company is including shipping and
      handling revenues in revenues and shipping and handling costs in cost of
      products and services (discontinued operations).





***Income
      Taxes***





The
      Company utilizes the liability method of accounting for income taxes. Under
      this
      method, deferred tax assets and liabilities are recognized for the expected
      future tax consequences attributable to temporary differences between the
      financial statement and income tax reporting bases of assets and liabilities.
      Deferred tax assets are reduced by a valuation allowance to the extent that
      realization is not assured.





***Stock-Based
      Compensation***





In
      accordance with Accounting Principles Board (APB) Opinion No. 25 and related
      interpretations, the Company uses the intrinsic value-based method for measuring
      stock-based compensation cost which measures compensation cost as the excess,
      if
      any, of the quoted market price of the Company's common stock at the grant
      date
      over the amount the employee must pay for the stock. The Company's general
      policy is to grant stock options at fair value at the date of grant. Options
      and
      warrants issued to employees are recorded at fair value, as required by SFAS
      No.
      123 "Accounting for Stock-Based Compensation," (SFAS No. 123), using the Black
      Scholes pricing model. The Company has adopted the disclosure only provision
      of
      SFAS No. 148, "Accounting for Stock-Based Compensation." Pursuant to APB No.
      25
      and related interpretations $0, $212,714 and $447,481 of compensation cost
      has
      been recognized in the accompanying consolidated statements of operations for
      the years ended December 31, 2005, 2004 and 2003, respectively. Had compensation
      cost been recognized based on the fair values of options at the grant dates
      consistent with the provisions of SFAS No. 123, the Company's loss attributable
      to common stockholders and basic and diluted loss per common share would have
      increased to the following pro forma amounts for the years ended December 31:





2005
            
            2004
            
            2003Loss
                attributable to common stockholders
            
            $
            (10,827,229
            )
            $
            (10,374,417
            )
            $
            (4,613,693
            )Pro
                forma loss attributable to common shares
            
            $
            (11,277,908
            )
            $
            (10,984,354
            )
            $
            (5,363,381
            )Basic
                and diluted loss attributable to common shareholders:As
                reported
            
            $
            (.37
            )
            $
            (.45
            )
            $
            (.29
            )Pro
                forma loss attributable to common shares
            
            $
            (.39
            )
            $
            (.47
            )
            $
            (.33
            )Stock-based
                compensation:As
                reported
            
            $
            —
            
            $
            212,714
            
            $
            447,481Pro
                forma
            
            $
            450,679
            
            $
            609,937
            
            $
            749,688






Page
          19
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003





In
      determining the compensation cost of the options granted during fiscal 2005,
      2004, and 2003, as specified by SFAS No. 123, the fair value of each option
      grant has been estimated on the date of grant using the Black-Scholes option
      pricing model and the weighted average assumptions used in these calculations
      are summarized as follows:





2005
            
            2004
            
            2003Risk-free
                interest rate
            
            
            3.91
            %
            
            3.31
            %
            
            3.00
            %Expected
                life of options granted
            
            
            10
                years
            
            
            10
                years
            
            
            10
                yearsExpected
                volatility range
            
            
            209
            %
            
            184
            %
            
            170
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %
            
            0
            %





***Net
      Loss per Common Share***





Basic
      net
      loss per common share is computed by dividing the loss attributable to common
      stockholders by the weighted average number of common shares outstanding for
      the
      reporting period. Diluted net loss per common share is computed by dividing
      loss
      attributable to common stockholders by the sum of the weighted average number
      of
      common shares outstanding plus all additional common stock that would have
      been
      outstanding if potentially dilutive common shares related to common share
      equivalents (stock options, stock warrants, convertible preferred shares, and
      issued but not outstanding restricted stock) had been issued. All options,
      warrants, convertible preferred shares, and restricted stock outstanding during
      the years ended December 31, 2005, 2004 and 2003 were
      anti-dilutive.





***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, MCS, where the Company bills voice, data and video
      subscribers as a principal; and MDU where the Company as a master service
      operator for DirecTV receives net cash payments for managing video subscribers
      through its network of system operators. These video subscribers are billed
      by
      DirecTV.





***Recently
      Issued Accounting Pronouncements***





In
      December 2004, FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment",
      which focuses primarily on accounting for transactions in which an entity
      obtains employee services in share-based payment transactions. This statement
      replaces SFAS No. 123, "Accounting for Stock-Based Compensation", and supersedes
      APB Opinion No. 25, "Accounting for Stock Issued to Employees." Beginning with
      the quarterly period that begins January 1, 2006, the Company will be required
      to expense the fair value of employee stock options and similar awards. As
      a
      public company, the Company is allowed to select from two alternative transition
      methods, each having different reporting implications. The impact of SFAS No.
      123R for the year ending December 31, 2006 is estimated to be approximately
      $675,000 based on the value of the options outstanding as of December 31, 2005
      that will vest during the year ended December 31, 2006. This estimate does
      not
      include any expenses for options that may be granted and vested during
      2006.




Page
          20
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


In
      June
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”,
      a replacement of APB Opinion No. 20 and FASB Statement No. 3 The statement
      applies to all voluntary changes in accounting principle, and changes the
      requirements for accounting for and reporting of a change in accounting
      principle. SFAS No. 154 requires retrospective application to prior period
      financial statements of a voluntary change in accounting principle unless it
      is
      impracticable. SFAS No. 154 is effective for accounting changes and corrections
      of errors made in fiscal years beginning after December 15, 2005. The statement
      does not change the transition provisions of any existing accounting
      pronouncements, including those that are in a transition phase as of the
      effective date of this statement. The Company does not expect the adoption
      of
      SFAS No. 154 to have a material effect on its consolidated financial
      statements.





***Management's
      Use of Estimates***





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.
      Significant management estimates relate to the allowances for doubtful accounts,
      inventory obsolescence, stock subscriptions and interest receivable, property
      and equipment estimated useful lives, goodwill and intangible assets carrying
      value and the valuation of deferred income tax assets.





***Financial
      Instruments***




The
      carrying amounts for all financial instruments approximates fair value. The
      carrying amounts for cash and cash equivalents, accounts receivable, accounts
      payable, accrued liabilities, and short-term debt approximate fair value because
      of the short maturity of these instruments. The fair value of capital lease
      obligations, note payable-stockholder and long-term debt approximates the
      carrying amounts based upon the Company's expected borrowing rate for debt
      with
      similar remaining maturities and comparable risk.





***Reclassifications***





Certain
      accounts in the prior years' consolidated financial statements have been
      reclassified for comparative purposes to conform with the presentation in the
      current year consolidated financial statements. These reclassifications had
      no
      effect on net loss or stockholders' equity.





NOTE 2 - Business Acquisitions





During
      February 2003, the Company incorporated a new subsidiary, MB USA. This
      subsidiary was formed as a 50% owned joint venture agreement with PACE (Note
      1).
      The reason for the joint venture with PACE is to continue to expand the
      Company's services related to multi-users of voice, data and video services.
      The
      remaining 50% ownership was purchased January 1, 2004.





On
      April
      25, 2003, the Company, through MCS, purchased certain video equipment assets,
      related rights to video subscribers and rights of access agreements from
      Suncoast Automation, Inc. (Suncoast). The purchase price was allocated to the
      acquired assets and assumed certain liabilities based on the estimated fair
      values as of the acquisition date. The purchase price was allocated to assets
      and liabilities acquired as follows:


Property
                  and equipment
              
              $
              504,224Access
                  contracts
              
              $
              60,000Capital
                  lease obligations
              
              $
              (54,224
              )Net
                  purchase price
              
              $
              510,000






Page
          21
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


The
      net
      purchase price of $510,000 consisted entirely of cash paid. The consolidated
      results of operations on an un-audited pro forma basis are not presented
      separately as the results do not differ significantly from historical amounts
      presented herein.




On
      December 31, 2003, the Company purchased, through MCS, certain customer lists
      from Florida Cable, Inc. (Florida Cable) for $300,000 which was paid to Florida
      Cable on January 2, 2004. In addition, the Company agreed to lease from Florida
      Cable equipment used in the operation of the cable television systems for six
      months for $1.00. After the six month lease period has expired, the Company
      has
      agreed to purchase the equipment for $165,000. At December 31, 2004, the
      outstanding balance related to the purchase of the equipment valued at $165,000
      was $25,029 and was paid in full during 2005.




On
      January 1, 2004, the Company, through MCS, entered into a stock purchase
      agreement with URON, Inc. (URON) to purchase all of the outstanding capital
      stock of URON for a total purchase price of 350,000 shares of the Company's
      common stock to be issued in installments as follows: a) 180,000 shares issued
      at closing, b) 170,000 shares held in escrow. The common shares were valued
      at
      fair market value on the date of agreement which was $1.31 per share for a
      purchase price of $458,500.




The
      terms
      of the escrow are as follows: 50,000 shares to be released upon URON providing
      the Company with documentation satisfactory to the Company of a release from
      a
      certain vendor or any related entity of all liabilities incurred to a certain
      vendor by URON; 120,000 shares to be released in 40,000 share increments upon
      the Company's receipt of distributable gross profits, generated by certain
      customers, in increments of $75,000 cash. The escrow shall be terminated 24
      months after the date of the agreement and any shares not released will be
      rescinded to the Company. The Company must register all shares issued within
      one
      year from the date of issuance. The reason for the purchase of URON is to
      continue to expand the Company's services related to voice, data, and video
      services. The purchase price of $458,500 was allocated to customer list of
      $453,930 and property and equipment of $4,570. The customer list will be
      amortized over its estimated useful lives of two years and the property and
      equipment for fifteen months. At December 31, 2004, the Company was not
      obligated to issue any of the contingent shares of common stock. At December
      31,
      2005, the 170,000 contingent shares of common stock were rescinded. The value
      of
      the shares rescinded of $222,700 was recorded as an offset to amortization
      expense for the year ended December 31, 2005.




In
      April
      2004, the Company, through MCS, purchased certain assets consisting of data
      and
      video subscribers and systems from Satellite Broadcasting Corporation and
      affiliates (SBC). The total purchase price for said assets was approximately
      $679,200.




On
      April
      2, 2004, Multiband Corporation and subsidiaries (the Company) completed its
      acquisition of Minnesota Digital Universe, Inc. (MDU segment) for approximately
      7.7 million dollars, half of which was paid for in Multiband Corporation common
      stock, valued at $1.75 per share, ($3,850,000), $1.1 million paid in cash and
      the balance in promissory notes due by January 2005. Included in the purchase
      price is $700,000 related to a finder’s fee. In December 2004, the notes with an
      outstanding balance of $990,000 were extended through May 2005, with $200,000
      of
      the outstanding note balance being extended to July 2006. These notes are
      unsecured and bear no interest. The stock value was a negotiated price between
      the Seller and the Buyer. The consideration paid was based on the Company's
      analysis of likely future net income to be generated over a six year period
      by
      the acquired company. The cash was provided by funds the Company had previously
      raised in a private placement. The assets were acquired from Pace Electronics.
      Prior to the transaction, there was no material relationship between the owners
      of MDU and the Company other than the fact that Pace Electronics previously
      owned a 50% interest in a company subsidiary, Multiband USA, Inc., which
      Multiband bought out the remaining 50% of ownership from Pace Electronics in
      January 2004 for 30,000 shares of the Company's common stock valued at
      $39,000.




Page
          22
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**MULTIBAND
      CORPORATION AND SUBSIDIARIES**




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


December
      31, 2005, 2004 and 2003


With
      the
      MDU acquisition, the Company became a nationwide agent for DirecTV. MDU services
      nearly 75,000 video subscribers through a network of private cable operators
      located throughout the United States. The purchase also permits the Company
      to
      receive ongoing residual payments from DirecTV, during the term of the master
      system operator agreement with DirecTV, which initially had approximately 25
      months remaining at the time of purchase.




On
      July
      9, 2004, Multiband (the Company) completed its acquisition, which had an
      acquisition date of June 1, 2004, of the outstanding membership interests of
      Rainbow Satellite Group, LLC (Rainbow) (MCS segment), a provider of Satellite
      television services to multi dwelling units, for approximately 7.5 million
      dollars, two million of which was paid for in Multiband Preferred Stock, valued
      at $2.00 per share on a conversion formula to Multiband common stock, one
      million dollars of which was paid for in cash and the balance in promissory
      notes due by January 2005. In December 2004 these notes were extended to May
      1,
      2005 and paid off in full as of that date. Included in the purchase price is
      $321,850 related to a finders’ fee. These notes are collateralized by Rainbow
      assets and bear interest at the prime rate (7.25% and 5.25% at December 31,
      2005
      and 2004.) In connection with the debt extension, the Company issued 75,000
      two
      year warrants with an exercise price of $1.35 valued at $68,652 using the Black
      Scholes pricing model. The stock value was a negotiated price between the Buyer
      and Seller. In the event Multiband defaults in the payment of said promissory
      notes, the former owners of Rainbow have certain rights to repurchase the
      aforementioned membership interests for 20% less than any sums Multiband has
      paid prior to the date of the default.




The
      consideration paid was based on the Company's analysis of likely future net
      incomes to be generated over a six year period by the acquired Company. The
      cash
      was provided by funds Multiband had previously raised in a private placement.
      The aforementioned purchase price is subject to adjustment pursuant to the
      parties agreement if the number of Rainbow subscribers increases or decreases
      as
      of an adjustment date. The assets were acquired from the members/owners of
      Rainbow. Prior to the transaction, there was no material relationship between
      the owners of sellers and the Company. With this acquisition, the Company
      acquired over 16,000 video subscribers which are primarily located in
      California, Colorado, Texas, Florida, Illinois and New York.




On
      August
      9, 2004, Multiband Corporation (the Company) completed its acquisition of
      certain assets of 21st Century Satellite Communications, Inc. (21st Century)
      (MCS segment) for $1,080,754, $333,333 of which was paid for in Company stock,
      valued at $1.60 per share, $250,000 of which was paid for in cash and the
      balance in equipment lease payments due by August 2007. The stock value was
      a
      negotiated price between the Buyer and Seller. Included in the purchase price
      is
      $86,750 related to a finder’s fee. The consideration paid was based on the
      Company's analysis of the value of the acquired video equipment and related
      video subscribers totaling approximately 5,000. The cash was provided by funds
      Multiband had previously raised in a private placement. In connection with
      the
      acquisition, the Company incurred a $125,000 finder's fee which was paid for
      in
      Company stock, valued at $1.42 for a total of $31,250, and the remaining $93,750
      was paid by December 31, 2004.




On
      August
      26, 2005, the Company completed its acquisition of certain assets of Dinamo
      Entertainment, Inc.(Dinamo) (MCS segment) for $2,074,225, $652,500 of which
      was
      paid for in Company stock, valued at $1.50 per share (as negotiated between
      buyer and seller), $475,000 of which was paid for in cash, and the remaining
      balance of $600,000 as a note payable to the former owner payable in monthly
      payments of $14,091 including interest at 6% with a balloon payment of $317,933
      due in November 2007. The note is collateralized by the assets acquired as
      part
      of the purchase. Included
      in the purchase price were assumed liabilities of $170,200. A portion of these
      liabilities were paid with $75,000 in cash at closing and 40,000 shares of
      Company stock with a fair market value of $50,000, with the remaining balance
      of
      $45,200 related to the assumption of capital leases. The
      Company has agreed to repurchase the 40,000 shares one year from closing if
      the
      fair market value in the 5 consecutive trading days immediately subsequent
      to
      the one year period falls below $1.25. In connection with the acquisition,
      the
      Company incurred a $176,525 finder’s fee paid in cash at closing. The
      consideration paid was based on the Company’s analysis of the value of the
      acquired video equipment and related video subscribers totaling about 3,000.
      The
      acquisition of Dinamo strengthens our presence in the California
      market.




Page
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**MULTIBAND
      CORPORATION AND SUBSIDIARIES**




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


December
      31, 2005, 2004 and 2003


With
      these acquisitions, the Company has substantially increased its subscriber
      base.




**MDU**
            
            **Rainbow**
            
            **21****st****Century**
            
            **Dinamo**Allocation
              of Purchase Price:Total
                Cash/Stock Consideration
            
            $
            7,000,000
            
            $
            7,219,999
            
            $
            987,000
            
            $
            1,727,500Add:
                Transaction Costs
            
            
            726,550
            
            
            361,850
            
            
            93,754
            
            
            176,525Add:
                Liabilities assumed
            
            
            2,030,373
            
            
            319,921
            
            
            —
            
            
            170,200Total
                Consideration
            
            
            9,756,923
            
            
            7,901,770
            
            
            1,080,754
            
            
            2,074,225Less:
                Cash and accounts receivable
            
            
            59,044
            
            
            —
            
            
            —
            
            
            —Less:
                Tangible assets
            
            
            —
            
            
            773,000
            
            
            372,420
            
            
            1,450,000Less:
                Goodwill
            
            
            —
            
            
            800,000
            
            
            —
            
            
            150,000Intangible
                assets, net
            
            $
            9,697,879
            
            $
            6,328,770
            
            $
            708,334
            
            $
            474,225





Goodwill
      was recorded on the Rainbow transaction based on a six year future projection
      of
      cash flows which indicated that those future cash flows would not equal or
      exceed total consideration paid for all intangible Rainbow assets. Goodwill
      of
      $150,000 was recorded on the Dinamo transaction based on a two year future
      projection of cash flows which indicated that those future cash flows would
      not
      equal or exceed total consideration paid for all intangible Dinamo assets.
      The
      goodwill is deductible for tax purposes.





Effective
      April 1, 2005, the Company purchased certain video assets (equipment and video
      subscribers) from Ultravision, Inc. (MCS segment) for $287,050 cash including
      a
      finder’s fee of $12,050.





Effective
      September 30, 2005, the Company sold certain video subscriber assets located
      in
      Ohio, Oklahoma and Texas to Satellite Broadcasting Corporation (SBC) (MCS
      segment). The Company sold 152 video subscribers for $167,000; $91,500 in cash
      and the balance in a three year note. Terms of this note include variable
      monthly payments at 7% with a balloon payment in October 2008. The Company
      recorded a gain on the sale of $94,277 for the year ended December 31, 2005.
      Effective the same date, the Company purchased approximately 550 video
      subscribers in Minnesota from SBC for a total purchase price of $420,125, paid
      as follows: $200,000 cash at closing; $105,000 in Company common stock valued
      at
      $1.50 per share (as negotiated by buyer and seller); and the assumption of
      a
      capital lease obligation of $105,000. Terms of this capital lease obligation
      include monthly payments of $3,223 including interest at 7% through November
      2008 and is collateralized by assets purchased. Included in the purchase price
      is $10,125 related to a finder’s fee. The purchase price was allocated to the
      acquired assets based on the estimated fair values as of the acquisition date.
      The Company allocated the purchase price to intangibles of a right of entry
      contracts with a value of $315,125 and equipment of $105,000. The rights of
      entry contract will be amortized over its estimated useful life of 108
      months.





The
      following un-audited pro forma condensed results of operations for the years
      ended December 31, 2005 and 2004 give effect to the acquisition of URON, MDU,
      Rainbow, and 21st Century as if such transactions had occurred on January 1,
      2004.




The
      un-audited pro forma information does not purport to represent what the
      Company's results of operations would actually have been if such transactions
      in
      fact had occurred at such date or to project the Company's results of future
      operations.




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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**2005**
            
            **2004****Consolidated**
              **as
                reported**
              **per
                Consolidated Statements of**
              **Operations**
            
            **Pro
                Forma**
              **Disclosed**
            
            **Consolidated**
              **as
                reported**
              **per
                Consolidated Statements of**
              **Operations**
            
            **Pro
                Forma**
              **Disclosed**Revenues
            
            $
            16,515,426
            
            $
            16,515,426
            
            $
            11,067,834
            
            $
            14,562,983Loss
                from continuing operations
            
            
            (7,492,827
            )
            
            (7,492,827
            )
            
            (5,326,642
            )
            
            (5,292,789
            )Gain
                (Loss) from discontinued operations
            
            
            17,827
            
            
            17,827
            
            
            (4,457,320
            )
            
            (4,457,320
            )Net
                loss
            
            $
            (7,475,000
            )
            $
            (7,475,000
            )
            $
            (9,783,962
            )
            $
            (9,750,109
            )Basic
                and diluted loss per share:Loss
                from continuing operations
            
            $
            (.26
            )
            $
            (.26
            )
            $
            (.23
            )
            $
            (.23
            )Loss
                from discontinued operations
            
            $
            —
            
            $
            —
            
            $
            (.19
            )
            $
            (.19
            )Net
                loss
            
            $
            (.26
            )
            $
            (.26
            )
            $
            (.42
            )
            $
            (.42
            )Weighted
                average shares outstanding - basic and diluted
            
            
            29,097,923
            
            
            29,097,923
            
            
            23,307,594
            
            
            23,307,594





The
      un-audited pro forma results of operations for the years ended December 31,
      2005
      and 2004 as a result of the SBC, Florida Cable, Ultravision, and Dinamo
      acquisitions of video subscribers and video equipment are not material to the
      historical consolidated financial statements.





NOTE 3 - Property and Equipment





Property
      and equipment consisted of the following at December 31:


2005
              
              2004Leasehold
                  improvements
              
              $
              780,924
              
              $
              767,146Property
                  and equipment-owned
              
              
              9,794,264
              
              
              6,476,066Property
                  and equipment under capital lease obligations
              
              
              932,963
              
              
              988,594Totals
              
              
              11,508,151
              
              
              8,231,806Less
                  accumulated depreciation & amortization
              
              
              (5,904,006
              )
              
              (3,509,685
              )Less
                  accumulated depreciation & amortization capital leases
              
              
              (356,905
              )
              
              (349,647
              )$
              5,247,240
              
              $
              4,372,474


Depreciation
      and amortization expense on property and equipment for continuing operations
      was
      $1,664,651, $959,447 and $516,432 for the years ended December 31, 2005, 2004
      and 2003, respectively.





Depreciation
      and amortization expense on property and equipment for the discontinued
      operations was $55,284, $345,985 and $432,366 for the years ended December
      31,
      2005, 2004 and 2003, respectively.




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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003




NOTE 4 - Notes Receivable





Notes
      receivable consisted of the following at December 31:




2005
            
            2004Notes
                receivable - SBC-OK/TX, variable monthly principal payments based
                on
                revenue generated plus interest of 7%, due October 2008. Note is
                collateralized by certain assets.
            
            $
            47,801
            
            $
            —Notes
                receivable - SBC-Ohio, variable monthly principal payments based
                on
                revenue generated plus interest of 7%, due October 2008. Note is
                collateralized by certain assets.
            
            
            24,856
            
            
            —Total
                notes receivable
            
            
            72,657
            
            
            —Less:
                current portion
            
            
            (11,316
            )
            
            —Long-term
                portion of notes receivable
            
            $
            61,341
            
            $
            —





NOTE 5 - Accrued Liabilities





Accrued
      liabilities consisted of the following at December 31:




**2005**
            
            **2004**Payroll
                and related taxes
            
            $
            391,707
            
            $
            389,394Accrued
                preferred stock dividends
            
            
            506,535
            
            
            415,120Accrued
                liability - vendor chargeback
            
            
            1,347,673
            
            
            1,901,972Other
            
            
            495,139
            
            
            323,538$
            2,741,054
            
            $
            3,030,024








NOTE 6 - Wholesale Line of Credit





At
      December 31, 2004, the Company had a $1,750,000 wholesale line of credit
      agreement with a financial institution, for the purchase of certain resale
      merchandise from certain suppliers. Interest was generally at 0% (if paid within
      certain terms of up to 45 days). The balance outstanding was $926,201 at
      December 31, 2004. The line of credit was paid off in full on March 31, 2005
      (see Note 17).




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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


NOTE 7 - Long-term Debt





Long-term
      debt consisted of the following at December 31:




**2005**
            
            **2004**Debenture
                payable - Convergent Partners I, L.P., see terms in note
                below.
            
            $
            2,500,000
            
            
            2,130,286Demand
                debenture payable - Convergent Capital Partners I, L.P., monthly
                interest
                only payments at 14% through May 2007, due on demand or May 2007,
                collateralized by substantially all of the assets of the Company.
                Paid in
                full during 2005.
            
            
            —
            
            
            100,000Note
                payable - Lexus Tower Limited Partnership, monthly installments of
                $5,987
                including interest at 8.1%, due November 2010, collateralized by
                certain
                assets of the Company.
            
            
            290,059
            
            
            336,486Note
                payable - Laurus Master Fund LTD, net of unamortized original issue
                discount and beneficial conversion of note payable into common stock
                of
                $379,929 and $794,391 at December 31, 2005 and 2004, monthly installments
                of $45,455 beginning in March 2004, including interest at prime rate
                (the
                prime rate used shall not be less than 4.00%) plus 3% (10.25% and
                8.25% at
                December 31, 2005 and 2004) (effective interest rate of 174.6%),
                due
                through November 2006, collateralized by certain assets of the
                Company.
            
            
            165,520
            
            
            226,518Notes
                payable, group of accredited institutional investors, net of original
                issue discount and beneficial conversion of note payable into common
                stock
                of $86,590 and $444,792 at December 31, 2005 and 2004. Interest is
                6%
                payable semi-annually in cash or common stock at the Company’s election,
                due in November 2007, collateralized by certain assets of the Company
                and
                subordinated.
            
            
            636,080
            
            
            1,721,875Note
                payable - Dell Marketing C.P., monthly installments of $10,000 beginning
                in September 2004 through August 2006, with a final payment of $65,021.
                This note does not bear interest and is unsecured.
            
            
            145,021
            
            
            265,021Notes
                payable - Dinamo Entertainment, monthly installments of $14,091 beginning
                in November 2005, including interest at 6% due November 2007 with
                a final
                payment of $319,523. Collateralized by certain
                assets.
            
            
            577,778
            
            
            —Note
                payable - Vern Swedin, Note payable in 18 monthly installments, beginning
                January 30, 2005 with an interest rate of 6%, unsecured and due in
                July
                2006.
            
            
            77,779
            
            
            200,000





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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**2005**
            
            **2004**Notes
                payable, interest at 5.25% to 20% due through May 2007, collateralized
                by
                certain assets of the Company.
            
            
            40,559
            
            
            42,998Total
                long-term debt
            
            
            4,432,796
            
            
            5,023,184Less:
                current portion
            
            
            (616,260
            )
            
            (1,524,527
            )Long-term
                debt, net
            
            $
            3,816,536
            
            $
            3,498,657





Future
      maturities of long-term debt are as follows for the years ending December
      31:





2006
            
            $
            996,1882007
            
            
            1,217,8902008
            
            
            59,0722009
            
            
            2,564,011Thereafter
            
            
            62,153Total
                future minimum payments
            
            
            4,899,314Less:
                original issue discounts and beneficial conversion feature
            
            
            (466,518
            )Total
                long-term debt
            
            
            4,432,796Less:
                current portion
            
            
            (616,260
            )Long-term
                debt, net
            
            $
            3,816,536





In
      2000,
      the Company entered into a $2,250,000 debenture agreement with Convergent
      Capital Partners I, L.P., with interest at 14% (effective interest rate of
      18.4%) payable monthly and monthly payments of $102,273 from August 1, 2003
      through June 1, 2005. The timing of repayment was changed to August 2005 through
      May 2007 as part of the amendment made in 2002. The debenture is collateralized
      by substantially all Company assets. In connection with this debenture, the
      Company issued 150,000 five-year warrants to purchase common stock at prices
      ranging from $1.50 to $5.20 per share. The proceeds of $2,250,000 were allocated
      between the debenture and the warrant based on the relative fair values of
      the
      securities at the time of issuance. The warrants were valued using the Black
      Scholes pricing model. The resulting original issue discount, the fair value
      of
      the warrants, is being amortized over the life of the debenture using the
      straight-line method, which approximates the interest method.





In
      2002,
      the Company amended the debenture agreement with Convergent Capital Partners
      I,
      L.P., and borrowed an additional $150,000 with interest at 14% (effective
      interest rate of 18.4%) payable monthly and monthly principal payments from
      August 2005 through May 2007. In connection with this debenture, the Company
      issued an additional 500,000 seven-year warrants to purchase common stock at
      $1.10 per share. The additional warrants were valued using the Black Scholes
      pricing model. The resulting original issue discount, the fair value of the
      warrants, is being amortized over the life of the debenture using the
      straight-line method, which approximates the interest method. The Company was
      in
      violation of certain covenants of this debt agreement at December 31, 2004
      and a
      waiver was obtained from the lender.





The
      outstanding note balance at December 31, 2004 was $2,130,286, net of original
      issue discount of $269,714. The Company paid $2,000,000 on the note in March
      2005. In connection with the payment, the Company expensed the remaining
      original issue discount of $269,714 for the year ended December 31, 2005.
      Amortization expense on the original issue discount was $162,790 for the year
      ended December 31, 2004.




Page
          28
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


In
      June
      2005, the Company borrowed $2,000,000 from Convergent Capital Partners I, L.P.
      in connection with an amendment of original debt agreement. The amendment
      extended the due date to May 2009 and the Company is required to comply with
      certain financial covenants. The Company is required to pay monthly interest
      only payments through the due date. The outstanding balance of the debenture
      was
      $2,500,000 at December 31, 2005. The interest rate varies from 11% to 14%
      dependent on the Company’s stock prices (14% at December 31, 2005). The
      debenture agreement is collateralized by substantially all of the assets of
      the
      Company. The Company was in violation of certain covenants at December 31,
      2005
      and obtained a waiver from the lender.





In
      January 2001, the Company borrowed $1,500,000 from Pyramid Trading Limited
      Partnership and issued a five-year warrant to the lender to purchase 375,000
      common shares at $4.00 per share through January 2003. The debt was also
      convertible into common stock of the Company at a conversion rate of $4.75
      per
      share through January 2003. The proceeds of $1,500,000 were allocated between
      the note and the fair value of the warrants using the Black Scholes pricing
      model. An additional 375,000 five-year warrants were issued in April 2002 and
      the fair value of the warrants was expensed as additional interest expense
      as of
      December 31, 2002. The resulting original issue discount, the fair value of
      the
      warrants, and the beneficial conversion of the note payable into common stock
      as
      defined in EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible
      Instruments"(EITF 00-27), is being amortized over the life of the note using
      the
      straight-line method, which approximates the interest method. This note was
      converted into stock during 2004.





In
      February 2003, the Company reached an agreement to convert $962,000 of its
      note
      payable with Pyramid Trading Limited Partnership to equity and to extend the
      due
      date to May 2004. Terms of the conversion state that the note will be converted
      to equity over a 14 month period at a price generally equivalent to a 10%
      discount to market price. The Company issued an additional 253,000 five-year
      warrants at an exercise price of $1.00 with the note payable extension. These
      warrants, valued at $208,447 using the Black Scholes pricing model, are being
      expensed over the remaining term of the note agreement. During the year ended
      December 31, 2003, the Company converted principal and accrued interest totaling
      $828,172 into 717,741 shares of common stock. During the year ended December
      31,
      2004, the Company converted principal and accrued interest totaling $212,111
      into 153,034 shares of common stock. There was not an outstanding balance
      at December 31, 2005 and 2004.





In
      November 2003, the Company borrowed $1,500,000 and issued a three-year warrant
      to Laurus Master Fund, Ltd. to purchase 535,000 common shares at $2.21
      per share through November 2006. The debt is also convertible into common stock
      of the Company at a conversion rate of $1.40 per share through November 2006.
      The proceeds of $1,500,000 were allocated between the note, the intrinsic value
      of the conversion option, and the fair value of the warrants using the Black
      Scholes pricing model. The resulting original issue discount, the fair value
      of
      the warrant, and the beneficial conversion of the note payable into common
      stock
      as defined in EITF 00-27 is being amortized over the life of the note using
      the
      straight-line method, which approximates the interest method. During the year
      ended December 31, 2004, the Company converted principal of $230,909 into
      164,836 shares of common stock. During the year ended December 31, 2005, the
      Company converted principal of $98,000 into 70,000 shares of common
      stock.





In
      November 2004, the Company borrowed $2,166,667 from a group of accredited
      institutional investors. The notes are convertible into shares of common stock
      at a conversion rate of $1.00 per share through November 2007. The notes accrue
      interest at the rate of 6% per annum, which interest is payable semi-annually
      in
      cash or common stock at the Company's election. The proceeds of $2,166,667
      were
      allocated between the notes and the intrinsic value of the conversion option.
      The resulting original issue discount and the beneficial conversion of the
      note
      payable into common stock as defined in EITF 00-27 is being amortized over
      the
      life of the note using the straight-line method, which approximates the interest
      method. These notes are collateralized by certain assets and are subordinated.
      During the year ended December 31, 2005, the Company converted principal of
      $1,443,996 and accrued interest of $80,627 into 1,524,623 shares of common
      stock.




Page
          29
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


NOTE
      8 **- Capital Lease Obligations**





The
      Company has lease financing facilities for property, equipment and leasehold
      improvements. Leases outstanding under these agreements bear interest at an
      average rate of 11.47% and expire through June 2009. The obligations are
      collateralized by the property under lease. Total cost and accumulated
      amortization of the leased equipment was $932,963 and $359,605 at December
      31,
      2005 and $988,593 and $349,647 at December 31, 2004. Amortization expense
      related to these obligations is included in depreciation expense.





Future
      minimum capital lease payments are as follows for the years ending December
      31:


2006
            
            $
            220,4872007
            
            
            379,1912008
            
            
            83,1952009
            
            
            22,266Total
            
            
            705,139Less:
                amounts representing interest
            
            
            (72,558
            )Present
                value of future minimum lease payments
            
            
            632,581Less:
                current portion
            
            
            (179,932
            )Capital
                lease obligations, net of current portion
            
            $
            452,649





NOTE 9 - Note Payable - Stockholder





On
      June
      30, 2003, the Company borrowed $124,000 from a stockholder of the Company with
      monthly payments of $5,600 including interest at 7.85%, due in June 2005, and
      unsecured. The balance due at December 31, 2005 and 2004 is $32,837 and $84,801,
      respectively. Interest expense related to this note payable was $1,942, $4,709
      and $1,592 for the years ended December 31, 2005, 2004 and 2003,
      respectively.





NOTE 10 - Stockholders' Equity





*Capital
      Stock Authorized*





The
      articles of incorporation authorize the Company to issue 100,000,000 shares
      of
      no par capital stock. Authorization to individual classes of stock is determined
      by a Board of Directors resolution. The authorized classes of stock are the
      following: 275,000 shares of Class A cumulative convertible preferred stock,
      60,000 shares of Class B cumulative convertible preferred stock, 250,000 shares
      of Class C cumulative convertible preferred stock, 250,000 shares of Class
      D
      cumulative convertible preferred stock, 400,000 shares of Class E cumulative
      convertible preferred stock, 500,000 shares of Class F cumulative convertible
      preferred stock, 600,000 shares of Class G cumulative convertible preferred
      stock, 15 Shares of Class H cumulative convertible preferred stock and 100
      shares of Class I cumulative convertible preferred stock.




Page
          30
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003





*Cumulative
      Convertible Preferred Stock*





Dividends
      on Class A, Class B, Class C, Class D, Class E, Class F, Class G and Class
      H
      cumulative convertible preferred stock are cumulative and payable quarterly
      at
      8%, 10%, 10%, 14%, 15%, 10%, 8%, and 6% per annum, respectively. Dividends
      on
      Class I Preferred Stock are paid at a variable rate tied to prime and are
      payable monthly. Cumulative convertible preferred stock can be converted into
      common shares at any time as follows: Class A and Class B - five shares, Class
      C
      - two shares, Class D - two and one-half shares, Class E - eight shares, Class
      F- five shares, Class G- six and one quarter shares, and Class H is convertible
      at $1.00 per share. Class I is convertible at $1.50 per share. The intrinsic
      value of any beneficial conversion option is recorded as preferred stock
      dividends at the time of preferred stock issuance. Dividends on Class B
      preferred are cumulative and payable monthly at 10% per annum. The Class B
      preferred was offered to certain note payable holders at a conversion of $10
      per
      Class B preferred share. The
      dividends are based on $10.00 per share for Class A, B, C, D, E, F and G
      cumulative preferred stock. Dividends for Class H cumulative preferred stock
      are
      based on 6% of the stated liquidation preference amount per share per annum.
      Dividends for Class I cumulative preferred stock are based on $100 per share. All
      preferred stock is non-voting. Warrants to purchase shares of the Company's
      common stock were given with the issuance of Class A, Class B, Class D, Class
      E,
      Class G and Class H preferred stock and were valued at fair value using the
      Black Scholes pricing model. The Company may, but is not obligated to, redeem
      the preferred stock at $10.50 per share for Class A and Class B and $10.00
      per
      share for Class C, Class D, Class E, Class F, and Class G whenever the Company's
      common stock price exceeds certain defined criteria as defined in the preferred
      stock agreements. The Class H shares can be redeemed for $100,000 per share.
      The
      Class I shares can be redeemed for $100 per share. Upon the Company's call
      for
      redemption, the holders of the preferred stock called for redemption have the
      option to convert each preferred share into shares of the Company's common
      stock. Holders of preferred stock cannot require the Company to redeem their
      shares with the exception of the 50,000 shares of Class F converted into
      mandatory redeemable preferred stock (see below). The liquidation preference
      is
      the same as the redemption price for each class of preferred stock.





*Series
      I Convertible Preferred Stock*





On
      February 3, 2005, Multiband Corporation completed a $10 million private
      placement of the Company’s Series I Convertible Preferred Stock. The offering
      was made by Mercator Advisor Group, LLC of Los Angeles, California, through
      its
      designated funds, Monarch Pointe Fund, Ltd, Mercator Momentum Fund, LP.,
      Mercator Momentum Fund III, LP., and certain investors. Under the terms of
      the
      preferred stock offering, the Company issued 100,000 shares of its Series I
      Convertible Preferred Stock in the aggregate offering amount of $10 million.
      The
      shares of Series I Convertible Preferred Stock contain a monthly dividend that
      is payable at prime plus 10% through August 31, 2005, at prime rate from
      September 1, 2005 through August 31, 2006, and at prime rate plus 1% thereafter,
      (7.25% at December 31, 2005). The preferred shares are convertible into
      7,142,858 shares of common stock at the fixed rate of $1.50 per share. In
      addition, the investors received three-year warrants to purchase shares of
      Common Stock at exercise prices of $1.57 and $1.73 per share. The Company was
      also required to file a registration statement providing for the resale of
      shares issuable upon the conversion of the Series I Convertible Preferred Stock
      and upon exercise of the warrants which was declared effective in September
      2005.





*Mandatory
      Redeemable Preferred Stock*





In
      2004,
      the Company issued 50,000 shares of mandatory redeemable preferred stock valued
      at $500,000 pursuant to the purchase of Rainbow and a put option given to the
      Rainbow sellers. During 2005, the Rainbow sellers exercised $166,666 value
      of
      the put option equal to 16,666 shares of preferred stock. The mandatory
      redeemable preferred stock had an outstanding balance of $333,334 and $500,000
      as of December 31, 2005 and 2004, respectively. In January 2006, an additional
      $53,334 value of preferred stock was redeemed equal to 5,334 shares of preferred
      stock.




Page
          31
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003





*Stock
      Compensation Plans*





The
      Company has a 1999 Stock Compensation Plan, which permits the issuance of
      restricted stock and stock options to key employees and agents. All outstanding
      incentive stock options granted under the prior 1997 Stock Options Plan
      continues until all agreements have expired. There are 4,300,000 shares of
      common stock reserved for issuance through restricted stock, non-qualified
      stock
      option awards and incentive stock option awards. The Plans also provide that
      the
      term of each award be determined by the Board of Directors. Under the Plans,
      the
      exercise price of incentive stock options may not be less than the fair market
      value of the stock on the award date, and the options are exercisable for a
      period not to exceed ten years from award date.





The
      Company also has a 2000 Non-employee Director Stock Compensation Plan, which
      permits the issuance of stock options for 800,000 shares of common stock to
      non-employee directors. The exercise price of the stock options is the fair
      market value of the stock on the award date, and the options are exercisable
      for
      a period not to exceed ten years from award date.





*Employee
      Stock Purchase Plan*





The
      Company has a 2000 Employee Stock Purchase Plan, which allows for the sale
      of
      400,000 shares of Company common stock to qualified employees. At December
      31,
      2005 and 2004, no shares were issued under the Plan.





*Stock
      Subscriptions Receivable*





The
      Company has stock subscriptions receivable including interest receivable
      totaling $297,105 and $391,264 due to the Company at December 31, 2005 and
      2004,
      respectively, from the issuance of common stock. The agreements require monthly
      interest only payments at interest ranging from 2% to 10% on the outstanding
      receivable balances. One stock subscription receivable was due in December
      2003
      and is past due. The second stock subscription receivable was due in March
      2006
      and the Company expects to extend this receivable for another 6 to 12 months.
      The third stock subscription receivable agreement was amended in February 2006
      with the entire balance due on August 1, 2006. The receivables are
      collateralized by the common stock issued. At December 31, 2005 and 2004, the
      Company has reserved $98,000 and $71,000 related to stock subscriptions and
      interest receivable deemed to be uncollectible. The Company does not record
      interest receivable on the outstanding receivable balance once they have
      determined it to be uncollectible.





*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 intrinsic value at the date of
      grant related to the shares awarded is generally amortized over three years,
      the
      vesting term of the awards. Compensation expense recorded during the years
      ended
      December 31, 2005, 2004, and 2003 in connection with the amortization of the
      award cost was $1,342, $8,404 and $47,119 respectively.





Restricted
      stock activity is as follows for the years ended December 31:





**2005**
            
            **2004**
            
            **2003**Outstanding,
                January 1
            
            
            2,672
            
            
            17,019
            
            
            45,066Issued
            
            
            —
            
            
            —
            
            
            —Vested
            
            
            (1,002
            )
            
            (12,128
            )
            
            (17,204
            )Forfeited
            
            
            (1,670
            )
            
            (2,219
            )
            
            (10,843
            )Outstanding,
                December 31
            
            
            —
            
            
            2,672
            
            
            17,019






Page
          32
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003




*Stock
      Options*





Stock
      option activity is as follows for the years ended December 31:




Options
            
            Weighted-Average
                Exercise Price2005
            
            2004
            
            2003
            
            2005
            
            2004
            
            2003Outstanding,
                January 1
            
            
            2,188,432
            
            
            1,657,432
            
            
            1,093,157
            
            $
            1.71
            
            $
            1.81
            
            $
            2.45Granted
            
            
            1,513,775
            
            
            621,500
            
            
            747,775
            
            
            1.43
            
            
            1.48
            
            
            1.35Exercised
            
            
            (2,000
            )
            
            —
            
            
            (3,000
            )
            
            .98
            
            
            —
            
            
            1.25Forfeited
            
            
            (640,275
            )
            
            (90,500
            )
            
            (180,500
            )
            
            1.87
            
            
            2.21
            
            
            4.49Outstanding,
                December 31
            
            
            3,059,932
            
            
            2,188,432
            
            
            1,657,432
            
            $
            1.54
            
            $
            1.71
            
            $
            1.81





The
      weighted average grant date fair value of options granted during the years
      ended
      December 31, 2005, 2004, and 2003 was $0.48, $1.48 and $1.20 respectively.
      Options exercisable at December 31, 2005 and 2004 were 1,623,990 and 1,853,998,
      respectively.





Options
      outstanding and exercisable as of December 31, 2005 are as follows:




Outstanding
            
            ExercisableWeighted
                - AverageRange
                of
              Exercise
                Prices
            
            Options
            
            Exercise
                Price
            
            Remaining
                Contractual Life-Years
            
            Options
            
            Weighted-
                Average
                Exercise
                  Price$.60
            
            
            
            
            
            
            
            
            180,000
            
            $
            0.60
            
            
            3.36
            
            
            180,000
            
            $
            0.60$.93
            
            
            to
            
            $
            1.38
            
            
            717,000
            
            
            1.25
            
            
            8.38
            
            
            333,000
            
            
            2.70$1.40
            
            
            to
            
            $
            1.89
            
            
            1,850,266
            
            
            1.48
            
            
            8.17
            
            
            800,324
            
            
            3.42$2.00
            
            
            to
            
            $
            2.88
            
            
            199,000
            
            
            2.03
            
            
            3.92
            
            
            197,000
            
            
            2.05$3.98
            
            
            to
            
            $
            4.75
            
            
            86,666
            
            
            4.45
            
            
            4.65
            
            
            86,666
            
            
            4.45$6.00
            
            
            to
            
            $
            6.75
            
            
            27,000
            
            
            6.44
            
            
            3.67
            
            
            27,000
            
            
            6.44$.60
            
            
            to
            
            $
            6.75
            
            
            3,059,932
            
            $
            1.54
            
            
            7.52
            
            
            1,623,990
            
            $
            2.90





*Stock
      Warrants*





Stock
      warrants activity is as follows for the years ended December 31:




Outstanding
            
            Weighted
                - Average Exercise Price2005
            
            2004
            
            2003
            
            2005
            
            2004
            
            2003Outstanding,
                January 1
            
            
            11,795,641
            
            
            7,421,874
            
            
            4,327,396
            
            $
            1.64
            
            $
            1.83
            
            $
            2.05Granted
            
            
            9,040,523
            
            
            4,902,658
            
            
            3,687,447
            
            
            1.71
            
            
            1.35
            
            
            1.53Exercised
            
            
            (498,966
            )
            
            (528,891
            )
            
            (556,881
            )
            
            .99
            
            
            1.46
            
            
            1.53Forfeited
            
            
            (1,621,219
            )
            
            —
            
            
            (36,088
            )
            
            1.80
            
            
            —
            
            
            3.59Outstanding,
                December 31
            
            
            18,715,979
            
            
            11,795,641
            
            
            7,421,874
            
            $
            1.68
            
            $
            1.64
            
            $
            1.83





The
      weighted-average grant-date fair value of warrants granted during the years
      ended December 31, 2005, 2004, and 2003 was $1.33, $1.16 and $1.10,
      respectively.




Page
          33
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003
  Warrants
      outstanding and exercisable as of December 31, 2005, are as
      follows:




Weighted
                - AverageRange
                of Exercise Prices
            
            Warrants
            
            Remaining
                contractual life
            
            Exercise
              prices$.85
            
            
            to
            
            $
            1.25
            
            
            5,663,152
            
            
            3.85
            
            $
            1.19$1.35
            
            
            to
            
            $
            2.20
            
            
            10,691,583
            
            
            4.07
            
            
            1.71$2.21
            
            
            to
            
            $
            3.00
            
            
            1,802,824
            
            
            1.55
            
            
            2.26$3.56
            
            
            to
            
            $
            5.20
            
            
            558,420
            
            
            0.51
            
            
            4.11$.85
            
            
            to
            
            $
            5.20
            
            
            18,715,979
            
            
            3.65
            
            $
            1.68





Stock
      warrants issued for the years ended December 31 were awarded for:





**2005**
            
            **2004**
            
            **2003**Common
                stock
            
            
            1,281,614
            
            
            579,799
            
            
            1,812,259Services
                rendered
            
            
            616,051
            
            
            828,278
            
            
            941,288Preferred
                stock
            
            
            7,142,858
            
            
            3,419,581
            
            
            145,900Debt
                issuance and guarantees
            
            
            —
            
            
            75,000
            
            
            788,0009,040,523
            
            
            4,902,658
            
            
            3,687,447





During
      the year ended December 31, 2005, the Company issued to common stock investors,
      1,281,614 five-year warrants with a weighted average exercise price of
      $2.00.





During
      the year ended December 31, 2005, the Company issued 458,251 five-year warrants
      for services relating to equity financing with a weighted average exercise
      price
      of $1.92.





During
      the year ended December 31, 2005, the Company issued 7,800 three year warrants
      with a weighted-average exercise price of $2.20 for services related to investor
      relations. These warrants were valued at $9,829 using the Black Scholes pricing
      model.





During
      the year ended December 31, 2005, the Company issued five-year warrants to
      purchase 150,000 shares of the Company’s common stock to consultants with an
      exercise price $1.30 per share. Pursuant to Emerging Issues Task Force 96-18
      (EITF 96-18), “Accounting for Equity Instruments that are Issued to Other Than
      Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the
      Company will value and record an expense related to the options on the earlier
      of the date a performance commitment is met or the date the performance is
      complete. The Company recorded an expense of $147,401 for the year ended
      December 31, 2005 in accordance with EITF 96-18.





During
      the year ended December 31, 2005, the Company issued to preferred stock
      investors 7,142,858 three-year warrants with a weighted average exercise price
      of $1.65.





During
      the year ended December 31, 2005, 475,966 warrants were exercised with a
      weighted average exercise price of $0.99. Based on the warrant agreements,
      these
      warrants were exercised in lieu of cash with the warrant holder receiving
      101,383 shares of common stock.





During
      the year ended December 31, 2005, 23,000 warrants were exercised for cash at
      an
      exercise price of $1.00.





During
      the year ended December 31, 2004, the Company issued to common stock investors
      579,799 two to five year warrants with a weighted average exercise price of
      $2.21.




Page
          34
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003




During
      the year ended December 31, 2004, The Company issued 828,278 three to five
      year
      warrants for services related to equity financing with a weighted average
      exercise price of $1.11.





During
      the year ended December 31, 2004, the Company issued to preferred stock
      investors 3,419,581 two to five year warrants with a weighted average exercise
      price of $1.26.





During
      the year ended December 31, 2003, 298,091 warrants were exercised with a
      weighted average exercise price of $1.05. Based on the warrant agreements,
      these
      warrants were exercised in lieu of cash with the warrant holder receiving
      141,529 shares of common stock.





During
      the year ended December 31, 2003, the Company issued 400,000 five-year warrants
      with a weighted-average exercise price of $0.85 for services related to investor
      relations. These warrants were valued at $321,920 using the Black Scholes
      pricing model. During 2003, the Company issued 541,288 five-year warrants with
      a
      weighted-average exercise price of $1.02 for services related to equity
      financing.





The
      fair
      value of stock warrants is the estimated present value at grant date using
      the
      Black Scholes pricing model with the following weighted-average
      assumptions:





2005
            
            2004
            
            2003Risk-free
                interest rate
            
            
            3.52
            %
            
            2.96
            %
            
            2.37
            %Expected
                life
            
            
            4.28
                years
            
            
            3.35
                years
            
            
            3.4
                yearsExpected
                volatility
            
            
            205
            %
            
            184
            %
            
            170
            %Expected
                dividend rate
            
            
            0
            %
            
            0
            %
            
            0
            %





NOTE 11 - Income Taxes





The
        Company has generated federal and state net operating losses of approximately
        $34,681,000 and $13,147,000, respectively, which, if not used, will begin
        to
        expire in 2007. Future changes in the stock ownership of the Company may
        place
        limitations on the use of these net operating loss carryforwards.
 
 The
        Company has recorded a full valuation allowance against its deferred tax
        asset
        due to the uncertainty of realizing the related benefits. The change in the
        valuation allowance was $(531,000), $3,529,000, and $1,722,000 for the years
        ended December 31, 2005, 2004 and 2003, respectively.
 
 Components
        of net deferred income taxes are as follows at December 31:
 **2005**
                
                **2004**Deferred
                    income tax assets:Net
                    operating loss carryforwards
                
                $
                13,872,000
                
                $
                11,143,000Goodwill,
                    including impairment
                
                
                347,000
                
                
                1,145,000Amortization
                    of intangibles
                
                
                737,000
                
                
                559,000Asset
                    valuation reserves
                
                
                223,000
                
                
                577,000Accrued
                    liabilities
                
                
                370,000
                
                
                69,00015,549,000
                
                
                13,493,000Less
                    valuation allowance
                
                
                (12,672,000
                )
                
                (13,203,000
                )2,877,000
                
                
                290,000Deferred
                    income tax liabilities:Value
                    of intangible related to stock purchase of MDU
                
                
                (2,746,000
                )
                
                —Depreciation
                
                
                (131,000
                )
                
                (290,000
                )Net
                    deferred income tax assets
                
                $
                —
                
                $
                —






Page
          35
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003
  Income
          tax computed at the federal statutory rate reconciled to the effective
          tax rate
          is as follows for the years ended December 31:
 **2005**
                
                **2004**
                
                **2003**Federal
                    statutory tax rate benefits
                
                
                (34.0
                )%
                
                (34.0
                )%
                
                (34.0
                )%State
                    tax, net of federal benefit
                
                
                (6.0
                )
                
                (6.0
                )
                
                (6.0
                )Change
                    in valuation allowance
                
                
                37.7
                
                
                36.1
                
                
                39.6Other
                
                
                2.3
                
                
                3.9
                
                
                0.4Effective
                    tax rate
                
                
                0.0
                %
                
                0.0
                %
                
                0.0
                %
 
 The
          Company has the following net operating loss carryforwards at December
          31, 2005,
          for income tax purposes:
 
 Year
                    of
                  Expiration
                
                Federal
                    Net
                  Operating
                    Loss
                
                State
                    Net
                  Operating
                    Loss2007
                
                $
                501,000
                
                $
                501,0002008
                
                
                59,000
                
                
                57,0002009
                
                
                22,000
                
                
                22,0002011
                
                
                595,000
                
                
                575,0002012
                
                
                25,000
                
                
                -2018
                
                
                1,122,000
                
                
                1,096,0002019
                
                
                1,585,000
                
                
                992,0002020
                
                
                4,839,000
                
                
                1,587,0002021
                
                
                4,726,000
                
                
                1,435,0002022
                
                
                4,353,000
                
                
                1,230,0002023
                
                
                4,275,000
                
                
                1,239,0002024
                
                
                4,933,000
                
                
                1,737,0002025
                
                
                7,646,000
                
                
                2,676,000$
                34,681,000
                
                $
                13,147,000
 
 Under
          Internal Revenue Code Section 382, utilization of federal losses expiring
          prior
          to 2019 is limited to approximately $375,000 each year.


Page
          36
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


NOTE 12 - Supplemental Cash Flows Information


**2005**
            
            **2004**
            
            **2003**Cash
                paid for interest
            
            $
            579,449
            
            $
            1,409,095
            
            $
            436,061**Non-cash
                investing and financing transactions:**Note
                receivable recorded for sale of discontinued operations
            
            
            400,000
            
            
            —
            
            
            —Note
                receivable recorded on sale of intangibles to Satellite Broadcasting
                Corporation
            
            
            75,500
            
            
            —
            
            
            —Issuance
                of common stock for purchase of Satellite Broadcasting Corporation
                intangibles
            
            
            105,000
            
            
            —
            
            
            —Common
                stock issued in relation to acquisition of Dinamo Entertainment,
                LLC
            
            
            702,500
            
            
            —
            
            
            —Common
                stock issued in lieu of cash for deferred financing costs
            
            
            36,000
            
            
            —
            
            
            —Common
                stock issued in lieu of cash for other current assets
            
            
            218,000
            
            
            —
            
            
            —Warrants
                issued for deferred compensation
            
            
            213,120
            
            
            —
            
            
            —Issuance
                of accrued liabilities for debt issuance costs
            
            
            125,000
            
            
            —
            
            
            —Property
                and equipment in lieu of cash for accounts receivable
            
            
            —
            
            
            61,312
            
            
            —Issuance
                of preferred and common stock for acquisition of assets
            
            
            —
            
            
            57,650
            
            
            76,500Current
                liabilities converted to stock
            
            
            —
            
            
            —
            
            
            192,690Purchase
                of customer lists and equipment through payable to Florida
                Cable
            
            
            —
            
            
            —
            
            
            465,000Notes
                payable and accrued interest converted to common and preferred
                stock
            
            
            1,646,190
            
            
            637,596
            
            
            828,172Conversion
                of preferred stock to common stock
            
            
            1,898,001
            
            
            776,500
            
            
            40,000Conversion
                of note payable into preferred stock
            
            
            —
            
            
            50,000
            
            
            —Conversion
                of preferred stock into mandatory redeemable preferred
                stock
            
            
            —
            
            
            500,000
            
            
            —Reduction
                of stock subscription receivable related to commission earned on
                equity
                transactions
            
            
            15,400
            
            
            17,320
            
            
            36,977Warrants
                issued related to modifications of long-term debt
            
            
            —
            
            
            —
            
            
            208,447Warrants
                issued for modification of short-term debt
            
            
            —
            
            
            68,652
            
            
            —Conversion
                of preferred stock dividends into common stock
            
            
            1,278,625
            
            
            124,618
            
            
            113,209Issuance
                of common stock for acquisition of assets - SBC
            
            
            —
            
            
            270,152
            
            
            —Capital
                lease assumed in acquisition of equipment from SBC
            
            
            105,000
            
            
            187,424
            
            
            —Issuance
                of common stock, short-term debt, and long-term debt for acquisition
                of
                MDU
            
            
            —
            
            
            6,660,000
            
            
            —Issuance
                of preferred stock, short-term debt and accrued expenses for acquisition
                of Rainbow
            
            
            —
            
            
            6,541,849
            
            
            —Issuance
                of common stock and accrued expenses for acquisition of assets -
                21stCentury
            
            
            —
            
            
            364,584
            
            
            —






Page
          37
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          to Table of Contents**




**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**2005**
            
            **2004**
            
            **2003**Capital
                lease assumed in acquisition of equipment from 21stCentury
            
            
            —
            
            
            372,420
            
            
            —Issuance
                of common stock and contingent liability for acquisition of assets
                - URON,
                Inc.
            
            
            —
            
            
            458,500
            
            
            —Issuance
                of common stock for remaining 50% ownership of MBUSA
            
            
            —
            
            
            39,000
            
            
            —Note
                payable issued in relation to acquisition of Dinamo Entertainment,
                LLC
            
            
            600,000
            
            
            —
            
            
            —Capital
                lease assumed in acquisition of equipment from Dinamo Entertainment,
                LLC
            
            
            45,200
            
            
            —
            
            
            —Property
                and equipment acquired through capital lease obligation
            
            
            16,185
            
            
            —
            
            
            —





NOTE 13 - Retirement Savings Plan





The
      Company has 401(k) profit sharing plan covering substantially all full-time
      employees. Employee contributions are limited to the maximum amount allowable
      by
      the Internal Revenue Code. The Company made no discretionary contributions
      for
      any of the years presented.





NOTE 14 - Commitments and Contingencies





*Operating
      leases*





Office
      space was leased from an LLC which an officer of the Company was partial owner
      of through August 2003. In addition to basic monthly rents ranging from $16,640
      to $17,653, the Company paid building maintenance costs, real estate taxes
      and
      assessments. During 2003, the Company converted $72,000 of accrued rent into
      7,200 shares of Class C preferred stock. At December 31, 2004, accrued rent
      of
      $19,500 was owed to this related party. The balance was paid during 2005. In
      August 2003, the Company signed a new lease agreement with an unrelated
      party.





The
      Company has various other operating leases for its corporate office space,
      vehicles and various equipment with lease terms expiring at various dates
      through August 2017. The monthly base rents range from $52,000 to $59,000,
      net
      of payments received from subleases. The leases contain provisions for payments
      of real estate taxes, insurance and common area costs. In July 2003, the Company
      entered into an agreement to sublease a portion of their office space through
      August 2008 for approximately $5,000 per month. In March 2006, the sublessee
      executed the early out option in the lease (See Note 18). Total amount
      to be paid of approximately $57,000 includes rent through August 2006 and a
      penalty as stated in the lease for the early out option.





Total
      rent expense for the years ended December 31, 2005, 2004 and 2003 including
      common area costs and real estate taxes was approximately $622,000, $634,000
      and
      $578,000, respectively. Rent expense with related parties for December 31,
      2003
      was approximately $59,000. No related party rent was paid for the years ended
      December 31, 2005 and 2004. Rent expense is net of any rent allocation
      attributable to the space occupied by Corporate Technologies, LLC. (Note
      17).




Page
          38
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003





Future
      minimum rental payments, net of payments received from subleases, are as follows
      for the years ending December 31:





Year
            
            Amount2006
            
            $
            614,0002007
            
            
            712,0002008
            
            
            734,0002009
            
            
            729,0002010
            
            
            364,000Thereafter
            
            
            3,652,000$
            6,805,000





*Significant
      Relationship*





The
      Company is master agent for DirecTV pursuant to a system operator agreement
      with
      DirecTV dated August 2005. 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. Termination
      of the Company’s DirecTV agreement would have a material adverse impact on the
      Company’s on-going operations. Revenues generated from DirecTV amounted to
      51.90% and 52.77% of total revenue in 2005 and 2004, respectively. Accounts
      receivable from this customer was 54.36% and 41.65% of total accounts receivable
      as of December 31, 2005 and 2004, respectively.





*Legal
      proceedings*





The
      Company is involved in legal actions in the ordinary course of its business.
      Although the outcome of any such legal actions cannot be predicted, management
      believes that there is no pending legal proceedings against or involving the
      Company for which the outcome is likely to have a material adverse effect upon
      the Company's consolidated financial position, results of operations, or cash
      flows.





*Letter
      of credit*





The
      Company has a letter of credit for $36,400 which expires in December
      2006.





NOTE 15 - Related Party





The
      Company had revenues from companies that are associated with a director, who
      was
      elected to the board of directors during 2003, of approximately $0, $0,
      $1,124,000 for the years ended December 31, 2005, 2004, and 2003, respectively.
      In addition, the Company had accounts receivable outstanding from these
      companies of approximately $0, $140,000, and $142,000 at December 31, 2005,
      2004, and 2003, respectively. The aforementioned director resigned from the
      Company’s board in October 2005 and thus is no longer a related party as of
      December 31, 2005.




Page
          39
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**MULTIBAND
          CORPORATION AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003


NOTE 16- Business Segments





The
      Company has the following business segments. Multiband Corp. includes corporate
      expenses (e.g. corporate administrative costs), interest income, interest
      expense, depreciation and amortization. The MDU segment represents results
      as
      the master service operator for DirecTV. The MCS segment provides voice, data
      and video services to residential multi-dwelling units as the principal to
      subscribers. The discontinued operations segment includes the Multiband Business
      Services segment (see Note 17).





Segment
      disclosures are as follows:





Year
                Ended December 31, 2005
            
            Multiband
                Corp
            
            MDU
            
            MCS
            
            Discontinued
                Operations
            
            TotalRevenues
            
            $
            —
            
            $
            8,572,160
            
            $
            7,943,266
            
            
            —
            
            $
            16,515,426Income
                (loss) from operations
            
            
            (3,071,040
            )
            
            2,691,921
            
            
            (5,458,620
            )
            
            —
            
            
            (5,837,739
            )Identifiable
                assets
            
            
            4,273,913
            
            
            7,984,082
            
            
            14,013,410
            
            
            —
            
            
            26,271,405Depreciation
                and amortization
            
            
            221,885
            
            
            1,604,316
            
            
            2,954,235
            
            
            —
            
            
            4,780,436Capital
                expenditures
            
            
            29,021
            
            
            —
            
            
            904,616
            
            
            42,840
            
            
            976,477




Year
                Ended December 31, 2004
            
            Multiband
                Corp
            
            MDU
            
            MCS
            
            Discontinued
                Operations
            
            TotalRevenues
            
            $
            —
            
            $
            5,840,138
            
            $
            5,227,696
            
            
            —
            
            $
            11,067,834Income
                (loss) from operations
            
            
            (1,842,957
            )
            
            863,149
            
            
            (3,314,799
            )
            
            —
            
            
            (4,294,607
            )Identifiable
                assets
            
            
            775,708
            
            
            9,708,448
            
            
            15,467,274
            
            
            682,282
            
            
            26,633,712Depreciation
                and amortization
            
            
            244,967
            
            
            1,203,236
            
            
            1,984,576
            
            
            —
            
            
            3,432,779Capital
                expenditures
            
            
            9,772
            
            
            —
            
            
            481,252
            
            
            257,680
            
            
            748,704




Year
                Ended December 31, 2003
            
            Multiband
                Corp
            
            MDU
            
            MCS
            
            Discontinued
                Operations
            
            TotalRevenues
            
            $
            —
            
            $
            —
            
            $
            1,441,118
            
            
            —
            
            $
            1,441,118Loss
                from operations
            
            
            (1,941,271
            )
            
            —
            
            
            (1,215,667
            )
            
            —
            
            
            (3,156,938
            )Identifiable
                assets
            
            
            3,112,904
            
            
            —
            
            
            6,383,013
            
            
            4,406,968
            
            
            13,902,885Depreciation
                and amortization
            
            
            547,423
            
            
            —
            
            
            518,227
            
            
            —
            
            
            1,065,650Capital
                expenditures
            
            
            13,342
            
            
            —
            
            
            89,547
            
            
            424,047
            
            
            526,936





Segment
      disclosures are provided by entity to the extent practicable under the Company's
      accounting system. Depreciation and amortization above does not include
      depreciation and amortization related to discontinued operations. The cash
      flow
      statements presentation of depreciation and amortization includes the
      depreciation and amortization from discontinued operations.




NOTE 17- Sale of Business
      Segment








***Sale
      of Multiband Business Services segment***





After
      the
      close of business on March 31, 2005, the Company completed the sale of certain
      assets and liabilities relating to its Multiband Business Services (MBS, a/k/a
      Corporate Technologies USA) division. The buyer was North Central Equity LLC
      (“Buyer”).




Page
          40
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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003




The
      original purchase price paid by the Buyer was $2,550,000 which consisted of
      $1,682,184 in cash at closing, $349,817 in assumed vacation pay and warranty
      liabilities, and the balance of $517,999 in the original note receivable at
      7%
      interest due on December 31, 2005. The amount of the note receivable is subject
      to adjustment based on certain representations and warranties and estimated
      presale customer service obligations the Buyer assumed liability for in the
      purchase agreement. Due to the aforementioned representations and warranties
      and
      estimated liabilities, the Company, at the notes inception established a reserve
      of $178,948 against the collectibility of the note receivable. In November
      2005,
      the note was paid by the buyer in the amount of $400,000 which included the
      net
      adjustment for the actual amount of presale customer service obligations. The
      Company’s gain on sale was increased $149,865 accordingly as of September 30,
      2005 to reflect this prepayment and the resolution of estimated assumed
      liabilities.





In
      connection with the purchase agreement, the Company entered into an interim
      services agreement whereby the Buyer is able to sublease space at no charge
      at
      the Company’s Minneapolis and Fargo locations and obtain access to certain
      aspects of the Company’s information technology resources for one year. Services
      provided will be charged by either party at fair value and is estimated by
      management to be insignificant. In addition the services agreement is explicit
      that the Company has no control over the buyer’s operations. The buyer also
      receives additional free rent for a second year due to the results of a post
      closing inventory appraisal. In conjunction with the sale, the Company reduced
      its indebtedness to Convergent Capital by $2,000,000 since part of the
      collateral of this note payable relates to the assets sold. This $2,000,000
      was
      borrowed back from Convergent in the 2 nd quarter
      of fiscal 2005. The gain on sale of MBS business services segment is as
      follows:





**Sale
                Price**Cash
                proceeds
            
            $
            1,682,184Note
                receivable
            
            
            400,000Assumed
                liabilities
            
            
            438,868Total
                sale price
            
            
            2,521,052




**Assets
                sold**Inventory,
                net of reserve
            
            
            1,045,110Property
                and equipment
            
            
            52,351Net
                assets sold
            
            
            1,097,461




**Less
                costs and expenses**Broker’s
                fee
            
            
            122,500Other
                selling expense
            
            
            10,135Sublease
                for one year at no charge
            
            
            500,000Additional
                free rent related to inventory adjustment
            
            
            500,000Legal
                and accounting costs
            
            
            37,600Total
                costs
            
            
            1,170,235**Net
                gain on sale**
            
            $
            253,356






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**MULTIBAND
        CORPORATION AND SUBSIDIARIES**
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


The
      following are condensed statements of operations of the discontinued
      operations:





**Statement
                of Operations**
            
            **2005**
            
            **2004**
            
            **2003**Revenues
            
            $
            3,845,069
            
            $
            18,604,855
            
            $
            21,199,303Cost
                of sales
            
            
            2,846,750
            
            
            14,564,286
            
            
            15,067,483Selling,
                general and administrative
            
            
            1,122,220
            
            
            5,092,867
            
            
            6,038,823Depreciation
                and amortization
            
            
            56,188
            
            
            345,985
            
            
            432,366Loss
                from operations
            
            
            (180,089
            )
            
            (1,398,283
            )
            
            (399,369
            )Impairment
                of goodwill
            
            
            —
            
            
            (2,748,879
            )
            
            —Other
                income (expense)
            
            
            (55,440
            )
            
            (310,158
            )
            
            (353,587
            )Net
                Loss
            
            $
            (235,529
            )
            $
            (4,457,320
            )
            $
            (692,956
            )





The
      Company has recorded $1 million in deferred rent liability in relation to the
      sale of the MBS business segment. This liability is amortized over the 24 month
      term of the sublease. Amortization has been netted with rent expense and the
      resulting income of $87,587 is included in other income (expense) for the year
      ended December 31, 2005.





NOTE 18 - Subsequent Event





On
      March
      1, 2006, Corporate Technologies, LLC. (CTLLC), a subsidiary of North
      Central Equity, LLC, the purchaser of the MBS business segment, signed a
      lease with Lexstar Tower I Limited Partnership whereby CTLLC assumed the lease
      obligation for substantially all of the first floor space the Company is renting
      in Fargo, North Dakota (see Note 14 Commitments and Contingencies) for the
      period beginning March 1, 2006 to February 28, 2011. Pursuant to the
      aforementioned lease the Company entered into a guaranty with CTLLC whereby
      the
      Company, in the event of a default or early termination of the lease by CTLLC,
      is obligated to perform CTLLC’s lease obligations during months 1-12 and 43-60
      of the lease. This guaranty has no effect on the Company’s consolidated
      financial statements for the year ended December 31, 2005. The Company is in
      the
      process of determining the value, if any, that should be assigned to the
      guaranty for 2006.




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REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
      SUPPLEMENTARY INFORMATION







To
      Stockholders, Board of Directors and Audit Committee


Multiband
      Corporation and subsidiaries


New
      Hope,
      Minnesota





Under
      date of March 8, 2006, we reported on the consolidated balance sheets of
      Multiband Corporation and subsidiaries as of December 31, 2005 and 2004 and
      the
      related consolidated statements of operations, stockholders’ equity, and cash
      flows for the years ended December 31, 2005, 2004 and 2003 as contained in
      the
      annual report on Form 10-K for the year ended December 31, 2005. In connection
      with our audits of the aforementioned consolidated financial statements, we
      have
      also audited the related financial statement schedule as listed in the
      accompanying index. This financial statement schedule is the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on this
      financial statement schedule based on our audits.





In
      our
      opinion, such financial statement schedule, when considered in relation to
      the
      basic consolidated financial statements taken as a whole, presents fairly,
      in
      all material respects, the information set forth therein.








/s/
      VIRCHOW, KRAUSE & COMPANY, LLP





Minneapolis,
      Minnesota


March
      8,
      2006




Page
          43
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**MULTIBAND
      CORPORATION AND SUBSIDIARIES**




**VALUATION
      AND QUALIFYING ACCOUNTS**


**Years
      Ended December 31, 2005, 2004 and 2003**




Column
                A
            
            Column
                B
            
            Column
                C
            
            Column
                D
            
            
            Column
                EDescription
            
            Balance
                at Beginning of Year
            
            Additions
                Charged to Costs and Expenses
            
            Deductions
            
            
            Balance
                at
              End
                of YearALLOWANCE
                DEDUCTED FROM ASSET TO WHICH IT APPLIESAllowance
                for doubtful accounts receivable:2005
            
            $
            225,000
            
            $
            161,000
            
            $
            —
            
            
            
            $
            386,0002004
            
            
            223,000
            
            
            2,000
            
            
            —
            
            
            
            
            225,0002003
            
            
            236,000
            
            
            
            
            
            13,000
            
            (A)
            
            
            223,000Notes
                receivable:2005
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            —2004
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            —2003
            
            
            30,000
            
            
            
            
            
            30,000
            
            (A)
            
            
            —Stock
                subscriptions and interest receivable2005
            
            
            71,000
            
            
            27,009
            
            
            9
            
            
            
            
            98,0002004
            
            
            71,000
            
            
            —
            
            
            —
            
            
            
            
            71,0002003
            
            
            —
            
            
            71,000
            
            
            —
            
            
            
            
            71,000





(A)
                Write-off
                    uncollectible
                    receivables





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          44
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**Item
      9.**





**Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None





**Item
      9A.**





**Controls
      and Procedures.**





The
      Company, under the supervision and with the participation of its management,
      including the Chief Executive Officer, evaluated the effectiveness of the design
      and operation of the Company’s “disclosure controls and procedures” (as defined
      in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act))
      as of the end of the period covered by this report. Based on that evaluation,
      the Chief Executive Officer concluded that the Company’s disclosure controls and
      procedures are effective in timely making known to him material information
      relating to the Company and the Company’s consolidated subsidiaries required to
      be disclosed in the Company’s reports filed or submitted under the Exchange Act.
      There has been no change in the Company’s internal control over financial
      reporting during the quarter ended December 31, 2005 that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting.


Management
        is aware that there is a lack of segregation of duties due to the small number
        of employees dealing with general administrative and financial matters. However,
        management has determined the risks associated with the lack of segregation
        of
        duties are insignificant based on the close involvement of management in
        day-to-day operations (i.e. tone at the top, corporate governance, officer
        oversight and involvement with daily activities, and other company level
        controls).  The potential benefits of adding employees to clearly segregate
        duties do not justify the expenses associated with such increases.





**Item
      9B.****None**





**PART
      III**





**Item
      10.****Directors,
      Executive Officers, Promoters and Control Persons of the
      Registrant**





Information
      with respect to the directors and executive officers of the Company set forth
      under “Information Concerning Directors, Nominees and Executive Officers” and
      under “Compliance with Section 16 (a) “in the Company’s definitive proxy
      statement for the annual meeting of shareholders to be held on or about June
      30,
      2006, is incorporated herein by reference.




**Item
      11.****Executive
      Compensation**




Information
      with respect to Executive Compensation set forth under “Executive Compensation”
in the Company’s definitive proxy statement for the annual meeting of
      shareholders to be held on or about June 30, 2006 is incorporated herein by
      reference.




**Item
      12.****Security
      Ownership of Certain Beneficial Owners and Management**




Information
      with respect to security ownership of certain beneficial owners and management,
      set forth under “Beneficial Ownership of Principal Shareholders and Management”
in the Company’s definitive proxy statement for the annual meeting of
      shareholders to be held on or about June 30, 2006, is incorporated herein by
      reference.




**Item
      13.****Certain
      Relationships and Related Transactions**




Information
      with respect to certain relationships and related transactions, set forth under
      “Information Concerning Directors, Nominees and Executive Officers” in the
      Company’s definitive proxy statement for the annual meeting of shareholders to
      be held on or about June 30, 2006, is incorporated herein by
      reference.




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          to Table of Contents**




**Item
      14.****Principal
      Accountant Fees and Services**




The
      Audit
      Committee of the Company selected Virchow, Krause & Company, LLP (“Virchow
      Krause”), certified public accountants with offices in Minneapolis, Minnesota,
      to audit the Company’s consolidated financial statements for the years ended
      December 31, 2005, 2004 and 2003. The following table details the fees paid
      to
      Virchow Krause for the years ended December 31, 2005 and 2004.





**2005**
            
            ******2004**Audit
                Fees
            
            $
            154,180
            
            $
            128,479Audit-Related
                Fees
            
            
            36,985
            
            
            38,950
            (1)Tax
                Fees
            
            
            13,990
            
            
            15,540Total
            
            $
            205,155
            
            $
            182,969





(1)
            Fees
                related to review of Form S-1 filings, audits of acquisition and
                pro-forma
                required by Form 8-K rules, and responding to SEC comment
                letter.





The
      Company’s Audit committee consists of Frank Bennett, Jonathan Dodge and Donald
      Miller. All three are considered audit committee financial experts independent
      from managers. The Company’s current audit committee charter has been filed
      previously as exhibit 3.5. The audit committee is responsible for engaging
      the
      audit firm and fees related to their services.




The
      policy of the Company’s audit committee is to review and pre-approve both audit
      and non-audit services to be provided by the independent auditors (other than
      with *de
      minimis* exceptions
      permitted by the Sarbanes-Oxley Act of 2002). This duty may be delegated to
      one
      or more designated members of the audit committee with such approval reported
      to
      the committee at its next regularly scheduled meeting. Approval of non-audit
      services shall be disclosed to investors in periodic reports required by section
      13(a) of the Securities Exchange Act of 1934. Approximately 95 % of the fees
      paid to Virchow Krause were pre-approved by the audit committee.




No
      services in connection with appraisal or valuations services, fairness opinions
      or contribution-in-kind reports were rendered by Virchow Krause. Furthermore,
      no
      work of Virchow Krause with respect to its services rendered to the Company
      was
      performed by anyone other than Virchow Krause.





**Item
      15.****Exhibits
      and Financial Statement Schedules.**




**A.**  **Exhibits**





Exhibit
      3.5 states Multiband’s code of ethics for its senior officers. A copy of said
      code will be provided upon written request. Any waivers or amendments to said
      code will be posted to Multiband’s website or disclosed in an 8K
      filing.




Exhibit
      3.6 provides Multiband’s Audit committee charter








Exhibits





See
      Index
      to Exhibits on page 51 of this report.




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**SIGNATURES**





Pursuant
      to the requirements of Section 13 or Section 15(d) of Securities Exchange Act
      of
      1934, the registrant has duly caused this 10-K Report to be signed on its behalf
      by the undersigned, thereunto duly authorized.




**MULTIBAND
              CORPORATION**Date: March
              31, 2006
            By:
            /s/ James
              L.
              MandelName:  
                James L. Mandel
              Title:    
                Chief Executive Officer




Date: March
              31, 2006
            By:
            /s/ Steven
              M.
              BellName:  
                Steven M. Bell
              Title:    
                Chief Financial Officer
              (Principal Financial and Accounting
                Officer)





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.




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          to Table of Contents**





**INDEX
      TO EXHIBITS**





**Exhibit
                No.**
            
            **Description**2.1
            
            Asset
                Purchase Agreement and related documents with Enstar Networking
                Corporation dated December 31, 1998(1)2.2
            
            Agreement
                and Plan of Merger with Ekman, Inc. dated December 29,
                1999(1)2.3
            
            Asset
                Purchase Agreement with Vicom Systems (14)3.1
            
            Amended
                and Restated Articles of Incorporation of Vicom,
                Inc.(1)3.2
            
            Restated
                Bylaws of Vicom, Incorporated(1)3.3
            
            Articles
                of Incorporation of Corporate Technologies, USA,
                Inc.(1)3.5
            
            Audit
                Committee Charter (9)4.1
            
            Certificate
                of Designation of the Relative Rights, Restrictions and Preferences
                of 8%
                Class A Cumulative Convertible Preferred Stock and 10% Class B
                Cumulative Convertible Preferred Stock dated December 9,
                1998(1)4.2
            
            Form
                of Warrant Agreement(1)4.3
            
            Warrant
                Agreement with James Mandel dated December 29, 1999(1)4.4
            
            Warrant
                Agreement with Marvin Frieman dated December 29,
                1999(1)4.5
            
            Warrant
                Agreement with Pierce McNally dated December 29,
                1999(1)4.6
            
            Warrant
                Agreement with Enstar, Inc. dated December 29, 1999(1)4.7
            
            Warrant
                Agreement with David Ekman dated December 29, 1999(1)4.8
            
            Certificate
                of Designation of the Relative Rights, Restrictions and Preferences
                of 10%
                Class C Cumulative Convertible Stock(2)4.9
            
            Certificate
                of Designation of the Relative Rights, Restrictions and Preferences
                of 14%
                Class D Cumulative Convertible Stock(2)4.10
            
            Certificate
                of Designation of the Relative Rights, Restrictions and Preferences
                of 15%
                Class E Cumulative Convertible Stock(2)4.11
            
            Securities
                Purchase Agreement Dated September 18, 2003 (6)4.12
            
            Secured
                Convertible Note Agreement (7)4.13
            
            Wholesale
                Services Agreement Dated March 4, 2004 (8)4.14
            
            Note
                Purchase Agreement (11)4.15
            
            Series
                H Preferred Documents (12)4.16
            
            Series
                I Preferred Documents (13)5.1
            
            Opinion
                of Steven M. Bell, Esq.(6)10.1
            
            Vicom
                Lease with Marbell Realty dated June 20, 1996(1)10.2
            
            Employment
                Agreement with Marvin Frieman dated October 1, 1996(1)10.3
            
            Employment
                Agreement with Steven Bell dated October 1, 1996(1)10.4
            
            Employment
                Agreement with James Mandel dated August 14, 1998(1)10.5
            
            Vicom
                Associate Agreement with NEC America, Inc. dated June
                1999(1)10.6
            
            Loan
                Agreement with Wells Fargo dated June 17, 1999(1)10.7
            
            Employment
                Agreement with David Ekman dated December 29, 1999(1)10.8
            
            Debenture
                Loan Agreement with Convergent Capital dated March 9,
                2000(1)10.9
            
            Corporate
                Technologies, USA, Inc. lease with David Ekman dated January 19,
                2000(1)10.10
            
            Amendment
                dated July 11, 2000 to debenture loan agreement with Convergent Capital
                dated March 9, 2000.(2)10.11
            
            Corporate
                Technologies agreement with Siemens dated December 14,
                2001(4)10.12
            
            Note
                with Pyramid Trading, L.P. (4)10.14
            
            Employment
                Agreement of Steven M. Bell dated January, 1, 2002(5)10.15
            
            Employment
                Agreement of James Mandel dated January 1, 2002(5)10.16
            
            Acquisition
                Agreement of Minnesota Digital Universe (9)10.17
            
            Acquisition
                of Rainbow Satellite Group, LLC (10)14
            
            Multiband
                Code of Ethics for Senior Officers (9)19.1
            
            2000
                Non-Employee Director Stock Compensation Plan (3)19.2
            
            2000
                Employee Stock Purchase Plan (3)21.1
            
            List
                of subsidiaries of the registrant(1)23.1
            
            Consent
                of Virchow, Krause & Company, LLP (15)24.1
            
            Power
                of Attorney (included on signature page of original registration
                statement)31.1
            
            Rule
                13a-14 (s) Certification of Chief Executive Officer - James Mandel
                (15)31.2
            
            Rule
                13a-14 (s) Certification of Chief Financial Officer - Steven Bell
                (15)32.1
            
            Section
                1350 of Sarbanes-Oxley Act of 2002 - James Mandel (15)32.2
            
            Section
                1350of Sarbanes-Oxley Act of 2002 - Steven Bell (15)





(1)
            Previously
                filed as the same exhibit to the Registrant's Registration Statement
                on
                Form 10, as amended.


(2)
            Previously
                filed as the same exhibit to the original Registration Statement
                on
                Form S-1 filed on August 11, 2000 and declared effective on
                August 18, 2000.


(3)
            Previously
                filed as the same exhibit to Registrant’s Proxy Statement on Form 14A,
                filed on July 31, 2000.


(4)
            Previously
                filed as the same exhibit to the original Registration Statement
                on Form
                S-1 filed on August 15, 2001 and declared effective on August 20,
                2001.


(5)
            Previously
                filed as the same exhibit to Registrant’s Form 10-Q filed May 15,
                2002


(6)
            Previously
                filed as the same exhibit to Registrant’s Form 8-K filed September 24,
                2003.


(7)
            **Previously
                filed as the same exhibit to Registrant’s Form 8-K filed December 16,
                2003.**


(8)
            **Previously
                filed as the same exhibit to Registrant’s Form 8-K filed March 17,
                2004.**


(9)
            **Previously
                filed as the same exhibit to registrants Form 8-K filed June 9,
                2004.**


(10)
            **Previously
                filed as the same exhibit to registrants form 8-K filed July 9,
                2004.**


(11)
            **Previously
                filed as the same exhibit to registrants form 8-K filed November
                19,
                2004.**


(12)
            **Previously
                filed as the same exhibit to registrants form 8-K filed November
                24,
                2004.**


(13)
            **Previously
                filed as the same exhibit to registrants form 8-K filed February
                3,
                2005.**


(14)
            **Previously
                filed as the same exhibit to registrants form 8K filed April 6,
                2005**


(15)
            **Filed
                herewith**