UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
FOR THE PERIOD ENDING MARCH 31, 2007 
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
 
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
 
COMMISSION FILE NUMBER 0 - 1325
 
 
MULTIBAND CORPORATION
(Exact name of registrant as specified in its charter)

MINNESOTA
(State or other jurisdiction of incorporation or organization)

41 - 1255001
(IRS Employer Identification No.)

9449 Science Center Drive, New Hope, Minnesota 55428
(Address of principal executive offices)

Telephone (763) 504-3000 Fax (763) 504-3060
 
Internet: www.multibandusa.com  

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x          No o

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

Large accelerated filer o  Accelerated filer o  Non-accelerated filer x

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

Yes o          No x

On May 10, 2007 there were 35,405,880 shares outstanding of the registrant's common stock, no par value, and 401,905 outstanding shares of the registrant's convertible preferred stock.

 
PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

MULTIBAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   
Three Months Ended
  
   
 March 31, 2007
  
 March 31, 2006
  
     
(unaudited) 
    
(unaudited) 
  
REVENUES
  
$
4,384,955
  
$
4,404,044
  
COSTS AND EXPENSES
              
Cost of products and services (exclusive of depreciation and amortization shown separately below)
    
2,178,046
    
2,056,527
  
Selling, general and administrative
    
2,389,256
    
2,972,223
  
Depreciation and amortization
    
1,049,698
    
1,302,456
  
Total costs and expenses
    
5,617,000
    
6,331,206
  
               
LOSS FROM OPERATIONS
    
(1,232,045
)
  
(1,927,162
)
OTHER EXPENSE
              
Interest expense
    
(153,407
)
  
(304,681
)
Other income (expense)
    
23,057
    
41,437
 
Total other expense
    
(130,350
)
  
(263,244
)
               
LOSS FROM CONTINUING OPERATIONS
    
(1,362,395
)
  
(2,190,406
)
GAIN FROM DISCONTINUED OPERATIONS
    
-
    
2,200
  
               
NET LOSS
    
(1,362,395
)
  
(2,188,206
)
Preferred stock dividends
    
239,927
    
263,106
  
               
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
  
$
(1,602,322
)
$
(2,451,312
)
               
BASIC AND DILUTED LOSS PER COMMON SHARE:
              
LOSS FROM CONTINUING OPERATIONS
  
$
(.05
)
$
(.08
)
LOSS FROM DISCONTINUED OPERATIONS
  
$
-
  
$
-
  
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
  
$
(.05
)
$
(.08
)
               
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
    
35,398,903
    
32,155,873
 

See notes to condensed consolidated financial statements

2

MULTIBAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 
  
March 31,
2007
  
December 31,
2006
  
   
(unaudited) 
  
(audited) 
  
ASSETS
          
CURRENT ASSETS
  
 
  
 
  
Cash and cash equivalents
    
851,804
  
$
1,020,975
  
Accounts receivable, net
    
1,667,378
    
2,018,393
  
Inventories
    
175,771
    
343,815
  
Prepaid expenses and other
    
542,787
    
181,767
  
Current portion of notes receivable
    
6,116
    
6,116
  
Total Current Assets
    
3,243,856
    
3,571,066
  
PROPERTY AND EQUIPMENT, NET
    
3,006,040
    
3,359,842
  
OTHER ASSETS
            
Goodwill
    
509,086
    
509,086
  
Intangible assets, net
    
8,188,820
    
9,124,980
  
Assets held for sale
    
-
    
1,244,236
  
Notes receivable - long-term, net
    
63,740
    
63,740
  
Other assets
    
134,744
    
113,106
  
Total Other Assets
    
8,896,390
    
11,055,148
  
 
              
TOTAL ASSETS
  
$
15,146,286
  
$
17,986,056
  
 
              
LIABILITIES AND STOCKHOLDERS' EQUITY
              
CURRENT LIABILITIES
              
Checks issued in excess of cash in bank
  
$
-
  
$
319,244
  
Mandatory redeemable preferred stock, 25,876 and 28,000 Class F preferred shares
    
258,756
    
280,000
  
Current portion of long-term debt
    
708,823
    
1,255,994
  
Current portion of capital lease obligations
    
442,475
    
444,921
  
Note payable - stockholder
    
-
    
24,739
  
Accounts payable
    
2,907,859
    
2,557,409
  
Accrued liabilities
    
2,606,763
    
2,977,356
  
Customer deposits
    
60,957
    
61,332
  
Current liabilities of discontinued operations
    
-
    
125,000
  
Deferred service obligations and revenue
    
458,754
    
819,316
  
Total Current Liabilities
    
7,444,387
    
8,865,311
  
LONG-TERM LIABILITIES
            
Long-term debt, net
    
2,599,580
    
2,969,764
 
Capital lease obligations, net of current portion
    
437,863
    
491,672
  
Total Liabilities
    
10,481,830
    
12,326,747
  
COMMITMENTS AND CONTINGENCIES
              
STOCKHOLDERS' EQUITY
            
Cumulative convertible preferred stock, no par value:
            
8% Class A (26,658 shares issued and outstanding, $279,909 liquidation preference)
    
400,657
    
400,657
  
10% Class B (5,920 and 7,470 shares issued and outstanding, $62,160 and $78,435 liquidation preference)
    
46,700
    
49,700
  
10% Class C (123,630 and 124,130 shares issued and outstanding, $1,236,300 and $1,241,300 liquidation preference)
    
1,587,312
    
1,593,476
  
10% Class F (150,000 shares issues and outstanding, $1,500,000 liquidation preference)
    
1,500,000
    
1,500,000
  
8% Class G (38,195 shares issued and outstanding, $381,950 liquidation preference)
    
161,431
    
161,431
  
6% Class H (2.0 shares issued and outstanding, $200,000 liquidation preference)
    
-
    
-
  
Variable rate % Class I (57,500 shares issued and outstanding, $5,750,000 liquidation preference)
    
-
    
-
  
Common stock, no par value (35,450,539 and 35,168,161 shares issued and outstanding)
    
27,240,347
    
26,873,255
  
Stock subscriptions receivable
    
(215,034
)
  
(229,927
)
Options and warrants
    
45,327,649
    
45,093,001
  
Accumulated deficit
    
(71,384,606
)
  
(69,782,284
)
Total Stockholders' Equity
    
4,664,456
    
5,659,309
  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
15,146,286
  
$
17,986,056
  
 
See notes to condensed consolidated financial statements

3

MULTIBAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2007 AND 2006

   
THREE MONTHS ENDED MARCH 31,
  
   
2007
  
2006
  
   
(unaudited)
  
(unaudited)
  
OPERATING ACTIVITIES
          
Net loss
    
($1,362,395
)
$
(2,188,206
)
Adjustments to reconcile net loss to net cash flows from operating activities:
              
Depreciation and amortization
    
1,053,691
    
1,345,846
  
Amortization of deferred compensation
    
-
    
29,480
  
Amortization of original issue discount
    
8,294
    
114,908
  
Gain on sale of sale of property and equipment
    
(284,516
)
  
-
  
Warrants issued for services
    
900
    
-
  
Reserve for stock subscriptions and interest receivable
    
-
    
5,932
  
Stock based compensation expense
    
233,748
    
316,763
  
Change in allowance for doubtful accounts on accounts receivable
    
-
    
(191,450
)
Change in allowance for doubtful accounts on notes receivable
    
15,000
    
-
  
Changes in operating assets and liabilities:
              
Accounts receivable
    
342,086
    
456,923
  
Inventories
    
165,609
    
18,317
  
Prepaid expenses and other
    
55,565
    
5,360
  
Other assets
    
(21,638
)
  
(16,840
)
Accounts payable and accrued liabilities
    
45,656
    
(13,656
)
Deferred service obligations and revenue
    
(352,440
)
  
50,382
  
Liabilities of discontinued operations
    
(125,000
)
  
(125,000
)
Customer deposits
    
(375
)
  
(1,476
)
Net cash flows from operating activities
    
(225,815
)
  
(192,717
)
               
INVESTING ACTIVITIES
              
Purchases of property and equipment
    
(120,196
)
  
(362,006
)
Purchase of intangible assets
    
-
    
(10,750
)
Proceeds from sale of property and equipment
    
757,732
    
-
  
Collections on notes receivable
    
-
    
1,206
  
Net cash flows from investing activities
    
637,536
    
(371,550
)
FINANCING ACTIVITIES
              
Checks issued in excess of cash in bank
    
(319,244
)
  
(93,005
)
Payments on long-term debt
    
(129,080
)
  
(246,302
)
Payments on capital lease obligations
    
(56,255
)
  
(36,713
)
Payments on note payable to stockholder
    
(24,739
)
  
(2,837
)
Payments on mandatory redeemable preferred stock
    
(21,244
)
  
(53,334
)
Payments received on stock subscriptions receivable
    
62
    
6,000
  
Redemption of preferred stock
    
(20,500
)
  
(4,600
)
Preferred stock dividends
    
(9,892
)
  
(22,829
)
Exercise of stock options
    
-
    
18,000
  
Net cash flows from financing activities
    
(580,892
)
  
(435,620
)
DECREASE IN CASH AND CASH EQUIVALENTS
    
(169,171
)
  
(999,887
)
CASH AND CASH EQUIVALENTS
              
Beginning of period
    
1,020,975
    
3,100,427
 
End of period
  
$
851,804
  
$
2,100,540
  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
              
Cash paid for interest, net of amortization of original issue discount
  
$
135,509
  
$
132,433
  
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
              
Sale of property, equipment and intangible to Directech for other current asset
   
416,754
    
-
  
Debt and interest assumed by Directech as part of sale
    
267,143
    
-
Conversion of accrued dividends into common stock
    
367,092
    
16,667
  
Intrinsic value of preferred dividends
    
11,336
    
-
  
 
See notes to condensed consolidated financial statements

4

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006

Note 1 - Unaudited Consolidated Financial Statements

The information furnished in this report is unaudited and reflects all adjustments which are normal recurring adjustments and, which in the opinion of management, are necessary to fairly present the operating results for the interim periods. The operating results for the interim periods presented are not necessarily indicative of the operating results to be expected for the full fiscal year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2006, previously filed with the Securities and Exchange Commission.

NOTE 2 - Summary of Significant Accounting Policies

Nature of Business

Multiband Corporation and subsidiaries (the Company) was incorporated in Minnesota in September 1975. The Company provides voice, data and video services to multi-dwelling unit customers. The Company's products and services are sold to customers located throughout the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern that contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2007 and 2006, the Company incurred net losses of $1,362,395 and $2,188,206, respectively. At March 31, 2007, the Company had an accumulated deficit of $71,384,606. The Company's ability to continue as a going concern is dependent on it ultimately achieving profitability and/or raising additional capital. Management intends to sell certain assets on a strategic basis for prices agreeable to the Company and/or obtain additional debt or equity capital to meet all of its existing cash obligations and fund commitments on planned Multiband projects; however, there can be no assurance that the sources will be available or available on terms favorable to the Company. Management anticipates that the impact of the actions listed below will generate sufficient cash flows to pay current liabilities, long-term debt and capital and operating lease obligations and fund the Company's operations through 2007:

1.
Reduction of operating expenses by controlling payroll, professional fees and other general and administrative expenses.
 
2.
Sale of video subscriber assets on a strategic basis. The Company, based on recent transactions, believes there is an active market for its video subscriber assets. The Company believes that it can sell these assets, under certain circumstances, at prices at or above their current carrying value. However, there is no guarantee that these sales will ultimately be favorable to the Company.
 
3.
Solicit additional equity investment in the Company by either issuing preferred or common stock.
 
4.
Continue to market Multiband services and acquire additional multi-dwelling unit customers.
 
5.
Control capital expenditures by contracting Multiband services and equipment through a landlord-owned equipment program.
 
6.
Establish market for wireless internet services.
 
7.
Expansion of call center support via sales of call center services to both existing and future system operators and to buyers of the Company’s video subscribers.

Principles of Consolidation

The consolidated financial statements include the accounts of Multiband Corporation (MB) and its wholly owned subsidiaries, Minnesota Digital Universe, Inc. (MDU), Rainbow Satellite Group, LLC (Rainbow), Multiband Subscriber Services, Inc. (MBSS), and Multiband USA, Inc. (MBUSA). All significant intercompany transactions and balances have been eliminated in consolidation.
 
5

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006

Revenue Recognition

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

The Company earns revenues from five sources: 1) Voice, video and data communication products which are sold and installed, 2) Multiband user charges to multiple dwelling units, 3) MB USA user charges to timeshares, 4) MDU earns revenue primarily through the activation of and residual fees on video programming services, and 5) Revenue generated by the support center for billing and call center services provided to third party customers.

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 the terms and has the ability to fulfill the terms.

Revenue generated from activation of video programming services is earned in the month of activation. According to the Company's agreement with DirecTV, in the event that a customer cancels within the first 12 months of service, DirecTV has the right to chargeback the Company for a portion of the activation fees received. In accordance with Securities Exchange Commission SAB 104, the Company has estimated the potential charge back of commissions received on activation fees during the past 12 months based on historical percentages of customer cancellations and has included that amount as a reduction of revenue. Residual income is earned as services are provided by DirecTV through its system operators. As a master system operator for DirecTV, the Company earns a fixed percentage based on net cash received by DirecTV for recurring monthly services and a variable amount depending on the number of activations in a given month. The Company’s master system operator contract with DirecTV also permits the Company to earn revenues through its control of other system operators who are unable to provide DirecTV video programming services without the Company’s performance.

The Company reports the aforementioned voice, data, and video revenues on a gross basis based on the following factors: the Company has the primary obligation in the arrangement with its customers; the Company controls the pricing of its services; the Company performs customer service for the agreements; the Company approves customers; and the Company assumes the risk of payment for services provided.

We offer some products and services that are provided by third party vendors. We review the relationship between us, the vendor and the end customer on an individual basis to assess whether revenue should be reported on a gross or net basis. As an example, our resold satellite digital television is reported on a net basis.

The Company has determined that the accounting policies for income recognition described above were in accordance with the Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. EITF No. 99-19 employs multi-factor tests to determine whether amounts charged to customers in respect of certain expenses incurred should be included in revenues or netted against such expenses.

Revenue generated by the support center to service third party subscribers by providing billing and call center support services is recognized in the period the related services are provided.

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

6

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006

Goodwill and Other Intangible Assets

We periodically evaluate goodwill and other intangible and long-lived assets for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our business segments. Future events could cause us to conclude that impairment indicators exist and that goodwill and other intangible and long-lived assets are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. Goodwill was $509,086 at both March 31, 2007 and December 31, 2006 and is recorded as part of our Multiband Corp segment.

Components of intangible assets are as follows:
   
March 31, 2007
  
December 31, 2006
  
 
  
Gross Carrying
 
 Accumulated
  
Gross Carrying
  
Accumulated
  
   
Amount
  
 Amortization
  
Amount
  
Amortization
  
Intangible assets subject to amortization
                  
Domain name
  
$
83,750
   $ 83,750  
$
83,750
  
$
83,750
  
Right of entry contracts
    
5,929,094
     2,635,856    
8,955,558
    
3,591,598
  
Subscriber lists
    
9,697,879
     4,812,944    
9,697,879
    
4,411,865
  
Debt issuance costs
    
499,837
     489,190    
499,837
    
485,198
  
Total
    
16,210,560
     8,021,740    
19,237,024
    
8,572,411
  
Impairment of intangibles
   
-
     -    
-
    
1,539,633
  
Total including impairment
  
$
16,210,560
  
$
8,021,740
  
$
19,237,024
  
$
10,112,044
  
 
Amortization of intangible assets was $673,069 and $872,568 for the three months ended March 31, 2007 and 2006, respectively. Amortization of debt issuance costs of $3,993 and $43,390 for the three months ended March 31, 2007 and 2006, respectively, is included in interest expense. Estimated amortization expense of intangible assets for the years ending December 31, 2007, 2008, 2009, 2010, 2011 and thereafter is $2,597,385, $2,546,234, $2,501,785, $948,707, $61,751, $210,020, respectively. The weighted average remaining life of the intangibles is 3.4, years with right of entry average life of 3.9 years and customer subscriber lists of 3.1 years as of March 31, 2007. The reduction in intangible value during 2006 is due to a sale of subscribers to Consolidated Smart Broadband Systems “CSBS” (see Note 3). The Company recorded impairment charge to intangible assets of $1,539,633. Assets held for sale at December 31, 2006 do not include intangible assets or goodwill.

Share-Based Compensation

The Company recognizes share-based compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. For the three months ended March 31, 2007 and 2006, total share-based compensation expense of $233,748 ($.01 per share) and $316,763 ($.01 per share) was included in selling, general and administrative expenses, respectively. Estimated share based compensation expense for the years ending December 31, 2007, 2008, 2009 , 2010, 2011 is $744,653, $661,161, $86,504, $1,973, $0, respectively. This is an estimate is based on options currently outstanding and therefore this projected expense could be more in the future.

7

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006

In determining the compensation cost of the options granted during the three months ended March 31, 2007 and 2006, as specified by SFAS No. 123R, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model and the weighted average assumptions used in these calculations are summarized as follows:

   
Three months ended
 March 31, 2007
  
Three months ended
 March 31, 2006
Risk-free interest rate
  
4.50%
  
4.50%
Expected life of options granted
  
10 Years
  
10 Years
Expected volatility range
  
231%
  
214%
Expected dividend yield
  
0%
  
0%

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.

Net Loss per Common Share

Basic net loss per common share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding for the reporting period. Diluted net loss per common share is computed by dividing loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding plus all additional common stock that would have been outstanding if potentially dilutive common shares related to common share equivalents (stock options, stock warrants, convertible preferred shares, and issued but not outstanding restricted stock) had been issued. All options, warrants, convertible preferred shares, and restricted stock outstanding during the three months ended March 31, 2007 and 2006 were anti-dilutive due to the Company’s net losses for the periods.

Segment Reporting

A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. Management believes that the Company has two operating segments, MCS, where the Company bills voice, data and video subscribers as a principal; and MDU where the Company as a master service operator for DirecTV receives net cash payments for managing video subscribers through its network of system operators. These video subscribers are billed by DirecTV.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option may only be made at initial recognition of the asset or liability or upon a re-measurement event that gives rise to new-basis accounting. The decision about whether to elect the fair value option is applied on an instrument-by-instrument basis, is irrevocable and is applied only to an entire instrument and not only to specified risks, cash flows or portions of that instrument. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 159 on its financial position and results of operations.

8

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
 
NOTE 3 - Sales Transactions

The Company had $1,244,236 of assets held for sale on December 31, 2006 related to video assets located in California. Effective March 1, 2007, the Company, pursuant to an asset purchase agreement entered into October 19, 2006 (the “agreement”), completed the sale of substantially all of its video assets located in California to Consolidated Smart Broadband Systems, LLC (CSBS). The purchase price paid by CSBS was $1,214,000 at closing plus a guarantee of an additional $100,000, paid on March 31, 2007. The ultimate purchase price to be paid by the CSBS for the assets will be determined, in part, by an earnout formula detailed in the agreement tied to free subscriber cash flow and length of right of entry contracts. The ultimate price paid for the assets will not be known until February 2008 due to the aforementioned contingencies.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company classified the assets as held for sale, and recorded an impairment charge for the year ended December 31, 2006, that was determined based upon the excess net book value of assets sold over the known proceeds from the sale. Any consideration received for the assets during future accounting periods based upon the earnout formula will be recognized as a gain on sale of assets in that period. The results of the sale of the California assets resulted in a loss of $40,110, which is included in the selling, general and administrative expenses of the accompanying consolidated statements of operations for the three months ended March 31, 2007. 
 
Sale price      
Cash proceeds on March 1, 2007
  
$
1,214,000
  
Cash proceeds guaranteed at second closing March 30, 2007
    
100,000
  
Total initial sale price
    
1,314,000
  
Debt paid which was secured by assets sold
    
556,268
  
Net proceeds
    
757,732
  
 
Assets sold      
Property and equipment (MCS segment)
    
1,244,673
  
Goodwill
    
-
  
Rights of entry contracts
    
-
  
Net assets sold
    
1,244,673
  
 
Less costs and expenses
        
Broker’s fee 
    
39,420
  
Accounting costs
    
10,000
  
Other costs
    
18,180
  
DTV transfer fees
    
19,500
  
Imputed interest costs
    
22,337
  
Total costs
    
109,437
  
 
Loss on sale of assets
  
$
40,110
  
 
9

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
 
Effective March 31, 2007, the Company completed the sale of substantially all of its video assets located in Ohio to Directech MDU (“Dtech”). The purchase price paid by Dtech was $745,790. The purchase price consists of the assumption of a note payable for the gross value of $329,036 and $416,754 cash paid at closing April 20, 2007 ($416,754 is recorded as “other receivable” and included in prepaid expenses and other on the March 31, 2007 balance sheet ). The sale of the Ohio assets resulted in a gain on sale in the amount of $324,626, which is included in the selling, general and administrative expenses of the accompanying consolidated statements of operations for the three months ended March 31, 2007.

Sale price      
Cash proceeds on April 20, 2007
  
$
416,754
  
Liabilities assumed
    
267,143
  
Total initial sale price
    
683,897
  
 
Assets sold - MCS segment      
Accounts receivable and inventory, net
    
3,242
  
Property and equipment
    
96,931
  
Rights of entry contracts
    
259,098
  
Net assets sold
    
359,271
  

Gain on sale of assets
  
$
324,626
  

These sales were not reported as a discontinued operation because the assets sold did not constitute a segment or component of the Company’s business, and the Company retained assets and on-going service rights associated with the video subscribers.

NOTE 4 - Stock Warrants

Stock warrants activity is as follows for the three months ended March 31, 2007:

   
Number of Warrants
  
Weighted - Average Exercise Price
  
Outstanding, December 31, 2006
    
17,441,644
 
$
1.61
  
Granted
    
2,010
   
2.20
 
Exercised
    
-
   
-
  
Cancelled
    
(647,000
)
  
(1.98
)
Outstanding, March 31, 2007
    
16,796,654
 
$
1.59
  

NOTE 5 - Accrued Liabilities

Accrued liabilities consisted of the following:

   
March 31, 2007
  
December 31, 2006
  
Payroll and related taxes
  
$
415,126
  
$
535,919
  
Accrued preferred stock dividends
    
661,856
   
810,249
  
Accrued liability - vendor chargebacks
    
1,103,414
   
1,103,414
  
Other
    
426,367
   
527,774
  
Total
  
$
2,606,763
  
$
2,977,356
  


10

MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
 
NOTE 6 - Business Segments

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

Segment disclosures are as follows:
   
Multiband  Corp.
  
MDU 
  
MCS 
  
Total 
  
Three months ended March 31, 2007:
                  
Revenues
  
$
-
  
$
2,532,875
  
$
1,852,080
  
$
4,384,955
  
Income (loss) from operations
    
(1,108,925
)
  
866,434
    
(989,554
)
  
(1,232,045
)
Identifiable assets
    
2,214,571
    
6,023,746
    
6,907,969
    
15,146,286
  
Depreciation and amortization
    
49,863
    
406,271
    
593,564
    
1,049,698
  
Capital expenditures
    
-
    
-
    
120,196
    
120,196
  
 
   
Multiband  Corp.
  
MDU 
  
MCS 
  
 Total
  
Three months ended March 31, 2006:
                   
Revenues
  
$
-
  
$
2,512,172
   $ 1,891,872  
$
4,404,044
  
Income (loss) from operations
    
(1,144,181
)
  
904,943
     (1,687,924 )  
(1,927,162
)
Identifiable assets
    
4,455,981
    
7,578,677
     12,090,163    
24,124,821
  
Depreciation and amortization
    
59,797
    
401,076
     841,583    
1,302,456
  
Capital expenditures
    
23,809
    
-
     338,197    
362,006
  
 
Segment disclosures are provided by entity to the extent practicable under the Company's accounting system.

NOTE 7 - Commitments and Contingencies

Legal Proceedings

The Company is involved in legal actions in the ordinary course of its business. As of March 31, 2007, management believes that there are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon the Company’s consolidated financial position, results of operations, or cash flows. In April 2007, the Company settled its litigation with DirecTechnologies, LLC (DT) by agreeing to pay DT approximately $13,000, net of previously accrued for commissions of $35,000, over a six month period.

Significant Relationship

The Company is a master agent for DirecTV pursuant to a system operator agreement with DirecTV dated August 2005. The initial term of the agreement is for three years and provides for two additional two-year renewals if the Company has a minimum number of paying video subscribers in its system operator network. Termination of the Company's DirecTV agreement would have a material adverse impact on the Company's on-going operations.   Revenues generated from DirecTV were 57.8% and 57.0% of total revenue for the three months ended March 31, 2007 and 2006, respectively.

11
MULTIBAND CORPORATION AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
 
Guaranty

On March 1, 2006, Corporate Technologies, LLC (CTLLC), a subsidiary of North Central Equity, LLC (the purchaser of the MBS business segment) signed a lease with Lexstar Tower I Limited Partnership whereby CTLLC assumed the lease obligation for substantially all of the first floor space the Company is renting in Fargo, North Dakota for the period beginning March 1, 2006 to February 28, 2011. Pursuant to the aforementioned lease, the Company entered into a guaranty whereby the Company, in the event of a default or early termination of the lease by CTLLC, is obligated to perform CTLLC’s lease obligation during months 43-60 of the lease. The Company remains obligated to provide free rent to CTLLC through March 31, 2007 as defined in the purchase agreement of MBS. This guaranty has no effect on the Company’s consolidated financial statements for the periods ended March 31, 2007 and 2006. However, should Multiband eventually have to perform on the guaranty in the future, it could be liable for $348,881 worth of rent payments plus any associated charges such as property taxes and common area maintenance.

NOTE 8 - Income Taxes    

Effective January 1, 2007, the Company adopted FASB Interpretation (FIN) No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes”, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB SFAS No. 109 (SFAS 109), “Accounting for Income Taxes”, on the uncertainty in income taxes recognized in an enterprise’s financial statements. Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and (b) a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides related guidance on derecognition, classification, interest and penalties, accounting interim periods, disclosure and transition. The Company has determined that there was no impact on the financial position or results of operations following adoption of FIN No. 48 for the three months ended March 31, 2007.

NOTE 9 - Subsequent Events    

On April 11, 2007, the Company signed a nonbinding letter of intent with MDU Communications International, Inc. (MDU) regarding the sale of certain subscribers and associated assets from the Company to MDU and the simultaneous provisioning by MDU from the Company of certain on-going Company supplied subscriber management services.
 
12
 
FORWARD-LOOKING STATEMENTS

From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, product pricing, management for growth, integration of acquisitions, technological developments, new products, and similar matters. Words such as “anticipates”, “may”, “will”, “should”, “believes”, “estimates”, “expects”, “intends”, “plans”, “predicts”, “will likely result”, “will continue”, or similar expressions identify forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements including those made in this statement. In order to comply with the terms of the Private Securities Litigation Reform Act, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or Company's forward-looking statements.

The risks and uncertainties that may affect the operations, performance, developments and results of the Company's business include the following: national and regional economic conditions; pending and future legislation affecting IT and telecommunications industries; market acceptance of the Company's products and services; the Company's products and services; the Company's continued ability to provide integrated communication solutions for customers in a dynamic industry; and other competitive factors.

Because these and other factors could affect the Company's operating results, past financial performance should not necessarily be considered as a reliable indicator of future performance and anticipated future period results.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
OUR COMPANY

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

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

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

From its inception until December 31, 1998, the Company operated as a telephone interconnect company only. Effective December 31, 1998, the Company acquired the assets of the Midwest region of Enstar Networking Corporation (ENC), a data cabling and networking company. In late 1999, in the context of a forward triangular merger, the Company, to expand its range of computer products and related services, purchased the stock of Ekman, Inc. d/b/a Corporate Technologies, and merged Ekman, Inc. into the newly formed surviving corporation, Corporate Technologies USA, Inc. (MBS). MBS provided voice, data and video systems and services to business and government. The MBS business segment was sold effective April 1, 2005. All references to financial information and descriptions of business in this quarterly statement on Form 10-Q have been revised to reflect only our continuing operations and all references to our now discontinued Multiband Business Services have been eliminated. The Company’s MCS segment began in February 2000. MCS, the Company’s continuing operating division, provides voice, data and video services to multiple dwelling units (MDU), including apartment buildings, condominiums and time share resorts. During 2004, the Company purchased video subscribers in a number of separate transactions, the largest one being Rainbow Satellite Group, LLC. During 2004, the Company also purchased the stock of Minnesota Digital Universe, Inc., (MDU segment) which made the Company the largest master service operator in MDU’s for DirecTV satellite television in the United States.

At March 31, 2007, the Company had approximately 103,600 owned and managed subscriptions.

13

SELECTED CONSOLIDATED FINANCIAL DATA

   
DOLLAR AMOUNTS AS A PERCENTAGE OF REVENUES
  
   
THREE MONTHS ENDED
  
           
   
March 31, 2007
(unaudited)
  
March 31, 2006 (unaudited)
  
REVENUES
    
100
%
  
100
%
               
COST OF PRODUCTS & SERVICES (Exclusive of depreciation and amortization shown below)
    
49.7
%
  
46.7
%
               
SELLING, GENERAL & ADMINISTRATIVE
    
54.5
%
  
67.5
%
DEPRECIATION & AMORTIZATION
    
23.9
%
  
29.5
%
               
LOSS FROM OPERATIONS
    
-28.1
%
  
-43.7
%
INTEREST EXPENSE & OTHER, NET
    
-3.0
%
  
-6.0
%
LOSS FROM CONTINUING OPERATIONS
    
-31.1
%
  
-49.7
%
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
    
-
    
-
  
NET LOSS
    
-31.1
%
  
-49.7
%

RESULTS OF OPERATIONS

Revenues

Total revenues decreased 0.4% to $4,384,955 for the quarter ended March 31, 2007 as compared to $4,404,044 for the quarter ended March 31, 2006. This decrease is primarily due to sales of subscribers between the comparable periods. The Company expects revenues to continue to decrease in 2007 over 2006 due to sales of subscribers in the MCS portfolio. The Company experienced a slight decrease in revenues between the quarter ended March 31, 2007 and the quarter ended March 31, 2006. The Company throughout 2007 intends to continue to strategically sell unprofitable owned assets as prudent and redeploy the proceeds from those assets into facilitating growth of its managed subscriber services including its support center and its master system operator program. The Company believes it can increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.

Revenues in the first quarter of fiscal year 2007, for the MCS segment, decreased 2.1% to $1,852,080 as compared to $1,891,872 in the first quarter of fiscal 2006. This decrease is primarily due to sales of subscribers during the comparable periods.

Revenues in the first quarter of 2007 for the MDU segment increased to $2,532,875 as compared to $2,512,172 in the first quarter of fiscal 2006. This increase is primarily due to an increase in the number of revenue generating subscribers and a related increase in agent fees during the comparable period.

14

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

The Company's cost of products and services, exclusive of depreciation and amortization, increased by 5.9% to $2,178,046 for the quarter ended March 31, 2007 as compared to $2,056,527 for the similar quarter last year. Costs of products and services for the MCS segment for the quarter were $1,032,389 compared to $1,011,436 in the same quarter last year, a 2.1% increase. Costs of products and services for the MDU segment for the quarter were $1,145,657 compared to $1,045,091 in the same quarter last year, a 9.6% increase. The increase in costs of products and services in the MCS segment is directly related to an increase in equipment sales to landlords and an increase in analog programming charges between the comparable periods. The increase of costs of products and services in the MDU segment is directly related to an increase in bulk subsidy costs in the three months ended March 31, 2007 versus March 31, 2006. The Company expects costs of products and services as a percentage of revenue to remain comparable in future periods due to the predictability of costs and the ability to pass costs through to customers. Overall costs of products and services as a percentage of revenue did increase slightly between March 31, 2007 and March 31, 2006 due to certain vendor price increases. However, the Company’s ability to raise prices to its customers accordingly should allow the Company to increase margins in future periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 19.6% to $2,389,256 in the quarter ended March 31, 2007, compared to $2,972,223 in the prior year’s quarter. Selling, general and administrative expenses were, as a percentage of revenues, 54.5% for the quarter ended March 31, 2007 and 67.5% for the similar period a year ago. This decrease is primarily a result of decreases in payroll expense, advertising expense, subcontracting expense, stock option expense and a gain on sale of assets between the comparable periods. The Company anticipates that selling, general and administrative expenses, exclusive of stock option expenses, will continue to decrease in 2007 due to reduced payroll expenses from the sale of subscribers in the MCS portfolio.

Depreciation and Amortization

Depreciation and amortization expense decreased 19.4% to $1,049,698 for the quarter ended March 31, 2007 compared to $1,302,456 in the prior year’s quarter. This decrease in depreciation and amortization is due to the sale of tangible and intangible assets in California and Ohio(Note 3).

Loss from Operations

The Company, in the first quarter of 2007, incurred a loss from operations for its combined operating business segments of $1,232,045 versus a loss of $1,972,162 during the prior year’s period. The MDU segment showed a profit from operations of $866,434 during the first quarter of 2007 versus profits of $904,943 for the three months ended March 31, 2006. For the first quarter of 2007, the MCS segment showed a loss from operations of $989,554 versus a loss of $1,687,924 for the prior year period. The Multiband Corporation segment, which has no revenues, showed a loss from operations of $1,108,925 for the three months ended March 31, 2007 versus a loss of $1,144,181 for the same period last year. The Multiband Corporation loss is expected to continue in future periods as corporate overhead is expected to remain consistent with current levels. The Company expects the MDU segment profitability in future periods to remain steady or improve as that segment continues to experience growth. In addition to the sale of subscribers, the Company hopes that it can mitigate its loss in the MCS segment by reducing related payroll expenses. At the same time, the Company will look to add subscribers in its MDU division since the on-going selling, general and administrative expenses to service those subscribers can be more variable than fixed.

Interest Expense

Interest expense was $153,407 for the quarter ended March 31, 2007, versus $304,681 for the similar period a year ago, primarily reflecting a decrease in the Company’s debt and original issue discount expense. Amortization of original issue discount was $8,294 and $114,908 for the three months ended March 31, 2007 and 2006.

Net Loss

In the first quarter of fiscal 2007, the Company incurred a net loss of $1,362,395 compared to a net loss of $2,188,206 for the first fiscal quarter of 2006.

15

Liquidity and Capital Resources

During the three months ended March 31, 2007 and 2006, the Company recorded a net loss of $1,362,395 and $2,188,206, respectively. Net cash used by operations during the three months ended March 31, 2007 was $225,815 as compared to cash used by operations during the three months ended March 31, 2006 of $192,717. Principal payments on current long-term debt over the next 12 months are expected to total $708,823.

Cash and cash equivalents totaled $851,804 at March 31, 2007 versus $1,020,975 at December 31, 2006. Working capital deficit for the three months ended March 31, 2007 decreased to $4,200,531 as compared to $5,294,245, at December 31, 2006, primarily due to net proceeds of $757,732 received from the sale of video assets to CSBS (see Note 3), during the quarter. Total debt was reduced in the three months ended March 31, 2007 as the Company continued to retire financing debt and certain notes were paid off in conjunction with asset sales. The Company had a material decrease in accounts receivables for the period ended March 31, 2007 verses the period ended December 31, 2006 due to sales of assets. Accounts payable and accrued liabilities combined remained relatively constant in total from December 31, 2006 to March 31, 2007. Net cash flows from investing activities totaled $637,536 compared to ($371,550) for the comparable period reflecting the sale of video assets to CSBS, previously mentioned herein.

The Company experienced a slight decrease in revenues between the quarter ended March 31, 2007 and the quarter ended March 31, 2006. The Company throughout 2007 intends to continue to strategically sell unprofitable owned assets as prudent and redeploy the proceeds from those assets into facilitating growth of its managed subscriber services including its support center and its master system operator program. The Company believes it can increase revenues by selling its support center services to its network of system operators and by providing ancillary programs for voice and data services to that same network.
 
Management intends to sell certain assets on a strategic basis for prices agreeable to the Company and/or obtain additional debt or equity capital to meet all of its existing cash obligations and fund commitments on planned Multiband projects; however, there can be no assurance that the sources will be available or available on terms favorable to the Company. Management anticipates that the impact of the actions listed below will generate sufficient cash flows to pay current liabilities, long-term debt and capital and operating lease obligations and fund the Company's operations through 2007:

1.
Reduction of operating expenses by controlling payroll, professional fees and other general and administrative expenses.
 
2.
Sale of video subscriber assets on a strategic basis. The Company, based on recent transactions, believes there is an active market for its video subscriber assets. The Company believes that it can sell these assets, under certain circumstances, at prices at or above their current carrying value. However, there is no guarantee that these sales will ultimately be favorable to the Company.
 
3.
Solicit additional equity investment in the Company by either issuing preferred or common stock.
 
4.
Continue to market Multiband services and acquire additional multi-dwelling unit customers.
 
5.
Control capital expenditures by contracting Multiband services and equipment through a landlord-owned equipment program.
 
6.
Establish market for wireless internet services.
 
7.
Expansion of call center support via sales of call center services to both existing and future system operators and to buyers of the Company’s video subscribers.
 
Management of the Company believes that cash on hand, as of March 31, 2007, combined with capital resources and the ability to monetize intangible subscriber assets, is adequate to meet the anticipated liquidity and capital resource requirements of its business for the next 12 months.

Capital Expenditures

The Company used $120,196 for capital expenditures during the three months ended March 31, 2007, as compared to $362,006 in the similar period last year. Capital expenditures consisted of project build-outs and equipment acquired for internal use. Capital expenditures in 2007 are expected to decrease significantly as the Company is intending to build out fewer services in 2007 than in 2006.

16

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Impairment of Long-Lived Assets 
 
The Company’s long-lived assets include property, equipment and leasehold improvement. At March 31, 2007, the Company had net property and equipment of $3,006,040, which represents approximately 19.8% of the Company’s total assets. The estimated fair value of these assets is dependent on the Company’s future performance. In assessing for potential impairment for these assets, the Company considers future performance. If these forecasts are not met, the Company may have to record an impairment charge, which may be material. During the three months ended March 31, 2007 and 2006, the Company did not record any impairment losses related to long-lived assets.

Impairment of Goodwill 
 
At year end, we test goodwill for impairment. If indicators of impairment are determined to exist, we test goodwill for impairment quarterly. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our operating segments. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our operating segments which amounts to $509,086 as of March 31, 2007, may be impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. During the three months ended March 31, 2007 and 2006, the Company did not record any impairment losses related to goodwill.

Impairment of Intangible Assets

The intangible assets consist of rights of entry contracts, customer cable lists, debt issuance costs, domain name and access contracts. These intangibles are being amortized over their estimated useful lives ranging from 18 to 180 months. If significant changes would occur to the estimated future cash flows associated with these intangibles, the Company would determine if there is impairment and reduce the value of intangibles based on the discounted present value of such cash flows. At March 31, 2007, the Company had net intangibles of $8,188,820 which represented approximately 54.1% of the Company’s total assets. During the three months ended March 31, 2007 and 2006, the Company did not record any impairment losses related to intangible assets.

Inventories

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

Share-Based Payments

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on fair values. The Company’s determination of fair value of share-based payment awards is based on the date of grant using an option-pricing model which incorporates a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility and estimates regarding projected employee stock option exercise behaviors and forfeitures. The Company recognizes the expense related to the fair value of the award straight-line over the vesting period.
 
ITEM 3. QUANTITIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK

The Company is not subject to any material interest rate risk as any current lending agreements are at a fixed rate of interest except for the notes payable to Laurus Master Fund, Ltd., which is three percent over the prime interest rate and the Convergent Capital note of $2,500,000, which varies from 11% to 14%, dependent on the Company’s common stock price. Multiband also has variable rate percentage of Class I convertible preferred stock which pays dividends based on a basis of prime plus one percent (9.25% at March 31, 2007).
 
17

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely basis to material information relating to the Company required to be disclosed in the Company’s periodic SEC reports. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of March 31, 2007, the Company was not engaged in any pending legal proceedings where, in the opinion of management, the outcome is likely to have a material adverse effect upon the business, operating results and financial condition of the Company. In April 2007, the Company settled its litigation with DirecTechnologies, LLC (DT) by agreeing to pay DT approximately $13,000, net of previously accrued for commissions of $35,000, over a six month period.

ITEM 1A. RISK FACTORS

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

General

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

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

In early 2000, Multiband created its MCS division, employing the aforementioned expertise, to provide communications and entertainment services (local dial tone, long distance, high-speed internet and expanded satellite television services) to residents in MDUs on one billing platform, which the Company developed internally.

Net Losses

The Company had net losses of $1,362,395 for the three months ended March 31, 2007, $10,183,723 for the year ended December 31, 2006, and $7,475,000 for the year ended December 31, 2005. The Company may never be profitable.
 
The prolonged effects of generating losses without additional funding may restrict our ability to pursue our business strategy. Unless our business plan is successful, an investment in our common stock may result in a complete loss of an investor's capital.

If we cannot achieve profitability from operating activities, we may not be able to meet:
 
·
our capital expenditure objectives;
 
·
our debt service obligations; or
 
·
our working capital needs.

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Goodwill

In June 2001, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible Assets" which changed the amortization rules on recorded goodwill from a monthly amortization to an annual test of "impairment" for fiscal years beginning after December 15, 2001. In 2006, the Company recorded an impairment charge to goodwill of $417,465 related to the sale of video assets to CSBS (see Note 3). As of March 31, 2007, the Company had remaining recorded goodwill of $509,086 primarily related to the purchase of Rainbow Satellite Group, LLC. At March 31, 2007 the Company did not note any indications of impairment related to goodwill.

Deregulation

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

Dependence on Strategic Alliances

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

Changes in Technology

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

Attraction and Retention of Employees

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

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Intellectual Property Rights

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

Variability of Quarterly Operating Results

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

Certain Anti-Takeover Effects

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

Volatility of Multiband's Common Stock

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

Future Sales of Our Common Stock May Lower Our Stock Price

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

Competition

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

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ITEM 6. EXHIBITS

 
(a)
Exhibits
     
 
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.

 
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.

32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
     
 
MULTIBAND CORPORATION
Registrant
 
 		  
 		  
 
Date: May 15, 2007
 By:   /s/ James L. Mandel
 
Chief Executive Officer
 
   
Date: May 15, 2007
 By:   /s/ Steven M. Bell
 
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
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