UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM 10-K/A

Amendment
No. 1

(Mark One)

|x                                               | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    AND EXCHANGE ACT OF 1934        
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------
|                                               
|FOR THE FISCAL YEAR ENDED DECEMBER
    31, 2011
|                                               
|OR                                             
|                                               
| ̈                                               | TRANSITION REPORT PURSUANT
        TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|                                                | FOR THE TRANSITION PERIOD FROM ____________ TO ____________                                         
|COMMISSION
        FILE NUMBER 0 - 1325        



MULTIBAND
CORPORATION

(Exact
name of registrant as specified in its charter)



MINNESOTA

(State or other
jurisdiction of incorporation or organization)



41-1255001

(IRS Employer
Identification No.)



5605 Green
Circle Drive, Minnetonka, Minnesota 55428

(Address of
principal executive offices, including zip code)



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



9449 Science
Center Drive, New Hope, Minnesota 55428

(Former name
or former address, if changed since last report)



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 xNo  ̈



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



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



Large
accelerated filer  ̈Accelerated filer  ̈Non-accelerated filer Smaller reporting company 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, 2011, (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 was $70,395,720, based on the average bid and asked price of such common equity
of $3.26, on such date.



As of March
15, 2012, there were 21,797,410 outstanding shares of the registrant's common stock, no par value, and 281,696 outstanding shares
of the registrant’s convertible preferred stock.











Explanatory
Note



This Amendment
No. 1 on Form 10-K/A (Amendment) amends the Annual Report on Form 10-K of Multiband Corporation and subsidiaries (the Company)
for the year ended December 31, 2011, originally filed with the Securities and Exchange Commission (SEC) on March 30, 2012 (the
Original filing). This Amendment is being filed to amend the signatures, to include at least the majority of the board of directors
or persons performing similar functions in accordance with Rule 12b-11 of Regulation 12B.T.



Except as described
above, the Amendment does not modify or update the disclosures presented in, or exhibits to, the Original Filing in any way. Those
sections of the Original Filing that are unaffected by the Amendment are not included herein. The Amendment continues to speak
as of the date of the Original Filing. Furthermore, the Amendment does not reflect events occurring after the filing of the Original
Filing. Accordingly, the Amendment should be read in conjunction with the Original filing, as well as the Company’s other
filings made with the SEC pursuant to the Section 13(a) or 15(d) of the Exchange Act subsequent to the filing of the Original
Filing. In addition, as required by Rule 12b-15 of the Securities Exchange Act of 1934, this Form 10-K/A contains new certifications
by our principal executive officer and our principal financial and accounting officer, filed as exhibits hereto.













Table of Contents



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



1









Item 1



Business

Multiband Corporation
(the Company), is a Minnesota corporation formed in September 1975.



The Company
has three operating segments as follows: (1) Field Services (FS), where the Company provides installation services to pay television
(satellite and broadband cable) providers, internet providers and commercial customers, (2) Multi-Dwelling Unit (MDU), where the
Company bills voice, internet and video services to subscribers as owner/operator and also acts as a master service operator for
DIRECTV, receiving net cash payments for managing video subscribers through its network of system operators; and (3) Engineering,
Energy & Construction (EE&C) where the Company provides engineering and construction services for the wired and wireless
telecommunications industry, including public safety networks., This segment also provides renewable energy services including
wind and solar applications and other design and construction services, usually done on a project basis.  All segments
encompass a variety of different corporate entities.



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



The Company’s
website is located at: www.multibandusa.com . The information on the Company’s website is not part of this or any
other report the Company files with, or furnishes to, the SEC.



From its inception
until December 31, 1998, the Company operated as a telephone interconnect company only. Effective December 31, 1998, the
Company acquired the assets of the Midwest region of Enstar Networking Corporation (ENC), a data cabling and networking company.
In late 1999, in the context of a forward triangular merger, the Company, to expand its range of computer products and related
services, purchased the stock of Ekman, Inc. d/b/a Corporate Technologies, and merged Ekman, Inc. into the newly-formed
surviving corporation, Corporate Technologies USA, Inc. (MBS).  MBS provided voice, data and video systems and
services to business and government.  The MBS business segment was sold effective April 1, 2005.  The Company’s
MDU segment (formally known as MCS) began in February 2000.  MDU provides voice, data and video services to multi-dwelling
units, including apartment buildings, condominiums and time share resorts. During 2004, the Company purchased video subscribers
in a number of separate transactions, the largest one being Rainbow Satellite Group, LLC. During 2004, the Company also purchased
the stock of Minnesota Digital Universe, Inc. (MNMDU), which made the Company the largest master service operator in MDU’s
for DIRECTV satellite television in the United States.  During 2006 and 2007, the Company strategically sold certain
assets at multi-dwelling properties where only video services were primarily deployed.  The Company continues to operate
properties where multiple services are deployed.  To remain competitive, the Company intends to continue to own and
operate properties at locations where multiple services can be deployed and manage properties where one or more services are deployed.  Consistent
with that strategy, from 2006 to the present, the Company expanded its servicing of third party clients (other system operators)
through its call center.  On March 15, 2012, the Company had approximately 112,000 owned and managed subscriptions,
with an additional 45,000 subscriptions supported by the call center.



During 2008,
the Company became involved in the business of installing video services in single family homes by acquiring 51% of the outstanding
stock of Multiband NC Incorporated (NC) (formerly Michigan Microtech, Incorporated) MMT, a former subsidiary of DirecTECH Holding
Company Inc. (DTHC), a fulfillment agent for a national satellite television company, DIRECTV, which specializes in the providing
of satellite TV to single family homes.  This acquisition was followed up by the acquisition of an 80% interest in a
group of companies which were the former operating subsidiaries of DTHC, (Multiband NE Incorporated (NE), Multiband SC Incorporated
(SC), Multiband EC Incorporated (EC), Multiband DV Incorporated (DV) and Multiband Security Incorporated (Security)).  The
Company also purchased an additional 29% ownership interest in Multiband NC Incorporated, of which it previously owned 51%, effective
on January 2, 2009.  The remaining 20% of these operating entities were purchased in December 2009. As of December 31,
2011, the NC, SC, EC and NE entities were merged together with NE being the surviving entity. Effective February 20, 2012, NE
has been renamed Multiband Field Services, Incorporated (MBFS).



This DTHC operating
entities purchase was a significant event for the Company. The purchase materially increased the size and scope of the Company’s
operations.  The Company has now expanded its operations into 16 states with 32 field offices and is the second largest
independent DIRECTV field services provider in the United States.



Effective September 1, 2011, the
Company purchased from WPCS International, Inc. (WPCS), two of their subsidiary corporations named WPCS International- Sarasota,
Inc. and WPCS International-St. Louis, Inc. Effective November 1, 2011, these entities have been renamed Multiband Engineering
and Wireless, Southeast, Inc. (SE) and Multiband Engineering and Wireless, Midwest, Inc. (MW). These entities provide engineering
and construction services for the wired and wireless telecommunications industry, including public safety networks, renewable
energy services including wind and solar applications and other design and construction services. Later in 2011, and in early
2012, the Company also purchased certain assets from Groupware International, Inc. and entered the cable television fulfillment
business.



2







Field Services Segment (FS)

The Company, through its FS
segment, generates revenue from the installation and service of DIRECTV video programming for residents of single family homes
under a contract with DIRECTV.  DIRECTV is the largest provider of satellite television services in the United States
with approximately 19 million subscribers. These video subscribers are owned and billed by DIRECTV.  The FS segment
functions as a fulfillment arm for DIRECTV.  As a result, the Company does not directly compete with other providers
for DIRECTV’s business.  Although DIRECTV competes with DISH, the other leading satellite television provider
and incumbent providers of phone and telephone services for pay television customers, DIRECTV has its own marketing and competitive
programs of which the Company is merely an indirect and passive recipient. The FS segment also provides similar installation services
for certain broadband cable and internet providers and commercial customers.



The United States markets for satellite
television subscribers and cable television viewers are significant. According to the Satellite Broadcasting and Communications
Association, there were approximately 33.8 million paying US satellite television subscribers in December 2011. According to the
National Cable and Telecommunications Association, as of September 2011, the US cable industry had approximately 58.3 million
basic video customers and approximately 46.4 million high speed internet customers. The Company believes that the demand for its
outsourced installation and maintenance services will remain steady as leading national providers continue to upgrade technology
and invest in competitive marketing efforts.



Multi-Dwelling Unit Segment (MDU)

The Company, through its MDU segment,
bills customers for the voice, internet and video services it provides to residents of MDU facilities as an owner/operator of
those subscribers. In addition, since 2004, the Company serves as a master system operator for DIRECTV, which allows us to offer
satellite television services to residents of multi-dwelling-units through a network of affiliated operators.



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



| | · | Lower
                                                                                                                                            Cost
                                                                                                                                            Per
                                                                                                                                            Service
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Blended
                                                                                                                                            Satellite
                                                                                                                                            and
                                                                                                                                            Cable
                                                                                                                                            Television
                                                                                                                                            Package
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | Better
                                                                                                                                            than
                                                                                                                                            Industry
                                                                                                                                            Average
                                                                                                                                            Response
                                                                                                                                            Times
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | One
                                                                                                                                            Number
                                                                                                                                            for
                                                                                                                                            Billing
                                                                                                                                            and
                                                                                                                                            Service
                                                                                                                                            Needs
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | One
                                                                                                                                            Bill
                                                                                                                                            for
                                                                                                                                            Local,
                                                                                                                                            Long
                                                                                                                                            Distance
                                                                                                                                            Cable
                                                                                                                                            Television
                                                                                                                                            and
                                                                                                                                            Internet
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | “Instant
                                                                                                                                            On”
                                                                                                                                            Service
                                                                                                                                            Availability
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



In late 2006,
DIRECTV provided the Company with the right to bill DIRECTV services directly to end users.



As we develop
and market this package, we keep a marketing focus on two levels of customers for this product.  The primary decision-makers
are the property owners/managers.  Their concerns are focused on delivering their residents reliability, quality service,
short response times, minimized disruptions on the property, minimized alterations to the property and value added services.  Each
of these concerns is addressed in our contracts with the property owner, which includes annual reviews and 10 year terms as service
providers on the property.  The secondary customer is the end-user.  We provide the property with on-going
marketing support for their leasing agents to deliver clear, concise and timely information about 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 the Company’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 markets with demand that is likely to deliver significant
value to businesses that can obtain a subscriber base of any meaningful size.



MDU Consumer Industry Analysis
and Strategy

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





3







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



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



MDU Market
Description

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



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



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



MDU Number of Units/Customers

At March 15,
2012, the Company had approximately 112,000 owned and managed subscriptions, with an additional 45,000 subscribers supported by
the support center.



Energy,
Engineering & Construction Segment (EE&C)

Under this
segment of the business, the Company provides engineering and construction services for the wired and wireless telecommunications
industry, including public safety networks, renewable energy services including wind and solar applications and other design and
construction services which are usually done on a project basis. We believe growth in public safety networks will continue as
security and safety concerns, driven by, among other things, terrorism threats and weather emergencies, require further infrastructure
buildouts. We also believe that research, development and investment in alternative and renewable energy sources will provide
work for the Company as the United States looks to reduce its dependence on foreign oil imports.



Backlog(in thousands)

As of December
31, 2011, we had a backlog of unfilled orders of approximately $1,817 compared to approximately $0 at December 31, 2010. The Company’s
acquisition of SE and MW in September 2011, accounted for all of this increase. We define backlog as the value of work-in-hand
to be provided for customers as of a specific date where the following conditions are met (with the exception of engineering change
orders): (i) the price of the work to be done is fixed; (ii) the scope of the work to be done is fixed, both in definition and
amount; and (iii) there is an executed written contract, purchase order, agreement or other documentary evidence which represents
a firm commitment by the customer to pay us for the work to be performed. These backlog amounts are based on contract values and
purchase orders and may not result in actual receipt of revenue in the originally anticipated period or at all. We have experienced
variances from time to time in the realization of our backlog because of project delays or cancellations resulting from external
market factors and economic factors beyond our control and we may experience such delays or cancellations in the future. Backlog
does not include new firm commitments which may be awarded to us by our customers from time to time in future periods. These new
project awards could be started and completed in this same future period. Accordingly, our backlog does not necessarily represent
the total revenue that could be earned by us in future periods.



Employees

As of March
15, 2012, Multiband Corporation employed 130 full-time employees, including 10 management employees, 36 finance personnel, 33
information technology employees, 14 employees in human resources, 16 in marketing and 37 employees in operational support positions.  FS
segment employed 3,259 full-time employees consisting of 72 management employees, 145 operational support personnel, 257 customer
service employees, 2,785 technicians and 104 warehouse employees.  As of that same date, MDU had 153 full-time employees,
consisting of 11 in sales and marketing, 9 technicians, and 133 in customer service and related support. EE&C employed 70
full-time employees consisting of 47 technicians and 23 employees in operational support positions.



4







Item 1A



Risk Factors(in thousands)



General

Our business
is subject to a number of risks discussed under the heading “Risk Factors” and elsewhere in this prospectus. The principal
risks facing our business include, among others, our dependence on DIRECTV, changes in technology, and economic conditions limiting
the ability of DIRECTV’s customers to purchase upgrades and installations.  In addition, we have a history of
inconsistent profitability, limited working capital, a retained deficit, and significant amounts of debt due in the near term.  There
are also risks relating to the ownership of our common stock. You should carefully consider these factors, as well as all of the
other information set forth in this Annual Report on Form 10-K.  See “Risk Factors.”



Net Income
(Loss) Attributable to Multiband Corporation and Subsidiaries

The Company
had net income attributable to Multiband Corporation and subsidiaries of $7,044 for the year ended December 31, 2011 and $14,694
for the year ended December 31, 2010 and a net loss attributable to Multiband Corporation and Subsidiaries of $9,650 for the year
ended December 31, 2009.



If we cannot
attain consistent levels of profitability from our operating activities, we may not be able to meet our:

| | · | capital
                                                                                                                                              expenditure
                                                                                                                                              objectives;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | debt
                                                                                                                                              service
                                                                                                                                              obligations;
                                                                                                                                              or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | working
                                                                                                                                              capital
                                                                                                                                              needs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Working
Capital

The Company
had working capital of $7,463 as of December 31, 2011, and a working capital deficit of $10,374 as of December 31, 2010. The deficit
as of December 31, 2010 was primarily due to the 2009 acquisition of the former DTHC operating subsidiaries.  The improvement
in the Company’s cash balance and working capital position between years was a result of the cash flow provided by operations
in 2011 and 2010 as well as the net proceeds received by the Company from the common stock public offering on June 1, 2011 of
$16,176. If profitability does not continue into the future, the Company may not have adequate levels of working capital to meet
its needs which may cause the need for additional financing.



Long-lived
Assets

We have a significant
amount of long-lived assets.  If we should experience a significant decline in future profitability and/or should the
market value for our long-lived assets decrease, some impairment to these assets could occur.  If impairment occurs,
it could materially and adversely affect our results of operations in those future periods.



Goodwill

The Company tests for impairment
of its goodwill and intangible assets without a defined life.  We tested for impairment of the FS and MDU segments which
had goodwill as of November 30, 2011 using standard fair value measurement techniques. In 2011, there was an impairment charge
of $246 recorded for the FS segment relating to the goodwill with the subsidiary, Security. The contract supporting this business
was terminated in November 2011.  The Company recorded an impairment charge of $25 on the goodwill related to the US
Install purchase as of December 31, 2010.  The Company concluded there was no goodwill impairment as of December 31,
2009.  However, should we experience a significant decline in future profitability, or our stock price declines and
remains depressed, and/or should the business climate for satellite providers deteriorate, impairment to our goodwill could occur.  If
impairment occurs, it could be materially adverse to our results of operations in those periods.



Group Health
and Workers’ Compensation Insurance Coverage

The Company
uses a combination of self-insurance and third-party carrier insurance with predetermined deductibles that cover certain insurable
risks. The Company records liabilities for claims reported and claims that have been incurred but not reported, based on historical
experience and industry data.



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



During 2011,
the Company was self-insured for workers’ compensation claims up to $100 plus administrative expenses, for each occurrence.  During
2010, the Company was self-insured for workers’ compensation claims up to $250 plus administrative expenses.





5







During 2011
and 2010, the Company was self-insured for health insurance for claims up to $275 per claim where we expect most claims to occur.  If
any claim is substantially in excess of $275, such claims are covered under premium-based policies issued by insurance companies
to coverage levels that we consider adequate.  If either we exceed our coverage amounts too often and our premiums rise,
or if a high number of claims are made for which we are responsible (because they are below the deductible), our profitability
and cash flow may be adversely affected.



Debt

The Company
has two separate debt instruments that are due within the near term. The debenture payable to Convergent Capital Partners II,
L.P. in the amount of $5,000 is due in December 2012. The note payable- DirecTECH Holding Co., Inc. of approximately $29,155 is
due January 1, 2013.  We will seek new sources of financing to pay these amounts if we do not generate adequate cash
flow from operations to pay the balances when due.  Sources of financing, if needed in the future, may include additional
debt financing or may include the sale of equity (including the issuance of preferred stock) or other securities.  We
cannot be sure that any additional sources of financing or new capital will be available to us, available on acceptable terms,
or permitted by the terms of our current debt.  In addition, if we sell additional equity to raise funds, all shares
of common stock currently outstanding will be diluted.



Income Taxes

The Company
has federal net operating losses of $50,316 and state net operating losses of approximately $47,575, at December 31, 2011, which,
if not used, will expire from 2012-2031.  Changes in the stock ownership of the Company have placed limitations on the
use of these net operating loss carryforwards (NOLs).  The Company has performed an IRC Section 382 study and determined
that a total of five ownership changes had occurred since 1999.  As a result of these ownership changes, the Company’s
ability to utilize its net operating losses is limited. Federal net operating losses are limited to a total of $22,782, consisting
of annual amounts of $9,039 in 2012, $3,725 in 2013 and $1,101 per year for each of the years 2014-2022 and then $109 in 2023.
State net operating losses are limited to a total of approximately $46,195. We believe that $27,534 of federal net operating losses
and $1,380 of state net operating losses will expire unused due to IRC Section 382 limitations. These limitations could be further
restricted if additional ownership changes occur in future years.  To the extent our use of net operating loss carryforwards
are significantly limited, our income could be subject to corporate income tax earlier than it would be if we were able to use
net operating loss carryforwards, which could result in lower profits.



Deregulation

Several regulatory
and judicial proceedings have recently concluded, are underway or may soon be commenced that address issues affecting our operations
and those of our competitors, which may cause significant changes to our industry.  We cannot predict the outcome of
these developments, nor can we assure you that these changes will not have a material adverse effect on us.  Historically,
we have been a reseller of products and services, not a manufacturer or carrier requiring regulation of its activities.  Pursuant
to Minnesota statutes, the Company’s activities are 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.



Certain
Anti-Takeover Effects

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



The Company’s
FS segment is highly dependent on its strategic alliance with DIRECTV and a major alteration or termination of that alliance could
adversely affect the Company’s business

The FS segment
currently provides approximately 90.6% of our total revenues and these most of these revenues are dependent on our relationship
with DIRECTV.  Accordingly, we are highly dependent on our relationship with DIRECTV.  The Company has a Home
Services Provider (HSP) agreement with DIRECTV which was renewed on May 1, 2011 and terminates April 30, 2015.  The
term of this agreement will automatically renew for additional one year periods unless either DIRECTV or the Company gives written
notice of termination at least 90 days in advance of expiration of the then current term.  The agreement can be terminated
on 180 days notice by either party.  DIRECTV may also change the terms of their agreement with the Company, among other
things, to change our service areas and/or pricing, both of which have occurred in the past.  The terms of the HSP agreement
also contain specific operational requirements that impact how we provide service to and interact with DIRECTV customers, and
which requirements directly affect how we budget, strategize and operate as a business.  Some of these requirements
include, but are not limited to: (a) required uniforms/appearance and tools for technicians; (b) limitations on advertising
and signage utilized by us; (c) fleet specifications; (d) call center operations (response times, minimum hours of operation);
(e) technician training and education standards; and (f) required hardware.   Any adverse alteration or termination
of our HSP agreement with DIRECTV would have a material adverse effect on our business.    In addition, a
significant decrease in the number of jobs the Company completes for DIRECTV could have a material adverse effect on our business,
financial condition and results of operations.



Our FS segment
revenues could be negatively affected by reduced support from DIRECTV

DIRECTV conducts
promotional and marketing activities on national, regional and local levels. Due to our substantial dependence on DIRECTV, our
revenues depend, in significant part, on: (i) the overall reputation and success of DIRECTV; (ii)  the incentive and
discount programs provided by DIRECTV and its promotional and marketing efforts for its products and services; (iii) the
goodwill associated with DIRECTV trademarks; (iv) the introduction of new and innovative products by DIRECTV; (v) the
manufacture and delivery of competitively-priced, high quality equipment and parts by DIRECTV in quantities sufficient to meet
customers' requirements on a timely basis; (vi) the quality, consistency and management of the overall DIRECTV system; and
(vii) the ability of DIRECTV to manage its risks and costs. If DIRECTV does not provide, maintain or improve any of the foregoing,
if DIRECTV changes the terms of its incentive and discount programs, or if DIRECTV were sold or reduced or ceased operations,
there could be a material adverse effect on our financial condition and results of operations even though alternate providers
of satellite television services exist.





6







The Company’s
Multi-Dwelling unit (MDU) business strategy is also highly dependent on its strategic alliance with DIRECTV

In connection
with our MDU business segment, we are operating under a Master System Operator (MSO) relationship with DIRECTV.  The
MSO agreement with DIRECTV was signed with an effective date of August 22, 2011 and expires August 21, 2015.  Similar
to the terms of the HSP agreement, material terms of the MSO agreement regarding term, termination, pricing and service areas
are subject to change, oftentimes in DIRECTV’s discretion.  Any adverse alteration or any termination of our current
relationship with DIRECTV with respect to our MDU segment would have a material adverse effect on our business, financial condition
and results of operations.



Our MDU
segment growth initiative may not be successful or profitable

The Company
has a strategy for growth for our MDU segment and we have invested significant time, effort, and capital into developing our MDU
infrastructure.  Our intent is to work closely with DIRECTV to substantially grow this segment of our business.  While
we have invested in this segment and intend to continue to do so, and while we believe DIRECTV has made the MDU market a focus
for its growth, there is no guarantee that we will be able to achieve success or profitability in this business segment, or that
we will achieve a return on any additional investments that we make in this segment.  If the Company is unable to achieve
profitability in the MDU segment, it could have a material adverse effect on our business, financial condition and results of
operations.



The Company
may require additional debt financing or will be limited to stock-funded acquisitions in order to complete any material strategic
acquisitions

The Company
may require additional debt financing or will be limited to stock-funded acquisitions in order to complete any material strategic
acquisitions.  There is no assurance that additional financing will be available in the amounts or at the times required,
or if it is, on terms acceptable or favorable to us.  There is also no assurance that a target company would agree to
a stock exchange or that our stock would not be diluted by such stock exchange.  If we are unable to obtain additional
financing when and if needed or to do a stock exchange, our ability to grow through acquisitions will be impaired.



Marketplace
pressures could curtail our operations

The Company
faces competition from others who are competing for a share of the FS and MDU markets, including other satellite companies, cable
companies, telephone companies and other installers.  Some of these companies have significantly greater assets and
resources than we do.  If we are unable to compete successfully with these companies, our market share could decrease
which could have a material adverse effect on our business, financial condition and results of operations.



Changes
in technology or consumer preference and demand could weaken Multiband’s competitiveness in the marketplace

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



In addition,
our business and operating results depend upon the overall appeal of DIRECTV’s products and services to consumers.  A
decline in the popularity of existing products and services or the failure of new products and services to achieve and sustain
market acceptance could result in reduced overall revenues, which could have a material adverse effect on our business, financial
condition and results of operations. Consumer preferences with respect to entertainment are continuously changing, are difficult
to predict and can vary over time.  There can be no assurance that any of DIRECTV’s current products and services
will continue to be popular for any significant period of time or that any new products and services will achieve commercial acceptance.
As such, changes in consumer preferences may cause our revenues and net income to vary, possibly significantly, between comparable
periods.



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

Variations in our revenues and operating
results occur quarterly 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 our expenses are relatively fixed, a variation in the number of customer engagements or the timing of the initiation or completion
of those engagements can cause significant fluctuations in our operating results from quarter to quarter.



Amounts
included in our backlog may not result in actual revenue or translate into profits.

As of December
31, 2011, we had a backlog of unfilled orders of approximately $1,817. This backlog amount is based on contract values and purchase
orders and may not result in actual receipt of revenue in the originally anticipated period or at all. In addition, contracts
included in our backlog may not be profitable. We have from time to time experienced variances in the realization of our backlog
because of project delays or cancellations resulting from external market factors and economic factors beyond our control and
we may experience delays or cancellations in the future. If our backlog fails to materialize, we could experience a further reduction
in revenue, profitability and liquidity.



7







The Company’s
operating results can be negatively affected by weather conditions

We perform
a significant amount of our services outdoors.  Adverse weather conditions may affect productivity in performing services
or may temporarily prevent us from performing services for our customers.  The effect of weather delays on projects
that are under fixed price arrangements may be greater if we are unable to adjust the project schedule for such delays.  A
reduction in productivity in any given period or our inability to meet guaranteed schedules may adversely affect the profitability
of our projects and operations.



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

While we believe
the present status of the United States economy may actually assist us because consumers may stay home more for entertainment,
if the country’s economic conditions worsen continues, there is no guarantee that consumers will continue to purchase DIRECTV
at current levels or at all, and the need for our services may diminish, possibly materially A significant decline in the need
for our services could have a material adverse effect on our business, financial condition and results of operations.



The Company
relies on key employees and needs skilled and trained personnel to conduct its operations.  Excessive employee turnover
could materially weaken its operations and/or reduce profitability

Our success
depends on the continued employment of certain key personnel, including our executive officers.  In particular, the
loss of James L. Mandel, our Chief Executive Officer, or Steve M. Bell, our Chief Financial Officer and General Counsel, would
harm our business and the employment relationships with both Mr. Mandel and Mr. Bell are terminable by us or each of
them upon 90 days’ written notice for any reason.  If we were unable to continue to attract and retain a sufficient
number of qualified key personnel, including key executives, our business, operating results and financial condition could be
materially and adversely affected.  In addition, our success depends on our ability to attract, develop, motivate and
retain highly skilled 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.  We have traditionally experienced material
technician churn, which can have a significant impact on operations if we have an insufficient number of technicians at any given
time to complete our current outstanding jobs.  If we experience high levels of churn and are unable to attract, train
and retain a sufficient number of qualified personnel, our business, operating results and financial condition could be materially
and adversely affected.



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

We are subject
to claims, regulatory processes and lawsuits that arise in the ordinary course of business.  We accrue for such matters
when a loss is considered probable and the amount of such loss or range of loss can be reasonably estimated.  Some of
these claims, if resolved or determined adversely, may be material to our results of operations and may have an adverse effect
on our cash position or financial results.



Rising fuel
costs could impact the Company’s profitability

The Company
cannot predict the price of the fuel it needs to operate its fleet.  Price fluctuations are common and are outside of
our control.  These fluctuations are based on, among other things, political developments, supply and demand, and actions
by oil and gas producers.  Violence and political instability in oil producing countries can also impact prices.  The
Company has implemented programs and technologies that monitor fuel usage and employee driving habits, all done in an effort to
maximize efficiencies. During 2011, DIRECTV implemented a fuel subsidy program which provided the Company with $2,330 of
additional revenue in 2011 to lessen the impact of increased fuel costs. There is no guarantee that this program will continue
to be provided by DIRECTV. Any increase in fuel costs, or the elimination of the DIRECTV fuel subsidy program, could have a material
adverse effect on our business, financial position or results of operations.



Collective
bargaining agreement

The Company
has approximately 26% of its labor force covered by collective bargaining agreements that expire within one year.  The Company
utilizes a contractor base for seasonality and work overflow but it cannot be certain that it could cover all jobs during a work
outage, if one should occur.  A reduction in productivity in any given period or our inability to meet guaranteed schedules
may adversely affect our profitability.



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

We rely on
a combination of trade secret, copyright and trademark laws, license agreements, and contractual arrangements with certain key
employees to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property.  There
can be no assurance that the legal protections afforded to us or the steps that we take will be adequate to prevent misappropriation
of our intellectual property.  We also rely on agreements with owners of multi-dwelling units who grant us the right
of access to the premises for a specific period whereby we are allowed to offer our voice, data, and video services to individual
residents of the properties.  If it was determined that we have infringed or are infringing on the intellectual property
rights of others, we 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 our business, financial condition and results of operations.  Also,
there can be no assurance that we would be able to develop non-infringing technology or that we could obtain a license on commercially
reasonable terms, if at all.  Our success depends in part on our ability to protect the proprietary and confidential
aspects of our technology and the products and services that we sell or utilize.





8







Diversification
efforts may fail

In 2011, the
Company entered the cable television fulfillment business and the engineering and specialty construction business. These new ventures
may be unprofitable or unsuccessful.



Risks Related
to Our Financial Condition and Capital Requirements



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

We had a net
income of $7,044 for the year ended December 31, 2011, a net income of $14,694 for the year ended December 31, 2010 and a net
loss of $11,377 for the year ended December 31, 2009.  We may never be consistently profitable.



The effects
of inconsistent profitability may restrict our ability to pursue our business strategy, including with respect to our goal of
growth through acquisitions and the ease with which we could secure funding for our growth plan or any such transactions.



If we cannot
attain consistent levels of profitability from our operating activities, we may not be able to meet:



| | · | our
                                                                                                                                            capital
                                                                                                                                            expenditure
                                                                                                                                            objectives;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                                                                                                                            debt
                                                                                                                                            service
                                                                                                                                            obligations;
                                                                                                                                            or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                                                                                                                            working
                                                                                                                                            capital
                                                                                                                                            needs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company
has a significant amount of accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts.

The Company
extends credit to its customers as a result of performing work under contracts prior to billing for that work. At December 31,
2011, in the EE&C segment, we had net accounts receivable of approximately $1,535 and costs and estimated earnings in excess
of billings on uncompleted contracts of $998. The Company periodically assesses the credit risk of its customers and regularly
monitors the timeliness of payments. Slowdowns in the industries the Company serves or bankruptcies or financial difficulties
within the markets the Company serves, may impair the financial condition of one or more of its customers and may hinder their
ability to pay the Company on a timely basis or at all. If any of these difficulties are encountered, the Company’s cash
flows and results of operations could be adversely impacted. Additionally, the Company could incur losses in excess of the current
bad debt allowances provided as of December 31, 2011.



If the Company
fails to accurately estimate costs associated with fixed-price contracts using the percentage-of-completion method, results may
vary from previous estimates, which may adversely impact profitability and liquidity.

A substantial
portion of revenue derived in the EE&C segment is from fixed price contracts. Under these contracts, the Company sets the
price of services on an aggregate basis and assumes the risk that the costs associated with performance may be greater than anticipated.
Revenue and profit on these contracts is recognized as the work progresses on a percentage-of-completion basis.



The percentage-of-completion
method relies on estimates of total expected contract costs. These costs may be affected by a variety of factors, such as lower
than anticipated productivity, conditions at work sites differing materially from what was anticipated at the time we bid on the
contract and higher costs of materials and labor. Contract revenue and total cost estimates are reviewed and revised monthly as
the work progresses, such that adjustments to profit resulting from revisions are made cumulative to the date of the revision.
Adjustments are reflected in contract revenue for the period affected by these revised estimates. If estimates of costs to complete
long-term contracts indicate a loss, we immediately recognize the full amount of the estimated loss.



If the Company
fails to accurately estimate costs associated with fixed price contracts using the percentage-of-completion method, reported results
may materially differ from previous estimates which could adversely impact profitability and liquidity.



The Company
has limited working capital, which may require additional financing

The Company
had working capital of $7,463 as of December 31, 2011, and a working capital deficit of $10,374 as of December 31, 2010. The deficit
as of December 31, 2010 was primarily due to the 2009 acquisition of the former DTHC operating subsidiaries.  The improvement
in working capital between years was a result of the net income generated in 2011 and 2010 as well as the net proceeds received
by the Company from a common stock public offering that was completed on June 1, 2011 of $16,176. If profitability does not continue
into the future, the Company may not have adequate levels of working capital to meet its needs which may cause the need for additional
financing.



Failure
to properly manage projects may result in unanticipated costs or claims.

Certain project
engagements involve large scale, highly complex projects. The quality of the Company’s performance on such projects depends
in large part upon the Company’s ability to manage the relationship with our customers, and to effectively manage the project
and deploy appropriate resources, including third-party contractors and our personnel, in a timely manner. Any defects, errors
or failure to meet customers’ expectations could result in claims for substantial damages against us. Our contracts generally
limit our liability for damages that arise from negligent acts, errors, mistakes or omissions in rendering services to our customers.
However, we cannot be sure that these contractual provisions will protect us from liability for damages in the event we are sued.
In addition, in certain instances, we guarantee customers that we will complete a project by a scheduled date or that the network
will achieve certain performance standards. If the project or network experiences a performance problem, we may not be able to
recover the additional costs we would incur, which could exceed revenues realized from a project.



9







The Company
has a significant amount of debt due in the near term.  Failure to pay that debt when due could cause secured creditors
to foreclose upon the Company’s assets, making it unlikely that the Company could continue operating

The Company
has two separate debt instruments that are due within the near term. The debenture payable to Convergent Capital Partners II,
L.P. in the amount of $5,000 is due in December 2012. The note payable to DirecTECH Holding Company, Inc. of approximately $29,155
is due January 1, 2013.  We will seek new sources of financing to pay these amounts if we do not generate adequate cash
flow from operations to pay the balances when due.  Sources of financing, if needed in the future, may include additional
debt financing or may include the sale of equity (including the issuance of preferred stock) or other securities.  We
cannot be sure that any additional sources of financing or new capital will be available to us, available on acceptable terms,
or permitted by the terms of our current debt.  In addition, if we sell additional equity to raise funds, all shares
of common stock currently outstanding will be diluted.



The Company
has significant amounts of long-lived assets that may not maintain their current value due to changes in market conditions. A
write-down of those assets could adversely affect the Company’s profitability

The Company
has significant amounts of long-lived assets.  Should we in future periods experience a significant decline in profitability
and/or should the market value for our long-lived assets decrease, some impairment to these assets could occur.  If
impairment occurs, it could materially and adversely affect our results of operations in those future periods.



The Company
has significant intangible assets, including goodwill.  Lack of profitability and/or changes in market conditions may
result in an impairment of these assets which could adversely affect the Company’s profitability

The Company
tests for impairment of its goodwill and intangible assets without a defined life.  We tested for impairment of the
FS and MDU segments which had goodwill as of November 30, 2011 using standard fair value measurement techniques. In 2011, there
was an impairment charge of $246 recorded for the FS segment relating to the goodwill recorded with the subsidiary, Security.
The contract supporting this business was terminated in November 2011. The Company recorded an impairment charge of $25 on the
goodwill related to the US Install purchase as of December 31, 2010.  The Company concluded there was no goodwill impairment
as of December 31, 2009.  However, should we experience a significant decline in future profitability, or our stock
price declines and remains depressed, and/or should the business climate for satellite providers deteriorate, impairment to our
goodwill could occur.  If impairment occurs, it could be materially adverse to our results of operations in those periods.



Excessive
insurance claims could have a material adverse impact on the Company’s profitability

The Company
utilizes a combination of self-insurance and third-party carrier insurance with predetermined deductibles that cover certain insurable
risks, such as workers’ compensation and health insurance. During 2011, the Company was self-insured for workers’
compensation claims up to $100 plus administrative expenses.  During 2010, the Company was self-insured for workers’
compensation claims up to $250 plus administrative expenses. During 2011 and 2010, the Company was self-insured for health insurance
covering the range of liability up to $275 per claim where the Company expects most claims to occur.  If any liability
claims are substantially in excess of coverage amounts, such claims are covered under premium-based policies issued by insurance
companies to coverage levels that management considers adequate.  If either we exceed our coverage amounts too often
and our premiums rise, or if a high number of claims are made for which we are responsible (because they are below the deductible),
our profitability and cash flow may be adversely affected.



The Company
may be unable to use certain net operating loss carryforwards

The Company
has federal net operating losses of $50,316 and state net operating losses of approximately $47,575, at December 31, 2011, which,
if not used, will expire from 2012-2031.  Changes in the stock ownership of the Company have placed limitations on the
use of these net operating loss carryforwards (NOLs).  The Company has performed an IRC Section 382 study and determined
that a total of five ownership changes had occurred since 1999.  As a result of these ownership changes, the Company’s
ability to utilize its net operating losses is limited. Federal net operating losses are limited to a total of $22,782, consisting
of annual amounts of $9,039 in 2012, $3,725 in 2013 and $1,101 per year for each of the years 2014-2022 and then $109 in 2023.
State net operating losses are limited to a total of approximately $46,195. We believe that $27,534 of federal net operating losses
and $1,380 of state net operating losses will expire unused due to IRC Section 382 limitations. These limitations could be further
restricted if additional ownership changes occur in future years.  The amount of the deferred tax asset not expected
to be realized is reported net of a valuation allowance.



The Company
incurs significant costs as a result of operating as a public company, and we are required to devote substantial time to new compliance
initiatives

As a public
company, the Company incurs significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules subsequently implemented by the SEC and NASDAQ
have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial
controls and changes in corporate governance practices.  Our management and other personnel devote a substantial amount
of time to these compliance initiatives.  Moreover, these rules and regulations result in increased legal and financial
compliance costs and make some activities more time-consuming and costly.





10







The Sarbanes-Oxley
Act of 2002 requires, among other things, that we maintain effective internal controls for financial reporting and disclosure.  In
particular, the Company is required to perform system and process evaluation and testing of our internal controls over financial
reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act.  Our testing may reveal deficiencies in our internal controls over financial
reporting that are deemed to be material weaknesses.  We have incurred and continue to expect to incur significant expense
and devote substantial management effort toward ensuring compliance with Section 404.  Moreover, if we do not comply
with the requirements of Section 404, or if we identify deficiencies in our internal controls that are deemed to be material
weaknesses, the market price of our common stock could decline, and we could be subject to sanctions or investigations by NASDAQ,
the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.



Risks of
Ownership of Our Common Stock



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

The stock market
has experienced extreme volatility, and this volatility has often been unrelated to the operating performance of particular companies.  Prices
for our common stock are determined in the marketplace and may be influenced by many factors, including variations in our financial
results, changes in earnings estimates by industry research analysts, investors’ perceptions of us and general economic,
industry and market conditions.  In addition, although our common stock is listed on the NASDAQ Capital Market, our
common stock has experienced low trading volume.  Limited trading volume subjects our common stock to greater price
volatility and may make it difficult for our shareholders to sell shares at an attractive price.



Future sales
of our common stock, including by our existing shareholders, could cause our stock price to decline

If our shareholders,
including any existing shareholders, sell substantial amounts of our common stock (whether currently held or acquired upon the
exercise of options or warrants or other convertible securities) in the public market, the market price of our common stock could
decrease significantly.  In the past, we believe certain institutional investors have sold significant numbers of shares
of our common stock.  The perception in the public market that our shareholders might sell shares of our common stock
could also depress the market price of our common stock.



The Company
may not continue to have a national market for trading of its stock

There is no
assurance that our common stock will continue to trade on the NASDAQ Capital Market or other national stock exchange due to ongoing
listing criteria for such exchanges.  If we are unable to stay in compliance with applicable listing criteria, it may be
more difficult for you to trade your shares or to sell your shares at a price that is attractive to you.



You may
not be able to resell your shares at or above the price you paid for your shares

You may not
be able to sell our common stock at prices equal to or greater than the price you paid for your shares.  The stock markets
have been extremely volatile.  The risks related to the Company discussed in this “Risk Factors” section,
as well as the public’s reaction to our public announcements, changes in research analysts’ recommendations and decreases
in market valuations of similar companies, could cause the market price of our common stock to decrease significantly from the
price you paid.  Further, the price of our common stock could fluctuate based upon factors that have little or nothing
to do with us, and these fluctuations could materially reduce our stock price.



The Company
may issue shares of preferred stock without shareholder approval, which could adversely affect the rights of common shareholders

Our charter
documents permit us to establish the rights, privileges, preferences and restrictions, including voting rights, of future series
of our preferred stock and to issue such stock without approval from our shareholders.  The rights of holders of our
common stock may suffer as a result of the rights granted to holders of preferred stock that may be issued in the future.  In
addition, we could issue preferred stock to prevent a change in control of our company, depriving common shareholders of an opportunity
to sell their stock at a price in excess of the prevailing market price.



INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS



This Annual
Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. In some cases, you can identify
forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,”
“potential,” “predict,” “project,” “should,” “will,” “would,”
or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s
actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied
by these forward-looking statements. Forward-looking statements are only predictions and are not guarantees of performance. These
statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information.



These important
factors include those that we discuss under the heading “Risk Factors.” You should read these risk factors and the
other cautionary statements made in this Annual Report on Form 10-K as being applicable to all related forward-looking statements
wherever they appear in this Annual Report on Form 10-K. We cannot assure you that the forward-looking statements in this Annual
Report on Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy
may be material. You should read this Annual Report on Form 10-K completely. Other than as required by law, we undertake no obligation
to update these forward-looking statements, even though our situation may change in the future.



11







Item 1B



Unresolved
Staff Comments

We have not
received any written comments that were issued more than 180 days before December 31, 2011, the end of the fiscal year covered
by this report, from the SEC staff regarding our periodic or current reports under the Securities and Exchange Act of 1934 that
remain unresolved.



Item 2



Properties(in thousands)

Multiband and
its subsidiaries lease principal offices located at 9449 Science Center Drive, New Hope, Minnesota 55428 and 2000 44th Street
SW, Fargo, ND 58103.  We have no foreign operations.  The New Hope office lease expires in 2012 and covers
approximately 47 square feet.  The New Hope base rent is $24 per month. The Company purchased a building on February
2012 (see Note 17).  The Fargo office lease is made up of four separate leases expiring in 2013, 2014 and 2017 and covers
approximately 18 square feet.  The Fargo total base rent is $18 per month.   All leases have provisions that
call for the tenants to pay net operating expenses, including property taxes, related to the facilities.  All offices
have office, warehouse and training facilities.  In addition, the Company leases warehouses in its various markets of
operation to facilitate storage of inventory and technician interface.  These warehouses have lease terms ranging from
month to month to six years in duration with lease terms expiring through 2017.  The base rents at these facilities
range from $1 to $8 per month.  The Company considers its current facilities other than its corporate headquarters adequate
for its current needs. The Company is moving from its New Hope office to larger facilities located in Minnetonka, Minnesota during
the summer of 2012 (see Note 17).



Item 3



Legal proceedings(in thousands)

The Company
is subject to claims, regulatory processes and lawsuits that arise in the ordinary course of business.  The Company
accrues for such matters when a loss is considered probable and the amount of such loss, or a range of loss, can be reasonably
estimated. The Company’s defense costs are expensed as incurred.  The Company has recorded $3,072 and $3,098 of
accrued liabilities at December 31, 2011 and 2010, respectively, for claims and known and potential settlements and legal fees
associated with existing litigation.



The majority of the accrued liabilities
relate either to claims for overtime wages or a Department of Labor matter further described below.



Effective December 31, 2011, the
Company settled all overtime wage claims, with one exception, Conway v. Multiband (D.Ill.). While the Company and its predecessors
denied the allegations underlying the overtime claim lawsuits, we agreed to settlements to avoid significant legal fees, the uncertainty
of a jury trial and other expenses and management time related to protracted litigation.



In December 2009, the US Department
of Labor (DOL) sued various individuals that are either shareholders, directors, trustees and/or advisors to DirecTECH Holding
Company, Inc. (DTHC) and its Employee Stock Ownership Plan (ESOP).  The Company was not named in this complaint.  In
May 2011, these individuals settled the complaint with the DOL. Certain defendants in this matter filed suit against the Company
for advancement and or reimbursement of expenses. One of the defendants, Woody Bilyeu, is also pursuing an arbitration proceeding
against DTHC seeking acceleration of his promissory note with DTHC which totals approximately $9,000 as of December 31, 2011 and
is attempting to collect costs from a Company subsidiary for a different note that was paid off in 2009.  The basis for these
reimbursement demands are certain corporate indemnification agreements that were entered into by the former DTHC operating subsidiaries
and the Company itself.  To date, the Company has denied all requests for indemnification of legal fees in this matter
for, in part, the following reasons: 1) similar indemnification agreements have been declared illegal under Federal law by a California
federal appeals court; and 2) the Company has no obligation to indemnify DTHC individual shareholder conduct.  Notwithstanding
the above, the outcome of the matter is uncertain at present and the Company cannot definitively predict based on the current
facts known to it, whether it ultimately will have any material liability in the matter.



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



Item 4



Mine Safety Disclosures



Not applicable.



12







PART II



Item 5



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

The Company’s
common stock presently trades on the NASDAQ Capital Market system under the symbol “MBND”.  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, 2011 and December
31, 2010, as provided by NASDAQ.



|Quarter Ended      |  | High Bid |      |  | Low Bid |  
|------------------ |  | -------- | ---- |  | ------- | -
|December 31, 2011  |  | $        | 3.63 |  |         | $
|September 30, 2011 |  | $        | 3.74 |  |         | $
|June 30, 2011      |  | $        | 4.87 |  |         | $
|March 31, 2011     |  | $        | 6.72 |  |         | $
|                   |  |          |      |  |         |  
|December 31, 2010  |  | $        | 3.10 |  |         | $
|September 30, 2010 |  | $        | 2.03 |  |         | $
|June 30, 2010      |  | $        | 2.35 |  |         | $
|March 31, 2010     |  | $        | 2.39 |  |         | $



As of March
15, 2012, Multiband had 883 shareholders of record of its common stock and 21,797,410 shares of common stock outstanding.  Because
many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate
the total number of shareholders represented by these record holders.  As of that date, three shareholders held a total
of 12,696 of Class A Preferred, two shareholders held a total of 109,000 shares of Class C Preferred, one shareholder held a total
of 150,000 shares of Class F Preferred and one shareholder held a total of 10,000 shares of Class G Preferred.



Recent Sales of Unregistered
Securities (in thousands, except for share amounts)

During the
last three years the Company has issued various securities that were not registered under the Securities Act.  The securities
were offered and sold by us in reliance upon the exemptions provided under Section 4(2) under the Securities Act relating to sales
not involving any public offering, and/or Rule 506 of Regulation D under the Securities Act.  The certificates representing
the securities sold bear a restrictive legend that prohibits transfer without registration or an applicable exemption.  All
purchasers signed agreements stating that they were purchasing for investment purposes only and which contain restrictions on
the transfer of the securities sold. Unregistered securities were subsequently registered in October 2011.



In September 2011, the Company issued
918 shares of common stock worth $2 in lieu of payment for employee compensation.



In July 2011,
the Company issued 1,250 shares of common stock worth $2 to an employee as a result of the exercise of a non-qualified stock option.



During 2011,
the Company issued a total of 199,452 shares of common stock worth $399 to DirecTECH Holding Company, Inc., in lieu of payment
for dividends on Class J preferred stock.



During 2011,
the Company issued a total of 20,822 shares of common stock at various times worth a total of $70 to Mr. Frank Bennett, a director,
in lieu of payment for dividends on Class E preferred stock.



In June 2011,
the Company issued 7,500 shares of common stock worth $75 in lieu of payment of dividends of Class F preferred stock.



In June 2011,
the Company issued 970 shares of common stock worth $5 in lieu of payment of interest and dividends of Class H preferred stock.



In May 2011,
the Company issued 13,800 shares of common stock worth $41 as a result of the conversion of warrants.



In April 2011,
the Company issued 8,333 shares of common stock worth $15 to an employee as a result of the exercise of a non-qualified stock
option.



In March 2011,
the Company issued 12,500 shares of common stock worth $24 to Mr. James Mandel, CEO as a result of the exercise of a non-qualified
stock option.





13







In February
2011, the Company issued 1,675 shares of common stock worth $8 as a result of the dividend and related conversion of Series H
preferred stock.



In January
2011, the Company issued 1,994 shares of common stock worth $16 as a result of the conversion of Series G preferred stock.



In January 2011, the Company issued
45,956 shares of common stock worth $125 in lieu of payment for board of director services.



During 2010,
the Company issued a total of 60,048 shares of common stock at various times worth a total of $114 to Mr. Frank Bennett, a director,
in lieu of payment for dividends on Class E preferred stock.



During 2010,
the Company issued a total of 315,616 shares of common stock at various times worth a total of $631 to DirecTECH Holding Company,
Inc., in lieu of payment for dividends on Class J preferred stock.



In October
2010, the Company issued 20,000 shares of common stock worth $52 in lieu of payment for investor relation services.



In August 2010,
the Company issued 103,164 shares of common stock worth $181 in connection with a purchase agreement entered into with Lincoln
Park Capital Fund, LLC.



In June 2010,
the Company issued 5,000 shares of common stock worth $10 in lieu of payment for consulting services.



In April 2010,
the Company issued 12,000 shares of common stock worth $24 in connection with the acquisition of Hyatt Tech Systems.



In January
2010, the Company issued 50,000 shares of common stock worth $100 in lieu of payment for board of director services.



During 2009,
the Company issued a total of 9,426 shares of common stock at various times worth a total of $19 to Mr. Frank Bennett, a director,
in lieu of payment for dividends on Class E preferred stock.



In December
2009, the Company issued 3,333 shares of common stock worth $17 in connection with the conversion of notes payable.



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



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



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 thousands,
except for share amounts)

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





14







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



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



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



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



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



The following
chart summarizes certain terms of our outstanding preferred stock as of December 31, 2011.  The certificate of designation
for each series should be carefully reviewed to determine exact rights and preferences of each class (in thousands, except share
and liquidation preference amounts).



|Class/
    Series |  | Date
    of Issuance |       |  | Shares
    Outstanding (1) |  |         | Annual
    Dividend Rate |  | Number
    of 
    shares issued 
    upon 
    conversion (2) |  | Liquidation
    
    Preference |  |   | Redeemable
    by Company | 
|----------------- |  | -------------------- | ----- |  | -------------------------- |  | ------- | ------------------------ |  | -------------------------------------------------------------- |  | ------------------------------- |  | - | ------------------------- | 
|A                 |  |                      | 12/98 |  |                            |  | 12,696  |                          |  | 8% payable quarterly                                           |  | 1 shares                        |  | $ | 133,308                   | 
|C                 |  |                      | 6/00  |  |                            |  | 109,000 |                          |  | 10% payable quarterly                                          |  | .40 shares                      |  |   | 1,090,000                 | 
|F                 |  |                      | 6/04  |  |                            |  | 150,000 |                          |  | 10% payable quarterly                                          |  | 1 shares                        |  |   | 1,500,000                 | 
|G                 |  |                      | 9/04  |  |                            |  | 10,000  |                          |  | 8% payable quarterly                                           |  | 1.25 shares                     |  |   | 100,000                   | 
|H                 |  |                      | 11/04 |  |                            |  | 1       |                          |  | 6% payable semi-annually(3)                                    |  | $1.00/share                     |  |   | 100,000                   | 
|                  |  |                      |       |  |                            |  | 281,697 |                          |  |                                                                |  |                                 |  |   |                           | 



|(1) | All preferred stock is non-voting.                                                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Preferred shares are convertible at any time.  Figures
    are adjusted for a 1-for-5 reverse stock split of the Company’s common stock, effective August 7, 2007.                             
|(3) | Dividends payable in common stock at a fixed rate of $1.00 per
    share.                                                                                                                      
|(4) | Redeemable at $10.50 per share in accordance with the terms and
    conditions of the preferred stock certificate of designation.                                                              
|(5) | Redeemable at $10.00 per share whenever the Company’s common
    stock price exceeds certain defined criteria and other terms and conditions of the preferred stock certificate of designation.
|(6) | Redeemable at $100,000 per share in accordance with the terms and
    conditions of the preferred stock certificate of designation.                                                            
|(7) | Redeemable at option of holder in accordance with the terms and
    conditions of the preferred stock certificate of designation.                                                              



Class H shareholders
have the right to convert all or a portion of preferred shares upon the occurrence of a major transaction or triggering event
as defined in the agreement and Multiband has the sole option to pay the redemption price in cash or shares of the Company’s
common stock.  Class J shares have forced redemption rights at par, upon the occurrence of a major transaction or triggering
event as defined in the agreement.  Classes G and J have no redemption “call” price.  Upon Multiband's
call for redemption, the holders of the preferred stock called for redemption will have the option to convert each share of preferred
stock into shares of common stock until the close of business on the date fixed for redemption, unless extended by Multiband in
its sole discretion.  Preferred stock not converted would be redeemed.



Our ability
to issue preferred stock, or rights to purchase such shares, could discourage an unsolicited acquisition proposal. For example,
we could impede a business combination by issuing a series of preferred stock containing, among other rights and preferences,
class voting rights that would enable the holders of such preferred stock to block a business combination transaction.  Alternatively,
we could facilitate a business combination transaction by issuing a series of preferred stock having sufficient voting rights
to provide a required percentage vote of the shareholders.  Additionally, under certain circumstances, our issuance
of preferred stock could adversely affect the voting power of the holders of our common stock. Although our board of directors
is required to make any determination to issue any preferred stock based on its judgment as to the best interests of our shareholders,
our board of directors could act in a manner that would discourage an acquisition attempt or other transaction that some, or a
majority, of our shareholders might believe to be in their best interests or in which shareholders might receive a premium for
their stock over prevailing market prices of such stock. Our board of directors does not at present intend to seek stockholder
approval prior to any issuance of currently authorized stock, unless otherwise required by law or applicable stock exchange requirements.





15







Item 6



Selected
Consolidated Financial Data

The following
selected financial data should be read in conjunction with our consolidated financial statements including the accompanying notes
and with "Management's Discussion and Analysis of Financial Condition and Results of Operations".  The data
has been derived from our consolidated financial statements and accompanying notes included elsewhere in this report.  The
Statement of Operations data for the years ended December 31, 2008 and 2007 and the Balance Sheet data at December 31, 2009, 2008
and 2007 have been derived from our audited consolidated financial statements which are not contained in this filing.



|Statement
                                                                                          of Operations Data (in
                                                                                                            thousands, except
                                                                                                            share and per share
                                                                                                            amounts) |  | 2011 |            |   | 2010 |   |            | 2009 |  |   | 2008      |   |  | 2007 |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | - |  | ---- | ---------
|Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $    | 300,186    |   |      | $ | 265,594    |      |  | $ | 268,994   |   |  | $    | 42,986   
|Cost of products
    and services (exclusive of depreciation and amortization listed separately below)                                                                                                                                                                                                                                                                                                                                                                                                        |  | $    | 214,559    |   |      | $ | 186,294    |      |  | $ | 207,533   |   |  | $    | 28,426   
|Cost of products
    and services as % of revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      | 71.48      | % |      |   | 70.14      | %    |  |   | 77.21     | % |  |      | 66.13    
|Selling, general
    and administrative expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $    | 63,939     |   |      | $ | 57,173     |      |  | $ | 57,778    |   |  | $    | 10,500   
|Selling, general
    and administrative as % of revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 21.30      | % |      |   | 21.53      | %    |  |   | 21.55     | % |  |      | 24.43    
|Depreciation
    and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $    | 6,757      |   |      | $ | 8,298      |      |  | $ | 10,906    |   |  | $    | 3,025    
|Impairment of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $    | 246        |   |      | $ | 160        |      |  | $ | -         |   |  | $    | 132      
|Income (loss)
    from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $    | 14,685     |   |      | $ | 13,669     |      |  | $ | (7,223    | ) |  | $    | 903      
|Other expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $    | (4,030     | ) |      | $ | (4,091     | )    |  | $ | (3,748    | ) |  | $    | 1,826    
|Income (loss)
    before income taxes and noncontrolling interest in subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $    | 10,655     |   |      | $ | 9,578      |      |  | $ | (10,971   | ) |  | $    | 2,729    
|Provision for
    (benefit from) for income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $    | 3,611      |   |      | $ | (5,116     | )    |  | $ | 406       |   |  | $    | 1,132    
|Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $    | 7,044      |   |      | $ | 14,694     |      |  | $ | (11,377   | ) |  | $    | 1,597    
|Less: Net income
    (loss) attributable to the noncontrolling interest in subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $    | -          |   |      | $ | -          |      |  |   | (1,727    | ) |  |      | 652      
|Net income (loss)
    attributable to Multiband Corporation and subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $    | 7,044      |   |      | $ | 14,694     |      |  | $ | (9,650    | ) |  | $    | 945      
|Income (loss)
    attributable to common stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $    | 6,257      |   |      | $ | 13,206     |      |  | $ | (10,020   | ) |  | $    | (3,143   
|Income (loss)
    per common share attributable to common stockholders - basic                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $    | 0.37       |   |      | $ | 1.32       |      |  | $ | (1.04     | ) |  | $    | (.34     
|Income (loss)
    per common share attributable to common stockholders - diluted                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $    | 0.32       |   |      | $ | .91        |      |  | $ | (1.04     | ) |  | $    | (.34     
|Weighted average shares outstanding
    - basic                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |      | 16,975,753 |   |      |   | 10,016,717 |      |  |   | 9,665,316 |   |  |      | 9,302,570
|Weighted average shares outstanding
    - diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      | 20,626,529 |   |      |   | 15,617,353 |      |  |   | 9,665,316 |   |  |      | 9,302,570



|Balance
    Sheet Data                   |  | 2011 |         |  | 2010 |   |         | 2009 |  |   | 2008    |   |  | 2007 |       
|---------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------
|Working Capital (deficiency)             |  | $    | 7,463   |  |      | $ | (10,374 | )    |  | $ | (28,596 | ) |  | $    | 2,457 
|Total Assets                             |  | $    | 141,602 |  |      | $ | 111,700 |      |  | $ | 99,531  |   |  | $    | 26,043
|Mandatory Redeemable Preferred Stock (1) |  | $    | -       |  |      | $ | -       |      |  | $ | -       |   |  | $    | 150   
|Long-Term Debt, net (2)                  |  | $    | 29,229  |  |      | $ | 34,380  |      |  | $ | 34,709  |   |  | $    | 338   
|Capital Lease Obligations, net (2)       |  | $    | 274     |  |      | $ | 356     |      |  | $ | 491     |   |  | $    | 317   
|Stockholders’ Equity                     |  | $    | 42,952  |  |      | $ | 20,243  |      |  | $ | 5,103   |   |  | $    | 5,642 



(1) – mandatory redeemable
preferred stock is included in working capital (deficiency)

(2) – current portion of long-term
debt and capital lease obligations is included in working capital (deficiency)



Item 7



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

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



The recently
acquired Energy, Engineering & Construction (EE&C) business activity, with its emphasis on design and construction, is
materially different from the Company’s previous lines of business, leading to a change in our segment reporting. As part
of this change, the Company added the EE&C segment and realigned the FS segment to be all types of installation services.
As part of this realignment certain construction activities in the MDU segment were moved to the newly-created EE&C segment.
Amounts reported in prior years have been reclassified into this format.



16







Years Ended December 31, 2011
and December 31, 2010



Results of Operations (in thousands,
except for percentages)



The following table sets forth certain
items.



|                                                                                      |  | 2011 |        |   | 2010 | 
|------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | 
|Revenues:                                                                             |  |      |        |   |      | 
|FS                                                                                    |  |      | 90.60  | % |      | 
|MDU                                                                                   |  |      | 7.00   | % |      | 
|EE&C                                                                                  |  |      | 2.40   | % |      | 
|MBCorp                                                                                |  |      | -      | % |      | 
|Total Revenues                                                                        |  |      | 100.00 | % |      | 
|                                                                                      |  |      |        |   |      | 
|Cost of Products and Services (exclusive of depreciation
    and amortization):       |  |      |        |   |      | 
|FS                                                                                    |  |      | 65.05  | % |      | 
|MDU                                                                                   |  |      | 4.58   | % |      | 
|EE&C                                                                                  |  |      | 1.84   | % |      | 
|MBCorp                                                                                |  |      | -      | % |      | 
|Total Cost of Products
    and Services (exclusive of depreciation  and amortization) |  |      | 71.47  | % |      | 
|                                                                                      |  |      |        |   |      | 
|Selling, General and Administrative Expenses                                          |  |      | 21.30  | % |      | 
|Depreciation and Amortization                                                         |  |      | 2.25   | % |      | 
|Income from Operations                                                                |  |      | 4.89   | % |      | 
|Net Income                                                                            |  |      | 2.35   | % |      | 



Revenues

Total revenues
increased 13.0% from $265,594 in 2010 to $300,186 in 2011. FS segment revenues were $271,984 in 2011 and $242,592 in 2010, an
increase of 12.1%.  This increase was primarily due to an increase in DIRECTV work order volume of 4.8%, an increase
in earned incentive revenue of $9,994 and amounts received from DIRECTV under a fuel subsidy program implemented in the second
quarter of 2011 of $2,330. In 2012, the Company expects FS segment revenues to increase based on a consistent amount of revenue
from its DIRECTV installation business together with increased revenues resulting from the Company’s new installation contracts
with certain broadband cable and internet service providers. The MDU segment had revenues of $21,007 in 2011 and $21,663 in 2010,
a decrease of 3.0%.  This decrease was a result of a decrease in system operator revenues. The Company expects MDU revenues
to increase in 2012 due to the planned increase in the number of owned subscribers, increases fueled by the acquisition of new
rights of entry agreements or by acquiring subscribers from other operators. The EE&C segment revenues increased 437.3% from
$1,339 in 2010 to $7,195 in 2011. The Company’s acquisition of SE and MW in September 2011, accounted for $3,894 of this
increase with the remainder the result of increased MDU construction revenue from DIRECTV of $1,962. The Company expects revenues
in this segment to increase in 2012 as it will include a full year of operations from SE and MW.



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

Total costs
of products and services were $214,559 in 2011 compared to $186,294 in 2010, an increase of 15.2%. For the FS segment, costs of
products and services totaled $195,276 for the year ended December 31, 2011, compared to $171,625 for the year ended December
31, 2010, a 13.8% increase.  As a percentage of FS revenue, costs of products and services for the FS segment were 71.8%
and 70.7% for the years ended December 31, 2011 and 2010, respectively. During 2012, the Company expects FS segment costs of products
and services to remain relatively constant in relation to FS segment revenue. For the MDU segment, costs of products and services
were $13,753 for the year ended December 31, 2011, compared to $13,572 in the prior year, a 1.3% increase.  As a percentage
of MDU revenue, costs of products and services for the MDU segment were 65.5% and 62.7% for the years ended December 31, 2011
and 2010, respectively. In 2012, the Company expects MDU costs of products and services to remain relatively constant in relation
to MDU segment revenue. For the EE&C segment, cost of products and services were $5,530 for the year ended December 31, 2011,
compared to $1,097 in the prior year, a 404.1% increase.  As a percentage of revenue, costs of products and services
for the EE&C segment were 76.9% and 81.9% for the years ended December 31, 2011 and 2010, respectively. The Company’s
acquisition of SE and MW in September 2011, accounted for $2,940 of this increase with the remainder the result of increased MDU
construction costs from DIRECTV of $1,492. In 2012, the Company expects EE&C segment costs of products and services to remain
relatively consistent in relation to EE&C segment revenue.



Selling,
General and Administrative Expense

Selling, general
and administrative expenses increased 11.8% to $63,939 in 2011, from $57,173 in 2010.  Selling, general and administrative
expenses were, as a percentage of revenues, 21.3% and 21.5% for 2011 and 2010, respectively.   The Company anticipates
that during 2012, selling, general and administrative expenses will remain consistent as a percentage of total revenues.





17







Depreciation
and Amortization

Depreciation
and amortization expense decreased 18.6% to $6,757 for the year ended December 31, 2011, as compared to $8,298 for the year ended
December 31, 2010.  Effective May 1, 2011, the Company signed a new HSP contract with DIRECTV (see Note 16).  Due
to the new contract, the amortization period of the DIRECTV contract-related intangibles was extended an additional seven months
to April 30, 2016, bringing the amortization period to 88 months.  During 2012, depreciation and amortization expense
is expected to decrease due to the extension of the aforementioned amortization period.



Income from
Operations

In 2011, the
Company earned income from operations of $14,685, compared to $13,669 during 2010, an increase of 7.4%. For the year ended December
31, 2011, the FS segment had an income from operations of $23,230, compared to $20,707 for the year ended December 31, 2010, an
increase of 12.2%. The FS segment is expected to maintain its profitability in 2012. The MDU segment incurred a loss from operations
of $2,827 in 2011 compared to a loss from operations of $2,550 in 2010, an increase of 10.9%. The increased loss from 2010 to
2011 is the result of decreased system operator revenues which were partially offset by increases in owned subscriber and call
center revenues. The Company plans to reduce its loss in the MDU segment in future periods by adding subscribers in concentrated,
targeted geographic markets in order to service them more efficiently. The EE&C segment earned an income from operations of
$701 in 2011, which represents an increase of 189.7% over the income from operations of $242 in 2010. In 2012, the Company expects
income from operations in the EE&C segment to increase because the year will include a full year of operations from SE and
MW. The MBCorp segment, which has no revenues, showed a loss from operations of $6,419 in 2011, compared to a loss of $4,730 for
the same period last year, an increase of 35.7%.  In 2012, the MBCorp segment loss is expected to remain consistent as a
percentage of consolidated revenue.



Interest
Expense

Total interest
expense was $3,838 in 2011, compared to $4,202 in 2010, a decrease of 8.7%, primarily reflecting a decrease in the interest expense
associated with a note payable related to a legal settlement that was paid in full in December 2010.



Proceeds
from Life Insurance

Proceeds from
life insurance, due to the death of the Company’s former chairman of the board during the first quarter of 2011, was $409
for the year ended December 31, 2011.



Gain on
Bargain Purchase

For the year
ended December 31, 2011, the Company recorded a gain on bargain purchase of $166 related to its acquisition of Multiband Engineering
& Wireless, Southeast, Inc. (see Note 2).



Other-than-Temporary
Impairment Loss

For the year
ended December 31, 2011, the Company recorded an other-than-temporary impairment loss of $1,078 due to the decline in the fair
value of the shares it holds in WPCS International, Inc. (see Note 1).



Other Income

Other income
was $276 in 2011, compared to $103 in 2010, an increase of 168%.



Provision
for (Benefit from) Income Taxes

We have recorded
an income tax provision of $3,611 for the year ended December 31, 2011 compared to an income tax benefit of $5,116 for the year
ended December 31, 2010.  The Company regularly assesses the likelihood that our deferred tax assets will be recovered
from future taxable income.  The Company considers future taxable income and ongoing tax planning strategies then records
a valuation allowance to reduce the carrying value of the net deferred tax assets for amounts that are expected to be unable to
be realized. In 2011, the Company determined it was able to release a previously established valuation allowance against the deferred
tax asset related to non-cash compensation in the amount of $900.  In 2010, based on management’s assessment of
all available evidence, including previous years’ income, estimates of future profitability and the overall prospects of
our business, the Company determined that the Company would be able to realize a portion of our deferred tax assets in the future,
and as a result recorded a $5,116 income tax benefit for the year ended December 31, 2010 which included a $12,400 release of
the valuation allowance.  Based on existing contracts, the Company used a discounted projection of revenue and expenses,
over a five year period, which approximated the remaining life of our HSP contract with DIRECTV including the one year renewal
term, to determine the level of existing net operating loss carryforward we would be able to offset against taxable income during
that period.  The Company will continue to assess the potential realization of our deferred tax assets on an annual
basis, or on an interim basis if circumstances warrant.  If the Company’s actual results and updated projections
vary significantly from the projections used as a basis for this determination, the Company may need to increase or decrease the
valuation allowance against our gross deferred tax assets.  The Company would adjust its valuation allowance in the
period the determination was made. At December 31, 2011 and 2010, the valuation allowance was $13,981 and $14,401, respectively.



Net Income

The Company
earned a net income of $7,044 in 2011 and a net income of $14,694 in 2010, a decrease of 52.1%.



18







Total Assets



The following table sets forth certain
items.



|Total Assets     |  | 2011 |         |  | 2010 |  
|---------------- |  | ---- | ------- |  | ---- | -
|FS               |  | $    | 102,150 |  |      | $
|MDU              |  |      | 8,844   |  |      |  
|EE&C             |  |      | 3,165   |  |      |  
|MBCorp           |  |      | 27,443  |  |      |  
|Total
    Assets |  | $    | 141,602 |  |      | $



Years Ended December 31, 2010
and December 31, 2009



Results of Operations (in thousands,
except for percentages)



The following table sets forth certain
items.



|                                                                                      |  | 2010 |        |   | 2009 | 
|------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | 
|Revenues:                                                                             |  |      |        |   |      | 
|FS                                                                                    |  |      | 91.34  | % |      | 
|MDU                                                                                   |  |      | 8.16   | % |      | 
|EE&C                                                                                  |  |      | 0.50   | % |      | 
|MBCorp                                                                                |  |      | -      | % |      | 
|Total Revenues                                                                        |  |      | 100.00 | % |      | 
|                                                                                      |  |      |        |   |      | 
|Cost of Products and Services (exclusive of depreciation
    and amortization):       |  |      |        |   |      | 
|FS                                                                                    |  |      | 64.62  | % |      | 
|MDU                                                                                   |  |      | 5.11   | % |      | 
|EE&C                                                                                  |  |      | 0.41   | % |      | 
|MBCorp                                                                                |  |      | -      | % |      | 
|Total Cost of Products
    and Services (exclusive of depreciation  and amortization) |  |      | 70.14  | % |      | 
|                                                                                      |  |      |        |   |      | 
|Selling, General and Administrative Expenses                                          |  |      | 21.53  | % |      | 
|Depreciation and Amortization                                                         |  |      | 3.12   | % |      | 
|Income (Loss) from Operations                                                         |  |      | 5.15   | % |      | 
|Net Income (Loss)                                                                     |  |      | 5.53   | % |      | 



Revenues

Total revenues
decreased 1.3% from $268,994 in 2009 to $265,594 in 2010.  FS segment had revenues of $242,592 in 2010 and $244,482
in 2009, a decrease of 0.8%.  This decrease is due to a reduction in DIRECTV work order volume of approximately 8.9%
partially offset by an increase in earned incentive revenue of approximately $6,000.  The MDU segment had revenues of
$21,663 in 2010 and $23,555 in 2009, at a decrease of 8.0%.  This decrease is primarily due to reduced DTV upgrade subsidies
of approximately $1,950 and reduced DTV MDU subscriber activations as a result of more stringent DTV credit standards.  
The EE&C segment had revenues of $1,339 in 2010, and $957 in 2009. The increase of 39.8% represents construction of MDU head-end
systems for third parties.



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

Total costs
of products and services were $186,294 in 2010 compared to $207,533 in 2009, a decrease of 10.2%. In the FS segment, costs of
products and services was $171,625 for the year ended December 31, 2010, compared to $191,279 for the year ended December 31,
2009, a 10.3% decrease.  This decrease is the result of reduced costs due to the decrease in work order volume and improvements
in inventory controls.  For the MDU segment, costs of products and services for the year ended December 31, 2010 were
$13,572, compared to $15,555 in the prior year, a 12.7% decrease.  The decrease is a result of fewer upgrade subsidy
payments to dealers and fewer subscriber activations.  EE&C segment costs of products and services were $1,097 for
the year ended December 31, 2010 and were $699 for the year ended December 31, 2009.



Selling,
General and Administrative Expense

Selling, general
and administrative expenses decreased 1.0% to $57,173 in 2010, compared to $57,778 in 2009.  Selling, general and administrative
expenses were, as a percentage of revenues, 21.5% for both 2010 and 2009.  Selling, general and administrative expenses
as a percentage of revenue is comparable primarily due to decreased insurance and telephone expense of approximately $3,400 offsetting
increases in salaries and wages and legal expense.  In 2010, the Company renegotiated several contracts with telephone
providers as well as changed its mobile phone policies.  It also changed its workers’ compensation policy.  The
Company is self-insured for workers’ compensation claims up to $250 plus administrative expenses, for each occurrence involving
workers’ compensation claims since the beginning of 2010.



19







Depreciation
and Amortization

Depreciation
and amortization expense decreased 23.9% to $8,298 for the year ended December 31, 2010, as compared to $10,906 for the year ended
December 31, 2009.  Effective October 1, 2010, the Company signed a new HSP contract with DIRECTV (see Note 16).  Due
to the new contract, the amortization period of the DIRECTV contract-related intangibles was extended an additional 17 months
to September 30, 2015, bringing the amortization period to 81 months.



Income (Loss)
from Operations

The Company,
in 2010, earned an income from operations for its combined operating business segments of $13,669 compared to incurring a loss
from operations of $7,223 in 2009.  The FS segment for the year ended December 31, 2010 had an income from operations
of $20,707, compared to a loss from operations of $2,241 for the year ended December 31, 2009.  This improvement was
primarily due to increased incentive revenue, improved inventory control and reduced technician training expense.   The
MDU segment incurred a loss from operations of $2,550 in 2010 compared to a loss from operations of $1,452 in 2009 primarily due
to reduced DTV subsidies and reduced DTV MDU subscriber activations due to more stringent DIRECTV credit standards.    The
EE&C segment earned an income from operations of $242 for the year ended December 31, 2010 and $258 for the year ended December
31, 2009. The MBCorp segment, which has no revenues, showed a loss from operations of $4,730 in 2010 compared to a loss of $3,788
for the same period last year.



Interest
Expense

Interest expense
was $4,202 for 2010 versus $4,104 for 2009.  Imputed interest discount was $0 and $35 for the years ended December 31,
2010 and 2009, respectively.



Noncontrolling Interest

The noncontrolling
interest in subsidiaries on December 31, 2010 and 2009, was $0, respectively, after the Company purchased the remaining 20% of
the issued and outstanding shares of common stock of all of the DTHC operating subsidiaries (DirecTECH) and reclassified $5,996
of noncontrolling interest to Multiband’s controlling interest on December 17, 2009.  The net loss attributable
to the noncontrolling interest in subsidiaries for the years ended December 31, 2010 and 2009 was $0 and $1,727, respectively.



Provision
for (Benefit from) Income Taxes

We recorded
an income tax benefit of $5,116 for the year ended December 31, 2010 compared to an income tax provision of $406 for the year
ended December 31, 2009.  The Company regularly assesses the likelihood that our deferred tax assets will be recovered
from future taxable income.  The Company considers future taxable income and ongoing tax planning strategies then records
a valuation allowance to reduce the carrying value of the net deferred tax assets for amounts that are unable to be realized.  Based
on management’s assessment of all available evidence, including previous years’ income, estimates of future profitability
and the overall prospects of our business, the Company determined that the Company would be able to realize a portion of our deferred
tax assets in the future, and as a result recorded a $5,116 income tax benefit for the year ended December 31, 2010 which included
a $12,400 release of the valuation allowance.  Based on existing contracts, the Company used a discounted projection
of revenue and expenses, over a five year period, which approximated the remaining life of our HSP contract with DIRECTV including
the one year renewal term, to determine the level of existing net operating loss carryforward we will be able to offset against
taxable income in that period.  The Company will continue to assess the potential realization of our deferred tax assets
on an annual basis, or on an interim basis if circumstances warrant.  If the Company’s actual results and updated
projections vary significantly from the projections used as a basis for this determination, the Company may need to increase or
decrease the valuation allowance against our gross deferred tax assets.  The Company would adjust its valuation allowance
in the period the determination was made.



Net Income
(Loss)

The Company
earned net income of $14,694 in 2010, compared to a net loss of $11,377 in 2009.



Total Assets



The following table sets forth certain
items.



|Total Assets     |  | 2010 |         |  | 2009 |  
|---------------- |  | ---- | ------- |  | ---- | -
|FS               |  | $    | 82,244  |  |      | $
|MDU              |  |      | 11,118  |  |      |  
|EE&C             |  |      | -       |  |      |  
|MBCorp           |  |      | 18,338  |  |      |  
|Total
    Assets |  | $    | 111,700 |  |      | $





20







Unaudited Quarterly Results

The following
table sets forth certain unaudited quarterly operating information for each of the eight quarters in the two-year period ended
December 31, 2011.  This data includes, in the opinion of management, all normal recurring adjustments necessary for
the fair presentation of the information for the periods presented when read in conjunction with the Company's consolidated financial
statements and related notes thereto. Results for any previous fiscal quarter are not necessarily indicative of results for the
full year or for any future quarter (in thousands, except per share amounts).





|                                                                                                      |  | Dec.
    31, 2011 |        |   | Sept.
    30, 2011 |   |        | June
    30, 2011 |  |   | March
    31, 2011 |   |  | Dec.
    31, 2010 |        |   | Sept.
    30, 2010 |   |        | June
    30, 2010 |  |   | March
    31, 2010 |  
|----------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------------ | - | ------ | ----------------- |  | - | ------------------ | - |  | ----------------- | ------ | - | ------------------ | - | ------ | ----------------- |  | - | ------------------ | -
|Revenues:                                                                                             |  |                   |        |   |                    |   |        |                   |  |   |                    |   |  |                   |        |   |                    |   |        |                   |  |   |                    |  
|FS                                                                                                    |  | $                 | 68,849 |   |                    | $ | 78,659 |                   |  | $ | 65,543             |   |  | $                 | 58,933 |   |                    | $ | 63,991 |                   |  | $ | 64,200             |  
|MDU                                                                                                   |  | $                 | 5,202  |   |                    | $ | 5,742  |                   |  | $ | 5,315              |   |  | $                 | 4,748  |   |                    | $ | 5,736  |                   |  | $ | 5,488              |  
|EE&C                                                                                                  |  | $                 | 3,512  |   |                    | $ | 1,965  |                   |  | $ | 924                |   |  | $                 | 794    |   |                    | $ | 856    |                   |  | $ | 187                |  
|MBCorp                                                                                                |  | $                 | -      |   |                    | $ | -      |                   |  | $ | -                  |   |  | $                 | -      |   |                    | $ | -      |                   |  | $ | -                  |  
|Total revenues                                                                                        |  | $                 | 77,563 |   |                    | $ | 86,366 |                   |  | $ | 71,782             |   |  | $                 | 64,475 |   |                    | $ | 70,583 |                   |  | $ | 69,875             |  
|Cost of products and services (exclusive of depreciation
    and amortization shown separately below) |  | $                 | 54,358 |   |                    | $ | 60,332 |                   |  | $ | 52,110             |   |  | $                 | 47,759 |   |                    | $ | 49,102 |                   |  | $ | 49,425             |  
|Selling, general and administrative expense                                                           |  | $                 | 18,807 |   |                    | $ | 17,014 |                   |  | $ | 13,481             |   |  | $                 | 14,637 |   |                    | $ | 15,476 |                   |  | $ | 14,680             |  
|Depreciation and amortization                                                                         |  | $                 | 1,771  |   |                    | $ | 1,566  |                   |  | $ | 1,705              |   |  | $                 | 1,715  |   |                    | $ | 1,689  |                   |  | $ | 2,027              |  
|Impairment of assets                                                                                  |  | $                 | 246    |   |                    | $ | -      |                   |  | $ | -                  |   |  | $                 | -      |   |                    | $ | 160    |                   |  | $ | -                  |  
|Income from operations                                                                                |  | $                 | 2,381  |   |                    | $ | 7,454  |                   |  | $ | 4,486              |   |  | $                 | 364    |   |                    | $ | 4,156  |                   |  | $ | 3,743              |  
|Interest expense                                                                                      |  | $                 | (850   | ) |                    | $ | (1,038 | )                 |  | $ | (964               | ) |  | $                 | (986   | ) |                    | $ | (987   | )                 |  | $ | (1,026             | )
|Other income (expenses)                                                                               |  | $                 | (867   | ) |                    | $ | 132    |                   |  | $ | 62                 |   |  | $                 | 481    |   |                    | $ | 54     |                   |  | $ | 24                 |  
|Income (loss) before income taxes and noncontrolling
    interest In subsidiaries                     |  | $                 | 664    |   |                    | $ | 6,548  |                   |  | $ | 3,584              |   |  | $                 | (141   | ) |                    | $ | 3,223  |                   |  | $ | 2,741              |  
|Provision for (benefit from) income taxes                                                             |  | $                 | (758   | ) |                    | $ | 2,869  |                   |  | $ | 1,549              |   |  | $                 | (49    | ) |                    | $ | (8,872 | )                 |  | $ | 1,573              |  
|Net Income (loss) attributable to Multiband Corporation
    and Subsidiaries                          |  | $                 | 1,422  |   |                    | $ | 3,679  |                   |  | $ | 2,035              |   |  | $                 | (92    | ) |                    | $ | 12,095 |                   |  | $ | 1,168              |  
|Income (loss) attributable to common stockholders                                                     |  | $                 | 1,364  |   |                    | $ | 3,609  |                   |  | $ | 1,757              |   |  | $                 | (473   | ) |                    | $ | 11,747 |                   |  | $ | 760                |  
|Income (loss) per common share attributable to common
    stockholders – basic                        |  | $                 | 0.06   |   |                    | $ | 0.17   |                   |  | $ | 0.12               |   |  | $                 | (0.05  | ) |                    | $ | 1.14   |                   |  | $ | 0.08               |  
|Income (loss) per common share attributable to common
    stockholders – diluted                      |  | $                 | 0.06   |   |                    | $ | 0.16   |                   |  | $ | 0.10               |   |  | $                 | (0.05  | ) |                    | $ | 0.73   |                   |  | $ | 0.06               |  
|Weighted average shares outstanding – basic                                                           |  |                   | 21,600 |   |                    |   | 21,595 |                   |  |   | 14,210             |   |  |                   | 10,449 |   |                    |   | 10,275 |                   |  |   | 10,084             |  
|Weighted average shares outstanding – diluted                                                         |  |                   | 23,100 |   |                    |   | 23,047 |                   |  |   | 19,313             |   |  |                   | 10,449 |   |                    |   | 16,539 |                   |  |   | 15,227             |  





Liquidity and Capital Resources(in thousands, except shares and per share amounts)



Year Ended
December 31, 2011

During the
years ended December 31, 2011 and 2010, the Company recorded a net income of $7,044 and $14,694, respectively. Net cash provided
by operations in 2011 was $21,077 as compared to $11,745 in 2010.  Principal payments on current long-term debt, short-term
debt, short-term debt to a related party and capital lease obligations over the next 12 months are expected to total $5,717.



Cash and cash
equivalents totaled $18,169 at December 31, 2011 versus $1,204 at December 31, 2010.  Working capital at December 31,
2011 was $7,463 as compared to a deficit $10,374 at December 31, 2010. The Company’s cash balance and working capital position
has been bolstered by the cash flow provided by operations as well as the net proceeds received by the Company from the common
stock public offering on June 1, 2011 of $16,176.



Net cash used
by investing activities totaled $6,773 for the year ended December 31, 2011, compared to $1,341 for the year ended December 31,
2010, related to property and equipment acquisitions, the acquisition of subsidiaries and the purchase of available for sale securities.





21







Net cash from
financing activities totaled $2,661 for the year ended December 31, 2011, compared to net cash used by financing activities of
$11,440 for the year ended December 31, 2010. In June 2011, the Company completed a public offering of 12,880,000 shares of its
common stock, in which the Company sold 5,974,932 shares and DTHC sold 6,905,068 shares at a price of $3.00 per share. The Company
received net proceeds of approximately $16,176 after deducting offering expenses, underwriting discounts and commissions. The
Company did not receive any proceeds from the sale of shares by DTHC. The net proceeds received were used in part to redeem the
shares of Series E preferred stock of $1,950 and to repay $10,037 of short-term debt.



In 2012, the Company intends to
focus on maintaining profitability in its FS business segment.  With regards to its MDU business segment, the Company
believes it can aggressively grow owned subscriber revenues by acquiring new rights of entry agreements, increasing marketing
and customer penetrations of previously built out properties and by acquiring existing subscribers from other operators.  In
addition, the Company believes it can increase managed subscriber revenues by selling its support center services to its network
of system operators and by providing ancillary programs for voice and data services to that same network. In the EE&C segment,
the Company expects to see improvements in operating results as: (i) a concentrated focus on the selling process results in increased
bid activity which should result in increased revenues; (ii) governmental grants for alternate energy projects are extended to
promote growth in wind projects; and (iii) 3G to 4G tower conversions increase based on the demand for higher capacity mobile
infrastructure.



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



|1. | Maintain continued profitability in the Company’s
    FS segment.                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Evaluate factors such as anticipated usage and inventory turnover
    to maintain optimal inventory levels.                                                       
|3. | Obtain senior debt financing with extended terms to refinance the
    Company’s note payable to DirecTECH Holding Company, Inc., which matures on January 1, 2013.
|4. | Expand call center support with sales of call center services to
    both existing and future system operators.                                                   
|5. | Solicit additional equity investment in the Company by issuing
    either preferred or common stock for general corporate purposes.                               
|6. | Improve profitability in newly diversified business segments.                                                                                                     
|   |                                                                                                                                                                   

The Company,
as of December 31, 2011, needs to continue to improve its working capital ratio over the next few quarters to adequately manage
the size of its expanded operations.  Since the Company acquired significant assets in its purchase of 100% of the outstanding
stock of the former DTHC operating entities, Multiband believes it has the capacity to leverage certain of those assets.  Management
believes that through a combination of leveraging assets, its cash on hand, greater expense control, recent positive operating
income, and potential sales of common and/or preferred stock, it can meet its anticipated liquidity and capital resource requirements
for the next twelve months.



As of December
31, 2011, we had a backlog of unfilled orders of approximately $1,817 compared to approximately $0 million at December 31, 2010.
The Company’s acquisition of SE and MW in September 2011, accounted for all of this increase. We define backlog as the value
of work-in-hand to be provided for customers as of a specific date where the following conditions are met (with the exception
of engineering change orders): (i) the price of the work to be done is fixed; (ii) the scope of the work to be done is fixed,
both in definition and amount; and (iii) there is an executed written contract, purchase order, agreement or other documentary
evidence which represents a firm commitment by the customer to pay us for the work to be performed. These backlog amounts are
based on contract values and purchase orders and may not result in actual receipt of revenue in the originally anticipated period
or at all. We have experienced variances in the realization of our backlog because of project delays or cancellations resulting
from external market factors and economic factors beyond our control and we may experience such delays or cancellations in the
future. Backlog does not include new firm commitments which may be awarded to us by our customers from time to time in future
periods. These new project awards could be started and completed in this same future period. Accordingly, our backlog does not
necessarily represent the total revenue that could be earned by us in future periods.



Critical
Accounting Policies



Inventories

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



Impairment
of Long-Lived Assets

The Company's
long-lived assets include property, equipment, leasehold improvements, which are subject to depreciation and intangibles, which
are subject to amortization.  At December 31, 2011, the Company had net property and equipment of $6,304 which represents
approximately 4.5% of the Company's total assets.  At December 31, 2011, the Company had net intangibles of $14,597
which represented approximately 10.3% of the Company’s total assets (see Note 1).  The Company annually reviews
its long-lived assets for events or changes in circumstances that may indicate that the carrying amount of a long-lived asset
may not be recoverable or exceeds its fair value.  The carrying amount of a long-lived asset is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If
the carrying amount of a long-lived asset exceeds its fair value, an impairment loss is incurred. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. For the FS and EE&C segments, the income approach was used to measure fair value for those long-lived
assets.  The income approach was based on the present value of five years of discounted cash flows.  For the
MDU segment, the market approach was used which included considering market values from comparable transactions to measure fair
value of those long-lived assets.  Comparable transactions were identified based on their similarities to the reporting
unit with similar features including the age of equipment and length of ROE contracts. In 2010, the Company recorded impairment
charges of $135, in the MDU segment related to two partially completed projects.  The owners of the MDU properties are
in financial distress and the build-outs may never be completed. The Company estimated that the full value of the work in
process as of December 31, 2010 may not be recognized and so an impairment charge was recorded against the value of the work in
process. In 2010, the Company did not record any impairment to long-lived assets related to the FS segment. The EE&C segment
did not exist in 2010.  There was no impairment recorded for any of the segments at December 31, 2009.





22







Impairment
of Goodwill

In accordance
with Accounting Standards Code (ASC) Topic No. 350, Intangibles-Goodwill and Other, goodwill and intangible assets without
a defined life shall not be amortized over a defined period, but instead must be tested for impairment at least annually.  Additionally,
goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than
not reduce the fair value of an entity below its carrying value.  The goodwill impairment test is a two-step impairment
test.  In the first step, the Company compares the fair value of each reporting unit to its carrying value. The Company’s
estimates may differ from actual results due to, among other things, economic conditions, changes to its business models, or changes
in operating performance.  Significant differences between these estimates and actual results could result in future
impairment charges and could materially affect the Company’s future financial results.  If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and the
Company is not required to perform further testing.  If the carrying value of the net assets assigned to the reporting
unit exceeds the fair value of the reporting unit, then the Company must perform the second step in order to determine the implied
fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill.  The
activities in the second step include valuing the tangible and intangible assets and liabilities of the impaired reporting unit
based on their fair value and determining the fair value of the impaired reporting unit’s goodwill based upon the residual
of the summed identified tangible and intangible assets and liabilities.  Future events could cause us to conclude that
impairment indicators exist and that goodwill associated with our acquired businesses, which amounts to $37,796 as of December
31, 2011, may be impaired.  Any resulting impairment loss could have a material adverse impact on our financial condition
and results of operations.  During the year ended December 31, 2011, the Company recorded an impairment charge of $246
on the goodwill related to the subsidiary, Security, because in November 2011, the contract to install home security systems was
terminated with a third party. During the year ended December 31, 2010, the Company recorded an impairment charge of $25 on the
goodwill related to the US Install purchase.  During the year ended December 31, 2009, the Company did not record any
impairment related to goodwill.



Group Health
and Workers’ Compensation Insurance Coverage

The Company
uses a combination of self-insurance and third-party carrier insurance with predetermined deductibles that cover certain insurable
risks. The Company records liabilities for claims reported and claims that have been incurred but not reported, based on historical
experience and industry data.



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



During 2011,
the Company was self-insured in most states for workers’ compensation claims up to $100 plus administrative expenses, for
each occurrence. During 2010, the Company was self-insured for workers’ compensation claims up to $250 plus administrative
expenses, for each occurrence.  During 2009, in certain states, the Company was self-insured for workers’ compensation
liability claims up to $100, plus administrative expenses, for each occurrence since February 1, 2009.



The Company
is self-insured for health insurance covering the range of liability up to $275 per claim.  If any liability claims
are substantially in excess of coverage amounts, such claims are covered under premium-based policies issued by insurance companies
to coverage levels that management considers adequate.



Stock-Based
Compensation

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





23







Income Taxes

The Company
accounts for deferred tax assets and liabilities under the liability method.  Deferred tax liabilities are recognized
for temporary differences that will result in taxable amounts in future years.  Deferred tax assets are recognized for
deductible temporary differences and tax operating loss and tax credit carryforwards.  Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or
liability is expected to be realized or settled.  The Company regularly assesses the likelihood that the deferred tax
assets will be recovered from future taxable income.  The Company considers projected future taxable income and ongoing
tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes for these amounts
that are more likely than not, unable to be realized. In 2011, the Company determined it was able to release a previously established
valuation allowance against the deferred tax asset related to non-cash compensation in the amount of $900. During 2010, based
on the Company’s assessment of all available evidence, including previous years’ income, estimates of future profitability,
and the overall prospects of future business, the Company determined that they would will be able to realize a portion of the
deferred tax assets in the future, and as a result recorded $5,116 of income tax benefit for the year ended December 31, 2010,
which included a $12,400 release of the valuation allowance.  Based on existing contracts, the Company used a discounted
projection of its revenue and expenses over a five year period which approximated the remaining life of our HSP contract with
DIRECTV including the one year renewal term, to determine the level of existing net operating loss carryforwards it would be able
to offset against taxable income in those periods. The Company also analyzed its other deferred tax assets and liabilities outstanding
at December 31, 2010.  A portion of the valuation allowance was removed for the amount projected to reverse. As of December
31, 2009, the Company believed it was more likely than not that it would be unable to fully utilize the deferred tax assets. Accordingly,
a full valuation allowance against its deferred tax assets was recorded as of that date. At December 31, 2011 and 2010, the valuation
allowance was $13,981 and $14,401, respectively.



Disclosures about Contractual
Obligations and Commercial Commitments (in thousands)

The following
summarizes our contractual obligations at December 31, 2011, and the effect these contractual obligations including interest payments
are expected to have on our liquidity and cash flows in future periods:



|                             |  | Total |        |  | 1
                                                                  Year
        or Less |   |        | 2-3 Years |  |   | 4-5 Years |  |  | Over
        5 Years |      
|---------------------------- |  | ----- | ------ |  | ---------------------------------------------------------------------------------------- | - | ------ | --------- |  | - | --------- |  |  | -------------------- | -----
|Operating leases - buildings |  | $     | 5,192  |  |                                                                                          | $ | 2,007  |           |  | $ | 2,178     |  |  | $                    | 977  
|Long-term debt               |  |       | 38,567 |  |                                                                                          |   | 9,326  |           |  |   | 29,214    |  |  |                      | 27   
|Capital leases               |  |       | 644    |  |                                                                                          |   | 355    |           |  |   | 281       |  |  |                      | 8    
|Totals                       |  | $     | 44,403 |  |                                                                                          | $ | 11,688 |           |  | $ | 31,673    |  |  | $                    | 1,012



Forward Looking Statements

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



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



Item 7A



Quantitative and Qualitative
Disclosure About Market Risk



Impact of Inflation and Changing
Prices

Certain components of our business
can be negatively impacted by inflation such as self-insured health and workers’ compensation claim costs, fuel expenses
and professional services.  Increase price levels generally due to inflationary pressures could have an adverse impact on
our results of operations and financial position.



The Company
is not subject to any material interest rate risk as the current lending agreements are all at fixed rates of interest.



Item 8



Consolidated Financial Statements
and Supplementary Data

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



24







Item 9



Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure

On January 17, 2012, the Audit Committee
of the Board of Directors of the Company approved on behalf of the Company, the dismissal of their independent registered public
accounting firm, Baker Tilly Virchow Krause, LLP, and the engagement of Ernst & Young, LLP, to serve as their new independent
registered public accounting firm for 2012. The Board of Directors of the Company ratified the dismissal of Baker Tilly Virchow
Krause, LLP, and the engagement of Ernst & Young, LLP, by the Audit Committee on January 17, 2012. The dismissal of Baker
Tilly Virchow Krause, LLP, will become effective upon completion of the audit of our consolidated financial statements for the
year ended December 31, 2011 and the filing of our Annual Report on Form 10K for fiscal 2011. The engagement of Ernst & Young,
LLP as Multiband’s new independent registered public accounting firm will become effective for the 2012 fiscal year. This
change in auditors was made after a competitive bidding process and evaluation.



Baker Tilly Virchow Krause, LLP’s
reports on the Company’s consolidated financial statements for each of the years ended December 31, 2011 and December 31,
2010 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit
scope or accounting principles.



During the years ended December 31,
2011 and December 31, 2010 and the interim period between December 31, 2011 and the date of this Form 10-K, there were
no disagreements between Multiband and Baker Tilly Virchow Krause, LLP, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to Baker Tilly Virchow Krause, LLP’s satisfaction,
would have caused Baker Tilly Virchow Krause, LLP, to make reference to the subject matter of the disagreement in connection with
its report for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.



Multiband has provided Baker Tilly
Virchow Krause, LLP with a copy of the foregoing disclosures. A copy of Baker Tilly Virchow Krause, LLP’s letter, dated
January 19, 2012, stating its agreement with the above statements which is incorporated by reference to Exhibit 16.1 to the Company’s
Registration Statement on 8-K, filed January 17, 2012.



During the years ended December 31,
2011 and December 31, 2010 and through the date of this Form 10-K, neither Multiband nor anyone acting on their behalf consulted
Ernst & Young, LLP with respect to the application of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on Multiband’s consolidated financial statements, or any other
matters or reportable events listed in Items 304(a)(1)(iv) and (v) of Regulation S-K.



Item 9A



Controls
and Procedures

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



Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2011, our disclosure controls
and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.



Management’s
Annual Report on Internal Control Over Financial Reporting

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





25







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



As required
by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2011.  Management’s
assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control — Integrated Framework (“COSO”).  Based upon this evaluation, management concluded that the
Company’s internal control was effective as of December 31, 2011.



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



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



Item 9B



Other Information

None.



26







PART III



Item 10



Directors, Executive Officers,
and Corporate Governance

Listed below
is certain information concerning the Company’s board of directors and executive officers as of December 31, 2011.  Each
director is elected for a term of one year.  Yearly elections are held at the annual meeting.



|Name            |  | Age |  | Position                                              |  | Director
        Since
|--------------- |  | --- |  | ----------------------------------------------------- |  | ----------------------
|James L. Mandel |  | 55  |  | Chief Executive Officer and Director                  |  | 1998                  
|Steven M. Bell  |  | 52  |  | General Counsel, Chief Financial Officer and Director |  | 1994                  
|Frank Bennett   |  | 55  |  | Director                                              |  | 2002                  
|Jonathan Dodge  |  | 64  |  | Director                                              |  | 1997                  
|Eugene Harris   |  | 47  |  | Director                                              |  | 2004                  
|Donald Miller   |  | 71  |  | Chairman of the Board of Directors                    |  | 2001                  
|Peter K. Pitsch |  | 59  |  | Director                                              |  | 2011                  



James Mandelhas been the Chief Executive Officer and a Director of Multiband since October 1, 1998. From October 1991 to October 1996,
he was Vice President of Systems for Grand Casinos, Inc., a gaming company. Mr. Mandel serves on the Board of Directors of New
Market Technology, Inc., a global small business incubator, GeoSpan Corporation, a geospatial imaging company and Independent
Multi-Family Communications Council, a national trade group for the private cable industry. Among other attributes, skills and
qualifications, the Board believes that Mr. Mandel is qualified to serve as a Director based on his long service to Multiband
both as its Chief Executive Officer and as a Director, and his resulting deep familiarity with Multiband’s operations and
its industry. In addition, his prior executive management experience in the casino industry and his current experiences as a private
company director of companies in industries different than Multiband’s industry provide the Board with a broad range of
knowledge regarding management and operational strategies.



Steven M.
Bell was General Counsel of Multiband from June 1985 through October 1994, at which time he also became Chief Financial Officer.
He is a graduate of the University of Minnesota and William Mitchell College of Law. Among other attributes, skills and qualifications,
the Board believes that Mr. Bell is qualified to serve as a Director based on his extensive service to Multiband as its General
Counsel, Chief Financial Officer and as a Director, and his unique experience and knowledge of Multiband’s history, operations,
and industry. Mr. Bell also brings significant financial and legal expertise to the Board.



Frank Bennetthas been a Director of Multiband since 2002 and is the Chairman of Multiband’s Audit and Nominating Committees. Mr.
Bennett is President of Artesian Management, Inc., a private equity investment firm. Prior to founding Artesian Management in
1989, he was a Vice President of Mayfield Corporation, a venture capital firm, and a Vice President of Corporate Finance of Piper
Jaffray & Co. and a Vice President of Piper Jaffray Ventures, Inc. Among other attributes, skills and qualifications, the
Board believes that Mr. Bennett is qualified to serve as a Director and as Chairman of Multiband’s Audit Committee based
on his financial expertise and knowledge of investment banking, finance and raising capital. In particular, he has assisted management
with structuring debt and equity offerings. The Board also believes that Mr. Bennett is qualified to serve on the Nominating Committee
based on the diverse experience he has gained at companies throughout his career and through his service on Multiband’s
Board.



Jonathan
Dodge has been a Director of Multiband since 1997 and is a member of the Compensation Committee. He is a senior partner at
Brunberg, Blatt and Company, an accounting firm. Previously, he was a partner with McGladrey and Pullen, an accounting firm, and
Dodge & Fox C.P.A. Mr. Dodge is a member of the American Institute of Certified Public Accountants and the Minnesota Society
of Certified Public Accountants for which he has served on the ethics and the tax conference committees. He serves on four other
boards in the Minneapolis-Saint Paul area. Among other attributes, skills and qualifications, the Board believes that Mr. Dodge
is qualified to serve as a Director based on his financial expertise as a certified public accountant, including his thorough
understanding of financial statements, corporate accounting and finance, financial reporting and internal controls. The Board
also believes that Mr. Dodge is qualified to serve on the Compensation Committee based on his lengthy business experience and
service on Multiband’s Board and on other, private company boards.



Eugene Harrishas been a Director of Multiband since April 2004 and is Chairman of the Compensation Committee and a member of the Audit
and Nominating Committees. He is the Managing Member of Step Change Advisors, LLC, a portfolio management and financial consulting
company.  Prior to forming Step Change Advisors, LLC, Mr. Harris was Chief Operating Officer of Fulcrum Securities and President
of Fulcrum Advisory Services. Mr. Harris joined Fulcrum in 2007 after spending four years at Flagstone Securities. Mr. Harris
joined Flagstone after 10 years as the majority shareholder of Eidelman, Finger, Harris & Co., a registered investment advisor.
Prior to joining Eidelman, Finger, Harris & Co., Mr. Harris held positions in general management and new business development
for the Monsanto Company, an agricultural products company, from 1990 to 1994. He also was an Associate Consultant with Bain and
Co. from 1986 to 1988. He is a Chartered Financial Analyst and is a member of the Financial Analysts Federation. In addition to
Multiband, Mr. Harris serves on the Board of Directors of the Business Bank of St. Louis and eTab. Among other attributes, skills
and qualifications, the Board believes that Mr. Harris is qualified to serve as a Director and as a member of the Audit Committee
and to chair the Compensation Committee based on his financial expertise. The Board also believes that Mr. Harris is qualified
to serve on the Nominating Committee based on the significant management and operational experience gained throughout his career
across a range of industries, and through his service on Multiband’s Board and on other, private company boards.





27







Donald Millerhas been a Director of Multiband since September 2001 and is Chairman of the Board of Directors and a member of the Audit
and Compensation Committees. Mr. Miller worked for Schwan’s Enterprises from 1962 to 2007, primarily as Chief Financial
Officer. He serves on the Board of Directors of Schwan’s Enterprises and is the Chairman of the Finance Committee and a
member of the Audit and Risk Committees. Mr. Miller also serves on the Board of Directors of FoodShacks, Inc., a restaurant chain
company and Webdigs, Inc., a real estate company, and is on the Audit Committee of Webdigs, Inc. Among other attributes, skills
and qualifications, the Board believes that Mr. Miller is qualified to serve as Chairman of the Board based on his extensive business
experience, financial literacy and tenure with Multiband. The Board also believes that Mr. Miller is qualified to serve on the
Audit Committee due to his financial expertise, having served as the Chief Financial Officer of another company for several decades
and his service on other audit committees, and that Mr. Miller is qualified to serve on the Compensation Committee due to his
experience serving as a public and private company director.



Peter K.
Pitsch is the Executive Director of Communications Policy and Associate General Counsel for Intel Corporation. He is responsible
for coordination of Intel’s global telecommunications policies. Prior to joining Intel, Pitsch was the president of Pitsch
Communications from 1989 to 1998 which represented telecommunications clients before the FCC and Congress. Pitsch was the Chief
of Staff to the Chairman of the Federal Communications Commission from 1987 to 1989 and Chief of FCC’s Office of Plans and
Policy from 1981 to 1987. He was a senior attorney at Montgomery Ward, Inc. from 1979 to 1981. Prior to that, he worked for three
years as an attorney at the Federal Trade Commission including as attorney-advisor to FTC Commissioner Calvin Collier. Mr. Pitsch
received a B.A. in Economics from the University of Chicago in 1973 and his J.D. from Georgetown University Law Center in 1976.
He is a member of the District of Columbia Bar, the Virginia State Bar, and the Federal Communications Bar Association. We have
agreed to elect Peter Pitsch, a designee of DirecTECH Holding Co, Inc. (DTHC), as a member of our board of directors and such
designee shall remain until both: i) a promissory note owed to DTHC is repaid in full; and (ii) DTHC’s beneficial ownership
is reduced to less than 10%, which occurred effective June 1, 2011.



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



Senior Management



Henry Blockhas been the Vice President of Marketing since January 2008. He served as President of Michigan Microtech, Inc., a former
subsidiary of DirecTECH Holding Company, Inc. from 1980 to 2005. Mr. Block continues to serve on the Board of Directors of DirecTECH
Holding Company, Inc.



Dave Ekmanis the Chief Information Officer of Multiband. He founded a computer company in 1981 that subsequently merged with Vicom,
Incorporated, Multiband’s predecessor, in November 1999. Mr. Ekman has 30 years of experience in voice & data technologies
including starting a commercial ISP company in 1994. He serves on the Board of Trustees of the North Dakota State University Development
Foundation.



Kent Whitneyis the Chief Operating Officer of Multiband. He joined Multiband in 2004 as Vice President of Operations. In 1994, Mr. Whitney
became a DIRECTV retail television receive-only dealer. In 1996, he joined Pace Electronics, an electronics contract manufacturing
company, and was General Manager and later Vice President. In 1998, Mr. Whitney co-founded Minnesota Digital Universe (MNMDU),
a current Multiband subsidiary. Mr. Whitney has served on the Board of Directors of the Satellite Broadcasting & Communications
Association and the Independent Multi-Family Communications Council.



Tom Beaudreau is the President
of the MDU Division for Multiband.  Mr. Beaudreau joined Multiband in 2008 as the Chief Analytical Officer.  Prior to
joining Multiband, he was the Chief Executive Officer of DirecTECH Holding Company, Inc.  Mr. Beaudreau has over 25 years
of experience in the cable and satellite industry and has served on the Board of Directors for DirecTECH Holding Company, Inc.
and the Satellite Broadcasting and Communications Association.



Board of
Directors and its Committees

The Board of
Directors met four times in 2011.  As permitted by Minnesota Law, the Board of Directors also acted from time to time
during 2011 by unanimous written consent in lieu of conducting formal meetings.  Last year, there were five such actions
and accompanying board resolutions passed.  The Board has designated an audit committee consisting of Eugene Harris,
Donald Miller and Frank Bennett.  The Board also designated a Compensation committee consisting of Jonathan Dodge, Eugene
Harris, and Donald Miller.  Frank Bennett, Eugene Harris and Peter Pitsch were also designated to the nominating committee.
Frank Bennett is the chairman of the audit and nominating committees. Eugene Harris is the chairman of the compensation committee.



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





28







Diversity

The Company
has no formal board diversity policy at present.  The Company’s nominating committee, in assessing candidates
for potential board membership, does examine whether those candidates have particular skill sets or elements in their background
that would raise the board’s overall level of expertise and enhance the furtherment of the Company’s business plans
and objectives. There has been no change to the nomination procedures during 2011.



Shareholder
Communication with the Board

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



Directors’
attendance at Annual Meetings can provide shareholders with an opportunity to communicate with Directors about issues affecting
the Company.  The Company does not have a policy regarding director attendance, but all Directors are encouraged to
attend the Annual Meeting of Shareholders.  Seven of our directors attended our Annual Meeting in 2011.



Audit Committee

Our audit committee:



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



Our audit committee
has a formal charter which is available and can be reviewed on the Company’s website.



Our Audit Committee
met three times during 2011.  As previously reported, the Company determined that Mr. Dodge no longer met the “independence”
requirements under NASDAQ Rule 5605(c)(2) for serving as an audit committee member of the Company. After the internal review and
effective April 25, 2011, Jon Dodge resigned from the Company’s audit committee and effective the same date, the Company’s
independent board members appointed Eugene Harris, Multiband director, as an audit committee member.  The Audit Committee
is comprised entirely of individuals who meet the independence and financial literacy requirements of NASDAQ listing standards.  Our
Board has determined that all three members, Eugene Harris, Donald Miller, and Frank Bennett qualify as an "audit committee
financial expert" and each is independent from management as defined by Item 401(h)(2) of Regulation S-K under the Securities
Act of 1933, as amended.  The Company acknowledges that the designation of the members of the audit committee as financial
experts does not impose on them any duties, obligations or liability that are greater than the duties, obligations and liability
imposed on them as a member of the audit committee and the Board of Directors in the absence of such designation.



Report of the Audit Committee

March 21, 2012

To the Board of Directors of
Multiband Corporation:



In accordance
with its written charter adopted by the Board of Directors, the Audit Committee assists the Board in fulfilling its responsibility
for oversight of the quality and integrity of the accounting, auditing, and financial reporting practices of the Company.  During
the year ended December 31, 2011, the committee met three times, and Frank Bennett, as the Audit Committee chair and representative
of the Audit Committee, discussed the interim financial information contained in quarterly and annual filings on Forms 10Q and
10K, respectively, with the Company’s Chief Financial Officer and the Company’s independent registered public accounting
firm prior to public release.



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



29







The audit committee
discussed and reviewed with the Company’s independent registered public accounting firm all communications required by Standards
of the Public Company Accounting Oversight Board and, both with and without management present, discussed and reviewed the results
of the independent registered public accounting firms’ examination of the Company’s consolidated financial statements.  The
audit committee reviewed the audited consolidated financial statements of the Company as of and for the fiscal year ended December
31, 2011 with management and the independent registered public accounting firm.  Management has the responsibility for
the preparation of the Company’s consolidated financial statements and the Company’s independent registered public
accounting firm has the responsibility for the examination of those statements.



Based
on the review referred to above and discussions with management and the independent registered public accounting firm, the Audit
Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included
in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 for filing with the Securities and Exchange Commission.  The
Audit Committee also recommended a new independent registered public accounting firm, subject to shareholder approval,
and the Board of Directors concurred in such recommendation.



| |  | THE AUDIT COMMITTEE
| |  | -------------------
| |  |                    
| |  |                    
| |  |                    
| |  |                    



Nominating
Committee

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



Director
Nomination Procedures

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



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



Charter of
the Nominating Committee:  A copy of the charter of the Nominating Committee is available on our website at www.multibandusa.com.



Code of
Ethics for Senior Financial Management

Our Code of
Ethics for Senior Financial Management applies to all of our executive officers, including our Chief Executive Officer and
our Chief Financial Officer, and meets the requirements of the Securities and Exchange Commission. We have posted our Code of
Ethics for Senior Financial Management on our website at www.multibandusa.com .  We intend to disclose any amendments
to and any waivers from a provision of our Code of Ethics for Senior Financial Management on our website within four business
days following the amendment or waiver or disclosed in an 8-K filing.



30







Compensation Discussion and Analysis

Our compensation committee:



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



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



At the beginning
of each year, certain performance objectives are set by the compensation committee for management.  2011 corporate objectives
included goals based on subscriber sales and certain financial metrics.  By year end, the compensation committee reviews
the performance of the Company against the corporate objectives and reviews the performance of each executive officer against
their individual objectives.  Based upon results achieved, the executive officers may receive part or all of a targeted
bonus award.



Our compensation
committee met three times during 2011.  The compensation committee is comprised entirely of non-employee Directors who
meet the independence requirements of the NASDAQ listing standards.  The compensation committee is comprised of Jonathan
Dodge, Eugene Harris, and Donald Miller.



|Item
                            11

        Executive and Director
        Compensation
|----------------------------------------------------------------------------------------



Summary Compensation Tables(in
thousands)

The following
table sets forth certain information relating to the remuneration paid by the Company to its executive officers whose aggregate
cash and cash-equivalent remuneration approximated or exceeded $100 during the Company’s fiscal years ended December 31,
2011, 2010 and 2009.



|Name and principal
        position |  | Year |  | Salary |     |  | Bonus |   |     | Stock
        awards |  |   | (1)
        Option
        awards |  |  | Non-equity
        incentive plan
        compensation |     |  | Change in
        pension value
        and nonqualified
        deferred
        compensation
        earnings |   |   | All other
        Compensation |  |   | Total | 
|----------------------------------- |  | ---- |  | ------ | --- |  | ----- | - | --- | -------------------- |  | - | --------------------------------- |  |  | ------------------------------------------------------ | --- |  | --------------------------------------------------------------------------------------------------------------- | - | - | ------------------------------ |  | - | ----- | 
|                                    |  | 2011 |  | $      | 514 |  |       | $ | 268 |                      |  | $ | 175                               |  |  | $                                                      | 344 |  |                                                                                                                 | $ | - |                                |  | $ | -     | 
|James Mandel                        |  | 2010 |  |        | 450 |  |       |   | 155 |                      |  |   | 397                               |  |  |                                                        | 207 |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Chief Executive Officer             |  | 2009 |  |        | 395 |  |       |   | 230 |                      |  |   | -                                 |  |  |                                                        | 125 |  |                                                                                                                 |   | - |                                |  |   | -     | 
|                                    |  |      |  |        |     |  |       |   |     |                      |  |   |                                   |  |  |                                                        |     |  |                                                                                                                 |   |   |                                |  |   |       | 
|                                    |  | 2011 |  |        | 315 |  |       |   | 150 |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Steven Bell                         |  | 2010 |  |        | 315 |  |       |   | 150 |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Chief Financial Officer             |  | 2009 |  |        | 311 |  |       |   | 100 |                      |  |   | -                                 |  |  |                                                        | 68  |  |                                                                                                                 |   | - |                                |  |   | -     | 
|                                    |  |      |  |        |     |  |       |   |     |                      |  |   |                                   |  |  |                                                        |     |  |                                                                                                                 |   |   |                                |  |   |       | 
|Henry Block                         |  | 2011 |  |        | 334 |  |       |   | -   |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Vice President of                   |  | 2010 |  |        | 341 |  |       |   | -   |                      |  |   | -                                 |  |  |                                                        | 34  |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Marketing                           |  | 2009 |  |        | 338 |  |       |   | -   |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|                                    |  |      |  |        |     |  |       |   |     |                      |  |   |                                   |  |  |                                                        |     |  |                                                                                                                 |   |   |                                |  |   |       | 
|                                    |  | 2011 |  |        | 185 |  |       |   | 13  |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Dave Ekman                          |  | 2010 |  |        | 185 |  |       |   | 30  |                      |  |   | -                                 |  |  |                                                        | 67  |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Chief Information Officer           |  | 2009 |  |        | 158 |  |       |   | 13  |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|                                    |  |      |  |        |     |  |       |   |     |                      |  |   |                                   |  |  |                                                        |     |  |                                                                                                                 |   |   |                                |  |   |       | 
|                                    |  | 2011 |  |        | 192 |  |       |   | 45  |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Kent Whitney                        |  | 2010 |  |        | 158 |  |       |   | 27  |                      |  |   | -                                 |  |  |                                                        | 135 |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Chief Operating Officer             |  | 2009 |  |        | 136 |  |       |   | 25  |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|                                    |  |      |  |        |     |  |       |   |     |                      |  |   |                                   |  |  |                                                        |     |  |                                                                                                                 |   |   |                                |  |   |       | 
|                                    |  | 2011 |  |        | 256 |  |       |   | 30  |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 
|Tom Beaudreau                       |  | 2010 |  |        | 256 |  |       |   | 25  |                      |  |   | -                                 |  |  |                                                        | 197 |  |                                                                                                                 |   | - |                                |  |   | -     | 
|President MDU Division              |  | 2009 |  |        | 258 |  |       |   | 25  |                      |  |   | -                                 |  |  |                                                        | -   |  |                                                                                                                 |   | - |                                |  |   | -     | 



| | (1) | The amounts in this column are calculated based on the fair value of the
    option awards granted during 2011, 2010 and 2009.
| | --- | ------------------------------------------------------------------------------------------------------------------------------



31







DIRECTOR COMPENSATION (in
thousands)

Outside Directors
were each paid an annual cash fee in lieu of restricted stock of $31, an annual retainer varying from $30 to $50, annual chair
meeting fees of $8, $5 and $5 for audit, compensation and nominating meeting chairs, respectively and non-chair per meeting fees
of $1 per meeting, for all committees in 2011, or their prorated earned portion herewith.  Awards or options to Directors
are determined by the Board's Compensation Committee.  Each Director is entitled to reimbursement for his reasonable
out of pocket expenses incurred in relation to travel to and from board meetings.



|Name          |  | Fees earned
        or paid in
        cash |    |  | Stock awards |   |    | (1)
        Option
        awards |  |   | Non-equity
        incentive plan
        compensation |  |  | Change in
        pension value
        and nonqualified
        deferred
        compensation
        earnings |   |  | (2)
        All other
        compensation |   |   | Total | 
|------------- |  | ------------------------------------------- | -- |  | ------------ | - | -- | --------------------------------- |  | - | ------------------------------------------------------ |  |  | --------------------------------------------------------------------------------------------------------------- | - |  | ------------------------------------------ | - | - | ----- | 
|F  Bennett    |  | $                                           | 50 |  |              | $ | 31 |                                   |  | $ | 31                                                     |  |  | $                                                                                                               | - |  |                                            | $ | - |       | 
|J   Dodge     |  |                                             | 41 |  |              |   | 31 |                                   |  |   | 31                                                     |  |  |                                                                                                                 | - |  |                                            |   | - |       | 
|E  Harris     |  |                                             | 48 |  |              |   | 31 |                                   |  |   | 31                                                     |  |  |                                                                                                                 | - |  |                                            |   | - |       | 
|D  Miller     |  |                                             | 61 |  |              |   | 31 |                                   |  |   | 31                                                     |  |  |                                                                                                                 | - |  |                                            |   | - |       | 
|P  Pitsch (3) |  |                                             | 4  |  |              |   | -  |                                   |  |   | -                                                      |  |  |                                                                                                                 | - |  |                                            |   | - |       | 



| | (1) | The amounts in this column are calculated based on fair value and equal
    the financial statement compensation expense as reported in our 2011 consolidated statement of operations for the fiscal year.  Total
    board of directors options outstanding at December 31, 2011 are 356,620.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Represents payment of expenses incurred in conjunction with attending board meetings.                                                                                                                                                                                                         
| | (3) | Peter Pitsch became a director on August 17, 2011 therefore was only paid a prorated portion
    of the fees.                                                                                                                                                                                 



Director Independence

The Board has
determined that a majority of its members are “independent” as defined by the listing standards of the NASDAQ Stock
Market.  The independent Directors are Messrs. Frank Bennett, Jonathan Dodge, Eugene Harris, Donald Miller and Peter
Pitsch.  Both Messrs. Bennett and Harris have extensive backgrounds in investment banking, finance and raising capital.   They
have been valuable to the Company in consulting with management as to how to structure various debt and equity offerings.  Mr.
Miller was CFO for a large private company and provides input to the Company with regards to its financial and management reporting.  Mr.
Dodge has extensive experience in the tax field and assists the Company on an ongoing basis with answering various tax questions
and suggesting various tax strategies. Mr Pitsch has extensive experience in the communications industry and keeps the Company
informed with regards to various regulatory trends affecting the industry.



2011 Grants of Plan-Based Awards(in thousands, except shares and per share amounts)

The following table sets forth information
on grants of plan-based awards in 2011 to the named executive officers.



|                |  |                 | Estimated
                                                                   Future Payouts Under
        Equity
        Incentive Plan Awards |        |  | All Other          |  |        | All Other           |  |  | Exercise or                      |  |  | Grant
                                                       Date
                                                       Fair
                                                       Value of
                                                       Stock |  
|--------------- |  | --------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------ |  | ------------------ |  | ------ | ------------------- |  |  | -------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|Name            |  | Grant 
    Date | Threshold
        (#)                                                                                                                          |        |  | Target
        (#) |  |        | Maximum
        (#) |  |  | Stock
        Awards
        (#) |  |  | Option
        Awards
        (#)                                                                                                                                                                                                                          |  
|James L. Mandel |  | 1/4/11 (1)      |                                                                                                                                                | 64,338 |  |                    |  | 64,338 |                     |  |  | 64,338                           |  |  |                                                                                                                                                                                                                                                            | -
|                |  | 1/4/11 (2)      |                                                                                                                                                | 92,234 |  |                    |  | 92,234 |                     |  |  | 92,234                           |  |  |                                                                                                                                                                                                                                                            | -
|                |  | 1/4/11 (3)      |                                                                                                                                                | 87,000 |  |                    |  | 87,000 |                     |  |  | 87,000                           |  |  |                                                                                                                                                                                                                                                            | -



|(1) | The base price of this restricted stock grant
    is $2.72.                                                                                               | 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(2) | The exercise price of these stock options is $2.72
    with a grant date fair value of $1.8323 per share based on the Black-Scholes option pricing model.
|(3) | The exercise price of these stock
    options is $2.72 with a grant date fair value of $2.0115 per share based on the Black-Scholes option pricing model. | 
|    |                                                                                                                                                           | 



Narrative to Summary Compensation
Table and 2011 Grants of Plan-Based Awards Table

See the Compensation
Discussion and Analysis, as well as the Employment Agreement and Other Compensation and Long-Term Incentive Plans Summaries for
a complete description of compensation elements pursuant to which the amounts listed under the Summary Compensation Table and
2011 Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payments.



32







Stock Option Grants During 2011
and 2010 (in thousands, except for shares and per share amounts)

The following
table provides information regarding stock options granted during fiscal 2011 and 2010 to the named executive officers in the
Summary Compensation Table.



|                |  |      |  | Number
                                                                           of
        Securities
        Underlying
        Options |         |  | Percent
                                                                           of
        Total
        Options
        Granted
        to
        Employees
        in
        Fiscal |  |      | Exercise
                                                                           or
        Base
        Price |  |   | Expiration |  |  | Potential
                                                                                      Realizable Value at
        Assumed
        Annual Rates of
        Stock
        Price
        Appreciation for Option 
        Term (1) |  
|--------------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------ | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----------------------------------------------------------------------------------------------------------------- |  | - | ---------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|Name            |  | Year |  | Granted (#)                                                                                                                                |         |  | Year (%)                                                                                                                                                                                   |  |      | ($/Share)                                                                                                         |  |   | Date       |  |  | 5%                                                                                                                                                                                                                                        |  
|James L. Mandel |  | 2011 |  |                                                                                                                                            | 92,234  |  |                                                                                                                                                                                            |  | 37.0 |                                                                                                                   |  | $ | 2.72       |  |  | 1/4/18                                                                                                                                                                                                                                    |  
|                |  | 2011 |  |                                                                                                                                            | 87,000  |  |                                                                                                                                                                                            |  | 34.9 |                                                                                                                   |  |   | 2.72       |  |  | 1/4/18                                                                                                                                                                                                                                    |  
|                |  | 2010 |  |                                                                                                                                            | 84,375  |  |                                                                                                                                                                                            |  | 4.3  |                                                                                                                   |  |   | 2.00       |  |  | 1/5/17                                                                                                                                                                                                                                    |  
|                |  | 2010 |  |                                                                                                                                            | 59,211  |  |                                                                                                                                                                                            |  | 3.0  |                                                                                                                   |  |   | 1.90       |  |  | 2/10/17                                                                                                                                                                                                                                   |  
|                |  |      |  |                                                                                                                                            |         |  |                                                                                                                                                                                            |  |      |                                                                                                                   |  |   |            |  |  |                                                                                                                                                                                                                                           |  
|Steven M. Bell  |  | 2011 |  |                                                                                                                                            | -       |  |                                                                                                                                                                                            |  | -    |                                                                                                                   |  |   | -          |  |  |                                                                                                                                                                                                                                           | -
|                |  | 2010 |  |                                                                                                                                            | -       |  |                                                                                                                                                                                            |  | -    |                                                                                                                   |  |   | -          |  |  |                                                                                                                                                                                                                                           | -
|                |  |      |  |                                                                                                                                            |         |  |                                                                                                                                                                                            |  |      |                                                                                                                   |  |   |            |  |  |                                                                                                                                                                                                                                           |  
|David Ekman     |  | 2011 |  |                                                                                                                                            | -       |  |                                                                                                                                                                                            |  | -    |                                                                                                                   |  |   | -          |  |  | -                                                                                                                                                                                                                                         |  
|                |  | 2010 |  |                                                                                                                                            | 50,000  |  |                                                                                                                                                                                            |  | 2.6  |                                                                                                                   |  |   | 1.85       |  |  | 4/1/17                                                                                                                                                                                                                                    |  
|                |  |      |  |                                                                                                                                            |         |  |                                                                                                                                                                                            |  |      |                                                                                                                   |  |   |            |  |  |                                                                                                                                                                                                                                           |  
|Henry Block     |  | 2011 |  |                                                                                                                                            | -       |  |                                                                                                                                                                                            |  | -    |                                                                                                                   |  |   | -          |  |  | -                                                                                                                                                                                                                                         |  
|                |  | 2010 |  |                                                                                                                                            | 25,000  |  |                                                                                                                                                                                            |  | 1.3  |                                                                                                                   |  |   | 1.85       |  |  | 4/1/17                                                                                                                                                                                                                                    |  
|                |  |      |  |                                                                                                                                            |         |  |                                                                                                                                                                                            |  |      |                                                                                                                   |  |   |            |  |  |                                                                                                                                                                                                                                           |  
|Kent Whitney    |  | 2011 |  |                                                                                                                                            | -       |  |                                                                                                                                                                                            |  | -    |                                                                                                                   |  |   | -          |  |  | -                                                                                                                                                                                                                                         |  
|                |  | 2010 |  |                                                                                                                                            | 100,000 |  |                                                                                                                                                                                            |  | 5.1  |                                                                                                                   |  |   | 1.85       |  |  | 4/1/17                                                                                                                                                                                                                                    |  
|                |  |      |  |                                                                                                                                            |         |  |                                                                                                                                                                                            |  |      |                                                                                                                   |  |   |            |  |  |                                                                                                                                                                                                                                           |  
|Tom Beaudreau   |  | 2011 |  |                                                                                                                                            | -       |  |                                                                                                                                                                                            |  | -    |                                                                                                                   |  |   | -          |  |  | -                                                                                                                                                                                                                                         |  
|                |  | 2010 |  |                                                                                                                                            | 100,000 |  |                                                                                                                                                                                            |  | 5.1  |                                                                                                                   |  |   | 1.85       |  |  | 4/1/17                                                                                                                                                                                                                                    |  
|                |  | 2010 |  |                                                                                                                                            | 50,000  |  |                                                                                                                                                                                            |  | 2.6  |                                                                                                                   |  |   | 1.70       |  |  | 5/3/17                                                                                                                                                                                                                                    |  



(1)  The
“potential realizable value” shown represents the potential gains based on annual compound stock price appreciation
of 5% and 10% from the date of grant through the full option terms, net of exercise price, but before taxes associated with exercise.  The
amounts represent certain assumed rates of appreciation only, based on the Securities and Exchange Commission rules.  Actual
gains, if any, on stock option exercises are dependent on the future performance of the common stock, overall market conditions
and the option holders, continued employment through the vesting period.  The amounts reflected in this table may not
necessarily be achieved and do not reflect the Company’s estimate of future stock price growth.



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



33







Outstanding Equity Awards at
Fiscal Year-End(in thousands, except shares and per share amounts)

The following table sets forth information
regarding the outstanding equity awards held by our named executive officers as of December 31, 2011.



|Option
    Awards  |  | Stock
    Awards                                                                        |        
|------------------ |  | --------------------------------------------------------------------------------------- | -------
|Name               |  | Number of
    Securities
    Underlying
    Unexercised
    Options
    Exercisable (#) |        
|Steven
    M. Bell |  |                                                                                         | 10,000 
|                   |  |                                                                                         | 5,000  
|                   |  |                                                                                         | 10,000 
|                   |  |                                                                                         | 80,000 
|                   |  |                                                                                         | 37,500 
|                   |  |                                                                                         |        
|David Ekman        |  |                                                                                         | 40,000 
|                   |  |                                                                                         | 16,666 
|                   |  |                                                                                         |        
|James L. Mandel    |  |                                                                                         | 60,000 
|                   |  |                                                                                         | 20,000 
|                   |  |                                                                                         | 120,000
|                   |  |                                                                                         | 69,250 
|                   |  |                                                                                         | 21,094 
|                   |  |                                                                                         | -      
|                   |  |                                                                                         | -      
|                   |  |                                                                                         | 59,211 
|                   |  |                                                                                         | -      
|                   |  |                                                                                         | 92,234 
|                   |  |                                                                                         | -      
|                   |  |                                                                                         |        
|Henry
    Block    |  |                                                                                         | -      
|                   |  |                                                                                         |        
|Kent Whitney       |  |                                                                                         | 33,333 
|Tom Beaudreau      |  |                                                                                         | 33,333 
|                   |  |                                                                                         | 16,666 



|(1)  | The stock option was granted January 8, 2003 and is
    fully vested.                                                                                                                                                                                                                                                                                       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | The stock option was granted April 23, 2004 and is fully vested.                                                                                                                                                                                                                                                                                            
|(3)  | The stock option was granted June 18, 2004 and is fully vested.                                                                                                                                                                                                                                                                                             
|(4)  | The stock option was granted January 6, 2005 and is fully vested.                                                                                                                                                                                                                                                                                           
|(5)  | The stock option was granted January 2, 2009 and is subject to
    the continued service of the executive officer, the option shall vest with respect to 1/4 on the first anniversary of the
    grant, 1/4 on the second anniversary of the grant, 1/4 on the third anniversary of the grant, and the remainder on the fourth
    anniversary of the grant.
|(6)  | The stock option was granted April 27, 2005 and is fully vested.                                                                                                                                                                                                                                                                                            
|(7)  | The stock option was granted April 1, 2010 and is subject to the
    continued service of the executive officer, the option shall vest with respect to 1/3 on the first anniversary of the grant,
    1/3 on the second anniversary of the grant, and the remainder on the third anniversary of the grant.                                                  
|(8)  | The stock option was granted January 8, 2003 and is fully vested.                                                                                                                                                                                                                                                                                           
|(9)  | The stock option was granted June 18, 2004 and is fully vested.                                                                                                                                                                                                                                                                                             
|(10) | The stock option was granted January 6, 2005 and is fully vested.                                                                                                                                                                                                                                                                                           
|(11) | The stock option was granted January 2, 2009 and is subject to
    the continued service of the executive officer, the option shall vest with respect to 1/4 on the first anniversary of the
    grant, 1/4 on the second anniversary of the grant, 1/4 on the third anniversary of the grant, and the remainder on the fourth
    anniversary of the grant.
|(12) | The stock option was granted January 5, 2010 and is subject to
    the continued service of the executive officer, the option shall vest with respect to 1/4 on the first anniversary of the
    grant, 1/4 on the second anniversary of the grant, 1/4 on the third anniversary of the grant, and the remainder on the fourth
    anniversary of the grant.
|(13) | The restricted stock grant was granted January 5, 2010 and is subject
    to the continued service of the executive officer, the restricted stock grant shall vest 100% on the third anniversary of
    the grant.                                                                                                                                          
|(14) | The restricted stock grant was granted January 11, 2010 and is
    subject to the continued service of the executive officer, the restricted stock grant shall vest 100% on the second anniversary
    of the grant.                                                                                                                                        
|(15) | The stock option was granted February 10, 2010 and is fully vested.                                                                                                                                                                                                                                                                                         
|(16) | The restricted stock grant was issued January 4, 2011 and is subject
    to the continued service of the executive officer, the restricted stock grant shall vest 100% on the third anniversary of
    the grant.                                                                                                                                           





34







|(17) | The stock option was granted January 4, 2011 and is
    fully vested.                                                                                                                                                                                                                                                                                       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(18) | The stock option was granted January 4, 2011 and is subject to
    the continued service of the executive officer, the option shall vest with respect to 1/4 on the first anniversary of the
    grant, 1/4 on the second anniversary of the grant, 1/4 on the third anniversary of the grant, and the remainder on the fourth
    anniversary of the grant.
|(19) | The stock option was granted April 1, 2010 and is subject to the
    continued service of the executive officer, the option shall vest with respect to 1/3 on the first anniversary of the grant,
    1/3 on the second anniversary of the grant, and the remainder on the third anniversary of the grant.                                                  
|(20) | The stock option was granted April 1, 2010 and is subject to the
    continued service of the executive officer, the option shall vest with respect to 1/3 on the first anniversary of the grant,
    1/3 on the second anniversary of the grant, and the remainder on the third anniversary of the grant.                                                  
|(21) | The stock option was granted April 1, 2010 and is subject to the
    continued service of the executive officer, the option shall vest with respect to 1/3 on the first anniversary of the grant,
    1/3 on the second anniversary of the grant, and the remainder on the third anniversary of the grant.                                                  
|(22) | The stock option was granted May 3, 2010 and is subject to the
    continued service of the executive officer, the option shall vest with respect to 1/3 on the first anniversary of the grant,
    1/3 on the second anniversary of the grant, and the remainder on the third anniversary of the grant.                                                    



Option Exercises and Stock Vested





|                |  | Option Awards                                     |        |  | Stock Awards                                    |  
|--------------- |  | ------------------------------------------------- | ------ |  | ----------------------------------------------- | -
|Name            |  | Number of
    Shares
    Acquired on Exercise (#) |        |  | Value Realized
    
    on Exercise ($)
    (1) |  
|James L. Mandel |  |                                                   | 12,500 |  |                                                 | $
|Henry Block     |  |                                                   | 8,333  |  |                                                 |  







|(1) | The value realized upon exercised
    of stock options reflects the difference between the price of a share of our common stock on the date of exercise and the
    exercise price of the stock option.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Equity Compensation
Plan Information

The following
table provides information as of December 31, 2011 about the Company’s equity compensation plans.





|                                                              |  | Number of 
    securities to be  issued upon exercise of outstanding options, warrants and rights (a) |           |  | Weighted average
    exercise price of  outstanding  options, warrants and rights (b) |   |      | Number of 
    securities remaining available for future issuance  under equity  compensation  plans (excluding 
    securities reflected  in column (a)) | 
|------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------------------- | - | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by security holders        |  |                                                                                                       | 2,869,556 |  |                                                                                       | $ | 2.81 |                                                                                                                                                           | 
|Equity compensation plans not approved by security holders(1) |  |                                                                                                       | -         |  |                                                                                       |   | -    |                                                                                                                                                           | 
|TOTAL                                                         |  |                                                                                                       | 2,869,556 |  |                                                                                       | $ | 2.81 |                                                                                                                                                           | 









| | (1) | The Company’s Board has the authority to
    grant options and warrants to purchase shares of the Company’s common stock outside of any equity compensation plans
    approved by security holders.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Employment Agreements and Other
Compensation and Long-Term Incentive Plans (in thousands)



The Company
has no deferred compensation plans or long-term incentive plans and issued no long-term incentive awards during 2011.



The Company
entered into employment agreements with Mr. Mandel on April 25, 2011, and Mr. Bell on April 12, 2011, which provide for annual
compensation and the receipt of certain payments and benefits upon particular termination events or change in control. In addition,
the employment agreements have initial terms ending December 31, 2014 and automatically renew for successive 12-month terms unless
terminated by either party. Pursuant to Mr. Mandel’s employment agreement, he is entitled to a base salary of $525, which
amount increases during the term of the agreement, a $300 signing bonus, and incentive awards pursuant to our incentive compensation
plan, contingent on Mr. Mandel meeting certain annual objectives agreed to by him and the Compensation Committee. Pursuant to
Mr. Bell’s employment agreement, he is entitled to a base salary of not less than $315, or a higher annual rate if approved
by the Chief Executive Officer, a $100 retention bonus, and incentive awards pursuant to our incentive compensation plan, contingent
on Mr. Bell meeting certain annual objectives established by the Chief Executive Officer. Pursuant to the employment agreements,
in the event that either executive is terminated without cause by us, the executive will receive severance pay in the form of
salary continuation of his then base salary from the termination date through the lesser of 36 months or the remaining term of
the executive’s employment agreement. Pursuant to the employment agreements, in the event that a change of control leads
to either executive’s termination, all deferred or other compensation due to him under the agreement, including without
limitation severance pay, stock options, stock grants, incentive awards, and cash bonuses, will become immediately due and payable
and all stock options and grants will accelerate in vesting and will vest in full.





35







The Company
has also entered into an employment agreement with Mr. Henry Block, Vice President of Marketing, on January 1, 2009, which has
a term ending December 31, 2013, that provides for annual compensation with a base salary of $325, and a cash bonus, which is
determined by the executive compensation committee of the board of directors.



In addition,
the Company has entered into an employment agreement with Mr. Tom Beaudreau, President MDU Division, on December 1, 2011, which
has a term ending December 1, 2012 and provides for annual compensation with a base salary of $250, and a performance bonus of
up to 50% of his base salary.



The Company
maintains key man life insurance policies on the lives of James Mandel and Steven Bell in the amounts of $5,000 and $3,000, respectively.  The
Company is the beneficiary of these policies.  The Company also maintains a key man life insurance policy in the amount
of $1,000 on the life of Steven Bell.  The Company is the beneficiary of this policy and has adopted a plan to pay fifty
percent of all life insurance proceeds to the spouse or surviving children of Mr. Bell.



Report of
the Compensation Committee

March 30, 2012

To the Board of Directors of
Multiband Corporation:



We have reviewed
and discussed with management the Company’s Compensation Discussion and Analysis.  Based on this review and these
discussions, we recommend to the Board of Directors that the Compensation Discussion and Analysis be included in Multiband Corporation’s
Annual Report on Form 10-K.



| |  | THE COMPENSATION COMMITTEE
| |  | --------------------------
| |  |                           
| |  |                           



Risk Assessment of our Compensation
Policies and Practices

The Compensation
Committee, with the assistance of management, has reviewed the Company’s compensation policies and programs for all employees
for the purpose of assessing the risks associated with compensation.  After that review, the Compensation Committee
determined that the Company’s compensation policies and programs do not create risks that are reasonably likely to have
a material adverse effect on the Company.



Compensation
Committee Interlocks and Insider Participation

During 2011,
the Compensation Committee was composed of Mr. Harris, Chairman, Mr. Dodge and Mr. Miller.  None of the Company’s
executive officers served during the year ended December 31, 2011 as a director or member of the compensation committee (or other
committee serving an equivalent function) of any other entity whose executive officers served on our Board of Directors or Compensation
Committee.



Section
16(a) Beneficial Ownership Reporting Compliance

Section 16(a)
of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who beneficially
own more than 10% of the Company’s common stock to file reports of ownership and changes in ownership with the SEC. These
persons are required to provide us with copies of all Section 16(a) reports that they file. Based solely upon a review these reports
and written representations from our directors and executive officers, we believe that our directors, executive officers and 10%
owners, other than DTHC, complied with all Section 16(a) filing requirements applicable to them during the year ended December
31, 2011.



Item 12



Security
Ownership of Certain Beneficial Owners and Management



VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF

The following
table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of March 15,
2011, by (i) each of our executive officers; (ii) each of our directors; (iii) all of our executive officers and directors as
a group; and (iv) each of those known by us to be beneficial owners of more than 5% of our common stock.  Beneficial
ownership means sole or shared voting power or investment power with respect to a security.  We have been informed that
all shares shown are held of record with sole voting and investment power, except as otherwise indicated.  To our knowledge,
none of the shares reported below are pledged as security.



The table also
includes 45,030 shares subject to equity grants made to directors and executive office in January 2012.  Shares of common
stock subject to options or warrants that are currently exercisable or exercisable within 60 days of March 15, 2012 are deemed
to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership
of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.  Unless
otherwise indicated, the information in the table does not include any stock options and/or warrants outstanding that cannot be
exercised within 60 days of March 15, 2012.





36







The persons
or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned
by them, unless otherwise indicated, subject to applicable community property laws.  Except as otherwise noted below,
the address for each person or entity listed in the table is c/o Multiband Corporation, 9449 Science Center Drive, New Hope, Minnesota
55428.



On March 15,
2012, the Company had 21,797,410 shares of common stock issued and outstanding.





|Name                                                                                                                                                                                                                                                                          |  | Number
    of Shares
    Beneficially Owned |           |      | Percent
    of Common
    Shares Outstanding | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | --------- | ---- | -------------------------------------------- | 
|Executive Officers and Directors                                                                                                                                                                                                                                              |  |                                             |           |      |                                              | 
|Steven M. Bell                                                                                                                                                                                                                                                                |  |                                             | 279,563   | (1)  |                                              | 
|Frank Bennett                                                                                                                                                                                                                                                                 |  |                                             | 427,766   | (2)  |                                              | 
|Jonathan Dodge                                                                                                                                                                                                                                                                |  |                                             | 127,721   | (3)  |                                              | 
|Eugene Harris                                                                                                                                                                                                                                                                 |  |                                             | 212,072   | (4)  |                                              | 
|James L. Mandel                                                                                                                                                                                                                                                               |  |                                             | 813,340   | (5)  |                                              | 
|Donald Miller                                                                                                                                                                                                                                                                 |  |                                             | 364,642   | (6)  |                                              | 
|Peter Pitsch                                                                                                                                                                                                                                                                  |  |                                             | 24,077    | (7)  |                                              | 
|David Ekman                                                                                                                                                                                                                                                                   |  |                                             | 437,250   | (8)  |                                              | 
|Henry Block                                                                                                                                                                                                                                                                   |  |                                             | 16,666    | (9)  |                                              | 
|Kent Whitney                                                                                                                                                                                                                                                                  |  |                                             | 162,166   | (10) |                                              | 
|Tom Beaudreau                                                                                                                                                                                                                                                                 |  |                                             | 99,999    | (11) |                                              | 
|All directors and officers
    as a group (11 persons)                                                                                                                                                                                                                        |  |                                             | 2,965,262 | (12) |                                              | 
|                                                                                                                                                                                                                                                                              |  |                                             |           |      |                                              | 
|5% Shareholders                                                                                                                                                                                                                                                               |  |                                             |           |      |                                              | 
|                                                                                                                                                                                                                                                                              |  |                                             |           |      |                                              | 
|Trellus
                                 Management Company, LLC 350
                                                                    Madison Avenue, 9thFloor New
                                                                                         York, NY 10022 |  |                                             | 1,253,400 | (14) |                                              | 
|Wellington Management Company,
    LLP and affiliates 280 Congress Street Boston, MA 02210                                                                                                                                                                                    |  |                                             | 2,253,400 | (13) |                                              | 
|J. Carlo Canell P.O. Box
    3459 Jackson, WY 83001                                                                                                                                                                                                                           |  |                                             | 1,151,752 | (15) |                                              | 







| | * | Indicates
                                                                                                                ownership of less
                                                                                                                than 1%.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







|(1)  | Includes vested options to acquire 161,350 shares of
    common stock.  Mr. Bell's beneficial ownership does include 6,250 shares of common stock owned by his spouse as
    to which Mr. Bell disclaims beneficial ownership.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | Includes warrants and vested options to purchase 132,475 shares
    of common stock.                                                                                                                                          
|(3)  | Includes vested options to acquire 89,626 shares of common stock.                                                                                                                                                             
|(4)  | Includes warrants and vested options to purchase 105,927 shares
    of common stock.                                                                                                                                          
|(5)  | Includes vested options to purchase 646,073 shares of common stock.                                                                                                                                                           
|(6)  | Includes warrants and vested options to purchase 132,026 shares
    of common stock.                                                                                                                                          
|(7)  | Includes vested options to acquire 15,071 shares of common stock                                                                                                                                                              
|(8)  | Includes vested options to purchase 73,433 shares of common stock
    and 109,000 Series C Preferred Shares convertible into 43,600 shares of common stock.                                                                   
|(9)  | Includes vested options to acquire 16,666 shares of common stock                                                                                                                                                              
|(10) | Includes vested options to acquire 66,666 shares of common stock                                                                                                                                                              
|(11) | Includes vested options to acquire 99,999 shares of common stock                                                                                                                                                              
|(12) | See footnotes 1 through 11 above.                                                                                                                                                                                             
|(13) | Information based on Schedule 13G filed with the Securities and
    Exchange Commission on February 14, 2012.                                                                                                                 
|(14) | Information based on Schedule 13G/A filed with the Securities and
    Exchange Commission on February 14, 2012.                                                                                                               
|(15) | Information based on Schedule 13G filed with the Securities and
    Exchange Commission on February 2, 2012.                                                                                                                  







37







Item 13



Certain Relationships and Related
Transactions, and Director Independence

The Board has
determined that a majority of its members are “independent” as defined by the listing standards of the NASDAQ Stock
Market.  The independent Directors are Messrs. Frank Bennett, Jonathan Dodge, Eugene Harris, Donald Miller and Peter
Pitsch.



Multiband and
its subsidiaries lease principal offices located at 2000 44th Street SW, Fargo, ND 58013.  The Fargo base rate is $18
per month.  The Fargo property is owned in part by David Ekman.



NC leases warehouse
space in Wyoming, MI.  Lease payments amount to $4 per month plus expenses, expiring in December 2013.  The
property is owned in part by Henry Block, Vice President of Marketing.



Item 14



Principal
Accounting Fees and Services(in thousands)

The Audit Committee
of the Company selected Baker Tilly Virchow Krause, LLP, independent registered public accounting firm with offices in Minneapolis,
Minnesota, to audit the Company’s consolidated financial statements for the years ended December 31, 2011, 2010 and 2009.
The following table details the fees paid to Baker Tilly Virchow Krause, LLP, for the years ended December 31, 2011 and 2010.



|                       |  | 2011 |     |  | 2010 |  
|---------------------- |  | ---- | --- |  | ---- | -
|Audit Fees             |  | $    | 318 |  |      | $
|Audit-Related Fees (1) |  |      | 37  |  |      |  
|Tax Fees               |  |      | -   |  |      |  
|Total                  |  | $    | 355 |  |      | $



| | (1) | Audit
                                                                                                   related fees include issuance
                                                                                                   of consents, procedures and
                                                                                                   review of Registration Statements
                                                                                                   on Forms S-1 and Form S-8.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s
Audit committee consists of Frank Bennett, Eugene Harris and Donald Miller. All three are considered audit committee financial
experts independent from management. The Company’s current audit committee charter is incorporated by reference to Exhibit
3.5 to the Company’s Registration Statement on 8-K, filed June 9, 2004. The audit committee is responsible for engaging
the independent registered public accounting 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
registered public accounting firm (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 100% of the fees paid to Baker
Tilly Virchow Krause, LLP, 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 Baker
Tilly Virchow Krause, LLP.  Furthermore, no work of Baker Tilly Virchow Krause, LLP, with respect to its services rendered
to the Company was performed by anyone other than Baker Tilly Virchow Krause, LLP.



Item 15



Exhibits, Financial Statement
Schedules



1. Financial Statements
and Schedules:

Financial Statements and Schedules
reference is made to the Index to Consolidated Financial Statements and Supplemental Information on page F-1 for a list of financial
statements and supplemental information filed as a part of this Annual Report on Form 10-K.



38









2. Exhibits



|Exhibit
    No. |  | Description                                                                                                                                                                                                                                                                                                                                                                      
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|2.1             |  | Asset Purchase Agreement by and between Vicom, Inc. and Enstar
    Networking Corporation dated December 31, 1998 (Incorporated herein by reference to Exhibit 2.1 to the Company’s Registration
    Statement on Form 10, as amended, filed April 7, 2000).                                                                                                                     
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|2.2             |  | Agreement and Plan of Merger by and among Vicom, Inc. and Ekman,
    Inc. dated December 29, 1999 (Incorporated herein by reference to Exhibit 2.2 to the Company’s Registration Statement
    on Form 10, as amended, filed April 7, 2000).                                                                                                                                     
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|2.3             |  | Asset Purchase Agreement between Vicom Systems LLC, Multiband Corporation
    and Corporate Technologies USA, Inc. dated effective as of March 31, 2005 (Incorporated herein by reference to Exhibit 99.1
    to the Company’s Current Report on Form 8-K, filed April 7, 2005).                                                                                                 
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|3.1             |  | Articles of Incorporation of Multiband Corporation, as amended
    (Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended, filed
    April 22, 2011).                                                                                                                                                                  
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|3.2             |  | Bylaws of Multiband Corporation  (Incorporated herein by reference
    to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                                                                                                                    
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|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 (Incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form
    S-1, as amended, filed April 22, 2011).          
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.2             |  | Certificate of Designation of the Relative Rights, Restrictions
    and Preferences of 10% Class C Cumulative Convertible Stock dated June 14, 2000 (Incorporated herein by reference to Exhibit
    4.2 to the Company’s Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                 
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.3             |  | Certificate of Designation of the Relative Rights, Restrictions
    and Preferences of 14% Class D Cumulative Convertible Preferred Stock dated November 17, 2000(Incorporated herein
    by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                    
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.4             |  | Certificate of Designation of the Relative Rights, Restrictions
    and Preferences of 15% Class E Preferred Stock dated September 18, 2002 (as amended on September 29, 2009) (Incorporated herein
    by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                      
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.5             |  | Certificate of Designation of the Relative Rights, Restrictions
    and Preferences of 10% Class F Convertible Preferred Stock dated June 29, 2004 (Incorporated herein by reference to Exhibit
    4.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).                                                                                       
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.6             |  | Certificate of Designation of the Relative Rights, Restrictions
    and Preferences of 8% Class G Convertible Preferred Stock dated September 3, 2004 (as amended on September 20, 2004) (Incorporated
    herein by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).                                                 
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.7             |  | Certificate of Designation of the Relative Rights and Preferences
    of Series H Convertible Preferred Stock dated November 16, 2004 (Incorporated herein by reference to Exhibit 4.7 to the Company’s
    Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                               
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.8             |  | Certificate of Designations of Preferences and Rights of Series
    I Convertible Preferred Stock dated February 1, 2005 (Incorporated herein by reference to Exhibit 4.8 to the Company’s
    Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                            
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.9             |  | Certificate of Designations of Preferences and Rights of Series
    J Convertible Preferred Stock dated December 14, 2009 (Incorporated herein by reference to Exhibit 4.9 to the Company’s
    Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                           
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.10            |  | Multiband Secured Promissory Note to DirecTECH Holding Company,
    Inc. dated January 2, 2008, and Allonge Amendment dated May 27, 2009 (Incorporated herein by reference to Exhibit 4.13 to
    the Company’s Registration Statement on Form S-1, as amended, filed May 17, 2011).                                                                                             
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|4.11            |  | Warrant to Subscribe for and Purchase Common Stock of Multiband
    Corporation held by Convergent Capital Partners II, L.P. dated May 27, 2009 (Incorporated herein by reference to Exhibit 4.13
    to the Company’s Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                    
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.1            |  | Debenture by and between Corporate Technologies USA, Inc. and Convergent
    Capital Partners I, L.P. dated March 9, 2000 (Incorporated herein by reference to Exhibit 10.8 to the Company’s Registration
    Statement on Form 10, as amended, filed April 7, 2000).                                                                                                            
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.2            |  | First Supplement to Debenture Purchase Agreement by and between
    Corporate Technologies USA, Inc., and Convergent Capital Partners I, L.P. dated July 11, 2000 (Incorporated herein by reference
    to Exhibit 10.10 to the Company’s Registration Statement on Form S-1, filed August 11, 2000).                                                                            
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.3            |  | Debenture Purchase Agreement by and among Multiband NE Incorporated,
    Multiband SC Incorporated, Multiband EC Incorporated, Multiband NC Incorporated, Multiband DV Incorporated and Convergent
    Capital Partners II, L.P. dated May 26, 2009 (Incorporated herein by reference to Exhibit 99.1 to the Company’s Current
    Report on Form 8-K, filed June 2, 2009).      
|                |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.4            |  | Subordination Agreement by and among DirecTECH Holding Company,
    Inc., Bas Mattingly Master, LLC, Building Blocks Family Trust, LLC, Bernard J. Schafer Trust, LLC and Convergent Capital Partners
    II, L.P. dated May 27, 2009 (Incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement
    on Form S-1, as amended, filed May 17, 2011).





39







|10.5       |  | Registration Rights Agreement by and between Multiband
    Corporation and Convergent Capital Partners II, L.P. dated May 27, 2009 (Incorporated herein by reference to Exhibit 10.5
    to the Company’s Registration Statement on Form S-1, as amended, filed May 17, 2011).                                                                                                                                                                                                                                                                                
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.6       |  | Asset Purchase Agreement between Multiband Corporation and Consolidated
    Smart Broadband Systems dated October 19, 2006 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current
    Report on Form 8-K, filed October 24, 2006).                                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.7       |  | Asset Purchase Agreement between MDU Communications (USA) Inc.
    and Multiband Corporation dated July 19, 2007 (Incorporated herein by reference to Exhibit 99.1 to the Company’s Current
    Report on Form 8-K, filed July 25, 2007).                                                                                                                                                                                                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.8       |  | Supplemental Agreement and Plan of Share Exchange between Multiband
    Corporation, DirecTECH Holding Company, Inc. and Michigan Microtech, Inc. dated January 25, 2008 (Incorporated herein by reference
    to Exhibit 1 to the Company’s Current Report on Form 8-K, filed February 12, 2008).                                                                                                                                                                                                                                                            
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.9       |  | Stock Purchase Agreement between Multiband Corporation and DirecTECH
    Holding Company, Inc. dated November 3, 2008 (Incorporated herein by reference to Exhibit 99.1 to the Company’s Current
    Report on Form 8-K, filed November 6, 2008).                                                                                                                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10      |  | First Amendment to Stock Purchase Agreement by and between Multiband
    Corporation and DirecTECH Holding Company, Inc. dated December 30, 2008 (Incorporated herein by reference to Exhibit 99.1
    to the Company’s Current Report on Form 8-K, filed January 2, 2009).                                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.11      |  | Registration Rights Agreement between Multiband Corporation and
    DirecTECH Holding Company, Inc. dated January 2, 2009 (Incorporated herein by reference to Exhibit 10.12 to the Company’s
    Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                                                                                                                                                                                                      
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.12      |  | Management Rights Agreement between Multiband Corporation and DirecTECH
    Holding Company, Inc. dated January 2, 2009 (Incorporated herein by reference to Exhibit 10.13 to the Company’s Registration
    Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.13      |  | Loan and Stock Pledge Agreement between Multiband Corporation and
    DirecTECH Holding Company, Inc. dated January 2, 2009 (Incorporated herein by reference to Exhibit 10.14 to the Company’s
    Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                                                                                                                                                                                                    
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.15**    |  | Employment Agreement of James Mandel dated April 25, 2011 (Incorporated
    herein by reference to Exhibit 2 to the Company’s Current Report on Form 8-K, filed April 28, 2011).                                                                                                                                                                                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.16**    |  | Employment Agreement of Steven Bell dated April 25, 2011 (Incorporated
    herein by reference to Exhibit 1 to the Company’s Current Report on Form 8-K, filed April 28, 2011).                                                                                                                                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.17**    |  | Employment Agreement of J. Basil Mattingly dated October 1, 2004
    (Incorporated herein by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K, filed January 8, 2009).                                                                                                                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.18**    |  | Amendment to Employment Agreement of J. Basil Mattingly dated December
    27, 2007 (Incorporated herein by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K, filed January
    8, 2009).                                                                                                                                                                                                                                                                                                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.19**    |  | 1999 Stock Compensation Plan, as amended (Incorporated herein by
    reference to Appendix B to the Company’s Proxy Statement on Form DEF 14A, filed July 23, 2009).                                                                                                                                                                                                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.20**    |  | 2000 Non-Employee Director Stock Compensation Plan, as amended
    (Incorporated herein by reference to Appendix A to the Company’s Proxy Statement on Form DEF 14A, filed July 23, 2009).                                                                                                                                                                                                                                                                                                                                                                    
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.21      |  | Stock Purchase Agreement between Multiband Corporation and WPCS
    International Incorporated dated September 1, 2011 (Incorporated herein by reference to Exhibit 2 to the Company’s Registration
    Statement on 8-K, filed September 1, 2011).                                                                                                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.22*  ** |  | Employment Agreement of Henry Block dated October 1, 2004..                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.23*  ** |  | Amendment to Employment Agreement of Henry Block dated January
    1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.24*  ** |  | Employment Agreement of Tom Beaudreau dated December 1, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|16.1       |  | Changes in Registrant’s Certifying Accountant (Incorporated
    herein by reference to Exhibit 16.1 to the Company’s Registration Statement on 8-K, filed January 17, 2012).                                                                                                                                                                                                                                                                                                                                                                                  
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|21.1       |  | List of subsidiaries of the Company (Incorporated herein by reference
    to Exhibit 21.1 to the Company’s Registration Statement on Form S-1, as amended, filed April 22, 2011).                                                                                                                                                                                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|23.1*      |  | Consent of Baker Tilly Virchow Krause, LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|31.1*      |  | Certification of Chief Executive Officer pursuant to Rules 13a-14
    and 15d-14 of the Exchange Act – James Mandel                                                                                                                                                                                                                                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|31.2*      |  | Certification of Chief Financial Officer pursuant to Rules 13a-14
    and 15d-14 of the Exchange Act – Steven Bell                                                                                                                                                                                                                                                                                                                                                                                                                                            
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|32.1*      |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
    Section 1350 – James Mandel                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|32.2*      |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350 – Steven Bell                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101***     |  | The following financial information from our Annual Report on Form
    10-K for the year ended 2011, filed with the SEC on March 30, 2012, is formatted in eXtensible Business Reporting Language
    (XBRL): (i) the consolidated balance sheets as of December 31, 2011 and 2010; (ii) the related consolidated statements of
    operations, comprehensive income (loss), stockholders’ equity and cash flow for the each of the three years in the period
    ended December 31, 2011; and (iii) the Notes to Consolidated Financial Statements (audited).
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101.INS*** |  | XBRL Instance Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101.SCH*** |  | XBRL Taxonomy Extension Schema                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101.CAL*** |  | XBRL Taxonomy Extension Calculation Linkbase                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101.DEF*** |  | XBRL Taxonomy Extension Definition Linkbase                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101.LAB*** |  | XBRL Taxonomy Extension Label Linkbase                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        





40







|101.PRE*** |  | XBRL Taxonomy Extension Presentation Linkbase
|---------- |  | ---------------------------------------------





|*   | Filed herewith.                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | Indicates a management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                          
|*** | The XBRL related information in Exhibit 101 to this Annual Report
    on Form 10-K shall not be deemed "filed" or part of a registration statement or prospectus for purposes of Sections
    11 or 12 of the Securities Act of 1933, as amended, additionally the data shall not be deemed "filed" for purposes
    of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under these sections.





41







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.
        Registrant |                        
|---------------------- | ------------------------------------------------------------- | -----------------------
|                       |                                                               |                        
|Date: October 19, 2012 | By:                                                           | /s/ James L. Mandel    
|                       |                                                               | James L. Mandel        
|                       |                                                               | Chief Executive Officer



|                        |     |                                              | 
|----------------------- | --- | -------------------------------------------- | 
|Date:  October 19, 2012 | By: | /s/ Steven M. Bell                           | 
|                        |     | Steven M. Bell                               | 
|                        |     | Chief Financial Officer                      | 
|                        |     | (Principal Financial and Accounting Officer) | 



|Date:  October 19, 2012 | By: | /s/ Frank Bennett | 
|----------------------- | --- | ----------------- | 
|                        |     | Frank Bennett     | 
|                        |     | Director          | 



|Date:  October 19, 2012 | By: | /s/ Jonathan Dodge | 
|----------------------- | --- | ------------------ | 
|                        |     | Jonathan Dodge     | 
|                        |     | Director           | 



|Date:  October 19, 2012 | By: | /s/ Eugene Harris | 
|----------------------- | --- | ----------------- | 
|                        |     | Eugene Harris     | 
|                        |     | Director          | 



|Date:  October 19, 2012 | By: | /s/ Donald Miller                 | 
|----------------------- | --- | --------------------------------- | 
|                        |     | Donald Miller                     | 
|                        |     | Chairman of theBoard of Directors | 



|Date:  October 19, 2012 | By: | /s/ Peter K. Pitsch | 
|----------------------- | --- | ------------------- | 
|                        |     | Peter K. Pitsch     | 
|                        |     | Director            | 



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.



42







MULTIBAND CORPORATION AND SUBSIDIARIES



TABLE OF CONTENTS



|Report of Independent Registered Public Accounting Firm                                  | F-2 
|---------------------------------------------------------------------------------------- | ----
|Financial Statements                                                                     |     
|Consolidated Balance Sheets                                                              | F-3 
|Consolidated Statements of Operations                                                    | F-5 
|Consolidated Statements of Comprehensive Income (Loss)                                   | F-6 
|Consolidated Statements of Stockholders' Equity                                          | F-7 
|Consolidated Statements of Cash Flows                                                    | F-16
|Notes to Consolidated Financial Statements                                               | F-18
|Supplemental Information                                                                 |     
|Report of Independent Registered Public Accounting Firm on Supplementary
    Information | F-1 
|Valuation and Qualifying Accounts                                                        | F-2 



F-1







REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM



To the 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, 2011 and 2010, and the related consolidated statements
of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2011.  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.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting.  Our audits included consideration of its internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such
opinion.  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 consolidated 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, 2011 and 2010 and the results of their operations and cash flows for each of the three years
in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.



/s/ Baker Tilly Virchow Krause, LLP



Minneapolis, Minnesota

March 30, 2012



F-2







MULTIBAND CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2010



ASSETS

(in thousands)



|                                                                            |  | 2011 |         |  | 2010 |  
|--------------------------------------------------------------------------- |  | ---- | ------- |  | ---- | -
|CURRENT ASSETS                                                              |  |      |         |  |      |  
|Cash and cash equivalents                                                   |  | $    | 18,169  |  |      | $
|Available-for-sale securities (see Note 3)                                  |  |      | 1,191   |  |      |  
|Accounts receivable, net                                                    |  |      | 28,359  |  |      |  
|Other receivable (see Note 18)                                              |  |      | -       |  |      |  
|Inventories                                                                 |  |      | 14,276  |  |      |  
|Costs and estimated earnings in excess of billings on uncompleted contracts |  |      | 998     |  |      |  
|Prepaid expenses and other                                                  |  |      | 1,351   |  |      |  
|Current portion of notes receivable                                         |  |      | 10      |  |      |  
|Income tax receivable                                                       |  |      | 42      |  |      |  
|Deferred tax assets – current                                               |  |      | 6,862   |  |      |  
|Total Current Assets                                                        |  |      | 71,258  |  |      |  
|PROPERTY AND EQUIPMENT, NET                                                 |  |      | 6,304   |  |      |  
|OTHER ASSETS                                                                |  |      |         |  |      |  
|Goodwill                                                                    |  |      | 37,796  |  |      |  
|Intangible assets, net                                                      |  |      | 14,597  |  |      |  
|Other receivable – long-term (see Note 18)                                  |  |      | 14      |  |      |  
|Notes receivable – long-term, net of current portion                        |  |      | 18      |  |      |  
|Insurance collateral                                                        |  |      | 8,061   |  |      |  
|Other assets                                                                |  |      | 2,420   |  |      |  
|Deferred tax assets – long-term                                             |  |      | 1,134   |  |      |  
|Total Other Assets                                                          |  |      | 64,040  |  |      |  
|                                                                            |  |      |         |  |      |  
|TOTAL ASSETS                                                                |  | $    | 141,602 |  |      | $



See accompanying notes to the consolidated
financial statements



F-3







MULTIBAND CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2010



LIABILITIES AND STOCKHOLDERS' EQUITY

(in thousands, except share and liquidation
preference amounts)



|                                                                                                                                                  |  | 2011   |         |   | 2010   |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | ------- | - | ------ | -
|CURRENT LIABILITIES                                                                                                                               |  |        |         |   |        |  
|Line of credit                                                                                                                                    |  | $      | -       |   |        | $
|Short-term debt                                                                                                                                   |  |        | 457     |   |        |  
|Related party debt – short-term                                                                                                                   |  |        | -       |   |        |  
|Current portion of long-term debt, net of original issue discount                                                                                 |  |        | 4,936   |   |        |  
|Current portion of capital lease obligations                                                                                                      |  |        | 324     |   |        |  
|Accounts payable                                                                                                                                  |  |        | 32,354  |   |        |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                                       |  |        | 41      |   |        |  
|Accrued liabilities - current                                                                                                                     |  |        | 24,113  |   |        |  
|Deferred service obligations and revenue                                                                                                          |  |        | 1,570   |   |        |  
|Total Current Liabilities                                                                                                                         |  |        | 63,795  |   |        |  
|LONG-TERM LIABILITIES                                                                                                                             |  |        |         |   |        |  
|Accrued liabilities – long term                                                                                                                   |  |        | 5,352   |   |        |  
|Long-term debt, net of current portion and original issue discount (see Note 18)                                                                  |  |        | 29,229  |   |        |  
|Capital lease obligations, net of current portion                                                                                                 |  |        | 274     |   |        |  
|Deferred tax liabilities – long term                                                                                                              |  |        | -       |   |        |  
|Total Liabilities                                                                                                                                 |  |        | 98,650  |   |        |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                     |  |        |         |   |        |  
|STOCKHOLDERS' EQUITY                                                                                                                              |  |        |         |   |        |  
|Cumulative convertible preferred stock, no par value:                                                                                             |  |        |         |   |        |  
|8% Class A (12,696 and 14,171 shares issued and outstanding, $133,308
    and $148,796 liquidation preference)                                    |  |        | 191     |   |        |  
|10% Class C (109,000 and 112,000 shares issued and outstanding, $1,090,000
    and $1,120,000 liquidation preference)                             |  |        | 1,411   |   |        |  
|10% Class F (150,000 shares issued and outstanding, $1,500,000 liquidation
    preference)                                                        |  |        | 1,500   |   |        |  
|8% Class G (10,000 and 11,595 shares issued and outstanding, $100,000
    and $115,950 liquidation preference)                                    |  |        | 41      |   |        |  
|6% Class H (1.00 and 1.23 shares issued and outstanding, $100,000 and
    $123,000 liquidation preference)                                        |  |        | -       |   |        |  
|8% Class J (0 and 100 shares issued and outstanding, $0 and  $10,000,000
    liquidation preference)                                              |  |        | -       |   |        |  
|15% Class E cumulative preferred stock, no par value, (0 and 195,000 shares
    issued and outstanding, $0 and $1,950,000 liquidation preference) |  |        | -       |   |        |  
|Common stock, no par value (21,612,380 and 10,305,845 shares issued and
    outstanding)                                                          |  |        | 66,290  |   |        |  
|Stock-based compensation                                                                                                                          |  |        | 49,000  |   |        |  
|Accumulated other comprehensive income – unrealized gain on available-for-sale
    securities                                                     |  |        | -       |   |        |  
|Accumulated deficit                                                                                                                               |  |        | (75,481 | ) |        |  
|Total Stockholders' Equity                                                                                                                        |  | 42,952 |         |   | 20,243 |  
|                                                                                                                                                  |  |        |         |   |        |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                        |  | $      | 141,602 |   |        | $



See accompanying notes to the consolidated
financial statements



F-4







MULTIBAND CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2011, 2010
AND 2009

(in thousands, except share and per share
amounts)



|                                                                                                      |  | 2011 |            |   | 2010 |   |            | 2009 | 
|----------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|REVENUES                                                                                              |  | $    | 300,186    |   |      | $ | 265,594    |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|COSTS AND EXPENSES                                                                                    |  |      |            |   |      |   |            |      | 
|Cost of products and services (exclusive of depreciation
    and amortization shown separately below) |  |      | 214,559    |   |      |   | 186,294    |      | 
|Selling, general and administrative                                                                   |  |      | 63,939     |   |      |   | 57,173     |      | 
|Depreciation and amortization                                                                         |  |      | 6,757      |   |      |   | 8,298      |      | 
|Impairment of assets                                                                                  |  |      | 246        |   |      |   | 160        |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|Total costs and expenses                                                                              |  |      | 285,501    |   |      |   | 251,925    |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|INCOME (LOSS) FROM OPERATIONS                                                                         |  |      | 14,685     |   |      |   | 13,669     |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|OTHER EXPENSE                                                                                         |  |      |            |   |      |   |            |      | 
|Interest expense                                                                                      |  |      | (3,838     | ) |      |   | (4,202     | )    | 
|Interest income                                                                                       |  |      | 35         |   |      |   | 8          |      | 
|Proceeds from life insurance                                                                          |  |      | 409        |   |      |   | -          |      | 
|Gain on bargain purchase                                                                              |  |      | 166        |   |      |   | -          |      | 
|Other-than-temporary impairment losson available-for-sale securities                                  |  |      | (1,078     | ) |      |   | -          |      | 
|Other income                                                                                          |  |      | 276        |   |      |   | 103        |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|Total other expense                                                                                   |  |      | (4,030     | ) |      |   | (4,091     | )    | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|INCOME (LOSS) BEFORE INCOME TAXES AND
    NONCONTROLLING INTEREST IN SUBSIDIARIES                     |  |      | 10,655     |   |      |   | 9,578      |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|PROVISION FOR (BENEFIT
    FROM) INCOME TAXES                                                         |  |      | 3,611      |   |      |   | (5,116     | )    | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|NET INCOME (LOSS)                                                                                     |  |      | 7,044      |   |      |   | 14,694     |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|LESS: NET LOSS
    ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN SUBSIDIARIES                        |  |      | -          |   |      |   | -          |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|NET INCOME (LOSS) ATTRIBUTABLE TO MULTIBAND
    CORPORATION AND SUBSIDIARIES                          |  |      | 7,044      |   |      |   | 14,694     |      | 
|Preferred stock dividends                                                                             |  |      | 787        |   |      |   | 1,488      |      | 
|INCOME (LOSS)
    ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                 |  | $    | 6,257      |   |      | $ | 13,206     |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|INCOME (LOSS) PER COMMON SHARE – BASIC                                                                |  | $    | 0.37       |   |      | $ | 1.32       |      | 
|INCOME (LOSS) PER COMMON SHARE – DILUTED                                                              |  | $    | 0.32       |   |      | $ | 0.91       |      | 
|                                                                                                      |  |      |            |   |      |   |            |      | 
|Weighted average common shares outstanding – basic                                                    |  |      | 16,975,753 |   |      |   | 10,016,717 |      | 
|Weighted average common shares outstanding – diluted                                                  |  |      | 20,626,529 |   |      |   | 15,617,353 |      | 



See accompanying notes to the consolidated
financial statements



F-5









MULTIBAND CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

YEARS ENDED DECEMBER 31, 2011, 2010
AND 2009

(in thousands)



|                                                                                            |  | 2011 |       |   | 2010 |   |        | 2009 | 
|------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- | 
|NET INCOME (LOSS)                                                                           |  | $    | 7,044 |   |      | $ | 14,694 |      | 
|                                                                                            |  |      |       |   |      |   |        |      | 
|OTHER COMPREHENSIVE INCOME (LOSS), NET
    OF TAX:                                          |  |      |       |   |      |   |        |      | 
|Unrealized losses on securities:                                                            |  |      |       |   |      |   |        |      | 
|Unrealized holding losses arising
    during period                                         |  |      | (2    | ) |      |   | (5     | )    | 
|                                                                                            |  |      |       |   |      |   |        |      | 
|COMPREHENSIVE INCOME (LOSS) BEFORE NONCONTROLLING
    INTEREST IN SUBSIDIARIES              |  |      | 7,042 |   |      |   | 14,689 |      | 
|                                                                                            |  |      |       |   |      |   |        |      | 
|COMPREHENSIVE INCOME
    (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST IN SUBSIDIARIES |  |      | -     |   |      |   | -      |      | 
|                                                                                            |  |      |       |   |      |   |        |      | 
|COMPREHENSIVE INCOME
    (LOSS) ATTRIBUTABLE TO MULTIBAND CORPORATION AND SUBSIDIARIES      |  | $    | 7,042 |   |      | $ | 14,689 |      | 



See accompanying notes to the consolidated
financial statements



F-6







MULTIBAND CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY

YEARS ENDED DECEMBER 31, 2011, 2010
AND 2009

(in thousands, except for share amounts)



| |  | 8%
    Class A |  |  | 10%
    Class B |  |  | 10% Class C |  |  | 15% Class E |  |  | 10% Class F | 
| |  | -------------- |  |  | --------------- |  |  | ----------- |  |  | ----------- |  |  | ----------- | 
| |  | Shares         |  |  | Amount          |  |  | Shares      |  |  | Amount      |  |  | Shares      | 

|BALANCES, December 31, 2008                                                                              |  |  | 14,171 |  |  | $ | 213 |  |  |  | 2,570  |   |  | $ | 26  |   |  |  | 114,080 |   |  | $ | 1,482 |   |  |  | -       |  |  | $ | -     |  |  |  | 150,000 |  |  | $ | 1,500 | 
|-------------------------------------------------------------------------------------------------------- |  |  | ------ |  |  | - | --- |  |  |  | ------ | - |  | - | --- | - |  |  | ------- | - |  | - | ----- | - |  |  | ------- |  |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|Stock issued:                                                                                            |  |  |        |  |  |   |     |  |  |  |        |   |  |   |     |   |  |  |         |   |  |   |       |   |  |  |         |  |  |  
|Cash                                                                                                     |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | 70,000  |  |  |   | 700   |  |  |  | -       |  |  |   | -     | 
|Acquisition of 29% of Multiband NC Incorporated                                                          |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Acquisition of 80% of – Multiband
    EC,NE, SC, MBMDU, DV, and Security                                 |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Purchase of 20% of outstanding stock of
    DirecTECH operating entities via issuance of preferred stock |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Reduction of related party debt with exchange
    for preferred stock                                    |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | 150,000 |  |  |   | 1,500 |  |  |  | -       |  |  |   | -     | 
|Conversion of notes payable                                                                              |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Conversion of accrued interest                                                                           |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Conversion of preferred stock                                                                            |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Conversion of dividends payable                                                                          |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Repurchase of common stock                                                                               |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Redemption of preferred stock                                                                            |  |  | -      |  |  |   | -   |  |  |  | (1,200 | ) |  |   | (12 | ) |  |  | (1,200  | ) |  |   | (12   | ) |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Intrinsic value of convertible feature                                                                   |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | (5    | ) |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Stock subscriptions receivable:                                                                          |  |  |        |  |  |   |     |  |  |  |        |   |  |   |     |   |  |  |         |   |  |   |       |   |  |  |         |  |  |   |       |  |  |  |         |  |  |   |       | 
|Interest earned                                                                                          |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Increase in reserve                                                                                      |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Warrants issued for long-term financing                                                                  |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Warrants issued for interest expense related
    to warrants re-priced                                   |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Options expense                                                                                          |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Preferred stock dividends                                                                                |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Other comprehensive income – unrealized
    losses on available-for–sale securities                      |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|Net loss                                                                                                 |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     |  |  |  | -       |  |  |   | -     | 
|                                                                                                         |  |  |        |  |  |   |     |  |  |  |        |   |  |   |     |   |  |  |         |   |  |   |       |   |  |  |         |  |  |   |       |  |  |  |         |  |  |   |       | 
|BALANCES, December 31, 2009                                                                              |  |  | 14,171 |  |  | $ | 213 |  |  |  | 1,370  |   |  | $ | 14  |   |  |  | 112,880 |   |  | $ | 1,465 |   |  |  | 220,000 |  |  | $ | 2,200 |  |  |  | 150,000 |  |  | $ | 1,500 | 



F-7







|              |  | 8%
    Class A |  |  | 10%
    Class B |  |  | 10% Class C |  |  | 15% Class E |  |  | 10% Class F | 
|------------- |  | -------------- |  |  | --------------- |  |  | ----------- |  |  | ----------- |  |  | ----------- | 
|              |  | Shares         |  |  | Amount          |  |  | Shares      |  |  | Amount      |  |  | Shares      | 
|Stock issued: |  |                |  |  |                 |  |  |             |  |  |             |  |  |             | 

|Cash                                                                                |  |  | -      |  |  | $ | -   |  |  |  | -      |   |  | $ | -   |   |  |  | -       |   |  | $ | -     |   |  |  | -       |   |  | $ | -     |   |  |  | -       |  |  | $ | -     | 
|----------------------------------------------------------------------------------- |  |  | ------ |  |  | - | --- |  |  |  | ------ | - |  | - | --- | - |  |  | ------- | - |  | - | ----- | - |  |  | ------- | - |  | - | ----- | - |  |  | ------- |  |  | - | ----- | 
|Acquisition of Hyatt Tech Systems                                                   |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Conversion of accrued interest                                                      |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Conversion of dividends payable                                                     |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Restricted stock issued                                                             |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Earned stock compensation                                                           |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|In lieu of cash for services rendered                                               |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|In lieu of cash for financing costs                                                 |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Redemption of preferred stock                                                       |  |  | -      |  |  |   | -   |  |  |  | (1,370 | ) |  |   | (14 | ) |  |  | (880    | ) |  |   | (9    | ) |  |  | (25,000 | ) |  |   | (250  | ) |  |  | -       |  |  |   | -     | 
|Intrinsic value of convertible feature                                              |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | (3    | ) |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Stock subscriptions receivable:                                                     |  |  |        |  |  |   |     |  |  |  |        |   |  |   |     |   |  |  |         |   |  |   |       |   |  |  |         |   |  |   |       |   |  |  |         |  |  |   |       | 
|Cash received                                                                       |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Interest collected                                                                  |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Interest earned                                                                     |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Decrease in reserve                                                                 |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Stock subscriptions written-off                                                     |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Warrants issued for dividends                                                       |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Options expense                                                                     |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Options issued for earned compensation                                              |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Preferred stock dividends                                                           |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Other comprehensive income – unrealized
    losses on available-for–sale securities |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|Net income                                                                          |  |  | -      |  |  |   | -   |  |  |  | -      |   |  |   | -   |   |  |  | -       |   |  |   | -     |   |  |  | -       |   |  |   | -     |   |  |  | -       |  |  |   | -     | 
|                                                                                    |  |  |        |  |  |   |     |  |  |  |        |   |  |   |     |   |  |  |         |   |  |   |       |   |  |  |         |   |  |   |       |   |  |  |         |  |  |   |       | 
|BALANCES, December 31, 2010                                                         |  |  | 14,171 |  |  | $ | 213 |  |  |  | -      |   |  | $ | -   |   |  |  | 112,000 |   |  | $ | 1,453 |   |  |  | 195,000 |   |  | $ | 1,950 |   |  |  | 150,000 |  |  | $ | 1,500 | 



F-8







|              |  | 8%
    Class A |  |  | 10%
    Class B |  |  | 10% Class C |  |  | 15% Class E |  |  | 10% Class F | 
|------------- |  | -------------- |  |  | --------------- |  |  | ----------- |  |  | ----------- |  |  | ----------- | 
|              |  | Shares         |  |  | Amount          |  |  | Shares      |  |  | Amount      |  |  | Shares      | 
|Stock issued: |  |                |  |  |                 |  |  |             |  |  |             |  |  |             | 

|Cash                                                                                |  |  | -      |   |  | $ | -   |   |  |  | - |  |  | $ | - |  |  |  | -       |   |  | $ | -     |   |  |  | -        |   |  | $ | -      |   |  |  | -       |  |  | $ | -     | 
|----------------------------------------------------------------------------------- |  |  | ------ | - |  | - | --- | - |  |  | - |  |  | - | - |  |  |  | ------- | - |  | - | ----- | - |  |  | -------- | - |  | - | ------ | - |  |  | ------- |  |  | - | ----- | 
|Exercise of warrants                                                                |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Exercise of options                                                                 |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Secondary offering of common stock, net                                             |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Conversion of preferred stock                                                       |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Conversion of accrued interest                                                      |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Conversion of dividends payable                                                     |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Restricted stock issued                                                             |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Earned stock compensation                                                           |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Redemption of preferred stock                                                       |  |  | (1,475 | ) |  |   | (14 | ) |  |  | - |  |  |   | - |  |  |  | (3,000  | ) |  |   | (30   | ) |  |  | (195,000 | ) |  |   | (1,950 | ) |  |  | -       |  |  |   | -     | 
|Intrinsic value of convertible feature                                              |  |  | -      |   |  |   | (8  | ) |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | (12   | ) |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Options expense                                                                     |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Options issued for earned compensation                                              |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Preferred stock dividends                                                           |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Other comprehensive income – unrealized
    losses on available-for–sale securities |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|Net income                                                                          |  |  | -      |   |  |   | -   |   |  |  | - |  |  |   | - |  |  |  | -       |   |  |   | -     |   |  |  | -        |   |  |   | -      |   |  |  | -       |  |  |   | -     | 
|                                                                                    |  |  |        |   |  |   |     |   |  |  |   |  |  |   |   |  |  |  |         |   |  |   |       |   |  |  |          |   |  |   |        |   |  |  |         |  |  |   |       | 
|BALANCES, December
    31, 2011                                                     |  |  | 12,696 |   |  | $ | 191 |   |  |  | - |  |  | $ | - |  |  |  | 109,000 |   |  | $ | 1,411 |   |  |  | -        |   |  | $ | -      |   |  |  | 150,000 |  |  | $ | 1,500 | 



See accompanying notes to the consolidated
financial statements



F-9







|                                                                                                         |  | 8%
    Class G |        |  | 6%
    Class H |   |    | 8% Class J |  |  | Common Stock | 
|-------------------------------------------------------------------------------------------------------- |  | -------------- | ------ |  | -------------- | - | -- | ---------- |  |  | ------------ | 
|                                                                                                         |  | Shares         |        |  | Amount         |   |    | Shares     |  |  | Amount       | 
|BALANCES, December 31, 2008                                                                              |  |                | 11,595 |  |                | $ | 48 |            |  |  | 2            | 
|Stock issued:                                                                                            |  |                |        |  |                |   |    |            |  |  |              | 
|Cash                                                                                                     |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Acquisition of 29% of Multiband NC Incorporated                                                          |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Acquisition of 80% of – Multiband
    EC,NE, SC, MBMDU, DV, and Security                                 |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Purchase of 20% of outstanding stock of
    DirecTECH operating entities via issuance of preferred stock |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Reduction of related party debt with exchange
    for preferred stock                                    |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Conversion of notes payable                                                                              |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Conversion of accrued interest                                                                           |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Conversion of preferred stock                                                                            |  |                |        |  |                |   |    |            |  |  | -            | 
|Conversion of dividends payable                                                                          |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Repurchase of common stock                                                                               |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Redemption of preferred stock                                                                            |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Intrinsic value of convertible feature                                                                   |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Stock subscriptions receivable:                                                                          |  |                |        |  |                |   |    |            |  |  |              | 
|Interest earned                                                                                          |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Increase in reserve                                                                                      |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Warrants issued for long-term financing                                                                  |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Warrants issued for interest expense related
    to warrants re-priced                                   |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Options expense                                                                                          |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Preferred stock dividends                                                                                |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Other comprehensive income – unrealized
    losses on available-for–sale securities                      |  |                | -      |  |                |   | -  |            |  |  | -            | 
|Net loss                                                                                                 |  |                | -      |  |                |   | -  |            |  |  | -            | 
|BALANCES, December 31, 2009                                                                              |  |                | 11,595 |  |                | $ | 48 |            |  |  | 2            | 



F-10







|                                                                                    |  | 8%
    Class G |        |  | 6%
    Class H |   |    | 8%
    Class J |  |  | Common
    Stock |  
|----------------------------------------------------------------------------------- |  | -------------- | ------ |  | -------------- | - | -- | -------------- |  |  | ---------------- | -
|                                                                                    |  | Shares         |        |  | Amount         |   |    | Shares         |  |  | Amount           |  
|Stock issued:                                                                       |  |                |        |  |                |   |    |                |  |  |                  |  
|Cash                                                                                |  |                | -      |  |                | $ | -  |                |  |  | -                |  
|Acquisition of Hyatt Tech
    Systems                                               |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Conversion of accrued
    interest                                                  |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Conversion of dividends
    payable                                                 |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Restricted stock issued                                                             |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Earned stock compensation                                                           |  |                | -      |  |                |   | -  |                |  |  | -                |  
|In lieu of cash for services
    rendered                                           |  |                | -      |  |                |   | -  |                |  |  | -                |  
|In lieu of cash for financing
    costs                                             |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Redemption of preferred
    stock                                                   |  |                | -      |  |                |   | -  |                |  |  | (1               | )
|Intrinsic value of convertible
    feature                                          |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Stock subscriptions receivable:                                                     |  |                |        |  |                |   |    |                |  |  |                  |  
|Cash received                                                                       |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Interest collected                                                                  |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Interest earned                                                                     |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Decrease in reserve                                                                 |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Stock subscriptions written-off                                                     |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Warrants issued for dividends                                                       |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Options expense                                                                     |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Options issued for earned
    compensation                                          |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Preferred stock dividends                                                           |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Other comprehensive income
    – unrealized losses on available-for–sale securities |  |                | -      |  |                |   | -  |                |  |  | -                |  
|Net
    income                                                                      |  |                | -      |  |                |   | -  |                |  |  | -                |  
|BALANCES,
    December 31, 2010                                                     |  |                | 11,595 |  |                | $ | 48 |                |  |  | 2                |  



F-11







|                                                                                    |  | 8%
    Class G |        |   | 6%
    Class H |   |     | 8% Class J |  |  | Common Stock | 
|----------------------------------------------------------------------------------- |  | -------------- | ------ | - | -------------- | - | --- | ---------- |  |  | ------------ | 
|                                                                                    |  | Shares         |        |   | Amount         |   |     | Shares     |  |  | Amount       | 
|Stock issued:                                                                       |  |                |        |   |                |   |     |            |  |  |              | 
|Cash                                                                                |  |                | -      |   |                | $ | -   |            |  |  | -            | 
|Exercise of warrants                                                                |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Exercise of options                                                                 |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Secondary offering of common stock, net                                             |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Conversion of preferred stock                                                       |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Conversion of accrued interest                                                      |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Conversion of dividends payable                                                     |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Restricted stock issued                                                             |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Earned stock compensation                                                           |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Redemption of preferred stock                                                       |  |                | (1,595 | ) |                |   | (16 | )          |  |  | -            | 
|Intrinsic value of convertible feature                                              |  |                | -      |   |                |   | 9   |            |  |  | -            | 
|Options expense                                                                     |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Options issued for earned compensation                                              |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Preferred stock dividends                                                           |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Other comprehensive income – unrealized
    losses on available-for–sale securities |  |                | -      |   |                |   | -   |            |  |  | -            | 
|Net income                                                                          |  |                | -      |   |                |   | -   |            |  |  | -            | 
|BALANCES, December
    31, 2011                                                     |  |                | 10,000 |   |                | $ | 41  |            |  |  | 1            | 



See accompanying notes to the consolidated
financial statements



F-12







|                                                                                                         |  | Stock
        Subscriptions
        Receivable |     |   | Stock
        Based
        Compensation |   |        | Accumulated
        Other
        Comprehensive
        Income
        (Loss) |  |   | Accumulated
        Deficit |   |  | Noncontrolling
    Interest |         |   | Total |  
|-------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | --- | - | ---------------------------------------- | - | ------ | ----------------------------------------------------------------------------- |  | - | --------------------------- | - |  | --------------------------- | ------- | - | ----- | -
|BALANCES,
                           December 31, 2008                                                   |  | $                                              | (84 | ) |                                          | $ | 46,038 |                                                                               |  | $ | 46                          |   |  | $                           | (81,314 | ) |       | $
|Stock issued:                                                                                            |  |                                                |     |   |                                          |   |        |                                                                               |  |   |                             |   |  |                             |         |   |       |  
|Cash                                                                                                     |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Acquisition of 29%  of Multiband
    NC Incorporated                                                     |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | 394     |   |       |  
|Acquisition of 80%  of  –  Multiband
    EC,NE, SC, MBMDU, DV, and Security                              |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Purchase of 20% of outstanding stock
    of DirecTECH operating entities via issuance of preferred stock |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | (4,004  | ) |       |  
|Reduction of related party debt with exchange
    for preferred stock                                    |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Conversion of notes payable                                                                              |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Conversion of accrued interest                                                                           |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Conversion of preferred stock                                                                            |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | (8      | ) |       |  
|Conversion of dividends payable                                                                          |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Repurchase of common stock                                                                               |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Redemption of preferred stock                                                                            |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Intrinsic value of convertible feature                                                                   |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | 5       |   |       |  
|Stock subscriptions receivable:                                                                          |  |                                                |     |   |                                          |   |        |                                                                               |  |   |                             |   |  |                             |         |   |       |  
|Interest earned                                                                                          |  |                                                | (2  | ) |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Increase in reserve                                                                                      |  |                                                | 60  |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Warrants issued for long-term financing                                                                  |  |                                                | -   |   |                                          |   | 347    |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Warrants issued for interest expense related
    to warrants re-priced                                   |  |                                                | -   |   |                                          |   | 30     |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Options expense                                                                                          |  |                                                | -   |   |                                          |   | 157    |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Preferred stock dividends                                                                                |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | (367    | ) |       |  
|Other comprehensive income – unrealized
    losses on available-for–sale securities                      |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | (39                         | ) |  |                             | -       |   |       |  
|Net loss                                                                                                 |  |                                                | -   |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | (9,650  | ) |       |  
|                                                                                                         |  |                                                |     |   |                                          |   |        |                                                                               |  |   |                             |   |  |                             |         |   |       |  
|BALANCES,
        December 31, 2009                                                                      |  | $                                              | (26 | ) |                                          | $ | 46,572 |                                                                               |  | $ | 7                           |   |  | $                           | (94,944 | ) |       | $



F-13







|                                                                                    |  | Stock
        Subscriptions
        Receivable |      |   | Stock
        Based
        Compensation |   |        | Accumulated
        Other
        Comprehensive
        Income
        (Loss) |  |   | Accumulated
        Deficit |   |  | Noncontrolling
    
    Interest |         |   | Total |  
|----------------------------------------------------------------------------------- |  | ---------------------------------------------- | ---- | - | ---------------------------------------- | - | ------ | ----------------------------------------------------------------------------- |  | - | --------------------------- | - |  | -------------------------------- | ------- | - | ----- | -
|Stock issued:                                                                       |  |                                                |      |   |                                          |   |        |                                                                               |  |   |                             |   |  |                                  |         |   |       |  
|Cash                                                                                |  | $                                              | -    |   |                                          | $ | -      |                                                                               |  | $ | -                           |   |  | $                                | -       |   |       | $
|Acquisition of Hyatt Tech Systems                                                   |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Conversion of accrued interest                                                      |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Conversion of dividends payable                                                     |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Restricted stock issued                                                             |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Earned stock compensation                                                           |  |                                                | -    |   |                                          |   | 171    |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|In lieu of cash for services rendered                                               |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|In lieu of cash for financing costs                                                 |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Redemption of preferred stock                                                       |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Intrinsic value of convertible feature                                              |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | 2       |   |       |  
|Stock subscriptions receivable:                                                     |  |                                                |      |   |                                          |   |        |                                                                               |  |   |                             |   |  |                                  |         |   |       |  
|Cash received                                                                       |  |                                                | 1    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Interest collected                                                                  |  |                                                | 1    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Interest earned                                                                     |  |                                                | (1   | ) |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Decrease in reserve                                                                 |  |                                                | (223 | ) |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Stock subscriptions written-off                                                     |  |                                                | 248  |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Warrants issued for dividends                                                       |  |                                                | -    |   |                                          |   | 56     |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Options expense                                                                     |  |                                                | -    |   |                                          |   | 593    |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Options issued for earned compensation                                              |  |                                                | -    |   |                                          |   | 112    |                                                                               |  |   | -                           |   |  |                                  | -       |   |       |  
|Preferred stock dividends                                                           |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | (1,490  | ) |       |  
|Other comprehensive income – unrealized
    losses on available-for–sale securities |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | (5                          | ) |  |                                  | -       |   |       |  
|Net income                                                                          |  |                                                | -    |   |                                          |   | -      |                                                                               |  |   | -                           |   |  |                                  | 14,694  |   |       |  
|                                                                                    |  |                                                |      |   |                                          |   |        |                                                                               |  |   |                             |   |  |                                  |         |   |       |  
|BALANCES,
        December 31, 2010                                                 |  | $                                              | -    |   |                                          | $ | 47,504 |                                                                               |  | $ | 2                           |   |  | $                                | (81,738 | ) |       | $



F-14







|                                                                                    |  | Stock
        Subscriptions
        Receivable |   |  | Stock
        Based
        Compensation |   |        | Accumulated
        Other
        Comprehensive
        Income
        (Loss) |  |   | Accumulated
        Deficit |   |  | Noncontrolling
    Interest |         |   | Total |  
|----------------------------------------------------------------------------------- |  | ---------------------------------------------- | - |  | ---------------------------------------- | - | ------ | ----------------------------------------------------------------------------- |  | - | --------------------------- | - |  | --------------------------- | ------- | - | ----- | -
|Stock issued:                                                                       |  |                                                |   |  |                                          |   |        |                                                                               |  |   |                             |   |  |                             |         |   |       |  
|Cash                                                                                |  | $                                              | - |  |                                          | $ | -      |                                                                               |  | $ | -                           |   |  | $                           | -       |   |       | $
|Exercise of warrants                                                                |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Exercise of options                                                                 |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Secondary offering of common stock, net                                             |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Conversion of preferred stock                                                       |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Conversion of accrued interest                                                      |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Conversion of dividends payable                                                     |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Restricted stock issued                                                             |  |                                                | - |  |                                          |   | (2     | )                                                                             |  |   | -                           |   |  |                             | -       |   |       |  
|Earned stock compensation                                                           |  |                                                | - |  |                                          |   | 231    |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Redemption of preferred stock                                                       |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Intrinsic value of convertible feature                                              |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | (12     | ) |       |  
|Options expense                                                                     |  |                                                | - |  |                                          |   | 1,097  |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Options issued for earned compensation                                              |  |                                                | - |  |                                          |   | 170    |                                                                               |  |   | -                           |   |  |                             | -       |   |       |  
|Preferred stock dividends                                                           |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | (775    | ) |       |  
|Other comprehensive income – unrealized
    losses on available-for–sale securities |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | (2                          | ) |  |                             | -       |   |       |  
|Net income                                                                          |  |                                                | - |  |                                          |   | -      |                                                                               |  |   | -                           |   |  |                             | 7,044   |   |       |  
|                                                                                    |  |                                                |   |  |                                          |   |        |                                                                               |  |   |                             |   |  |                             |         |   |       |  
|BALANCES,
                                      December 31, 2011                   |  | $                                              | - |  |                                          | $ | 49,000 |                                                                               |  | $ | -                           |   |  | $                           | (75,481 | ) |       | $



See accompanying notes to the consolidated
financial statements



F-15







MULTIBAND CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2011, 2010
AND 2009

(in thousands)



|                                                                                                                          |  | 2011 |        |   | 2010 |   |        | 2009 | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|OPERATING ACTIVITIES                                                                                                      |  |      |        |   |      |   |        |      | 
|Net income (loss)                                                                                                         |  | $    | 7,044  |   |      | $ | 14,694 |      | 
|Adjustments to reconcile net income (loss) to cash flows
    from operating activities:                                   |  |      |        |   |      |   |        |      | 
|Depreciation and amortization                                                                                             |  |      | 6,757  |   |      |   | 8,298  |      | 
|Amortization and expense related to debt issuance costs                                                                   |  |      | 338    |   |      |   | 74     |      | 
|Amortization of original issue discount                                                                                   |  |      | 97     |   |      |   | 96     |      | 
|Amortization of imputed interest discount                                                                                 |  |      | -      |   |      |   | -      |      | 
|Loss on forgiveness of notes receivable                                                                                   |  |      | -      |   |      |   | -      |      | 
|Impairment of goodwill, intangibles and property and
    equipment                                                        |  |      | 246    |   |      |   | 159    |      | 
|Loss (gain) on sale of property and equipment                                                                             |  |      | 112    |   |      |   | 9      |      | 
|Other-than-temporary impairment losson available-for-sale
    securities                                                  |  |      | 1,078  |   |      |   | -      |      | 
|Gain on bargain purchase                                                                                                  |  |      | (166   | ) |      |   | -      |      | 
|Change in allowance for doubtful accounts receivable                                                                      |  |      | -      |   |      |   | (698   | )    | 
|Change in reserve for stock subscriptions and interest
    receivable                                                     |  |      | -      |   |      |   | 24     |      | 
|Warrants issued for services or modified as interest
    expense                                                          |  |      | -      |   |      |   | -      |      | 
|Services provided in exchange for reduction of related
    parties debt                                                   |  |      | -      |   |      |   | (11    | )    | 
|Common shares issued for expenses                                                                                         |  |      | -      |   |      |   | -      |      | 
|Stock based compensation expense                                                                                          |  |      | 1,452  |   |      |   | 863    |      | 
|Reduction in interest receivable by increase in note
    receivable                                                       |  |      | -      |   |      |   | (2     | )    | 
|Deferred income taxes, net                                                                                                |  |      | (61    | ) |      |   | (7,495 | )    | 
|Changes in operating assets and liabilities:                                                                              |  |      |        |   |      |   |        |      | 
|Accounts receivable                                                                                                       |  |      | (9,797 | ) |      |   | (2,189 | )    | 
|Other receivable – related party                                                                                          |  |      | 62     |   |      |   | 484    |      | 
|Costs and estimated earnings in excess of billings on uncompleted projects                                                |  |      | 35     |   |      |   | -      |      | 
|Inventories                                                                                                               |  |      | (3,201 | ) |      |   | (2,438 | )    | 
|Prepaid expenses and other                                                                                                |  |      | 6,359  |   |      |   | 4,306  |      | 
|Income tax receivable                                                                                                     |  |      | 2,385  |   |      |   | (3,133 | )    | 
|Insurance collateral                                                                                                      |  |      | (12    | ) |      |   | -      |      | 
|Other assets                                                                                                              |  |      | 120    |   |      |   | 256    |      | 
|Accounts payable and accrued liabilities                                                                                  |  |      | 8,468  |   |      |   | (477   | )    | 
|Billings in excess of costs and estimated earnings on uncompleted projects                                                |  |      | 13     |   |      |   | -      |      | 
|Accrued income taxes                                                                                                      |  |      | -      |   |      |   | (295   | )    | 
|Deferred service obligations and revenue                                                                                  |  |      | (252   | ) |      |   | (780   | )    | 
|Net cash flows from operating activities                                                                                  |  |      | 21,077 |   |      |   | 11,745 |      | 
|INVESTING ACTIVITIES                                                                                                      |  |      |        |   |      |   |        |      | 
|Purchases of property and equipment                                                                                       |  |      | (1,720 | ) |      |   | (1,304 | )    | 
|Checks issued in excess of bank balance with the purchase of subsidiaries                                                 |  |      | (7     | ) |      |   | -      |      | 
|Acquisition of subsidiaries (see Note 2)                                                                                  |  |      | (2,000 | ) |      |   | -      |      | 
|Checks issued in excess of bank balance with the purchase
    of 80% of outstanding stock of DirecTECH operating entities |  |      | -      |   |      |   | -      |      | 
|Purchases of intangible assets                                                                                            |  |      | (781   | ) |      |   | (40    | )    | 
|Purchases of available-for-sale securities                                                                                |  |      | (2,270 | ) |      |   | -      |      | 
|Proceeds from sale of property and equipment                                                                              |  |      | -      |   |      |   | -      |      | 
|Collections on  notes receivable                                                                                          |  |      | 5      |   |      |   | 3      |      | 
|Net cash flows from investing activities                                                                                  |  |      | (6,773 | ) |      |   | (1,341 | )    | 



F-16







MULTIBAND CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2011, 2010
AND 2009

(in thousands)



|                                                                  |  | 2011 |         |   | 2010 |   |         | 2009 | 
|----------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|FINANCING ACTIVITIES                                              |  |      |         |   |      |   |         |      | 
|Borrowings on line of credit                                      |  |      | -       |   |      |   | -       |      | 
|Repayment on line of credit                                       |  |      | (49     | ) |      |   | -       |      | 
|Debt issuance costs                                               |  |      | (150    | ) |      |   | -       |      | 
|Payments on long-term debt                                        |  |      | (72     | ) |      |   | (507    | )    | 
|Payments on capital lease obligations                             |  |      | (453    | ) |      |   | (573    | )    | 
|Payments on related parties debt                                  |  |      | (165    | ) |      |   | (680    | )    | 
|Payment on mandatory redeemable preferred stock                   |  |      | -       |   |      |   | -       |      | 
|Payments for stock issuance costs                                 |  |      | (70     | ) |      |   | (15     | )    | 
|Payments on short-term debt                                       |  |      | (10,037 | ) |      |   | (8,966  | )    | 
|Proceeds from related parties debt                                |  |      | -       |   |      |   | -       |      | 
|Proceeds from issuance of long-term debt                          |  |      | -       |   |      |   | -       |      | 
|Proceeds from issuance of preferred stock                         |  |      | -       |   |      |   | -       |      | 
|Proceeds from secondary offering – net of expenses                |  |      | 16,176  |   |      |   | -       |      | 
|Payments received on stock subscriptions and interest receivables |  |      | -       |   |      |   | 2       |      | 
|Redemption of common stock                                        |  |      | -       |   |      |   | -       |      | 
|Redemption of preferred stock                                     |  |      | (2,009  | ) |      |   | (276    | )    | 
|Payment of preferred stock dividends                              |  |      | (606    | ) |      |   | (425    | )    | 
|Exercise of options                                               |  |      | 55      |   |      |   | -       |      | 
|Exercise of warrants                                              |  |      | 41      |   |      |   | -       |      | 
|Net cash flows from financing activities                          |  |      | 2,661   |   |      |   | (11,440 | )    | 
|INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS              |  |      | 16,965  |   |      |   | (1,036  | )    | 
|CASH AND CASH EQUIVALENTS - Beginning
    of Year                 |  |      | 1,204   |   |      |   | 2,240   |      | 
|CASH AND CASH
    EQUIVALENTS - END OF YEAR                       |  | $    | 18,169  |   |      | $ | 1,204   |      | 



See accompanying notes to the consolidated
financial statements





F-17







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



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 (1) contract installation services
for the pay television industry (including satellite and broadband cable operators), internet providers and retailers, (2) voice,
data and video services to residents of multi-dwelling units and (3) design, engineering and construction services for the wired
and wireless telecommunications industry, including public safety networks, renewable energy services including wind and solar
applications and other design and construction services.  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.  The Company earned net income of $7,044 for the year
ended December 31, 2011, $14,694 for the year ended December 31, 2010, and incurred a net loss of $11,377 for the year ended December
31, 2009.  At December 31, 2011, the Company had an accumulated deficit of $75,481.  The Company's ability
to continue as a going concern is dependent on maintaining profitability and/or raising additional capital.  Management
may sell, if prudent, certain assets on a strategic basis for prices agreeable to the Company and/or obtain additional debt or
equity capital to meet all of its existing cash obligations and fund commitments on planned Multiband projects; however, there
can be no assurance that the sources will be available or available on terms favorable to the Company.  Management anticipates
that the impact of the actions listed below will generate sufficient cash flows to pay current liabilities, long-term debt, capital
and operating lease obligations and fund the Company's operations for the next twelve months:



|1. | Maintain continued profitability in the Company’s FS segment (see Note 11).                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Evaluate factors such as anticipated usage and inventory turnover to maintain optimal inventory
    levels.                                                       
|3. | Obtain senior debt financing with extended terms to refinance the Company’s note payable
    to DirecTECH Holding Company, Inc., which matures on January 1, 2013.
|4. | Expand call center support with sales of call center services to both existing and future
    system operators.                                                   
|5. | Solicit additional equity investment in the Company by issuing either preferred or common
    stock for general corporate purposes.                               
|6. | Improve profitability in newly diversified business segments                                                                                                      
|   |                                                                                                                                                                   

Principles of Consolidation

The 2011 consolidated financial statements
include the accounts of Multiband Corporation (MBCorp) and its wholly owned subsidiaries, Minnesota Digital Universe, Inc. (MNMDU),
Multiband Subscriber Services, Inc. (MBSS), Multiband NC Incorporated (NC), Multiband NE Incorporated (NE), Multiband SC Incorporated
(SC), Multiband EC Incorporated (EC), Multiband MDU Incorporated (MBMDU), Multiband DV Incorporated (DV), Multiband Security Incorporated
(Security), Multiband Engineering and Wireless, Southeast, Inc. (SE) and Multiband Engineering and Wireless, Midwest, Inc. (MW).
Effective December 31, 2011, the NC, SC and EC subsidiaries were merged into the NE subsidiary with NE being the surviving entity.
Effective February 20, 2012, NE has been renamed Multiband Field Services, Incorporated (MBFS).



Effective September 1, 2011, Multiband Corporation purchased
from WPCS International, Inc. (WPCS),two of their subsidiary corporations named WPCS International-
Sarasota, Inc. and WPCS International-St. Louis, Inc. Effective November 1, 2011, these entities have been renamed Multiband Engineering
and Wireless, Southeast, Inc. (SE) and Multiband Engineering and Wireless, Midwest, Inc. (MW) (see Note 2).



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



F-18









MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



The 2010 and 2009 consolidated financial
statements include the accounts of all wholly-owned subsidiaries including the acquired companies that were purchased, effective
January 2, 2009, when the Company purchased 80% of the issued and outstanding shares of common stock of all of the DirecTECH Holding
Company, Inc. (DTHC) operating subsidiaries (DirecTECH) (an additional 29% of NC, 51% of which was previously purchased effective
March 1, 2008 (see Note 2) and 80% of NE, SC, EC, MBMDU, DV and Security (see Note 2)).  The noncontrolling interest
in subsidiaries on the consolidated balance sheet and consolidated statement of operations represents DTHC’s 20% ownership
of NE, SC, EC, NC, MBMDU, DV Incorporated (DV) and Multiband Security from January 2, 2009 to December 17, 2009.  On
December 17, 2009, the Company purchased the remaining 20% of the issued and outstanding shares of common stock of all of the
DTHC operating subsidiaries (DirecTECH) and transferred $5,996 of noncontrolling interest to Multiband’s controlling interest.  The
Company pushes down applicable overhead, interest expense and amortization expense from the parent company (MBCorp) to its subsidiaries.  All
significant intercompany transactions and balances have been eliminated in consolidation.



Revenue Recognition

The Company recognizes revenue in accordance
with the Accounting Standards Code (ASC) Topic No. 605, Revenue Recognition, which requires that four basic criteria be met before
revenue can be recognized: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable;
(iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered.  The
Company recognizes revenue as services are performed and completed.



The Company has three operating segments
as follows: (1) FS, where the Company provides installation services to pay television (satellite and broadband cable) providers,
internet providers and commercial customers, (2) MDU, where the Company bills voice, internet and video services to subscribers
as owner/operator and also acts as a master service operator for DIRECTV, receiving net cash payments for managing video subscribers
through its network of system operators who are billed directly by DIRECTV and (3) Engineering, Energy & Construction (EE&C)
where the Company provides engineering and construction services for the wired and wireless telecommunications industry, including
public safety networks, renewable energy services including wind and solar applications and other design and construction services,
usually done on a project basis (see Note 11 for changes with segments descriptions).



The Company earns FS segment revenue when
services have been completed.



The Company earns MDU segment revenue
as follows:



| | · | from
                                                                                                               the sale and installation
                                                                                                               of voice, video
                                                                                                               and data communications
                                                                                                               products; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | from
                                                                                                               the direct billing
                                                                                                               of user charges
                                                                                                               to residents of
                                                                                                               multi-dwelling
                                                                                                               units, through
                                                                                                               the activation
                                                                                                               and enhancement
                                                                                                               of, and related
                                                                                                               residual fees,
                                                                                                               of video programming,
                                                                                                               voice and data
                                                                                                               communication services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



MDU segment user charges are recognized
as revenue in the period the related services are provided.  Any amounts billed prior to services being provided are
included in our balance sheets as deferred service obligations and revenues.



Revenue generated from activation of video
programming services is earned in the month of activation. According to the Company’s Master System Operator agreement with
DIRECTV, in the event that a customer cancels within the first twelve months of service, DIRECTV has the right to charge the Company
for a portion of the activation fees previously received. The Company has estimated the potential chargeback of commissions received
on activation fees during the past twelve months based on historical percentages of customer cancellations and has included that
amount as a reduction of revenue. Residual income is earned as services are provided by DIRECTV through its system operators.
As a master system operator for DIRECTV, the Company earns a fixed percentage based on net cash received by DIRECTV for recurring
monthly services, a variable amount depending on the number of activations in a given month, and a variable amount for coordinating
improvements of systems used to deliver enhanced programming services. The Company’s master system operator relationship
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 assistance.



The Company reports the aforementioned
MDU voice, data, and video revenues on a gross basis based on the following factors: the Company has the primary obligation in
the arrangement with its customers; the Company controls the pricing of its services; the Company performs customer service for
the agreements; the Company approves customers; and the Company assumes the risk of payment for services provided. The Company
offers some products and services that are provided by third party vendors. The Company reviews the relationship between itself,
the vendor and the end customer on an individual basis to assess whether revenue should be reported on a gross or net basis. As
an example, the Company’s resold satellite digital television revenue is reported on a net basis.



F-19







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



MDU segment revenue generated by the support center to service
third party clients by providing billing and call center support services is recognized in the period the related services are
provided.



Customers contract for both the purchase
and installation of voice and data networking technology products and certain video technologies products. Revenue is recognized
when the products are delivered and installed and the customer has accepted and has the ability to fulfill the terms of the contract.



The Company’s policy is to present
taxes imposed on revenue-producing transactions on a net basis.



The Company generates revenues in the
EE&C segment by providing design-build engineering and wireless services for communications infrastructure. We have customer
contracts that span varying periods of time. We report revenue from contracts when persuasive evidence of an arrangement exists,
fees are fixed or determinable, and collection is reasonably assured.



For the design-build engineering and wireless
revenues, the Company records revenue and profit from long-term contracts on a percentage-of-completion basis, measured by the
percentage of contract costs incurred to date to the estimated total costs for each contract.  Contracts in process
are valued at cost plus accrued profits less earned revenues and progress payments on uncompleted contracts. Contract costs include
direct materials, direct labor, third party subcontractor services and those indirect costs related to contract performance.  Contracts
are generally considered substantially complete when engineering and/or site construction is completed.



For the design-build engineering and wireless
revenues, the Company has numerous contracts that are in varying stages of completion. Such contracts require estimates to determine
the appropriate revenue and costs to recognize. Cost estimates are reviewed monthly on a contract-by-contract basis, and are revised
periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative
to the date of the revision.  Significant management judgments and estimates, including the estimated cost to complete
projects, which determines the project’s percent complete, must be made and used in connection with the revenue recognized
in the accounting period.  Current estimates may be revised as additional information becomes available. If estimates
of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. The Company
does not anticipate any losses at December 31, 2011.



The asset “costs and estimated earnings in excess of
billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability “billings
in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.



The lengths of the contracts vary. Assets and liabilities related
to long-term contracts are included in current assets and current liabilities as they will be liquidated in the normal course
of contract completion, although this may require more than one year.



The Company also recognizes certain revenue
from short-term contracts when equipment is delivered or the services have been provided.



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 financial institutions.  The balances, at times, may exceed federally
insured limits.



F-20







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Marketable Securities

We classify investments in marketable
securities at the time of purchase.  At December 31, 2011 and 2010, all marketable securities are classified as available-for-sale
and as such, the investments are recorded at fair valuewith the unrealized gains and losses reported
in stockholders’ equity. Available-for-sale securities are investments in debt and equity securities that have a readily
determinable fair value not classified as trading securities or as held-to-maturity securities. Realized gains and losses and
declines in value judged to be other-than-temporary are included in other expenses. On an ongoing basis, the Company evaluates
its available-for-sale securities to determine if a decline in value is other-than-temporary. A decline in market value of any
available-for-sale security below cost that is determined to be other-than-temporary, results in an impairment to the fair value
of the investment.  Gains and losses on the sale of marketable securities are recognized in operations based
on the specific identification method.  Other-than-temporary impairments are charged to earnings
and a new cost basis for the security is established.At December 31, 2011, our investments consisted of common shares
of WPCS International, Inc. (WPCS). At December 31, 2010, our investment consisted of common shares of Western Capital Resources,
Inc. (WCRS). For the year ended December 31, 2011, the Company recorded a total other-than-temporary
impairment loss of $1,078 on its investment in the common shares of WPCS, which is recognized in other expenses of the consolidated
statements of operations. In order to assess the likelihood that the stock price would recover to the price the Company paid,
the Company reviewed WPCS trading history in 2010 and 2011. The trading history along with the financial performance of WPCS in
2011 were indicators of other-than-temporary impairment. There were no other-than-temporary impairment losses recorded in 2010
and 2009.



Accounts Receivable

The Company reviews customers' credit
history before extending unsecured credit and establishes an allowance for uncollectible amounts based upon factors surrounding
the credit risk of specific customers and other information.  For the MDU and Field Service segments, the Company has
concentrations of credit risk with 82.4% of accounts receivable at December 31, 2011, due from one customer (see Note 16).  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 approximately $112 at December 31, 2011 and 2010, respectively.



Inventories

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



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.   Assets purchased under a capital lease are amortized using the straight-line method
over the shorter of the lease term or the estimated useful life of the asset except if the lease contains a bargain purchase option
or ownership automatically transfers by the end of the lease when it is depreciated or amortized using the straight-line method
over its estimated useful life. Leasehold improvements are amortized using the straight-line method over the shorter of the lease
term or the estimated useful life of the asset.



Long-lived Assets

The Company reviews its long-lived assets
for events or changes in circumstances that may indicate that the carrying amount of a long-lived asset may not be recoverable
or exceeds its fair value.  The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset.  An impairment loss shall
be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.  Fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.  The Company's long-lived assets include property, equipment, leasehold
improvements and intangibles, subject to amortization.  At December 31, 2011, the Company had net property and equipment
of $6,304 which represents approximately 4% of total assets.  At December 31, 2011, the Company had net intangibles
of $14,597 which represented approximately 10% of total assets (see Note 1).



F-21







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



For the FS and EE&C segments, the
income approach was used to measure fair value for those long-lived assets.  The income approach was based on the present
value of five years of discounted cash flows.  For the MDU segment, the market approach was used which included considering
market values from comparable transactions to measure fair value of those long-lived assets.  Comparable transactions
were identified based on their similarities to the reporting unit with similar features including the age of equipment and length
of ROE contracts. In 2010, the Company recorded an impairment charge for the MDU segment related to two partially completed projects
with assets of $135.  The owners of the MDU properties were in financial distress and the build-outs may never be completed.  The
Company estimates that the full value of the work in process may not be recognized and has recorded an impairment charge against
the value of the work in process.  In 2010, the Company did not record any impairment to long-lived assets related to
the FS segment. The EE&C segment did not exist in 2010.  There was no impairment recorded for any of the segments
at December 31, 2009.



Deferred Revenue

The Company invoices for certain installation
upgrade projects upon order of project equipment. Revenue is deferred on these projects until the equipment is installed.



Goodwill

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



For our annual goodwill impairment test,
our reporting units were the same as our operating segments.  We tested impairment for the FS and MDU segments, which
both had goodwill at December 31, 2011 and 2010.   The Company utilized the best information available, including prices
for similar assets and liabilities and the results of using other fair-value measurement techniques.  The income approach
was used to determine the fair value of the FS segment, whereby the fair value was calculated based on the discounted cash flows,
plus the present value of projected terminal value excluding amortization expense, calculated based on the Gordon Growth Model
and applying a discount rate that represented the Company’s weighted average cost of capital (WACC).  For the
MDU segment, the market approach, considering market values from comparable transactions, was used to measure fair value.  Comparable
transactions were identified based on their similarities to the reporting unit with similar economic prospects.



We assessed the reasonableness of the fair value calculations
for our reporting units in relation to our total market capitalization and invested capital.  The Company analyzed its stock
price and overall market capitalization which, although fluctuating throughout 2010 and 2011, trended upward overall.  Following
the Company’s secondary stock offering in June 2011, the Company’s market capitalization, and therefore invested capital,
increased significantly.  At the time of the goodwill impairment analysis completed effective November 30, 2011, the Company’s
invested capital, defined as market capitalization plus interest-bearing debt, exceeded the combined fair value of the Company’s
reporting units, which approximated the market capitalization as of that date.



In November 2011, the Company terminated
its contract to install home security systems with a third party. Accordingly, as of December 31, 2011, the Company recorded an
impairment charge of $246 based on the amount of goodwill associated with that contract, which was included in the FS segment.
In 2010, the Company recorded an impairment charge of $25 related to the US Install goodwill which was part of the MDU segment.



Goodwill was $37,796 and $38,042 at December
31, 2011 and 2010, respectively.  The goodwill recorded as part of our FS segment was $37,440 and $37,686 at December
31, 2011 and 2010, respectively.  The goodwill recorded as part of our MDU segment was $356 and $356 at December 31,
2011 and 2010, respectively. The EE&C segment did not have any goodwill at December 31, 2011 and 2010. The Company concluded
there was no other goodwill impairment at December 31, 2011 and 2010.



F-22







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Components of intangible assets are as follows:

|                                          |  | December 31, 2011 |        |  | December 31, 2010 |  
|----------------------------------------- |  | ----------------- | ------ |  | ----------------- | -
|                                          |  | Gross Carrying    |        |  | Accumulated       |  
|                                          |  | Amount            |        |  | Amortization      |  
|Intangible assets subject to amortization |  |                   |        |  |                   |  
|Right of entry contracts                  |  | $                 | 3,174  |  |                   | $
|Contracts with DIRECTV                    |  |                   | 27,204 |  |                   |  
|Customer contracts                        |  |                   | 402    |  |                   |  
|Total                                     |  | $                 | 30,780 |  |                   | $



Amortization of intangible assets was
$3,606, $5,437, and $8,216 for the years ended December 31, 2011, 2010 and 2009, respectively.  Estimated amortization
expense of intangible assets for the years ending December 31, 2012, 2013, 2014, 2015, 2016 and thereafter is $3,577, $3,471,
$3,276, $3,198, $848 and $227, respectively.  The weighted average remaining life of the intangibles is 4.31 years with
right of entry average life of 5.52 years, contracts with DIRECTV of 4.25 years and customer contracts/lists of 2.0 years as of
December 31, 2011.



The Company amortizes the right of entry
contracts, contracts with DIRECTV, and customer contracts, over their estimated useful lives ranging from 27 to 120 months. The
Company capitalizes material costs incurred to renew or extend terms of intangible assets.



Debt Issuance Costs

The Company has capitalized $150 and $191
of debt issuance costs during the years ended December 31, 2011 and 2010, respectively.  The Company amortizes the debt
issuance costs under the effective method over the life of the related debt instrument and includes these costs with other assets
on the consolidated balance sheets.  During 2011, the Company expensed an additional $279 of debt issuance costs for
incompleted financings. Amortization of debt issuance costs of $59 and $74 for the years ended December 31, 2011 and 2010, respectively,
are included in interest expense in the consolidated statements of operations. The remaining balance of deferred costs were $224
and $36 at December 31, 2011 and 2010, respectively.



Group Health and Workers’ Compensation
Insurance Coverage

We use a combination of self-insurance
and third-party carrier insurance with predetermined deductibles that cover certain insurable risks.



We are self-insured for health insurance
covering the range of liability up to $275 per claim where our management expects most claims to occur.  The Company
records liabilities for claims reported and claims that have been incurred but not reported, based on historical experience and
industry data.  Insurance and claims accruals reflect the estimated cost for group health and workers’ compensation
claims not covered by insurance.  The insurance and claims accruals are recorded at the estimated ultimate payment amounts.  Such
insurance and claims accruals are based upon individual case estimates and estimates of incurred-but-not-reported losses using
loss development factors based upon historical experience and industry data.



In most of the states the Company operates
in, the Company was self-insured for workers’ compensation claims up to $100 in 2011, $250 in 2010 and $100 in 2009, plus
administrative expenses, for each occurrence. If any liability claims are substantially in excess of coverage amounts, such claims
are covered under premium-based policies issued by insurance companies to coverage levels that management considers adequate.  If
either we exceed our coverage amounts too often and our premiums rise, or if a high number of claims are made for which we are
responsible (because they are below the deductible), our profitability and cash flow may be adversely affected. In Ohio and North
Dakota, the Company purchases state-funded premium based workers’ compensation insurance. The Company has placed restricted
deposits with the insurance company in the amounts of $8,061 and $3,749 at December 31, 2011 and 2010, respectively, which is
included in insurance collateral in the accompanying consolidated balance sheets, related to the 2011 and 2010 plan years.



Advertising Costs

Advertising costs are charged to expense
as incurred.  Advertising costs were $53, $28, and $153, for the years ended December 31, 2011, 2010 and 2009, respectively,
and are included in selling, general and administrative expenses in the consolidated statements of operations.



F-23







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Income Taxes



The Company accounts for deferred tax
assets and liabilities under the liability method.  Deferred tax liabilities are recognized for temporary differences
that will result in taxable amounts in future years.  Deferred tax assets are recognized for deductible temporary differences
and tax operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized
or settled.  The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future
taxable income.



Stock-Based Compensation

The Company measures and recognizes compensation
expense for all stock-based payments at fair value.  The financial statements for the years ended December 31, 2011,
2010, and 2009 recognize compensation cost for the portion of outstanding awards which have vested during the applicable year.  The
Company recognizes stock-based compensation costs on a straight-line basis over the requisite service period of the award, which
is generally the option vesting term.  For the years ended December 31, 2011, 2010, and 2009, total stock-based compensation
expense of $1,097 ($0.06 per share basic and $0.05 per share diluted), $593 ($0.06 per share basic and $0.04 per share diluted),
and $157 ($0.02 per share, basic and diluted), respectively, was included in selling, general and administrative expenses in the
consolidated statements of operations.  As of December 31, 2011, there was $1,431 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under the Plan.  That cost is expected to be
recognized over a weighted-average period of 1.68 years.  This is an estimate based on options currently outstanding
and therefore this projected expense could be more in the future.  The total fair value of stock options vested during the
years ended December 31, 2011 and 2010 was $989 and $189, respectively.



The Company’s determination of fair
value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock
price as well as assumptions regarding a number of variables.  These variables include, but are not limited to the Company’s
expected stock price volatility, and actual and projected stock option exercise behaviors and forfeitures.  An option's
expected term is the estimated period between the grant date and the exercise date of the option.  As the expected-term
period increases, the fair value of the option and the compensation cost will also increase.  The expected-term assumption
is generally calculated using historical stock option exercise data.  The Company does not have historical exercise
data to develop such an assumption.  In cases where companies do not have historical data and where the options meet
certain criteria, the use of a simplified expected-term calculation is allowed.  Accordingly, the Company calculated
the expected terms using the simplified method.



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



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



In determining the compensation cost of
the options granted during fiscal 2011, 2010, and 2009, the fair value of each option grant has been estimated on the date of
grant using the Black-Scholes option pricing model and the weighted average assumptions used in these calculations are summarized
as follows:





|                                 |  | 2011 |           |   | 2010 |  |           | 2009 | 
|-------------------------------- |  | ---- | --------- | - | ---- |  | --------- | ---- | 
|Risk-free interest rate          |  |      | 1.43      | % |      |  | 2.34      | %    | 
|Expected life of options granted |  |      | 4.3 years |   |      |  | 4.9 years |      | 
|Expected volatility range        |  |      | 99.9      | % |      |  | 95.9      | %    | 
|Expected dividend yield          |  |      | 0         | % |      |  | 0         | %    | 





Restricted Stock

The Company awards restricted common shares
to selected employees.  Recipients are not required to provide any consideration other than continued service.  Company
share awards are subject to certain restrictions on transfer, and all or part of the shares awarded may be subject to forfeiture
upon the occurrence of certain events, including employment termination.  The restricted stock is valued at its grant
date fair value and expensed over the requisite service period or the vesting term of the award.  For the years ended
December 31, 2011, 2010, and 2009, the Company recognized stock-based compensation expense of $355 ($0.02 per share basic and
$0.02 per share diluted), $271 ($0.03 per share basic and $0.02 per share diluted), and $0 ($0.00 per share basic and $0.00 per
share diluted), respectively, which is included in selling, general and administrative expenses in the consolidated statements
of operations.  At December 31, 2011, there was approximately $176 of unrecognized stock-based compensation expense
associated with the non-vested restricted stock granted.  Stock-based compensation expense relating to these restricted
shares is being recognized over a weighted-average period of .87 years.  The total fair value of shares vested during
the years ended December 31, 2011 and 2010 was $127 and $100, respectively.



F-24







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Income per Common Share

Basic income per common share is computed
by using income attributable to common stockholders and the weighted average number of common shares outstanding.  Diluted
income per common share reflects the weighted average number of common shares outstanding plus all potentially dilutive common
shares outstanding during the period.  Potentially dilutive shares consists of shares issuable upon the exercise of
stock options, stock warrants and unvested restricted stock (using treasury stock method) and conversion of preferred shares (using
the as converted method).  All options, warrants, convertible preferred shares, and unvested restricted stock during
the year ended December 31, 2009 were excluded from the calculation of diluted loss per share as their effect was anti-dilutive
due to the Company’s net loss for the period.  A reconciliation of the weighted average number of common and common
equivalent shares outstanding and awards excluded from the diluted income per share calculation, as they were anti-dilutive, are
as follows:



|                                                         |  | 2011 |            |  | 2010 |  
|-------------------------------------------------------- |  | ---- | ---------- |  | ---- | -
|Numerator:                                               |  |      |            |  |      |  
|Income attributable to common stockholders               |  | $    | 6,257      |  |      | $
|Additions: Dividends paid on convertible preferred stock |  |      | 363        |  |      |  
|                                                         |  |      |            |  |      |  
|Net income for diluted earnings per share                |  | $    | 6,620      |  |      | $
|Denominator:                                             |  |      |            |  |      |  
|Weighted average common shares outstanding – basic       |  |      | 16,975,753 |  |      |  
|                                                         |  |      |            |  |      |  
|Assumed conversion of diluted securities:                |  |      |            |  |      |  
|Convertible preferred shares                             |  |      | 2,103,925  |  |      |  
|Stock options                                            |  |      | 1,015,881  |  |      |  
|Restricted stock                                         |  |      | 269,840    |  |      |  
|Warrants                                                 |  |      | 261,131    |  |      |  
|Potentially dilutive common shares                       |  |      | 3,650,777  |  |      |  
|                                                         |  |      |            |  |      |  
|Weighted average common shares outstanding - diluted     |  |      | 20,626,529 |  |      |  
|Earnings per common share:                               |  |      |            |  |      |  
|Basic                                                    |  | $    | 0.37       |  |      | $
|Diluted                                                  |  | $    | 0.32       |  |      | $
|                                                         |  |      |            |  |      |  
|Awards excluded from diluted income per share            |  |      | 847,337    |  |      |  



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.  The Company believes
that it has three operating segments as follows: (1) FS, where the Company provides installation services to pay television (satellite
and broadband cable) providers, internet providers and commercial customers, (2) MDU, where the Company bills voice, internet
and video services to subscribers as owner/operator and also acts as a master service operator for DIRECTV, receiving net cash
payments for managing video subscribers through its network of system operators who are billed directly by DIRECTV and (3) Engineering,
Energy & Construction (EE&C) where the Company provides engineering and construction services for the wired and wireless
telecommunications industry, including public safety networks, renewable energy services including wind and solar applications
and other design and construction services, mostly done on a project basis (see Note 11).



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,
charge back of DIRECTV activation fees, inventory obsolescence, stock based compensation, property and equipment estimated useful
lives, goodwill and intangible assets carrying value and the valuation of deferred tax assets.



F-25







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Financial Instruments

The carrying amount of all financial instruments
approximates fair value. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and short-term
debt approximate fair value because of the short maturity of these instruments.  The fair value of capital lease obligations
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.



Recent Accounting Pronouncements

In June 2011, the FASB issued an amendment
to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous
statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing
accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the
face of the income statement. The Company adopted this guidance on a retrospective basis and the adoption did not have a material
effect on its consolidated financial statements.



In December 2011, the FASB issued ASU
2011-11, Balance Sheet (Topic 210): Disclosure about Offsetting Assets and Liabilities, which requires an entity to include
additional disclosures about financial instruments and transactions eligible for offset in the statement of financial position,
as well as financial instruments subject to a master netting agreement or similar arrangement. ASU
2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual
periods. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.



Reclassifications

Certain accounts in the prior year’s
audited consolidated financial statements have been reclassified for comparative purposes to conform to the current year’s
presentation. The first reclassification was a change in presentation of related party debt and other receivable related party
as of December 31, 2010 to reflect the current presentation due to the lender no longer being a related party (see Note 17). The
second reclassification was to increase net current deferred tax assets $1,929, decrease long-term deferred tax assets $1,897,
and increase long-term deferred tax liabilities $32 to classify the amount of the net operating loss carryforwards expected to
be utilized over the next twelve months as current and the workers’ compensation claims paid after twelve months as long-term.
The third reclassification was to change the presentation of the business segment footnote (Note 12) to incorporate the energy,
engineering and construction activities of the Company. The fourth reclassification was to report the balance of insurance collateral
separately from other assets. These reclassifications had no effect on reported net income or stockholders’ equity.



NOTE 2 – Business Acquisitions/Sales
Transactions



Effective September 1, 2011, the Company
purchased from WPCS International, Inc. (WPCS), the outstanding stock of two of their subsidiary corporations named WPCS International-Sarasota,
Inc. and WPCS International-St. Louis, Inc. Effective November 1, 2011, these entities have been renamed Multiband Engineering
and Wireless, Southeast, Inc. (SE) and Multiband Engineering and Wireless, Midwest, Inc. (MW). The consideration for the purchase
was $2,000, $750 of which was taken from an escrow account previously set up between the Company and WPCS. The companies purchased
provide design, engineering and construction services for the wired and wireless telecommunications industry, including public
safety networks, renewable energy services including wind and solar applications and other design and construction services. This
acquisition allows the company to diversify its sources of revenue and expand its customer base. Also, the purchase added an engineering
component to the business which may enhance the design and delivery of current services the company already provides. The Company
evaluated the purchase price based on the fair value of assets acquired and liabilities assumed and determined that there was
a gain on a bargain purchase of $166 which is included in the consolidated statement of operations for the year ended December
31, 2011. The bargain purchase was a result of the deferred tax assets acquired as part of the purchase. The Company had, through
February, 2012, an exclusive arrangement to purchase the balance of WPCS, pursuant to a non-binding letter of intent (LOI). The
exclusive period lapsed on February 1, 2012 and a deposit of $250 was forfeited which is included in selling, general and administrative
expense in the consolidated statements of operations for the year ended December 31, 2011.



F-26







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



A summary of the transaction is as follows:





|Accounts receivable                                                         |  | $ | 1,339  |  
|--------------------------------------------------------------------------- |  | - | ------ | -
|Costs in excess of billings and estimated earnings on uncompleted contracts |  |   | 1,033  |  
|Property and equipment                                                      |  |   | 452    |  
|Deferred taxes, net                                                         |  |   | 440    |  
|Various other assets                                                        |  |   | 141    |  
|Accounts payable and accrued liabilities                                    |  |   | (1,108 | )
|Billings in excess of cost and estimated earnings on uncompleted contracts  |  |   | (28    | )
|Long-term debt                                                              |  |   | (103   | )
|Net fair value of assets acquired and liabilities assumed                   |  |   | 2,166  |  
|Cash paid                                                                   |  |   | (2,000 | )
|Bargain purchase                                                            |  | $ | 166    |  





Effective October 4, 2011, the Company
purchased certain assets of Groupware International, Inc. (Groupware) for $300. As a result of this acquisition, the Company performs
installations for a broadband cable company in certain markets in North Carolina. Effective January 1, 2012, the Company purchased
certain other assets of Groupware for $700. This acquisition allows the Company to perform installation services for another broadband
cable company in certain markets in Florida.



On January 2, 2009, the Company purchased
80% of NE, SC, EC, MBMDU, DV and Security, plus an additional 29% of NC (51% of which was purchased effective March 1, 2008),
representing the operating subsidiaries of DirecTECH Holding Company, Inc. (DTHC), a fulfillment agent for a national satellite
television company, DIRECTV, specialized in the providing of satellite TV to single family homes.  The purpose of this
acquisition was to increase the Company’s business of installing video services in single family homes (FS segment). The
purchase price totaled $40,400 plus other contingent consideration valued at $1,608 as of the acquisition date.  The
$40,400 consists of three parts: 1) $500 in cash which was paid at the initial closing date of January 2, 2009 and in escrow as
a deposit at December 31, 2008; 2) a non-interest bearing note of $500 payable without interest as follows: $250 on
demand on or after April 1, 2009 and $250 after the Company’s retention of senior financing, as defined, no later than August
31, 2009, which was paid in full in June 2011; 3) a promissory note in the amount of $39,400, due January 1, 2013, bearing
interest at an annual rate of 8.25% (subject to adjustment in the event of a default), plus the remaining $800 note payable from
the purchase of 51% of NC.  Subsequent to the closing, the Company and DTHC mutually agreed to offset the $40,200 promissory
note by the amount of $6,344, for an offsetting receivable on the Company’s books as of December 31, 2008.  This
reduced the amount of this promissory note to $33,856.  At December 31, 2011 and 2010, the Company has offset an additional
$294 and $407, respectively, related to legal claims, which brings the remaining balance of the note to $29,155 and $29,449, as
of December 31, 2011 and 2010, respectively (see Note 9).



Effective December 17, 2009, the Company
purchased the remainder of the issued and outstanding shares of common stock of NE, SC, EC, MBMDU, DV, Security and NC, The Company
issued 100 shares of Series J Preferred Stock with a fair value of $10,000 to purchase the remaining 20% interest.  Because
the Company already had a controlling interest in these entities, the purchase transaction was accounted for as an equity transaction
only. Effective December 31, 2011, the NC, SC and EC subsidiaries were merged into the NE subsidiary with NE being the surviving
entity. Effective February 20, 2012, NE has been renamed Multiband Field Services, Incorporated (MBFS).



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



The Company evaluates the purchase price
allocation based on the fair value of the assets acquired and liabilities assumed.  The Company recognizes pre-acquisition
contingencies at fair value, if fair value can be reasonably determined.  If fair value cannot be reasonably determined,
the Company records the contingencies at its best estimate.



F-27







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Because the Company had previously gained
control of NC with its purchase of 51% of NC in March 2008, the Company recognized the acquisition of the additional 29% ownership
interest in NC on January 2, 2009 as an equity transaction.  The purchase price of $1,660 increased the accumulated
deficit and the transfer of $2,054 of noncontrolling interest to controlling interest decreased the accumulated deficit.  No
increase to goodwill or intangibles was recorded as part of this acquisition.



In the January 2, 2009 transaction to
purchase the operating subsidiaries from DTHC, the Company recognized the assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree at the acquisition date, measured at their fair values as of that date, with certain exceptions.  The
assets and liabilities purchased are all measured on a nonrecurring basis at fair value.  The Company recognized goodwill
as of the acquisition date, measured using an income, market or cost approach, which in most types of business combinations will
result in measuring goodwill as the excess of the fair value of consideration transferred plus the fair value of any noncontrolling
interest in the acquiree at the acquisition date over the fair value of the identifiable net assets acquired or assumed.  A
qualitative and quantitative analysis of factors that make up recognized goodwill, such as assets, liabilities and other contingent
considerations, such as leases and other off-balance sheet commitments, follows.



A summary of the transaction is as follows:



|Cash paid                                                                             |  | $ | 500     |  
|------------------------------------------------------------------------------------- |  | - | ------- | -
|Short-term debt                                                                       |  |   | 500     |  
|Promissory note                                                                       |  |   | 39,400  |  
|Total consideration                                                                   |  |   | 40,400  |  
|Less consideration for 29% of NC (recorded
    separately as an equity transaction)   |  |   | (1,660  | )
|Consideration for 80% of outstanding
    stock of EC, NE, SC, MBMDU, DV, and Security |  | $ | 38,740  |  
|                                                                                      |  |   |         |  
|Assets                                                                                |  | $ | 33,444  |  
|Intangible assets                                                                     |  |   | 27,634  |  
|Goodwill                                                                              |  |   | 36,972  |  
|Accounts payable and accrued liabilities                                              |  |   | (53,004 | )
|Noncontrolling interest                                                               |  |   | (6,306  | )
|                                                                                      |  | $ | 38,740  |  



The fair value of the intangible assets
of $27,634 and noncontrolling interest of $6,306 was obtained by the Company, using a fair value measurement which included applying
discount rates of 15%, a terminal value of $28,200, as well as a noncontrolling discount of 30%.



As part of this acquisition, the Company
preliminarily assessed a $5,040 contingent legal accrual related to an existing litigation.  In connection with the
purchase of the operating subsidiaries of DTHC, the Company had the right to offset half of certain claims against the note to
DTHC once those claims were ultimately resolved, and therefore also allocated a note receivable – related party of $2,290
which represented an estimate of the amount that would be recovered from DTHC based on the preliminary legal contingency accrual.  During
the year ended December 31, 2009, the Company increased the contingent legal accrual to $8,706 based on new information received
about facts and circumstances that existed as of the acquisition date related to certain legal matters.  On December
31, 2009, the Company settled in principal the majority of these claims, and recorded the settlement of $6,729, net of imputed
interest of $575 (see Note 7).  The remaining contingent liability related to this litigation was an estimated $1,977
at December 31, 2009.  At the time the settlement was recorded, the Company also offset $3,904 of the note receivable
– related party against the note payable – related party to DTHC.  The remaining balance on the note receivable
of $1,011 at December 31, 2009 represented an estimate of the amount that would be recovered from DTHC based on the preliminary
legal estimate.  The receivable is classified as long-term since management intends to offset the receivable with any
balance remaining on the note payable to DTHC (see Note 9).



The Company acquired $25,400 of intangible
assets relating to contracts with DIRECTV as well as right of entry contracts of $2,234.  At the time of the acquisition,
the weighted average remaining life of the intangibles acquired was 2.57 years based on terms without renewals, with an average
life for right of entry contracts of 5.44 years and contracts with DIRECTV of 2.33 years.  The weighted average remaining
life of the intangibles acquired was 3.49 years assuming one year term renewals, with right of entry contracts average life of
5.44 years and contracts with DIRECTV of 3.33 years.  In August 2011, the Company signed a new contract with DIRECTV
(see Note 16).  Goodwill and intangible assets acquired are not expected to be deductible for tax purposes.



At June 30, 2009, the Company revised
the initial purchase price fair value of the contingent consideration from $1,608 to zero.  The Company determined that
the significant level 3 inputs previously used to determine the contingent consideration were incomplete.  After further
review, the Company determined that it was appropriate to define this change as a measurement period adjustment to the purchase
price.  At December 31, 2009, the Company adjusted the contingencies estimated as a result of improved information regarding
circumstances that existed as of the acquisition date which increased the liability by $1,090 and goodwill and receivables by
$545.  At December 31, 2009, the Company adjusted the majority of the contingencies due to an actual settlement in principle
of certain litigation (See Note 7).  In the fourth quarter of 2009, within the one-year measurement period, the Company
also increased accrued liabilities by $1,200 to reflect the assumption of an insurance premium obligation.



F-28







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



NOTE 3 – Fair Value Measurements



Fair value is the price that would be
received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use
a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 — Unadjusted
quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 — Significant
other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly
or indirectly, including:

• Quoted
prices for similar assets or liabilities in active markets;

• Quoted
prices for identical or similar assets in non-active markets;

• Inputs
other than quoted prices that are observable for the asset or liability; and

• Inputs
that are derived principally from or corroborated by other observable market data.

Level 3 — Significant
unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.
These values are generally determined using pricing models for which the assumptions utilize management's estimates of market
participant assumptions.



The fair value hierarchy requires the
use of observable market data when available. In instances in which the inputs used to measure fair value fall into different
levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant
to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement
in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables
set forth by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value
on a recurring basis at December 31, 2011, and December 31, 2010, according to the valuation techniques we used to determine their
fair values.





|                              |  |                                 |       |  | Fair Value Measurements Using Inputs Considered
    as              |  
|----------------------------- |  | ------------------------------- | ----- |  | ------------------------------------------------------------------- | -
|                              |  | Fair Value at December 31, 2011 |       |  | Quoted Prices in Active Markets
    for Identical Assets  (Level 1) |  
|Assets                        |  |                                 |       |  |                                                                     |  
|Available-for-sale securities |  | $                               | 1,191 |  |                                                                     | $









|                              |  |                                 |   |  | Fair Value Measurements Using Inputs Considered
    as              |  
|----------------------------- |  | ------------------------------- | - |  | ------------------------------------------------------------------- | -
|                              |  | Fair Value at December 31, 2010 |   |  | Quoted Prices in Active Markets
    for Identical Assets  (Level 1) |  
|Assets                        |  |                                 |   |  |                                                                     |  
|Available-for-sale securities |  | $                               | 2 |  |                                                                     | $





F-29







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Our marketable equity securities were
measured at fair value using quoted market prices. They were classified as Level 1 as they trade in an active market for
which closing stock prices are readily available.



The summary of available-for-sale securities
is as follows for the years ended December 31:





|                              |  | 2011             |       |  | 2010                    |  
|----------------------------- |  | ---------------- | ----- |  | ----------------------- | -
|                              |  | Carrying  Amount |       |  | Gross  Unrealized  Loss |  
|Available-for-sale securities |  | $                | 1,191 |  |                         | $





The gross realized losses on sales of
available-for-sale securities totaled $1,078, $0 and $0, respectively, for the years ended December 31, 2011, 2010 and 2009. The
net adjustment to unrealized holding losses on available for sale securities included in other comprehensive income totaled $2,
$5 and $39, in December 31, 2011, 2010 and 2009, respectively.



The other-than-temporary impairment loss recognized in earnings
during the years ended:



|                                                          |  | 2011 |        |   | 2010 |  
|--------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Balance, January 1                                        |  | $    | -      |   |      | $
|Other-than-temporary impairment not previously recognized |  |      | (1,078 | ) |      |  
|Balance, December 31                                      |  | $    | (1,078 | ) |      | $



NOTE 4 – Inventories

|Inventories consisted of the following at December 31: |  |      |        |  |      |  
|------------------------------------------------------ |  | ---- | ------ |  | ---- | -
|                                                       |  | 2011 |        |  | 2010 |  
|DIRECTV – serialized                                   |  | $    | 3,661  |  |      | $
|DIRECTV – non-serialized                               |  |      | 7,358  |  |      |  
|Other                                                  |  |      | 3,257  |  |      |  
|Total inventories                                      |  | $    | 14,276 |  |      | $



NOTE 5 - Costs and Estimated Earnings
on Uncompleted Contracts



Costs and estimated earnings on uncompleted contracts consisted
of the following at December 31:



|                                                                            |  | 2011 |        |   | 2010 |  
|--------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Costs incurred on uncompleted contracts                                     |  | $    | 4,222  |   |      | $
|Estimated contract profits                                                  |  |      | 1,573  |   |      |  
|                                                                            |  |      | 5,795  |   |      |  
|Less: Billings to date                                                      |  |      | (4,838 | ) |      |  
|Net excess of costs                                                         |  |      | 957    |   |      |  
|                                                                            |  |      |        |   |      |  
|Costs and estimated earnings in excess of billings on uncompleted contracts |  |      | 998    |   |      |  
|Billings in excess of costs and estimated earnings on uncompleted contracts |  |      | (41    | ) |      |  
|Excess of costs, net                                                        |  | $    | 957    |   |      | $



F-30







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



NOTE 6 - Property and Equipment



Property and equipment consisted of the following at December
31:



|                                                                 |  | 2011 |         |   | 2010 |  
|---------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Leasehold improvements                                           |  | $    | 1,211   |   |      | $
|Office equipment and furniture                                   |  |      | 7,264   |   |      |  
|Subscriber related equipment                                     |  |      | 12,541  |   |      |  
|Construction equipment                                           |  |      | 338     |   |      |  
|Property and equipment under capital lease obligations           |  |      | 1,152   |   |      |  
|Total property and equipment                                     |  |      | 22,506  |   |      |  
|Less accumulated depreciation and amortization                   |  |      | (15,597 | ) |      |  
|Less accumulated depreciation and amortization of capital leases |  |      | (605    | ) |      |  
|Total property and equipment, net                                |  | $    | 6,304   |   |      | $



Depreciation and amortization expense
on property and equipment was $3,151, $2,861, and $2,690 for the years ended December 31, 2011, 2010 and 2009, respectively.



NOTE 7 – Accrued Liabilities



Accrued liabilities consisted of the following
at December 31:

|                                                                 |  | 2011 |        |  | 2010 |  
|---------------------------------------------------------------- |  | ---- | ------ |  | ---- | -
|Payroll and related taxes                                        |  | $    | 9,831  |  |      | $
|Accrued worker compensation claims- short-term                   |  |      | 4,093  |  |      |  
|Accrued incurred but not reported health insurance claims        |  |      | 1,125  |  |      |  
|Accrued legal settlements, fees and contingencies (see Note 16)  |  |      | 3,072  |  |      |  
|Accrued preferred stock dividends                                |  |      | 274    |  |      |  
|Accrued liability – vendor chargeback                            |  |      | 40     |  |      |  
|Accrued contract labor                                           |  |      | 1,839  |  |      |  
|Accrued income taxes                                             |  |      | 60     |  |      |  
|Other – short-term                                               |  |      | 3,779  |  |      |  
|Total accrued liabilities – short-term                           |  |      | 24,113 |  |      |  
|                                                                 |  |      |        |  |      |  
|Accrued worker compensation claims – long-term                   |  |      | 4,952  |  |      |  
|Accrued – long-term related to legal settlement                  |  |      | -      |  |      |  
|Multi-year insurance premium obligations (payable $200 per year) |  |      | 400    |  |      |  
|Total accrued liabilities – long-term                            |  |      | 5,352  |  |      |  
|Total accrued liabilities                                        |  | $    | 29,465 |  |      | $



F-31







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



NOTE 8 - Short-term Debt



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

|                                                                                                                                                                                                            |  | 2011 |     |  | 2010 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- |  | ---- | -
|Note payable – DirecTECH Holding Company,
    Inc., due on demand beginning April 2009, 0% interest, unsecured.  Paid in June 2011.                                                                         |  | $    | -   |  |      | $
|Note payable – Hyatt, monthly installments of $10
    including interest of 8.25%, due December 2010, secured by subscriber assets.  Paid in January 2011.                                                  |  |      | -   |  |      |  
|Note payable – PNC Equipment Finance, monthly installments
    of $20 including imputed interest of 9.2%, due June 2012, secured by software licenses.                                                      |  |      | 77  |  |      |  
|Note payable – PNC Equipment Finance, monthly installments
    of $13 including imputed interest of 7.9%, due June 2012, secured by software licenses.                                                      |  |      | 233 |  |      |  
|Notes payable - First Insurance Funding
    Corporation, monthly installments of $19 including interest of 5.6%, due July 2012, secured by return premiums, dividend payments
    and certain loss payments |  |      | 147 |  |      |  
|Short-term debt                                                                                                                                                                                             |  | $    | 457 |  |      | $



NOTE 9 - Long-term Debt



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

|                                                                                                                                                      |  | 2011 |        |   | 2010 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Debenture payable - Convergent Capital Partners,
    II, L.P., see terms in note below, net of original issue discount of $96 and $192, respectively. |  | $    | 4,904  |   |      | $
|Note payable – PNC Equipment Finance, monthly installments
    of $2 including imputed interest of 9.7%, due June 2012, secured by software licenses. |  |      | 10     |   |      |  
|Note payable – DirecTECH Holding Company, Inc. 
    This note is due in full on January 1, 2013, interest payable quarterly in arrears at 8.25%.      |  |      | 29,155 |   |      |  
|Note payable – Ford Credit, monthly installments
    of $1 comprised of principal and interest, at 6.6%, through July 2016.                           |  |      | 47     |   |      |  
|Note payable – GMAC, monthly installments of $1 comprised
    of principal and interest, at 2.96%, through June 2015.                                 |  |      | 24     |   |      |  
|Note payable – GMAC, monthly installments of $1 comprised
    of principal and interest, at 2.96%, through August 2015.                               |  |      | 25     |   |      |  
|Notes payable – group of accredited institutional
    investors.  Paid in full during 2011.                                                           |  |      | -      |   |      |  
|Note payable, interest at 7%, paid
    in full via life insurance proceeds in 2011.                                                                   |  |      | -      |   |      |  
|Total long-term debt, net of original issue discount of
    $96 and $192, respectively.                                                               |  |      | 34,165 |   |      |  
|Less: current portion and original
    issue discount of $96 and $64, respectively.                                                                   |  |      | (4,936 | ) |      |  
|Long-term debt, net of current portion                                                                                                                |  | $    | 29,229 |   |      | $



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



|2012                             |  | $ | 5,032  | 
|-------------------------------- |  | - | ------ | 
|2013                             |  |   | 29,178 | 
|2014                             |  |   | 24     | 
|2015                             |  |   | 20     | 
|2016                             |  |   | 7      | 
|Total future maturities payments |  | $ | 34,261 | 



F-32







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



On May 27, 2009, the Company entered into
a loan agreement with Convergent Capital Partners, II, L.P. for $5,000. This loan carries an interest rate of 14% and requires
monthly interest only payments until December 2012 when the principal is due and payable in full.  In connection with
this loan, the Company paid a closing fee to the lender of $100.  The Company also issued the lender 212,574 fully vested
five year warrants with an exercise price of $3.  The gross proceeds were allocated between the note and the warrants
based on the relative fair value at the time of issuance.  The warrants were valued at $347 using the Black Scholes
pricing model, recorded as original issue discount, and amortized under the effective interest method over the term of the note.  The
Company expensed $96 during both of the years ended December 31, 2011 and 2010 and $58 for the year ended December 31, 2009.  In
the event the Company wishes to prepay the loan a prepayment penalty will be assessed.  The loan gives the lender a
first security position in the Company’s assets.  The loan contains certain covenants with regards to the Company’s
quarterly earnings before interest, taxes, depreciation and amortization.  The Company was in compliance with this covenant
during the years ended December 31, 2011 and 2010.



In November 2004, the Company borrowed
$2,167 from a group of accredited institutional investors. The notes were convertible into shares of common stock at a conversion
rate of $1.00 per share. The notes accrued interest at the rate of 6% per annum, which interest was payable semi-annually in cash
or common stock at the Company's election. These notes were collateralized by certain assets and were subordinated. The notes
were paid off in July 2011.   The outstanding balance as of December 31, 2011 and 2010 was $0 and $47, respectively.



NOTE 10 – Related Parties Debt
– Short-term



Related parties debt – short-term consisted of the following
at December 31:



|                                                            |  | 2011 |   |  | 2010 |  
|----------------------------------------------------------- |  | ---- | - |  | ---- | -
|Note payable – Bas Mattingly. Paid in full during 2011.     |  | $    | - |  |      | $
|Note payable – Bas Mattingly.
    Paid in full during 2011. |  |      | - |  |      |  
|Related parties debt – short-term                           |  | $    | - |  |      | $



NOTE 11 – 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 7.60% and expire through August 2015. The obligations are collateralized by the property under lease excluding certain
sold property items.  Total cost and accumulated amortization of the leased equipment was $1,075 and $528 at December
31, 2011 and $1,556 and $829 at December 31, 2010.  Amortization expense related to these obligations is included in
depreciation expense in the consolidated statements of operations.



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



|2012                                              |  | $ | 355  |  
|------------------------------------------------- |  | - | ---- | -
|2013                                              |  |   | 187  |  
|2014                                              |  |   | 94   |  
|2015                                              |  |   | 8    |  
|Less: amounts representing interest               |  |   | (46  | )
|Present value of future minimum lease payments    |  |   | 598  |  
|Less: current portion                             |  |   | (324 | )
|Capital lease obligations, net of current portion |  | $ | 274  |  



F-33







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



NOTE 12 - Stockholders' Equity



Capital Stock Authorized

The articles of incorporation as amended
authorize the Company to issue 100,000,000 shares of no par capital stock.  Authorization to issue individual classes
of stock is determined by a Board of Directors resolution.  All shares have been allocated to common stock except for
2,435,115 shares reserved for preferred stock as follows:



|· | 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 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,                                     
|· | 100,000 shares of Class I cumulative convertible preferred stock (this class is inactive)
    and
|· | 100 shares of Class J cumulative convertible preferred stock                                     



Preferred Stock

This section describes the general terms
and provisions of our preferred stock. A certificate of designation that contains the terms of each class or series of preferred
stock has been filed with the State of Minnesota each time we issued a new class or series of preferred stock. Each certificate
of designation establishes the number of shares included in a designated class or series and fixes the designation, powers, privileges,
preferences and rights of the shares of each class or series as well as any applicable qualifications, limitations or restrictions.



Our board of directors has been authorized
to provide for the issuance of up to 2,435,115 shares of our preferred stock in multiple series without the approval of shareholders.
With respect to each class or series of our preferred stock, our board of directors has the authority to fix the following terms,
among others:



| | · | the designation
                                                                                                             of the series;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| | · | the number of
                                                                                                             shares within the
                                                                                                             series;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | whether dividends
                                                                                                             are cumulative and,
                                                                                                             if cumulative, the
                                                                                                             dates from which
                                                                                                             dividends are cumulative;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the rate of any
                                                                                                             dividends, any conditions
                                                                                                             upon which dividends
                                                                                                             are payable, and
                                                                                                             the dates of payment
                                                                                                             of dividends;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | whether interests
                                                                                                             in the shares of
                                                                                                             preferred stock will
                                                                                                             be represented by
                                                                                                             depositary shares;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | whether the shares
                                                                                                             are redeemable, the
                                                                                                             redemption price
                                                                                                             and the terms of
                                                                                                             redemption;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the amount payable
                                                                                                             for each share if
                                                                                                             we dissolve or liquidate;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | whether the shares
                                                                                                             are convertible or
                                                                                                             exchangeable, the
                                                                                                             price or rate of
                                                                                                             conversion or exchange,
                                                                                                             and the applicable
                                                                                                             terms and conditions;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | any restrictions
                                                                                                             on issuance of shares
                                                                                                             in the same series
                                                                                                             or any other series;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | voting rights
                                                                                                             applicable to the
                                                                                                             series of preferred
                                                                                                             stock; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | any other rights,
                                                                                                             priorities, preferences,
                                                                                                             restrictions or limitations
                                                                                                             of such series.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Holders of shares of preferred stock will
be subordinate to the rights of our general creditors. Shares of our preferred stock that we issue in accordance with their terms
will be fully paid and non-accessible, and will not be entitled to preemptive rights unless specified in the applicable certificate
of designation.



The following chart summarizes certain
terms of our outstanding preferred stock as of December 31, 2011.  The certificate of designation for each series should
be carefully reviewed to determine exact rights and preferences of each class (in thousands, except share and liquidation preference
amounts).



F-34







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



|Class/
        Series |  | Date of
        Issuance |  | Shares
        Outstanding (1) |  | Annual Dividend Rate         |  | Number of
    shares issued
    upon
    conversion (2) |  | Liquidation
        Preference |  | Redeemable
        by Company | 
|--------------------- |  | ------------------------ |  | ------------------------------ |  | ---------------------------- |  | ------------------------------------------------------- |  | ------------------------------ |  | ----------------------------- | 
|A                     |  | 12/98                    |  | 12,696                         |  | 8% payable quarterly         |  | 1 shares                                                |  | $     133,308                  |  | Yes (4)                       | 
|C                     |  | 6/00                     |  | 109,000                        |  | 10% payable quarterly        |  | 0.40 shares                                             |  | 1,090,000                      |  | Yes (5)                       | 
|F                     |  | 6/04                     |  | 150,000                        |  | 10% payable quarterly        |  | 1 shares                                                |  | 1,500,000                      |  | Yes (5)                       | 
|G                     |  | 9/04                     |  | 10,000                         |  | 8% payable quarterly         |  | 1.25 shares                                             |  | 100,000                        |  | —                             | 
|H                     |  | 11/04                    |  | 1.00                           |  | 6% payable semi-annually (3) |  | -                                                       |  | 100,000                        |  | Yes (6)(7)                    | 
|                      |  |                          |  | 281,697                        |  |                              |  |                                                         |  |                                |  |                               | 



|(1) | All preferred stock is non-voting.                                                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Preferred shares are convertible at any time.  Figures are adjusted for a 1-for-5
    reverse stock split of the Company’s common stock, effective August 7, 2007.                             
|(3) | Dividends payable in common stock at a fixed rate of $1.00 per share.                                                                                                                          
|(4) | Redeemable at $10.50 per share in accordance with the terms and conditions of the preferred
    stock certificate of designation.                                                              
|(5) | Redeemable at $10.00 per share whenever the Company’s common stock price exceeds certain
    defined criteria and other terms and conditions of the preferred stock certificate of designation.
|(6) | Redeemable at $100,000 per share in accordance with the terms and conditions of the preferred
    stock certificate of designation.                                                            
|(7) | Redeemable at option of holder in accordance with the terms and conditions of the preferred
    stock certificate of designation.                                                              



The single Class F stockholder, at its
sole discretion pursuant to a put option, could force the Company to redeem up to 50,000 Class F Preferred Shares (the equivalent
of $500 worth).  This has been redeemed.  Class H shareholders have the right to convert all or a portion
of preferred shares upon the occurrence of a major transaction or triggering event as defined in the agreement and the Company
has the sole option to pay the redemption price in cash or shares of the Company’s common stock.  Class G shares
have no redemption “call” price.  Upon the Company’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 the Company in its sole discretion.  Preferred
stock not converted would be redeemed.



Our ability to issue preferred stock,
or rights to purchase such shares, could discourage an unsolicited acquisition proposal. For example, we could impede a business
combination by issuing a series of preferred stock containing, among other rights and preferences, class voting rights that would
enable the holders of such preferred stock to block a business combination transaction. Alternatively, we could facilitate a business
combination transaction by issuing a series of preferred stock having sufficient voting rights to provide a required percentage
vote of the shareholders. Additionally, under certain circumstances, our issuance of preferred stock could adversely affect the
voting power of the holders of our common stock. Although our board of directors is required to make any determination to issue
any preferred stock based on its judgment as to the best interests of our shareholders, our board of directors could act in a
manner that would discourage an acquisition attempt or other transaction that some, or a majority, of our shareholders might believe
to be in their best interests or in which shareholders might receive a premium for their stock over prevailing market prices of
such stock. Our board of directors does not at present intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or applicable stock exchange requirements.



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 15,000,000 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 seven years from the award date.



F-35







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



The Company also has a 2000 Non-employee
Director Stock Compensation Plan, which permits the issuance of stock options for 5,000,000 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 seven years from award date.



The Company issued a total of 317,454
and 2,006,086 shares under both plans during the years ended December 31, 2011 and 2010, respectively.



Employee Stock Purchase Plan

The Company’s 2000 Employee Stock
Purchase Plan, which allowed for the sale of 80,000 shares of Company common stock to qualified employees, expired during 2010.  During
2010, no shares were issued under the Plan.



Restricted Stock



The following table sets forth a summary
of restricted stock activity for the years ended December 31:



|                                            |  | Number of Restricted Shares |         |   | Weighted-Average Grant Date Fair Value | 
|------------------------------------------- |  | --------------------------- | ------- | - | -------------------------------------- | 
|                                            |  | 2011                        |         |   | 2010                                   | 
|Outstanding and not vested, January 1       |  |                             | 207,625 |   |                                        | 
|Granted                                     |  |                             | 110,294 |   |                                        | 
|Forfeited                                   |  |                             | (500    | ) |                                        | 
|Vested                                      |  |                             | (46,874 | ) |                                        | 
|Outstanding and not vested, December
    31 |  |                             | 270,545 |   |                                        | 



Using the closing stock price of $3.23,
$2.84, and $2.00, respectively, on December 31, 2011, 2010 and 2009, the number of restricted shares outstanding with an intrinsic
value was 269,840, 117,603, and 0, respectively, with an intrinsic value of $575, $234, and $0, respectively.



In January 2011, the Company awarded 45,956
shares of restricted stock in the amount of $125 to four directors of the Company.  The value of the restricted stock
was established by the market price on the date immediately preceding the date of grant.  These restricted shares were
immediately vested and were awarded as performance bonuses pursuant to the Company’s 2000 Non-employee Directors Stock Compensation
Plan.



In January 2011, the Company awarded 64,338
shares of restricted stock in the amount of $175 to an officer of the Company.  The value of the restricted stock was
established by the market price on the date immediately preceding the date of grant.  These restricted shares vest over
three years and were awarded as a performance bonus pursuant to the Company’s 1999 Stock Compensation Plan.



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



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



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



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



F-36







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Stock Options

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



|                         |  | Options |           |   | Weighted-Average Exercise Price | 
|------------------------ |  | ------- | --------- | - | ------------------------------- | 
|                         |  | 2011    |           |   | 2010                            | 
|Outstanding, January 1   |  |         | 2,822,636 |   |                                 | 
|Granted                  |  |         | 297,454   |   |                                 | 
|Exercised                |  |         | (30,416   | ) |                                 | 
|Cancelled                |  |         | (217,068  | ) |                                 | 
|Expired                  |  |         | (3,050    | ) |                                 | 
|Outstanding, December 31 |  |         | 2,869,556 |   |                                 | 



The weighted average grant date fair value
of options granted during the years ended December 31, 2011, 2010, and 2009 was $1.97, $1.33, and $0.90, respectively.  Options
exercisable at December 31, 2011, 2010, and 2009 were 1,564,825, 832,636, and 675,985, respectively.  The weighted average
price of exercisable options for the years ended December 31, 2011, 2010, and 2009 was $3.57, $5.02, and $6.24, respectively. 
The total fair value of stock options vested during the years ended December 31, 2011 and 2010 was $4,816 and $3,830, respectively.
 The Company issues new shares when stock options are exercised.



In January 2011, the Company issued stock
options for 68,220 shares with a Black-Scholes valuation of $125 to four directors of the Company. These seven-year stock options
vested immediately and were issued as compensation pursuant to the Company’s 2000 Non-employee Directors Stock Compensation
Plan.



In January 2011, the Company issued stock
options for 92,234 shares with a Black-Scholes valuation of $169 to an officer of the Company. These seven-year stock options
vested immediately and were issued as short-term incentive compensation pursuant to the Company’s 1999 Stock Compensation
Plan.



In January 2011, the Company issued stock
options for 87,000 shares with a Black-Scholes valuation of $175 to an officer of the Company. These seven-year stock options
vest over four years and were issued as long-term incentive compensation pursuant to the Company’s 1999 Stock Compensation
Plan.



In June 2011, the Company issued 50,000
shares of stock options with a Black-Scholes valuation of $118 to an employee of the Company. These seven-year stock options vest
over three years and were issued as long-term incentive compensation pursuant to the Company’s 1999 Stock Compensation Plan.



In April 2011, the Company modified terms
of previously issued stock options to immediately vest 20,000 shares of the stock options with a Black-Scholes valuation
of $25 to an employee of the Company.  These seven-year stock options were issued as long-term incentive compensation pursuant
to the Company’s 1999 Stock Compensation Plan.



In January 2010, the Company issued 50,000
shares of stock options with a Black-Scholes valuation of $70 to four directors of the Company.  These seven-year stock
options were immediately vested and were issued as long-term incentive compensation pursuant to the Company’s 2000 Non-employee
Directors Stock Compensation Plan.



In January 2010, the Company issued 84,375
shares of stock options with a Black-Scholes valuation of $128 to an officer of the Company.  These seven-year stock
options vest over four years and were issued as long-term incentive compensation pursuant to the Company’s 1999 Stock Compensation
Plan.



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



During 2010, the Company issued 1,812,500
shares of stock options with a Black-Scholes valuation of $2,309 to various employees of the Company.  These seven-year
stock options vest over three years and were issued as long-term incentive compensation pursuant to the Company’s 1999 Stock
Compensation Plan.



F-37







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



In January 2009, the Company issued 80
shares of stock options with a Black Scholes valuation of $72 to four directors of the Company.  These seven-year stock
options were immediately vested and were issued as long-term incentive compensation pursuant to the Company’s 2000 Non-employee
Directors Stock Compensation Plan.



In January 2009, the Company issued 214
shares of stock options with a Black Scholes valuation of $193 to two officers of the Company.  These seven-year stock
options vest over four years and were issued as long-term incentive compensation pursuant to the Company’s 1999 Stock Compensation
Plan.



During the years ended December 31, 2011,
2010 and 2009, respectively, there were 237,068, 85,967, and 48,015 options forfeited or canceled.



Options outstanding and exercisable as
of December 31, 2011 are as follows:



|                         |      |  | Outstanding |  |    | Exercisable        | 
|------------------------ | ---- |  | ----------- |  | -- | ------------------ | 
|                         |      |  |             |  |    | Weighted - Average | 
|Range of Exercise Prices |      |  | Options     |  |    | Exercise Price     | 
|$                        | 0.96 |  |             |  | to |                    | 
|                         | 4.25 |  |             |  | to |                    | 
|                         | 7.00 |  |             |  | to |                    | 
|                         | 9.25 |  |             |  | to |                    | 
|$                        | 0.96 |  |             |  | to |                    | 



A summary of the status of the Company’s
nonvested options as of December 31, 2011 and changes during the year ended December 31, 2011 are as follows:



|                             |  | Options |           |   | Weighted-Average
    Grant Date Fair Value |  
|---------------------------- |  | ------- | --------- | - | ------------------------------------------ | -
|Nonvested, December 31, 2010 |  |         | 1,990,000 |   |                                            | $
|Granted                      |  |         | 297,454   |   |                                            |  
|Vested                       |  |         | (732,189  | ) |                                            |  
|Cancelled                    |  |         | (217,068  | ) |                                            |  
|Exercised                    |  |         | (30,416   | ) |                                            |  
|Expired                      |  |         | (3,050    | ) |                                            |  
|Nonvested, December 31, 2011 |  |         | 1,304,731 |   |                                            | $



Using the closing stock price of $3.23,
$2.84, and $2.00, respectively, on December 31, 2011, 2010 and 2009, the number of options outstanding with an intrinsic value
was 2,330,093, 2,160,386, and 307,900, respectively, with an intrinsic value of $4,353, $3,675, and $385, respectively.



Using those same closing stock prices
of $3.23, $2.84, and $2.00, respectively, on December 31, 2011, 2010 and 2009, the numbers of options exercisable was 1,057,725,
295,486, and 84,800, respectively, with an intrinsic value of $2,031, $494, and $106, respectively.



There were 30,416, 0, and 0 options exercised
and therefore the intrinsic value of options exercised in 2011, 2010 and 2009 amounted to $55, $0, and $0, respectively. The total
tax benefit realized from the stock option exercised was $27 for the year ended December 31, 2011.



F-38







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Stock Warrants

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



|                         |  | Outstanding |          |   | Weighted - Average Exercise Price | 
|------------------------ |  | ----------- | -------- | - | --------------------------------- | 
|                         |  | 2011        |          |   | 2010                              | 
|Outstanding, January 1   |  |             | 422,444  |   |                                   | 
|Granted                  |  |             | -        |   |                                   | 
|Exercised                |  |             | (13,800  | ) |                                   | 
|Forfeited                |  |             | (152,920 | ) |                                   | 
|Outstanding, December 31 |  |             | 255,724  |   |                                   | 



The weighted-average grant-date fair value
of warrants granted during the years ended December 31, 2011, 2010, and 2009 was $0, $1.31, and $1.75, respectively.



Warrants outstanding and exercisable as
of December 31, 2010, are as follows:



|                         |      |  |          |  |    | Weighted - Average          | 
|------------------------ | ---- |  | -------- |  | -- | --------------------------- | 
|Range of Exercise Prices |      |  | Warrants |  |    | Remaining  contractual life | 
|$                        | 1.80 |  |          |  | to |                             | 
|                         | 3.00 |  |          |  | to |                             | 
|$                        | 1.80 |  |          |  | to |                             | 



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



|                              |  | 2011 |   |  | 2010 |  |        | 2009 | 
|----------------------------- |  | ---- | - |  | ---- |  | ------ | ---- | 
|Preferred stock dividends     |  |      | - |  |      |  | 43,150 |      | 
|Issuance of debenture payable |  |      | - |  |      |  | -      |      | 
|                              |  |      | - |  |      |  | 43,150 |      | 



During the year ended December 31, 2010,
the Company issued 43,150 five-year warrants in lieu of cash for preferred stock dividends with a weighted average exercise price
of $1.80.  These warrants were valued at $57 using the Black Scholes pricing model.



During the year ended December 31, 2009,
the Company issued 212,574 four-year and seven month warrants in connection with the debenture payable (see Note 9) with a weighted
average exercise price of $3.00.  These warrants were valued at $347 using the Black Scholes pricing model.



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 (see
Note 1):

|                        |  | 2011 |   |  | 2010 |  |         | 2009 | 
|----------------------- |  | ---- | - |  | ---- |  | ------- | ---- | 
|Risk-free interest rate |  |      | * |  |      |  | 2.53    | %    | 
|Expected life           |  |      | * |  |      |  | 5 years |      | 
|Expected volatility     |  |      | * |  |      |  | 95      | %    | 
|Expected dividend rate  |  |      | * |  |      |  | 0       | %    | 



* - no warrants were issued this period



NOTE 13 – Business Segments

The recently acquired Energy, Engineering
& Construction (EE&C) business activity, with its emphasis on design and construction, is materially different from the
Company’s previous lines of business, leading to a change in our segment reporting. As part of this change, the Company
added EE&C segment and realigned the FS segment to be all types of installation services. As part of this realignment certain
construction activities in the MDU segment were moved to the newly created EE&C segment. Amounts reported in prior years have
been restated on the new basis.



F-39







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



The FS segment provides contract installation
services for the pay television industry (including satellite and broadband cable operators), internet providers and retailers.
These services are provided in single family homes, multi-dwelling units and commercial locations. The MDU segment represents
the results as an owner and operator of multi-dwelling unit subscribers, directly billing customers on a recurring basis for voice,
data and video services, and as a master system operator for DIRECTV, receiving net cash payments for managing video subscribers
through its network of system operators who are billed directly by DIRECTV. The EE&C segment consists of engineering and construction
services for the wired and wireless telecommunications industry, including public safety networks, renewable energy services including
wind and solar applications and other design and construction services, all done on a project basis. MBCorp segment includes corporate
expenses (e.g. corporate administrative costs), interest income, interest expense, depreciation and amortization. Segment disclosures
are provided to the extent practicable under the Company's accounting system. Transactions within and between the segments are
generally made on a basis to reflect the market value of the services and have been eliminated in consolidation.



Segment disclosures are as follows:







|Year ended December 31, 2011                                                  |  | FS |         |  | MDU |   |        | EE&C |  |   | MBCorp |  |  | Total |       
|----------------------------------------------------------------------------- |  | -- | ------- |  | --- | - | ------ | ---- |  | - | ------ |  |  | ----- | ------
|Revenues                                                                      |  | $  | 271,984 |  |     | $ | 21,007 |      |  | $ | 7,195  |  |  | $     | -     
|Income (loss) from operations                                                 |  |    | 23,230  |  |     |   | (2,827 | )    |  |   | 701    |  |  |       | (6,419
|Income (loss) before income taxes and noncontrolling interest in subsidiaries |  |    | 21,217  |  |     |   | (3,030 | )    |  |   | 865    |  |  |       | (8,397
|Identifiable assets                                                           |  |    | 102,150 |  |     |   | 8,844  |      |  |   | 3,165  |  |  |       | 27,443
|Depreciation and amortization                                                 |  |    | 3,514   |  |     |   | 2,538  |      |  |   | 62     |  |  |       | 643   
|Capital expenditures                                                          |  |    | 212     |  |     |   | 782    |      |  |   | 27     |  |  |       | 699   



|Year ended December 31, 2010                                                  |  | FS |         |  | MDU |   |        | EE&C |  |   | MBCorp |  |  | Total |       
|----------------------------------------------------------------------------- |  | -- | ------- |  | --- | - | ------ | ---- |  | - | ------ |  |  | ----- | ------
|Revenues                                                                      |  | $  | 242,592 |  |     | $ | 21,663 |      |  | $ | 1,339  |  |  | $     | -     
|Income (loss) from operations                                                 |  |    | 20,707  |  |     |   | (2,550 | )    |  |   | 242    |  |  |       | (4,730
|Income (loss) before income taxes and noncontrolling interest in subsidiaries |  |    | 18,133  |  |     |   | (2,810 | )    |  |   | 242    |  |  |       | (5,987
|Identifiable assets                                                           |  |    | 82,244  |  |     |   | 11,118 |      |  |   | -      |  |  |       | 18,338
|Depreciation and amortization                                                 |  |    | 4,702   |  |     |   | 2,965  |      |  |   | -      |  |  |       | 631   
|Capital expenditures                                                          |  |    | 99      |  |     |   | 855    |      |  |   | -      |  |  |       | 350   



|Year ended December 31, 2009                                                  |  | FS |         |   | MDU |   |        | EE&C |  |   | MBCorp |  |  | Total |       
|----------------------------------------------------------------------------- |  | -- | ------- | - | --- | - | ------ | ---- |  | - | ------ |  |  | ----- | ------
|Revenues                                                                      |  | $  | 244,482 |   |     | $ | 23,555 |      |  | $ | 957    |  |  | $     | -     
|Income (loss) from operations                                                 |  |    | (2,241  | ) |     |   | (1,452 | )    |  |   | 258    |  |  |       | (3,788
|Income (loss) before income taxes and noncontrolling interest in subsidiaries |  |    | (4,801  | ) |     |   | (1,413 | )    |  |   | 258    |  |  |       | (5,015
|Identifiable assets                                                           |  |    | 84,474  |   |     |   | 12,547 |      |  |   | -      |  |  |       | 2,510 
|Depreciation and amortization                                                 |  |    | 6,440   |   |     |   | 4,049  |      |  |   | -      |  |  |       | 417   
|Capital expenditures                                                          |  |    | 56      |   |     |   | 2,611  |      |  |   | -      |  |  |       | 270   



NOTE 14– Income Taxes

The Company has federal net operating
losses of $50,316 and state net operating losses of approximately $47,575, at December 31, 2011, which, if not used, will expire
from 2012-2031.  Changes in the stock ownership of the Company have placed limitations on the use of these net operating
loss carryforwards (NOLs).  The Company has performed an IRC Section 382 study and determined that a total of five ownership
changes had occurred since 1999.  As a result of these ownership changes, the Company’s ability to utilize its
net operating losses is limited. Federal net operating losses are limited to a total of $22,782, consisting of annual amounts
of $9,039 in 2012, $3,725 in 2013 and $1,101 per year for each of the years 2014-2022 and then $109 in 2023. State net operating
losses are limited to a total of approximately $46,195. We believe that $27,534 of federal net operating losses and $1,380 of
state net operating losses will expire unused due to IRC Section 382 limitations. These limitations could be further restricted
if additional ownership changes occur in future years.  The amount of the deferred tax asset not expected to be realized
is reported net of a valuation allowance.



F-40







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



The Company assesses the potential realization
of net deferred tax assets on an annual basis, or on an interim basis if the circumstances warrant.  If the Company’s
actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company
may need to increase or decrease the valuation allowance against the gross deferred tax assets.  The Company would adjust
its valuation allowance in the period the determination was made. The Company considers projected future taxable income and
ongoing tax planning strategies then records a valuation allowance to reduce the carrying value of the net deferred taxes for
amounts that are unable to be realized.



As of December 31, 2010, the Company had
a full valuation allowance equal to $900 to reserve against the deferred tax asset related to non-cash compensation as the Company
believed it was more likely than not that it would be unable to utilize the deferred tax benefits.  During fourth quarter
2011, the Company determined that this deferred tax asset would be utilized and reversed the previously established valuation
allowance against the current year provision.



At December 31, 2011 and 2010, the valuation
allowance was $13,981, and $14,401, respectively.  The change in the valuation allowance was $420, $8,669, and $(5,897),
for the years ended December 31, 2011, 2010 and 2009, respectively.  The change in the valuation allowance shown in
the effective tax rate reflects the current year’s activity.  It does not include a change in the valuation allowance
due to adjustments in the deferred items for adjustments, true-ups, and purchase accounting entries that do not affect the current
year’s tax provision.



The state tax expense reported is due
to some of the subsidiaries having taxable income in states where the state requires filing separate company income tax returns
instead of filing on a consolidated basis with members of the consolidated group.  Other state tax expense is associated
with the tax liability being calculated off of gross receipts, capital, or some other non-income method of computation. Components
of provision for (benefit from) income taxes for 2011, 2010 and 2009 are:



|                                          |  | 2011    |      
|----------------------------------------- |  | ------- | -----
|Provision for (benefit from) income taxes |  | Federal |      
|Current                                   |  | $       | 2,334
|Deferred                                  |  |         | 373  
|Total                                     |  | $       | 2,707



|                                          |  | 2010    |       
|----------------------------------------- |  | ------- | ------
|Provision for (benefit from) income taxes |  | Federal |       
|Current                                   |  | $       | 1,343 
|Deferred                                  |  |         | (6,947
|Total                                     |  | $       | (5,604



|                           |  | 2009    |  
|-------------------------- |  | ------- | -
|Provision for income taxes |  | Federal |  
|Current                    |  | $       | -
|Deferred                   |  |         | -
|Total                      |  | $       | -



F-41







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Components of net deferred income taxes are as follows at December
31:

|                                                                            |  | 2011 |         |   | 2010 |  
|--------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Deferred income tax assets:                                                 |  |      |         |   |      |  
|Net operating loss carryforwards and tax credits                            |  | $    | 19,719  |   |      | $
|Stock-based compensation/compensation accruals                              |  |      | 2,089   |   |      |  
|Accrued liabilities/reserves                                                |  |      | 4,939   |   |      |  
|Total deferred income tax assets                                            |  |      | 26,747  |   |      |  
|Less valuation allowance                                                    |  |      | (13,981 | ) |      |  
|                                                                            |  |      | 12,766  |   |      |  
|Deferred income tax liabilities:                                            |  |      |         |   |      |  
|Prepaid Expenses                                                            |  |      | -       |   |      |  
|Amortization of intangibles and goodwill, including impairment              |  |      | 4,033   |   |      |  
|Depreciation                                                                |  |      | 737     |   |      |  
|Total deferred income tax liabilities                                       |  |      | 4,770   |   |      |  
|Net deferred income tax assets                                              |  | $    | 7,996   |   |      | $
|                                                                            |  |      |         |   |      |  
|Net deferred income tax assets (liabilities) recorded on the balance sheet: |  |      |         |   |      |  
|Current                                                                     |  | $    | 6,862   |   |      | $
|Long-term                                                                   |  |      | 1,134   |   |      |  
|Total net deferred income tax assets recorded on the balance sheet          |  | $    | 7,996   |   |      | $



Income tax computed at the federal statutory rate reconciled
to the effective tax rate is as follows for the years ended December 31:



|                                               |  | 2011 |      |   | 2010 |  |       | 2009 | 
|---------------------------------------------- |  | ---- | ---- | - | ---- |  | ----- | ---- | 
|Federal statutory tax provision (benefit) rate |  |      | 34.0 | % |      |  | 34.0  | %    | 
|State tax, net of federal tax benefit          |  |      | 5.3  |   |      |  | 5.3   |      | 
|Other                                          |  |      | 3.1  |   |      |  | 3.7   |      | 
|Change in valuation allowance                  |  |      | (8.5 | ) |      |  | (96.4 | )    | 
|Effective tax rate                             |  |      | 33.9 | % |      |  | (53.4 | )%   | 



The Company has the following net operating
loss carryforwards at December 31, 2011, for income tax purposes:



| |  | Year of Expiration |  | Federal Net Operating Loss |        |  | State Net   Operating Loss |  
| |  | ------------------ |  | -------------------------- | ------ |  | -------------------------- | -
| |  | 2012               |  | $                          | -      |  |                            | $
| |  | 2013               |  |                            | -      |  |                            |  
| |  | 2014               |  |                            | -      |  |                            |  
| |  | 2015               |  |                            | -      |  |                            |  
| |  | 2016               |  |                            | -      |  |                            |  
| |  | 2017               |  |                            | -      |  |                            |  
| |  | 2018               |  |                            | -      |  |                            |  
| |  | 2019               |  |                            | -      |  |                            |  
| |  | 2020               |  |                            | -      |  |                            |  
| |  | 2021               |  |                            | 4,629  |  |                            |  
| |  | 2022               |  |                            | 2,600  |  |                            |  
| |  | 2023               |  |                            | -      |  |                            |  
| |  | 2024               |  |                            | 1,698  |  |                            |  
| |  | 2025               |  |                            | 6,580  |  |                            |  
| |  | 2026               |  |                            | 5,249  |  |                            |  
| |  | 2027               |  |                            | 20,686 |  |                            |  
| |  | 2028               |  |                            | 8,874  |  |                            |  
| |  | 2029               |  |                            | -      |  |                            |  
| |  | 2030               |  |                            | -      |  |                            |  
| |  | 2031               |  |                            | -      |  |                            |  
| |  |                    |  | $                          | 50,316 |  |                            | $



F-42







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



We recognize the financial statement benefit
of a tax position only after determining that the relevant tax authority would more likely than not sustain the position. 
For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. 
As of December 31, 2011, we did not have any material uncertain tax positions.



It is our practice to recognize interest
and penalties related to income tax matters as a component of income tax expenses on the consolidated statement of operations.  As
of December 31, 2011, we had an immaterial amount of accrued interest and penalties.



We are subject to income taxes in the
U.S. federal jurisdiction, and various state jurisdictions.  Tax regulations from each jurisdiction are subject to the interpretation
of the related tax laws and regulations and require significant judgment to apply.  With few exceptions, we are no longer
subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 1999. Typically the
statute of limitations is 3 years for the federal and 5 years for the state tax returns.  Multiband’s statutes
are open back to 1999 due to net operating losses available from those years.  We are not currently under examination
by any taxing jurisdiction.



We had no significant unrecognized tax
benefits as of December 31, 2011 and 2010 that would reasonably be expected to affect our effective tax rate during the next twelve
months.



NOTE 15 - Supplemental Cash Flows
Information

|                                                                                                                                                                     |  | 2011 |        |   | 2010 |   |       | 2009 | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- | 
|Cash paid for interest, net of amortization
    of OID and interest discount                                                                                         |  | $    | 3,487  |   |      | $ | 4,008 |      | 
|Cash paid for federal and state income taxes                                                                                                                         |  |      | 478    |   |      |   | 5,325 |      | 
|                                                                                                                                                                     |  |      |        |   |      |   |       |      | 
|Non-cash investing and financing transactions:                                                                                                                       |  |      |        |   |      |   |       |      | 
|Reduction of related party debt with exchange for preferred
    stock                                                                                                |  |      | -      |   |      |   | -     |      | 
|Reduction of accounts payable from sale of intangible assets
    and equipment                                                                                       |  |      | -      |   |      |   | -     |      | 
|Reduction in related party debt by other receivable –
    related party for legal settlement                                                                         |  |      | 294    |   |      |   | -     |      | 
|Reduction of related party debt by other receivable related party for legal fees paid on
    behalf of DirecTECH                                                     |  |      | -      |   |      |   | 175   |      | 
|Purchase of property and equipment with the increase in
    capital lease obligations                                                                                |  |      | 251    |   |      |   | 393   |      | 
|Purchase of intangible assets with the issuance of common
    stock and short-term notes payable                                                                     |  |      | -      |   |      |   | 163   |      | 
|Intrinsic value of preferred dividends                                                                                                                               |  |      | (3     | ) |      |   | 3     |      | 
|Conversion of preferred into common stock                                                                                                                            |  |      | 10,024 |   |      |   | 2     |      | 
|Purchase of 29% of outstanding stock of NC (formerly MMT)
    with issuance of short and long-term notes payable                                                     |  |      | -      |   |      |   | -     |      | 
|Interest paid with the issuance of common stock                                                                                                                      |  |      | -      |   |      |   | 3     |      | 
|Increase in prepaid expense and other assets  via
    short-term debt issued                                                                                         |  |      | 10,450 |   |      |   | 8,806 |      | 
|Increase in short-term debt via offset to accounts payable                                                                                                           |  |      | -      |   |      |   | -     |      | 
|Purchase 80% of outstanding stock of DirecTECH operating
    entities via payment to escrow in 2008                                                                  |  |      | -      |   |      |   | -     |      | 
|Warrants issued for long-term financing                                                                                                                              |  |      | -      |   |      |   | -     |      | 
|Conversion of accrued stock dividends into common stock                                                                                                              |  |      | 625    |   |      |   | 902   |      | 
|Reduction of notes payable via reduction of related party
    receivable in connection with the purchase of 80% of outstanding stock of DirecTECH operating entities |  |      | -      |   |      |   | -     |      | 
|Purchase 80% of outstanding stock of DirecTECH operating
    entities via issuance of short and long-term notes payable                                              |  |      | -      |   |      |   | -     |      | 
|Purchase of remaining 20% of outstanding stock of DirecTECH
    operating entities via issuance of Class J preferred shares                                          |  |      | -      |   |      |   | -     |      | 
|Payment of debt with issuance of common stock                                                                                                                        |  |      | -      |   |      |   | -     |      | 
|Reduction of long-term debt via offset against life insurance
    proceeds                                                                                           |  |      | 49     |   |      |   | -     |      | 
|Payment of accrued expenses with the issuance of common
    stock                                                                                                    |  |      | -      |   |      |   | -     |      | 
|Payment of accrued interest with the issuance of common
    stock                                                                                                    |  |      | 1      |   |      |   | -     |      | 
|Reduction of accrued expenses with the issuance of stock
    options                                                                                                 |  |      | 170    |   |      |   | 113   |      | 
|Reduction of short-term debt with other receivables                                                                                                                  |  |      | 500    |   |      |   | -     |      | 
|Conversion of debt into common stock                                                                                                                                 |  |      | -      |   |      |   | -     |      | 
|Conversion of accounts payable into debt                                                                                                                             |  |      | -      |   |      |   | -     |      | 
|Increase in prepaid expense with the increase in long-term
    debt                                                                                                  |  |      | -      |   |      |   | 36    |      | 
|Warrants issued for dividends                                                                                                                                        |  |      | -      |   |      |   | 57    |      | 
|Common stock issued for peformance bonuses                                                                                                                           |  |      | 2      |   |      |   | -     |      | 
|Common stock issued for deferred financing fees                                                                                                                      |  |      | -      |   |      |   | 181   |      | 
|Common stock issued for services and revenue share payments                                                                                                          |  |      | -      |   |      |   | 62    |      | 



F-43







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



NOTE 16 - Retirement Savings Plan



The Company has a 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 17 - Commitments and Contingencies



Operating leases – buildings

The Company has various operating leases
for its corporate office space and warehouses with lease terms expiring at various dates through June 2017.  The monthly
base rents range from approximately $196 to $203.  The leases contain provisions for payments of real estate taxes,
insurance and common area costs.



Total rent expense for the years ended
December 31, 2011, 2010 and 2009 including common area costs and real estate taxes was approximately $2,616, $2,482, and $2,409,
respectively.



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



|Year       |  | Amount |      
|---------- |  | ------ | -----
|2012       |  | $      | 2,003
|2013       |  |        | 1,333
|2014       |  |        | 937  
|2015       |  |        | 795  
|2016       |  |        | 471  
|Thereafter |  |        | 35   
|           |  | $      | 5,574



Operating leases – vehicles

The Company leases substantially all of
its fleet vehicles under operating leases from one lessor. Each lease commences upon the in-service date of the vehicle and requires
scheduled lease payments to be paid monthly for one year. After one year, the Company has the option to renew the lease as open
ended or surrender the leased vehicle to the lessor to be sold. If the net proceeds of such sale exceed the vehicle’s then
depreciated value, the lessee receives the benefit of such excess. If there is a deficiency upon such sale, then lessee is required
to pay the deficiency as additional rent to lessor. For the years ended December 31, 2011 and 2010, the Company recognized a gain
on the sale of vehicles of $1,217 and $762, respectively, and a loss on the sale of vehicles of $233 for the year ended December
31, 2009.  For the years ended December 31, 2011, 2010 and 2009, the Company’s operating lease expense under the
lease totaled approximately $9,330, $7,912 and $7,930, respectively. In addition, the Company has a security deposit with the
lessor in the amount of $1,701 which is included in other assets in the accompanying consolidated balance sheets at both December
31, 2011 and December 31, 2010, respectively. In February 2012, the lessor returned $600 of the balance of the security deposit
to the Company.



Future minimum rental payments for all
vehicles put in service in 2011 for the year ended December 31, 2012 are $2,412.



Significant Relationship



The Company is a master agent for DIRECTV
pursuant to a master system operator (MSO) agreement dated August 2011.  The initial term of the agreement is four years.
The initial term will automatically renew thereafter for additional, individual one-year periods, unless
either the Company or DIRECTV gives written notice of non-renewal at least ninety (90) days in advance of expiration of the then-current
term.  Under the agreement the Company is required to ensure that its system operators meet minimum technical DIRECTV
system standards so that the system operator subscribers may properly receive DIRECTV programming services.  The Company
must also maintain a minimum number of paying video subscribers in its system operator network.



The Company also has a separate home service
provider agreement with DIRECTV ending April 30, 2015 which provides for the installation and servicing of DIRECTV satellite television
services to residents of single family homes. The term of this agreement will automatically renew as of May 1, 2015 for additional
one year periods unless either the Company or DIRECTV gives written notice of termination at least 90 days in advance of expiration
of the then current term.



F-44







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



Termination of the Company's DIRECTV agreements
would have a material adverse impact on the Company's on-going operations.  Revenues generated from DIRECTV amounted
to 95.6%, 99.0%, and 99.2% of total revenue in 2011, 2010 and 2009, respectively.  Accounts receivable from this customer
were 82.4% and 84.1% of total accounts receivable as of December 31, 2011 and 2010, respectively.  The Company purchases
a substantial portion of its inventory from DIRECTV.  DIRECTV is the only supplier of the major components (i.e., dishes
and receivers) used in HSP segment installations.  The total accounts payable to DIRECTV, related to inventory supplied
by DIRECTV, was $23,480 and $17,009 at December 31, 2011 and 2010, respectively.



Bulk Subsidy Reserve

Bulk subsidy revenue is generated when
bulk subscriber counts are greater than the benchmark set by DIRECTV. The Company reviews the subscriber counts associated with
bulk properties on a periodic basis to determine bulk subscriber counts over the total units at the property. Based on its review,
the Company estimates that the result of this analysis will be a reduction to the subscriber count of approximately 250 and 500
active bulk subscribers at December 31, 2011 and 2010, respectively. The Company has recorded a bulk subsidy reserve of $50 and
$100 at December 31, 2011 and 2010, respectively. This reserve is netted against DIRECTV estimated receivables on the consolidated
balance sheets and is netted against revenues in the consolidated statements of operations for the years ended December 31, 2011,
2010 and 2009.



Legal proceedings

The Company is subject to claims, regulatory
processes and lawsuits that arise in the ordinary course of business.  The Company accrues for such matters when a loss
is considered probable and the amount of such loss, or a range of loss, can be reasonably estimated. The Company’s defense
costs are expensed as incurred.  The Company has recorded $3,072 and $3,098 of accrued liabilities at December 31, 2011
and 2010, respectively, for claims and known and potential settlements and legal fees associated with existing litigation.



The majority of the accrued liabilities relate either to claims
for overtime wages or a Department of Labor matter further described below.



Effective December 31, 2011, the Company has settled all of
the overtime wage claims, with one exception, Conway v. Multiband (D.Ill.). While the Company and its predecessors denied the
allegations underlying the overtime claim lawsuits, we agreed to settlements to avoid significant legal fees, the uncertainty
of a jury trial and other expenses and management time related to protracted litigation.



In December 2009, the US Department of Labor (DOL) sued various
individuals that are either shareholders, directors, trustees and/or advisors to DirecTECH Holding Company, Inc. (DTHC) and its
Employee Stock Ownership Plan (ESOP).  The Company was not named in this complaint.  In May 2011, these individuals
settled the complaint with the DOL. Certain defendants in this matter have filed suit against the Company for advancement and
or reimbursement of expenses. One of the defendants, Woody Bilyeu, is also pursuing an arbitration proceeding against DTHC seeking
acceleration of his promissory note with DTHC which totals approximately $9,000 as of December 31, 2011 and is attempting to collect
costs from a Company subsidiary for a different note that was paid off in 2009.  The basis for these reimbursement demands
are certain corporate indemnification agreements that were entered into by the former DTHC operating subsidiaries and the Company
itself.  To date, the Company has denied all requests for indemnification of legal fees in this matter for, in part,
the following reasons: 1) similar indemnification agreements have been declared illegal under Federal law by a California federal
appeals court; and 2) the Company has no obligation to indemnify DTHC individual shareholder conduct.  Notwithstanding
the above, the outcome of the matter is uncertain at present and the Company cannot definitively predict based on the current
facts known to it, whether it ultimately will have any material liability in the matter.



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



Line of credit

The Company had a line of credit agreement with a bank that
provided borrowings up to $50, due on demand. The line of credit agreement was terminated on September 21, 2011. Amounts outstanding
under this line of credit carried an interest rate defined as the prime rate plus 3.0% (6.25% as of December 31, 2010). At December
31, 2011 and 2010, the amount outstanding was $0 and $49, respectively. This line of credit was guaranteed by J. Basil Mattingly,
Vice President of the Company.



Short-term financing

During 2011, the Company entered into
a short-term financing agreement with First Insurance Funding Corporation in the amount of $9,859 for workers’ compensation,
business and auto insurance. This financing agreement carried an interest rate of 5.7% and required monthly payments of principal
and interest of $1,012 through November 2011. As of December 31, 2011, the financing agreement was paid in full.



F-45







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



During 2010, the Company entered into
a short-term financing agreement with First Insurance Funding Corporation in the amount of $8,806 for workers’ compensation,
business and auto insurance.  This financing agreement carried an interest rate of 6.12% and required monthly payments
of principal and interest of $1,004 through October 2010.  As of December 31, 2010, the financing agreement was paid
in full.



Equity financing

On August 3, 2010, the Company signed a $10,000 purchase agreement
to sell shares of the Company’s common stock to Lincoln Park Capital Fund, LLC (LPC), an Illinois limited liability company.
On April 20, 2011, the Company terminated the purchase agreement with LPC.



Other Concentrations

The Company has 871 union employees. A contract with all full
and regular part-time technicians employed by Multiband EC, Inc. at its Illinois, Indiana, Iowa, Kentucky (excluding Maysville)
and Ohio (excluding Columbus) facilities expires on May 11, 2013. The Company has approximately 26% of its labor force covered
by a collective bargaining agreement that expires in May 2013. The Company also has 89 union employees at its Boston South location.
This contract is currently being negotiated. The Company utilizes a contractor base for seasonality and work overflow but it cannot
be certain that it could cover all jobs during a work outage, if one should occur. A reduction in productivity in any given period
or our inability to meet guaranteed schedules may adversely affect our profitability



NOTE 18 – Related Party Transactions



The Company completed a public offering
of 12,880,000 shares of its common stock, of which the Company sold 5,974,932 shares and the selling shareholder (DTHC), after
converting its preferred series J shares into common shares, sold 6,905,068 shares at a price of $3.00 per share. The Company
did not receive any proceeds from the sale of shares by DTHC. As a result, DTHC no longer owns greater than 5% of the Company’s
stock as of June 30, 2011 and therefore is no longer considered a related party. This change in related party classification affects
the following lines on the balance sheet; other receivable of $0 and $518, other receivable – long-term of $14 and $352,
and long-term debt of $29,229 and $34,380 at December 31, 2011 and 2010, respectively.



In 2011, the
Company redeemed 50,000 shares of preferred series E stock for $500 cash to director Eugene Harris.



In 2011, the Company redeemed 145,000
shares of preferred series E stock for $1,450 cash to director Frank Bennett.



In 2010, the Company redeemed 5,000 shares
of preferred series E stock for $50 cash to director Eugene Harris.



In 2010, the Company redeemed 10,000 shares
of preferred series E stock for $100 cash to director Frank Bennett.



The Company paid $48 and $94 of preferred
series E stock dividends to director Eugene Harris for the years ended December 31, 2011 and 2010, respectively. Payment for dividends
was in the form of cash and warrants.



The Company paid $139 and $269 of preferred
stock dividends to director Frank Bennett for the years ended December 31, 2011 and 2010, respectively. Payment for dividends
was in the form of cash, common stock and warrants.



The above transactions were approved by
the disinterested members of the Company’s audit committee.



The Company had a line of credit agreement
with a bank that provides borrowings up to $50 (see Note 17).  This line of credit was guaranteed by J. Bas Mattingly,
Vice President of the Company. The line of credit agreement was terminated on September 21, 2011.



Proceeds for the Company’s acquisition
of US Install Inc. completed in February 2008 were obtained via an unsecured promissory note in the amount of $100 between the
Company and Bas Mattingly Master, LLC, a trust controlled by J. Basil Mattingly, Vice President of the Company. The balance of
this note was paid in full at March 31, 2011 and was $50 at December 31, 2010. The note carried an interest rate of 7% per annum
(see Note 8).



On September 1, 2009, the Company entered
into an unsecured short-term promissory note in the amount of $800 with J. Basil Mattingly, Vice President of the Company. The
balance at December 31, 2011 and 2010 was $0 and $115, respectively. The note carried an interest rate of 4% per annum and payment
of its remaining balance as of December 31, 2010 was extended to June 30, 2011, at which time it was paid off.



F-46







MULTIBAND CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

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



The Company leases principal offices located
at 2000 44th Street SW, Fargo, ND 58013. The Fargo base rate is $18 per month. The Fargo property is owned in part by David Ekman,
Chief Information Officer of the Company.



NOTE 19 – Subsequent Event

In January 2012, the Company formed a
wholly-owned subsidiary, Multiband Special Purpose, LLC (MBSP). In February 2012, the MBSP purchased land and an office building
for $4,500. Pursuant to the transaction, the MBSP assumed a mortgage held by the seller in the amount of $3,800. The mortgage
is payable over the next seventy nine months and carries an interest rate of 5.92% per annum. Monthly payments of principal and
interest are due as follows: $36 from March 2012 through September 2016 and then $40 from October 2016 through August 2018. A
final payment of $2,199 is due in September 2018. As additional collateral for the mortgage, the MBSP posted a letter of credit
in the lender’s favor of $1.7 million dollars, which is fully backed by a certificate of deposit held by the lender.



Prior to this transaction, the building was leased by the seller
to a third party lessee under a long-term lease. In connection with the closing of the transaction, the third party lessee made
payments totaling $1,350 as consideration for the termination of that lease. Of the total amount paid, $1,100 was credited against
the MBSP’s purchase price. The balance of the lease termination fee ($250) was paid to the MBSP in cash. The total amount
paid by the third party lessee will be recorded as a reduction in the MBSP’s basis in the property acquired.



At closing, the MBSP received an additional $440 in net proceeds
after all transaction costs.



In connection with this transaction, the Company entered into
an office lease with MBSP to lease the facility for a period of seven years from May 1, 2012 to April 30, 2019. Base rent is payable
at a rate of $36 per month, increasing by 5% per year on each anniversary date throughout the term of the lease. The Company is
also responsible for 100% of the operating expenses of the facility.



In January 2011, Multiband Field Service, Incorporated (MBFS)
(formerly Multiband NE, Inc.), a wholly owned subsidiary of Multiband Corporation, purchased for $700 certain assets of Groupware
International, Inc. located in Florida. MBFS is now performing installations for a leading cable company in Florida. This activity
is part of the FS business segment.





F-47









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 30, 2012, we
reported on the consolidated balance sheets of Multiband Corporation and subsidiaries as of December 31, 2011 and 2010 and the
related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2011 as contained in the annual report on Form 10-K for the year ended December
31, 2011, which report contained an unqualified opinion and an explanatory paragraph related to certain contractual relationships
between the Company and DirecTECH Holding Company, Inc., which preceded a business combination occurring on January 2, 2009.  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/ Baker Tilly Virchow Krause, LLP



Minneapolis, Minnesota

March 30, 2012



F-1









MULTIBAND CORPORATION AND SUBSIDIARIES



VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2011, 2010
and 2009

(in thousands)



|Column A                                          |  | Column B                                     |     |  | Column C                                                        |   |     | Column D   |  |   | Column E                       |    
|------------------------------------------------- |  | -------------------------------------------- | --- |  | --------------------------------------------------------------- | - | --- | ---------- |  | - | ------------------------------ | ---
|Description                                       |  | Balance at
        Beginning of
        Year |     |  | Additions
        Charged to
        Costs and
        Expenses |   |     | Deductions |  |   | Balance at
        End of Year |    
|ALLOWANCE DEDUCTED FROM ASSET TO WHICH IT APPLIES |  |                                              |     |  |                                                                 |   |     |            |  |   |                                |    
|Allowance for doubtful accounts receivable:       |  |                                              |     |  |                                                                 |   |     |            |  |   |                                |    
|2011                                              |  | $                                            | 112 |  |                                                                 | $ | 66  |            |  | $ | 66                             | (A)
|2010                                              |  |                                              | 810 |  |                                                                 |   | -   |            |  |   | 698                            | (A)
|2009                                              |  |                                              | 60  |  |                                                                 |   | 750 |            |  |   | -                              |    
|                                                  |  |                                              |     |  |                                                                 |   |     |            |  |   |                                |    
|Stock subscriptions and interest receivable       |  |                                              |     |  |                                                                 |   |     |            |  |   |                                |    
|2011                                              |  |                                              | -   |  |                                                                 |   | -   |            |  |   | -                              |    
|2010                                              |  |                                              | 223 |  |                                                                 |   | 25  |            |  |   | 248                            | (A)
|2009                                              |  |                                              | 186 |  |                                                                 |   | 60  |            |  |   | 23                             | (A)



|(A) | Write-off uncollectible receivables
|--- | -----------------------------------



F-2