Corporate Information

We are a Minnesota corporation formed in September 1975. Our principal executive offices are located at 9449 Science Center Drive, New Hope, Minnesota 55428, and our telephone number is (763) 504-3000. Our website address is www.multibandusa.com. The information on, or that may be accessed through, our website is not incorporated by reference into this report and should not be considered a part of this report. As used in this report, references to "we," "our," "us," "Multiband" and "the Company" refer to Multiband Corporation unless the context indicates otherwise.

Overview

The Company has three operating segments: (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 system 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. We operate in 33 states with 33 field offices and employ approximately 3,700 people.

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 20 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.

Multi-Dwelling Unit Segment (MDU)

Through our MDU segment, we serve as a master system operator for DIRECTV, which allows us to offer satellite television services to residents of multi-dwelling units directly and through a network of affiliated operators. The MDU segment also offers bundled services for voice, data and video directly to residents in the MDU market. Our primary customers in the MDU segment are property owners/managers who are focused on delivering their residents (our end users) reliability, quality service, short response times, minimized disruptions and alterations on the property, and value added services. Our contracts with the property owner typically run three to ten years pursuant to right-of-entry agreements between property owners and us. Within this segment, we also offer our internal support center and billing platform to service third party clients. As of April 30, 2012, we had approximately 116,000 owned and managed subscribers, with an additional 81,000 subscribers supported by the support center.

Energy, Engineering & Construction Segment (EE&C)

The Company also 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.

Backlog (in thousands)

As of March 31, 2012, we had a backlog of unfilled orders of approximately $1,229 compared to approximately $1,817 at December 31, 2011. 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.

Our Strategies

Our strategies are centered on leveraging our existing infrastructure and improving operational efficiencies. The key elements of our business strategies are:

· Grow Our MDU Business.

We believe that we are well positioned with proper funding to support growth initiatives in the MDU market because we are currently the largest nationwide MDU master system operator and we have invested significant time, effort, and capital into developing our MDU infrastructure. Our intent is to substantially grow this segment of our business by targeting middle to high-end rental properties and resort area condominiums. 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.

· Expand Our Installation & Fulfillment Services.

We believe our national footprint and technical expertise uniquely position us to expand into new installation and fulfillment services for corporations, government agencies and residential properties. Expanding our installation services would allow us to better leverage our fixed costs and improve operating margins. We continue to evaluate opportunities to expand into new installation services and will pursue those opportunities that are strategically and financially viable.

· Grow the EE&C business segment.

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.

· Improve Operational Efficiencies.

We intend to continue improving our profitability and cash flow by reducing technician turnover, maintaining strict inventory control systems, improving our training and safety programs to reduce insurance and other costs, reducing fleet fuel usage, and optimizing vehicle leasing terms.

· Pursue Strategic Acquisitions.

We intend to pursue strategic acquisitions that expand the scope of our service offerings, allow us to expand our operations into new geographic areas or strengthen our position in our existing geographic markets.

SELECTED CONSOLIDATED FINANCIAL DATA (expressed as a percentage of revenue)



                                                          THREE MONTHS ENDED

                                                     March 31, 2012 March 31, 2011
                                                      (unaudited)    (unaudited)
REVENUES                                                  100%           100%

COST OF PRODUCTS & SERVICES (Exclusive of                73.3%          74.1%
depreciation and amortization shown below)

SELLING, GENERAL & ADMINISTRATIVE                        25.3%          22.7%
DEPRECIATION & AMORTIZATION                               2.4%           2.6%

INCOME (LOSS) FROM OPERATIONS                            -1.0%           0.6%
INTEREST EXPENSE & OTHER, NET                            -1.6%          -0.8%
LOSS BEFORE INCOME TAXES                                 -2.6%          -0.2%
PROVISION FOR (BENEFIT FROM) FOR INCOME TAXES            -0.7%          -0.1%
NET LOSS                                                 -1.9%          -0.1%

RESULTS OF OPERATIONS (in thousands, except for percentages)

Revenues

Total revenues increased 12.0% to $72,227 for the quarter ended March 31, 2012 as compared to $64,475 for the quarter ended March 31, 2011.

FS segment revenues for the three months ended March 31, 2012, were $63,977 in comparison to $58,933 for the same period in 2011, an increase of 8.6%. Although total DIRECTV work order volume was flat between periods, a change in the mix of work resulted in a $2,062 increase in fulfillment revenue driven by a 22% increase in upgrade work. In addition, the Company earned $2,766 of revenue from its new cable fulfillment business that was acquired in late 2011 and early 2012. During the remainder of 2012, the Company expects FS segment revenues to increase based on the seasonality of the business.

The MDU segment had revenues of $5,677 for the three months ended March 31, 2012, compared to $4,748 for the same period in 2011, an increase of 19.6%. In 2012, the support center revenue increased $129, owned and operated subscriber revenue increased $455 and the system operator revenue increased $345. During 2012, the Company expects MDU segment revenues to increase along with the growth in subscribers.

The EE&C segment revenues increased from $794 for the three months ended March 31, 2011 to $2,573 for the three months ended March 31, 2012, an increase of 224.1%. The Company's acquisition of SE and MW in September 2011, accounted for $2,226 of this increase which was partially offset by a decrease in MDU construction revenue of $448. During 2012, the Company expects EE&C segment revenues to increase as the Company increases its sales and bidding efforts.

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

The Company's cost of products and services increased by 10.9% to $52,980 for the quarter ended March 31, 2012, as compared to $47,759 for the same quarter last year.

Cost of products and services for the FS segment increased by 8.2% for the three months ended March 31, 2012 to $47,562, compared to $43,973 in the prior year quarter. As a percentage of revenue, cost of products and services for the FS segment was 74.3% and 74.6% for the three months ended March 31, 2012 and 2011, respectively. During 2012, the Company expects FS segment costs of products and services to remain relatively constant in relation to FS segment revenue.

Cost of products and services for the MDU segment increased by 3.4% for the current quarter to $3,335, compared to $3,224 in the same quarter last year. As a percentage of revenue, cost of products and services for the MDU segment was 58.7% and 67.9% for the three months ended March 31, 2012 and 2011, respectively. This reduction was due to decreased amount of contract labor used for the owned subscriber installation and maintenance as well as decreases in certain system operator expenses. In 2012, the Company expects MDU costs of products and services to return to historical levels as a percentage of revenues.

For the EE&C segment, cost of products and services were $2,083 for the quarter ended March 31, 2012, compared to $562 in the same quarter last year, a 270.0% increase. The acquisition of SE and MW in September accounted for $1,782 of this increase. As a percentage of revenue, costs of products and services for the EE&C segment were 81.0% and 70.9% for the quarters ended March 31, 2012 and 2011, respectively. 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 Expenses

Selling, general and administrative expenses increased to $18,267 for the quarter ended March 31, 2012, compared to $14,637 in the prior year's quarter, an increase of 24.8%. Selling, general and administrative expenses were, as a percentage of revenues, 25.3% for the quarter ended March 31, 2012 and 22.7% for the same period a year ago. The Company experienced a $1,250 increase in wages and a $1,609 increase in benefits expense in the 2012 quarter versus prior year's quarter. The increase in benefits was driven by a variety of factors including the implementation of a 401K plan with Company matching funds together with an increase in health plan expenses due an increase in the number of participants and certain significant medical claims incurred under the Company's self-insured plan. The Company believes that offering improved benefits to employees will lead to improved retention, which will drive down recruitment and training costs. The Company anticipates that during the remainder of 2012, selling, general and administrative expenses will decline as a percentage of total revenues.

Depreciation and Amortization

Depreciation and amortization expense of $1,717 for the quarter ended March 31, 2012, compared to $1,715 in the prior year's quarter, remained flat.

Income from Operations

In the first quarter of 2012, the Company had a loss from operations of $737, versus operating income of $364 during the prior year's comparable period.

For the first quarter of 2012, the FS segment earned income from operations of $136, compared to $2,588 in the same period last year, a decrease of 94.7%. This decrease in income from operations was primarily due to an increase in selling, general and administrative expense together with a $546 operating loss generated by the cable fulfillment business. The FS segment is expected to improve its profitability through the balance of 2012 as seasonal increases in work orders occurs and the cable fulfillment operation, becomes fully integrated into the Company's systems and processes.

The MDU segment showed income from operations of $258 for the three months ended March 31, 2012, compared to a loss of $921 for the three months ended March 31, 2011. The Company plans to continue its improvement in the MDU segment in future periods by increasing levels of activity in the managed subscriber divisions (the Master System Operator and call center divisions) and by reshaping its owned subscriber footprint in concentrated, targeted geographic markets in order to service the customers more efficiently.

The EE&C segment had a loss from operations of $436 for the first quarter of 2012, compared to income from operations of $232 in the first quarter of 2011. In 2012, the operations of SE and MW contributed an operating loss of $482. For the balance of 2012, the Company expects this segment to improve its results as SE and MW increases revenue and this business becomes fully integrated into the Company's systems and processes.

The MBCorp segment, which has no revenues, incurred a loss from operations of $695 for the three months ended March 31, 2012 and $1,535 for the three months ended March 31, 2011. The MBCorp segment loss is expected to continue in future periods as corporate overhead is expected to remain consistent with current levels.

Interest Expense

Interest expense was $914 for the quarter ended March 31, 2012, versus $986 for the same period a year ago.

Other-than-Temporary Impairment Loss

For the three months ended March 31, 2012 and 2011, the Company recorded an other-than-temporary impairment loss of $291 and $0, respectively, due to the decline in the fair value of the shares it holds in WPCS International, Inc. (see Note 2).

Benefit from Income Taxes

The Company recorded an income tax benefit of $557 (29.2% of net loss before income taxes) and $49 (34.8% of net loss before income taxes) for the three months ended March 31, 2012 and 2011, respectively The Company has no significant unrecognized tax benefits as of March 31, 2012 that would reasonably be expected to affect our effective tax rate.

Net Loss

In the first quarter of fiscal 2012, the Company reported a net loss of $1,353 compared to a net loss of $92 for the first fiscal quarter of 2011.

Liquidity and Capital Resources

During the three months ended March 31, 2012 and 2011, the Company incurred net losses of $1,353 and $92, respectively. Net cash used by operations during the three months ended March 31, 2012 was $4,248, compared to cash provided by operations of $5,787 during the three months ended March 31, 2011. During the quarter, DTV implemented certain changes in the way it prices, finances and sells equipment to the Company, resulting in a one-time reduction of cash of approximately $3,200. This change had no impact on operating income. A significant reduction in accounts receivable, inventory and accounts payable balances also resulted from the equipment price change. Principle payments on current long-term debt, short-term debt and capital lease obligations over the next 12 months are expected to total $38,576. As of March 31, 2012, the Company failed to meet one of the compliance covenants of its lender, Convergent Capital, with respect to having minimum earnings before interest, taxes, depreciation and amortization (EBITDA) of $3,178 at March 31, 2012. Convergent Capital provided the Company with a waiver for the covenant for the three months ended March 31, 2012. The loan is due and payable in full in December 2012 and has been classified included in current portion of long term debt at both March 31, 2012 and December 31, 2011. The Company intends to pay these maturing debt obligations via refinancing the debt and/or via a combination of the actions listed below.

Net cash used in investing activities totaled $2,379 for the three months ended March 31, 2012, compared to $495 for the three months ended March 31, 2011. During the first three months of 2012, purchases of property and equipment totaled $686, the Company acquired cable fulfillment assets for $700 and increased restricted cash as security for a letter of credit in connection with the acquisition of land and a building for $1,682. In addition, the transaction to acquire land and a building resulted in proceeds of $673.

Net cash used in financing activities was $1,108 for the three months ended March 31, 2012, compared to $3,154 for the three months ended March 31, 2011. Cash used during the 2012 quarter consisted of payments on short-term debt of $909 and payments on capital lease obligations of $118.

Cash and cash equivalents totaled $10,434 at March 31, 2012, versus $18,169 at December 31, 2011. The Company has a working capital deficit of $24,478 at March 31, 2012, compared to positive working capital of $7,463 at December 31, 2011. The working capital deficit at March 31, 2012 is impacted by the fact that long-term debt totaling $34,321 is classified as a current liability as the maturity dates are within the next twelve months. The Company intends to refinance these obligations sometime during 2012.

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 hopes 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 operating profit in the Company's FS segment (see Note 9).
2. Solicit additional equity investment in the Company by issuing either preferred or common stock for general corporate purposes.
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. Improve results in the MDU segment by reshaping its owned subscriber footprint to gain efficiencies and by expanding its managed subscriber base by adding new system operators.
6. Improve results in the newly diversified business segments by further integrating these segments into the Company's traditional systems and processes.

The Company, as of March 31, 2012, 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 and refinancing 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 March 31, 2012, we had a backlog of unfilled orders of approximately $1,229 compared to approximately $1,817 at December 31, 2011. 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 and Estimates

Our significant accounting policies are summarized in Note 1 of the Notes to Consolidated Financial Statements included in our 2011 Annual Report on Form 10-K for the year ended December 31, 2011. Also refer to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this report.