UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549









FORM
10-K










x
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended September 30, 2009, oro
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _______________ to
      ___________________




Commission
File No. 0-26053







MDU
COMMUNICATIONS INTERNATIONAL, INC.


(exact
name of registrant as specified in its charter)




Delaware
            
            84-1342898(State
      of Incorporation)
            
            (IRS
      Employer ID. No.)




60-D
Commerce Way, Totowa, New Jersey   07512


(Address
of Principal Executive Offices) (Zip Code)




Issuer's
telephone number, including area code: (973) 237-9499









Securities
registered under Section 12(b) of the Act:




none




Securities
registered under Section 12(g) of the Act:




Common
Stock, par value $0.001 per share




(Title of
Class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes 
oNo x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes 
o No 
x




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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).Yes o No o





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





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





Large accelerated filer 
      o
            Accelerated filer 
      o
            Non-accelerated filer 
      o
            Smaller reporting company  x





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


Yes oNo x




The
aggregate market value of the voting and nonvoting common equity (based upon the
closing price on the OTC Bulletin Board on March 31, 2009) held by
non-affiliates was approximately $22 million.





The
number of shares of common stock ($0.001 par value) outstanding as of December
29, 2009 was 53,497,307.









TABLE OF CONTENTS




PagePART
      IITEM
      1.
                    Business
                    
                    3ITEM
      1A.
                    Risk
      Factors
                    
                    7ITEM
      1B.
                    Unresolved
      Staff Comments
                    
                    13ITEM
      2.
                    Properties
                    
                    13ITEM
      3.
                    Legal
      Proceedings
                    
                    13ITEM
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    
                    13PART
      IIITEM
      5.
                    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    
                    13ITEM
      6.
                    Selected
      Financial Data
                    
                    15ITEM
      7.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                    
                    15ITEM
      7A.
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    
                    27ITEM
      8.
                    Financial
      Statements and Supplementary Data
                    
                    27ITEM
      9.
                    Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
                    
                    48ITEM
      9A(T).
                    Controls
      and Procedures
                    
                    48ITEM
      9B.
                    Other
      Information
                    
                    49PART
      IIIITEM
      10.
                    Directors,
      Executive Officers and Corporate Governance
                    
                    49ITEM
      11.
                    Executive
      Compensation
                    
                    54ITEM
      12.
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    
                    58ITEM
      13.
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    
                    60ITEM
      14.
                    Principal
      Accounting Fees and Services
                    
                    60PART
      IVITEM
      15.
                    Exhibits,
      Financial Statement Schedules
                    
                    60




FORWARD LOOKING STATEMENTS





This
Annual Report on Form 10-K (“Report”) contains certain forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to MDU Communications International, Inc.
that is based on the beliefs of our management, as well as assumptions made by
and information currently available to our management. When used in this Report,
the words “estimate,”  “project,”  “believe,” 
“anticipate,”  “hope,”  “intend,”  “expect,” and similar
expressions are intended to identify forward looking statements, although not
all forward-looking statements contain these identifying words .The words “MDU
Communications,”  “the Company,”  “we,”  “our,” and “us” refer to
MDU Communications International, Inc. together with its subsidiaries,
where appropriate.





Such
statements reflect our current views with respect to future events and are
subject to unknown risks, uncertainties, and other factors that may cause actual
results to differ materially from those contemplated in such
forward-looking statements. Such factors include the risks described in
Item 1A. “Risk Factors” and elsewhere in this Report and, among others, the
following: general economic and business conditions, both nationally,
internationally, and in the regions in which we operate; catastrophic events,
including acts of terrorism; relationships with and events affecting third
parties like DIRECTV; demographic changes; existing government regulations, and
changes in, or the failure to comply with, government regulations; competition;
the loss of any significant numbers of subscribers or viewers; changes in
business strategy or development plans; the cost of pursuing new business
initiatives; technological developments and difficulties; the availability and
terms of capital to fund the potential expansion of our businesses; and other
factors referenced in this Report. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We do not undertake any obligation to publicly release any revisions to
these forward looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.




2




PART I




Item 1.
              Business





OVERVIEW





MDU
Communications International, Inc. is a national provider of digital
satellite television, high-speed Internet, voice over IP (“VoIP”), and other
information and communication services to residents living in the United States
multi-dwelling unit (“MDU”) market—estimated to include 26 million
residences. MDUs include apartment buildings, condominiums, gated communities,
universities, and other properties having multiple units located within a
defined area. We negotiate long-term access agreements with the owners and
managers of MDU properties allowing us the right to design, install, own and
operate the infrastructure and systems required to provide digital satellite
television, high-speed Internet, VoIP, and potentially other services, to their
residents and our subscribers. We earn our revenue through the sale of these
subscription services to owners and residents of MDUs.





MDU
properties present unique technological, management and marketing challenges to
conventional providers of these services, as compared to single family homes.
Our proprietary delivery and design solutions and access agreements
differentiate us from other multi-family service providers through a unique
strategy of balancing the information and communication needs of today’s MDU
residents with the technology concerns of property managers and owners and
providing the best overall service to both. To accomplish this objective, we
have partnered with DIRECTV, Inc. and have been working with large property
owners and real estate investment trusts (REITs) such as AvalonBay Communities,
Post Properties, Roseland Property Company, Related Companies, as well as many
others, to understand and meet the technology and service needs of these groups.
We operate in only one market segment.





CORPORATE
HISTORY





Our
Canadian operating company, MDU Communications Inc. (“MDU Canada”), was
incorporated in March 1998. In April 1999, we incorporated MDU
Communications International, Inc. in Delaware and MDU Canada became a
wholly owned subsidiary that at its peak had over 15,000 subscribers and seven
offices across Canada. In March 2000, we formed MDU Communications
(USA) Inc., a Washington corporation (“MDU USA”), to conduct business in
the United States.  In early 2001, we made a fundamental re-assessment of
our business plan and determined that the most profitable markets lay in densely
populated areas of the United States. The Company changed its corporate focus
and business strategy from serving the entire North American MDU market, to
several key U.S. markets. To further this change, in 2001 we completed an
agreement with Star Choice Television Network, Inc. for the sale of our
Canadian satellite television assets. As a result, by May 30, 2001 we
relocated our operations and certain key employees to our New York Metro Area
office in Totowa, New Jersey. MDU Communications International, Inc. operates
essentially as a holding company with MDU Canada and MDU USA as its wholly owned
operating subsidiaries. MDU Canada is now inactive. MDU USA operates in fourteen
states with regional offices in the New York, Chicago, Washington, DC and Miami
greater metropolitan areas.





REVENUE





We derive
revenue through the sale of subscription services to owners and residents of
MDUs. We negotiate long-term access agreements with the owners and managers of
MDU properties allowing us the right to provide high definition (“HD”) digital
satellite television, high-speed Internet, VoIP, and potentially other services,
to their residents, resulting in monthly annuity-like revenue streams. The
Company offers two types of satellite television service, Direct to Home (“DTH”)
and Private Cable (“PC”) programming. The DTH service uses a set-top digital
receiver for residents to receive state-of-the-art digital satellite and local
channel programming. For DTH, the Company exclusively offers DIRECTV®
programming packages.  From the DTH offerings we receive the following
revenue; (i) an upfront subscriber commission from DIRECTV for each new
subscriber, (ii) a percentage of the fees charged by DIRECTV to the subscriber
each month for programming, (iii) a per subscriber monthly digital access fee
that is billed to subscribers for service, access and maintenance and
connection to the property satellite network system, and (iv) occasional other
marketing incentives or subsidies from DIRECTV. Secondly, the Company
offers a Private Cable video service, where analog or digital satellite
television programming can be tailored to the needs of an individual property
and received through normal cable-ready televisions. In Private Cable deployed
properties a bundle of programming services is delivered to the resident’s
cable-ready television without the requirement of a set-top digital receiver in
the residence. Net revenues from Private Cable result from the difference
between the wholesale prices charged by programming providers and the price we
charge subscribers for the private cable programming package. We provide the
DTH, Private Cable, Internet services and VoIP on an individual subscriber
basis, but in many properties we provide these services in bulk, directly to the
property owner, resulting in one invoice and thus minimizing churn, collection
and bad debt exposure. These subscribers are referred to in the Company’s
periodic filings as Bulk DTH or Bulk Choice Advantage (“BCA”) type subscribers
in DIRECTV deployed properties or Bulk PC type subscribers in Private Cable
deployed properties. From subscribers to the Internet service, the Company earns
a monthly Internet access service fee.  Again, in many properties, this
service is provided in bulk and is referred to as Bulk ISP.





3




STRATEGIC
ALLIANCE WITH DIRECTV





The
Company has had a significant strategic relationship with DIRECTV since
May of 2000.  Most recently, the Company entered into a new
System Operator Agreement with DIRECTV (“Agreement”) effective June 1, 2007.
This Agreement has an initial term of three years with two, two-year automatic
renewal periods upon our achievement of certain subscriber growth goals, with an
automatic extension of the entire Agreement to coincide with the expiration date
of the Company’s latest property access agreement.





Under
this Agreement we receive monthly "residual" fees from DIRECTV based upon the
programming revenue DIRECTV receives from subscribers within the Company's
multi-dwelling unit properties. The Company also receives an "activation fee"
for every new subscriber that activates a DIRECTV commissionable programming
package. The activation fee is paid on a gross activation basis in our choice
and exclusive properties and on a one-time basis in our bulk properties.
Additionally, the Company and DIRECTV have agreed to terms allowing DIRECTV a
"first option" to bid on subscribers at fair market value that the Company may
wish to sell.





On
December 14, 2007, the Company signed a letter agreement with DIRECTV that
allows the Company to receive an upgrade subsidy when it completes a high
definition (“HDTV”) system upgrade on certain of its properties to which the
Company currently is providing DIRECTV services. The Company is required to
submit an invoice for this subsidy to DIRECTV within thirty (30) days after the
upgrade of the property and subscribers are complete. This subsidy is treated as
revenue, similar to the “activation fee” referenced above, except that the
entire amount of the subsidy is recognized immediately. This program was renewed
via a letter agreement dated August 15, 2008 that supported the program through
July 31, 2009.





Under the
DIRECTV Agreement, we may not solicit sales or provide equipment for any other
DTH digital satellite television service in the United States. Consequently, we
are totally dependent on DIRECTV for our digital set-top programming in the
United States. During the fiscal year ended September 30, 2009, revenues
from all DIRECTV services were approximately 67% of our total revenues. DIRECTV
is not required to use us on an exclusive basis and could either contract with
others to install distribution systems and market programming in MDUs or
undertake such activities directly itself or through retail stores, as
it does for single-family television households.





DIRECTV offers in excess of 800 entertainment channels of digital
quality video and compact disc quality audio programming and currently transmits
via ten high power satellites. This most recent satellite launch is currently
delivering 130 national HDTV channels with 200 expected in 2010 giving DIRECTV
the distinct edge in high definition programming. We believe that DIRECTV’s
extensive line up of high definition programming, international programming, pay
per view movies and events and sports packages, including the exclusive “NFL
Sunday Ticket,” have enabled DIRECTV to capture a majority market share of
existing DTH subscribers and will continue to drive strong subscriber growth for
DIRECTV programming in the future.  Through our strategic relationship with
DIRECTV, we expect to capitalize on the significant name recognition that
DIRECTV creates and maintains as well as their immense advertising budget and
advertised programming specials. Additionally, we benefit from the large-scale
national marketing campaigns that are continuously run by
DIRECTV.




4




MARKET





The
United States MDU market represents a large niche market of potential
telecommunications customers. There are over 26 million MDU television
households out of a total of 100 million U.S. television households.
Historically, the MDU market has been served by local franchised cable
television operators and the relationship between the property owners and
managers that control access to these MDU properties and the cable operator have
been significantly strained over the past 20 years due to the monopolistic
sentiment of the cable operator.




We
believe that today’s MDU market offers us a very good business opportunity
because:





·
            Advances
      in communication and information technology have created demand for new
      state-of-the-art services such as digital satellite television, high
      definition television, digital video recorders and bundled
      services.





·
            Regulatory
      changes in the United States authorizing the provision of digital
      satellite television services and local channels has given television
      viewers the opportunity to choose the provider of their television
      programming based on quality of signal, cost and variety of
      programming.





·
            Our
      marketing program focuses on the choice and benefits of using satellite
      television programming over cable programming, including cost
      savings.





·
            To
      date, DIRECTV and other digital satellite television program providers
      have focused primarily on the single-family residence market because of
      the lower cost of deployment and fewer technical difficulties than those
      incurred in MDU properties and are now gearing to capitalize on the MDU
      market.




COMPETITION





The home
entertainment and video programming industry is competitive, and we expect
competition to intensify in the future. We face our most significant competition
from the franchised cable operators. In addition, our competition includes other
satellite providers and telecom providers:





Franchised Cable Systems.   Cable companies currently dominate the market in terms
of subscriber penetration, the number of programming services available,
audience ratings and expenditures on programming. The traditional cable
companies serve an estimated 68% of U.S. television households. However,
satellite services are gaining market share and DTH providers like us have a
window of opportunity in which to acquire and consolidate a significant
subscriber base by providing a higher quality signal over a vast selection of
video and audio channels at a comparable or reduced price to most cable
operators’ current service.





Other Operators.Our next
largest competitor is other operators who build and operate communications
systems such as satellite master antenna television systems, commonly known as
SMATV, or private cable headend systems, which generally serve condominiums,
apartment and office complexes and residential developments.  We also
compete with other national DTH operators such as Echostar.





Traditional Telephone Companies.  Traditional telephone companies such as Verizon and AT&T
have over the past few years diversified their service offerings to compete with
traditional franchised cable companies in a triple play market. Although their
subscriber base is currently very small, these traditional phone companies are
developing video offerings such as Verizon’s FIOS product. These phone companies
have in the past also been resellers of DIRECTV and Echostar video programming,
however, rarely in the MDU market. Video offerings from traditional phone
companies are now becoming a significant competitor in the MDU
market.


5


GOVERNMENTAL REGULATION





Federal Regulation.In
February 1996, Congress passed the Telecommunications Act of 1996, which
substantially amended the Federal Communications Act of 1934, as amended
(“Communications Act”). This legislation has altered and will continue to alter
federal, state, and local laws and regulations affecting the communications
industry, including certain of the services we provide. On November 29,
1999, Congress enacted the Satellite Home Viewer Improvement Act of 1999
(“SHVIA”), which amended the Satellite Home Viewer Act. SHVIA permits DBS
operators to transmit local television signals into local markets. In other
important statutory amendments of significance to satellite carriers and
television broadcasters, the law generally seeks to place satellite operators on
an equal footing with cable television operators in regards to the availability
of television broadcast programming. SHVIA amends the Copyright Act and the
Communications Act in order to clarify the terms and conditions under which a
Direct Broadcast Satellite (“DBS”) operator may retransmit local and distant
broadcast television stations to subscribers. The law was intended to promote
the ability of satellite services to compete with cable television systems and
to resolve disputes that had arisen between broadcasters and satellite carriers
regarding the delivery of broadcast television station programming to satellite
service subscribers. As a result of SHVIA, television stations are generally
entitled to seek carriage on any DBS operator’s system providing local service
in their respective markets. SHVIA creates a statutory copyright license
applicable to the retransmission of broadcast television stations to DBS
subscribers located in their markets. Although there is no royalty payment
obligation associated with this license, eligibility for the license is
conditioned on the satellite carrier’s compliance with the applicable
Communications Act provisions and Federal Communication Commission (“FCC”) rules
governing the retransmission of such “local” broadcast television stations to
satellite service subscribers. Noncompliance with the Communications Act and/or
FCC requirements could subject a satellite carrier to liability for copyright
infringement. We are subject to certain provisions of SHVIA. SHVIA was
essentially extended and re-enacted by the Satellite Home Viewer Extension and
Reauthorization Act (“SHVERA”) signed in December of 2004.




On
October 31, 2007, the FCC banned the use of exclusivity clauses by franchised
cable companies for the provision of video services to MDU properties. The FCC
noted that 30% of Americans live in MDU properties and that competition has been
stymied due to these exclusivity clauses. The FCC maintains that prohibiting
exclusivity will increase choice and competition for consumers residing in MDUs.
Currently this Order only applies to cable companies subject to Section 628 of
the Communications Act, which does not include DBS and private cable operators
("PCOs") that do not cross public rights-of-way, such as the Company. Although
exempt from this Order, the FCC did reserve judgment on exclusivity clauses used
by DBS companies and PCOs until further discussion and comment can be taken and
evaluated. The IMCC “Independent Multi-Family Communications Council”, which is
a trade association comprised of DBS, PCOs, MDU owners and the supporting
industry, is lobbying to keep DBS and PCOs, who do not cross public
rights-of-way, exempt from the Order or any future order. The Company is an
active member of IMCC and is providing assistance in the lobbying effort. The
issue is still unsettled.




We are
not directly subject to rate regulation or certification requirements by the
FCC, the Telecommunications Act of 1996 or state public utility commissions
because our equipment installation and sales agent activities do not constitute
the provision of common carrier or cable television services. As a resale agent
for DIRECTV, we are not subject to regulation as a DBS provider, but rely upon
DIRECTV to procure all necessary re-transmission consents and other programming
rights under the Communications Act of 1934 and the Copyright Act. To the extent
that we may also elect to provide our MDU customers with transmission of signals
not currently available via satellite, our offering of these services may be
subject to compulsory copyright filings with the U.S. Copyright Office, although
we do not expect the licensing fees to have a material adverse effect on our
business. Our systems do not use or traverse public rights-of-way and thus are
exempt from the comprehensive regulation of cable systems under the
Communications Act of 1934. Because we are subject to minimal federal
regulation, have fewer programming restrictions, greater pricing freedom and are
not required to serve any customer whom we do not choose to serve, we have
significantly more competitive flexibility than do the franchised cable systems.
We believe that these regulatory advantages help to make our satellite
television systems competitive with larger franchised cable
systems.




State and Local Cable System
Regulation.   We do not anticipate that our deployment of
satellite television services will be subject to state or local franchise laws
primarily due to the fact that our facilities do not use or traverse public
rights-of-way. Although we may be required to comply with state and local
property tax, environmental laws and local zoning laws, we do not anticipate
that compliance with these laws will have any material adverse impact on our
business.




6




State Mandatory Access Laws.   A number of states have enacted mandatory access laws
that generally require, in exchange for just compensation, the owners of rental
apartments (and, in some instances, the owners of condominiums) to allow the
local franchise cable television operator to have access to the property to
install its equipment and provide cable service to residents of the MDU. Such
state mandatory access laws effectively eliminate the ability of the property
owner to enter into an exclusive right of entry with a provider of cable or
other broadcast services. In addition, some states have anti-compensation
statutes forbidding an owner of an MDU from accepting compensation from whomever
the owner permits to provide cable or other broadcast services to the property.
These statutes have been and are being challenged on constitutional grounds in
various states. These state access laws may provide both benefits and detriments
to our business plan should we expand significantly in any of these
states.




Preferential
Access Rights.   We generally negotiate exclusive rights
(or exclusive rights to marketing or inside wire) to provide services
singularly, or in competition with competing cable providers, and also negotiate
where possible “rights-of-first-refusal” to match price and terms of third-party
offers to provide other communication services in buildings where we have
negotiated broadcast access rights. We believe that these preferential rights of
entry are generally enforceable under applicable law, however, current trends at
state and federal level suggest that the future enforceability of these
provisions may be uncertain. In addition to the October 2007 order banning
exclusive agreements, the FCC has also issued an order prohibiting
telecommunications service providers from negotiating exclusive contracts with
owners of commercial MDU properties. Although it is open to question whether the
FCC has statutory and constitutional authority to compel mandatory access for
other providers, there can be no assurance that it will not attempt to do so.
There can be no assurance that future state or federal laws or regulations will
not restrict our ability to offer access payments, limit MDU owners’ ability to
receive access payments or prohibit MDU owners from entering into exclusive
agreements, any of which could have a material adverse effect on our
business.





Regulation of High-Speed Internet.   Information or Internet service providers (“ISPs”),
including Internet access providers, are largely unregulated by the FCC or state
public utility commissions at this time (apart from federal, state and local
laws and regulations applicable to business in general). However, there can be
no assurance that this business will not become subject to regulatory
restraints. Also, although the FCC has rejected proposals to impose additional
costs and regulations on ISPs to the extent they use local exchange telephone
network facilities, such change may affect demand for Internet related services.
No assurance can be given that changes in current or future regulations adopted
by the FCC or state regulators or other legislative or judicial initiatives
relating to Internet services would not have a material adverse effect on our
business.





EMPLOYEES





We had
122 employees, all full-time, as of September 30, 2009. None of our
employees are represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good.





INVESTOR INFORMATION





Our
common stock trades under the symbol “MDTV” on the OTC Bulletin Board. Our
principal executive offices are located at 60-D Commerce Way, Totowa, New Jersey
07512 and our telephone number is (973) 237-9499. Our website is located at
www.mduc.com.




Item 1A. Risk
Factors





The
Company faces a number of risks and uncertainties that could cause actual
results or events to differ materially from those contained in any
forward-looking statement. Additional risks and uncertainties not presently
known to the Company, or that are currently deemed to be immaterial, may also
impair the Company’s business operations. Factors that could cause or contribute
to such differences include, but are not limited to, the following:




7




The
business of the Company may be adversely affected by the current economic
recession.




The
domestic and international economies are experiencing a significant recession.
This recession has been magnified by the tightening of the credit markets. The
domestic markets may remain depressed for an undeterminable period of time which
could have a material adverse effect on the Company’s revenues and
profits.





The
Company has incurred losses since inception and may incur future
losses.




To date,
the Company has not shown a profit in its operations. As of the Company’s year
end September 30, 2009, it has accumulated losses of $52,584,376. It cannot
assure that it will achieve or attain profitability beyond fiscal 2009. If it
cannot achieve operating profitability, the Company may not be able to meet its
working capital requirements, which could have a material adverse effect on its
business and may impair its ability to continue as a going concern.





The
Company has a limited operating history.




The
Company commenced operations in August 1998 and was not active in the U.S.
market until May of 2000. Accordingly, it has a limited operating history and
its business strategy may not be successful. The Company’s failure to implement
its business strategy or an unsuccessful business strategy could materially
adversely affect its business, financial condition and results of
operations.




The Company depends upon its relationship with
DIRECTV.




The
Company has entered into several agreements with DIRECTV since 2000. Under all
of these agreements the Company may not maintain or market DTH services for any
other provider. Consequently, the Company is totally dependent upon DIRECTV for
its set-top DTH programming service. During the year ended September 30, 2009,
revenues from all DIRECTV services were approximately 67% of the Company’s total
revenues. DIRECTV is not required to use the Company on an exclusive basis for
marketing its programming to MDUs. The Company’s Agreement with DIRECTV can be
terminated under various circumstances, including, in particular, an uncured
material breach by the Company of the Agreement. Any such termination may have a
material effect on the Company’s business.




Because
the Company is an intermediary for DIRECTV, events the Company does not control
at DIRECTV could adversely affect the Company. One of the most important of
these is DIRECTV’s ability to provide programming that appeals to mass
audiences. DIRECTV generally does not produce its own programming, but purchases
programming from third parties. DIRECTV’s success, and accordingly the
Company’s, depends in large part on DIRECTV’s ability to select popular
programming sources and acquire access to this programming on favorable terms.
The Company has no control or influence over this. If DIRECTV is unable to
retain access to its current programming, the Company cannot be assured that
DIRECTV would be able to obtain substitute programming, or that such substitute
programming would be comparable in quality or cost to its existing programming.
If DIRECTV is unable to continue to provide desirable programming, the Company
would be placed at a competitive disadvantage and may lose subscribers and
revenues.





The
Company may be unable to meet its future capital expansion
requirements.





The
Company may require additional capital to finance expansion or growth. Because
of the uncertainties in raising additional capital, there can be no assurance
that the Company will be able to obtain the necessary capital to finance its
growth initiatives. Insufficient capital may require the Company to delay or
scale back its proposed development activities.





The
Company’s management and operational systems might be inadequate to handle its
potential growth.




The
Company is experiencing growth that could place a significant strain upon its
management and operational systems and resources. Failure to manage the
Company’s growth effectively could have a material adverse effect upon its
business, results of operations and financial condition and could force it to
halt its planned continued expansion, causing the Company to lose its
opportunity to gain significant market share. The Company’s ability to compete
effectively as a provider of digital satellite television and high-speed
Internet products and services and to manage future growth will require the
Company to continue to improve its operational systems, its organization and its
financial and management controls, reporting systems and procedures. The Company
may fail to make these improvements effectively. Additionally, the Company’s
efforts to make these improvements may divert the focus of its
personnel.




8




The
Company must integrate its key executives into a cohesive management team to
expand its business. If new hires perform poorly, or if it is unsuccessful in
hiring, training and integrating these new employees, or if it is not successful
in retaining its existing employees, the Company’s business may be harmed. To
manage the expected growth of the Company’s operations and personnel, the
Company will need to increase its operational and financial systems, procedures
and controls. The Company’s current and planned personnel, systems, procedures
and controls may not be adequate to support its future operations. The Company
may not be able to effectively manage such growth, and failure to do so could
have a material adverse effect on its business, financial condition and results
of operations.





The
Company could face increased competition.





The
Company faces competition from others who are competing for a share of the MDU
subscriber base including other satellite companies, other DIRECTV system
operators, cable companies and traditional phone companies. Also, DIRECTV itself
could corporately focus on MDUs, which it has just started to do. Other
companies with substantially greater assets and operating histories could enter
this market. The Company’s competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements and devote
greater resources to develop, promote and sell their products or services. In
addition, increased competition could result in reduced subscriber fees, reduced
margins and loss of market share, any of which could harm the Company’s
business. The
Company cannot assure that it can compete successfully against current or future
competitors, many of which have substantially more capital, existing brand
recognition, resources and access to additional financing. All these competitive
pressures may result in increased marketing costs, or loss of market share or
otherwise may materially and adversely affect the Company’s business, results of
operations and financial condition.




Franchised
cable television operators have a large, established
subscriber base, and many cable operators have significant investments in, and
access to, programming. One of the competitive advantages of DTH providers is
their ability to provide subscribers with more channels and a better quality
digital signal than traditional cable television systems. Many cable television
operators have made significant investments to upgrade their systems,
significantly increasing the number and variety of channels and the quality of
the transmission they can provide to their subscribers. As a result of these
upgrades, cable television operators have become better able to compete with DTH
providers. If competition from cable television operators or traditional phone
companies should increase in the future, the Company could experience a decrease
in its number of subscribers or increased difficulty in obtaining new
subscriptions.





The
Company depends on key personnel to maintain its success.




The
Company’s success depends substantially on the continued services of its
executive officers and key employees, in particular Sheldon Nelson and certain
other executive officers. The loss of the services of any of the Company’s key
executive officers or key employees could harm its business. None of the
Company’s key executive officers or key employees currently has a contract that
guarantees their continued employment with the Company. There can be no
assurance that any of these persons will remain employed by the Company or that
these persons will not participate in businesses that compete with it in the
future.





Corporate
governance-related issues.




At
present, the Company’s Chief Executive Officer, Sheldon Nelson, is also acting
as the Company’s Chief Financial Officer. Because both the CEO and CFO positions
are currently held by a single person, outside of the Board of Directors and the
audit committee, no independent oversight of the CEO or the CFO function
currently exist within the Company’s management structure.




System
disruptions could affect the Company.




The
Company’s ability to attract and retain subscribers depends on the performance,
reliability and availability of its services and infrastructure. The Company may
experience periodic service interruptions caused by temporary problems in its
own systems or in the systems of third parties upon whom it relies to provide
service or support. Fire, floods, hurricanes, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and interrupt the Company’s services. Service disruptions could
adversely affect the Company’s revenue and, if they were prolonged, would
seriously harm its business and reputation. The Company does not carry business
interruption insurance to compensate for losses that may occur as a result of
these interruptions. Any of these problems could adversely affect its business.
If any of the DIRECTV satellites are damaged or stop working partially or
completely, although DIRECTV has a contingency satellite plan, DIRECTV may not
be able to continue to provide its subscribers with programming services. The
Company would in turn likely lose subscribers, which could materially and
adversely affect its operations and financial performance. DTH satellite
technology is highly complex and is still evolving. As with any high technology
product or system, it may not function as expected.




9




The
market for the Company’s products and service are subject to technological
change.




The
market for digital satellite television and high-speed Internet products and
services is characterized by rapid change, evolving industry standards and
frequent introductions of new technological developments. These new standards
and developments could make the Company’s existing or future products or
services obsolete. Keeping pace with the introduction of new standards and
technological developments could result in additional costs or prove difficult
or impossible. The failure to keep pace with these changes and to continue to
enhance and improve the responsiveness, functionality and features of the
Company’s services could harm its ability to attract and retain
users.





The
Company may be affected by international terrorism or if the United States
participates in wars or other military action.




Involvement
in a war or other military action or acts of terrorism may cause significant
disruption to commerce throughout the world. To the extent that such disruptions
result in (i) delays or cancellations of customer orders, (ii) a general
decrease in consumer spending on video broadcast and information technology,
(iii) the Company’s inability to effectively market and distribute its products
or (iv) its inability to access capital markets, the Company’s business and
results of operations could be materially and adversely affected. The Company is
unable to predict whether the involvement in a war or other military action will
result in any long-term commercial disruptions or if such involvement or
responses will have any long-term material adverse effect on its business,
results of operations, or financial condition.




The Company may issue preferred stock and common stock in the
future.




The
Company’s Board of Directors has the authority to issue up to 5,000,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any vote or
action by the Company’s common stockholders. The rights of the holders of the
common stock will be subject to, and could be materially adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing flexibility in
connection with corporate purposes, could have the effect of delaying, deferring
or preventing a change in control, discouraging tender offers for the common
stock, and materially adversely affecting the voting rights and market price of
the common stock.




The
Company’s certificate of incorporation authorizes the issuance of 70,000,000
shares of common stock. The future issuance of common stock may result in
dilution in the percentage of the Company’s common stock held by its existing
stockholders. Also, any stock the Company sells in the future may be valued on
an arbitrary basis by it and the issuance of shares of common stock for future
services, acquisitions or other corporate actions may have the effect of
diluting the value of the shares held by existing stockholders.





Provisions
in the Company’s charter documents and Delaware law could prevent or delay a
change in control, which could reduce the market price of the Company’s common
stock.




Provisions
in the Company’s certificate of incorporation and bylaws may have the effect of
delaying or preventing a change of control or changes in the Company’s
management. Pursuant to the Company’s certificate of incorporation, the Company
has a staggered Board of Directors whereby the directors are elected generally
to serve three-year terms, are separated into three classes and each class is
elected in a different year. The staggered Board of Directors may prevent or
frustrate stockholder attempts to replace or remove current Board members as
they will have to wait until each class of directors is up for election before
the directors can be voted out of office. The Company’s certificate of
incorporation authorizes the issuance of up to 5,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
the Board of Directors. The Board of Directors may, without stockholder
approval, issue preferred stock with dividends, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of
the holders of the Company’s common stock. The ability of the Board to issue
preferred stock may prevent or frustrate stockholder attempts to replace or
remove current management. In addition, certain provisions of Delaware law may
discourage, delay or prevent someone from acquiring or merging with the Company.
These provisions could limit the price that investors might be willing to pay in
the future for shares of the Company’s common stock.




10




Absence
of dividends on common stock.





The
Company has never declared nor paid any dividends on its common stock. The
declaration and payment in the future of any cash or stock dividends on the
common stock will be at the discretion of the Board of Directors of the Company
and will depend upon a variety of factors, including the ability of the Company
to service its outstanding indebtedness, if any, and to pay dividends on
securities ranking senior to the common stock, the Company’s future earnings, if
any, capital requirements, financial condition and such other factors as the
Company’s Board of Directors may consider to be relevant from time to time.
Earnings of the Company, if any, are expected to be retained for use in
expanding the Company’s business. Accordingly, the Company does not expect to
declare or pay any dividends on its common stock in the foreseeable
future.





The
price of the Company’s securities may be volatile and subject to wide
fluctuations.




The
market price of the Company’s securities may be volatile and subject to wide
fluctuations. If the Company’s revenues do not grow or grow more slowly than it
anticipates, or, if operating or capital expenditures exceed its expectations
and cannot be adjusted accordingly, or if some other event adversely affects the
Company, the market price of the Company’s securities could decline. If
securities analysts alter their financial estimates of the Company’s financial
condition it could affect the price of the Company’s securities. Some other
factors that could affect the market price of the Company’s securities include
announcements of new product or service offerings, technological innovations and
competitive developments. In addition, if the market for stocks in the Company’s
industry or the stock market in general experiences a loss in investor
confidence or otherwise fails, the market price of the Company’s securities
could fall for reasons unrelated to its business, results of operations and
financial condition. The market price of the Company’s stock also might decline
in reaction to conditions, trends or events that affect other companies in the
market for digital satellite television and high-speed Internet products and
services even if these conditions, trends or events do not directly affect the
Company. In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. If the Company were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion of management’s
attention and resources.




The Company may default on its revolving line of
credit.





On
September 11, 2006, the Company entered into a Loan and Security Agreement with
FCC, LLC, d/b/a First Capital, and Full Circle Funding, LP for a senior secured
$20,000,000 credit facility (“Credit Facility”) to fund the Company’s subscriber
growth. On June 30, 2008, the Company entered into an Amended and Restated Loan
and Security Agreement with FCC, LLC, d/b/a First Capital, and Full Circle
Funding, LP for a senior secured $10 million increase to its original $20
million revolving five year Credit Facility for a total line of $30 million. The
original terms and conditions of the Credit Facility, previously negotiated and
executed on September 11, 2006 have not changed. There are several terms of
default set forth in the Loan and Security Agreement. While the Company does not
believe it a likely event, should the Company default on any of the terms, the
balance owed under the Loan and Security Agreement may be accelerated and the
Company may not have further access to the Credit Facility. In such a case, the
Company may have to sell assets to repay the outstanding balance and scale back
its growth considerably.





The
Company’s common stock is currently quoted on the OTC Bulletin Board and is
subject to the Penny Stock rules which makes transactions cumbersome and may
reduce the value of an investment in the Company’s stock.





The
Company’s common stock is a “penny stock” which is subject to Rule 15g-9
under the Securities Exchange Act of 1934. It is considered penny stock because
it is not listed on a national exchange or NASDAQ and its bid price is below
$5.00 per share. As a result, broker-dealers must comply with additional sales
practices requirements. Broker-dealers must determine that the investment is
suitable for the buyer and receive the buyer’s written agreement to the
transaction before they can sell the Company’s common stock to buyers who are
not the broker-dealer’s established customers or institutional accredited
investors. In addition, broker-dealers must deliver to the buyer before the
transaction a disclosure schedule which explains the penny stock market and
its risks, discloses the commissions to be paid to the broker-dealer, discloses
the stock’s bid and offer quotations, and discloses if the broker-dealer is the
sole market maker in the stock. Generally, brokers may be less willing to
execute transactions in securities subject to the "penny stock" rules. This may
make it more difficult for investors to dispose of the Company’s common stock
and may cause a decline in the market value of the common stock.




11




The
public trading market for the Company’s common stock is limited and may not be
developed or sustained.




There is
a limited trading market for the Company’s common stock. The common stock has
been traded under the symbol “MDTV” on the Over-The-Counter Bulletin Board, a
NASDAQ-sponsored and operated inter-dealer automated quotation system for equity
securities. There can be no assurance that an active and liquid trading market
will develop or, if developed, that it will be sustained.




If
the Company fails to comply with requirements relating to internal controls over
financial reporting under Section 404 of the Sarbanes-Oxley Act, its
business could be harmed and its stock price could decline.




Rules
adopted by the Securities and Exchange Commission pursuant to Section 404
of the Sarbanes-Oxley Act of 2002 require the Company to assess its internal
controls over financial reporting annually. The rules governing the standards
that must be met for management to assess its internal controls over financial
reporting are complex. They require significant documentation, testing, and
possible remediation of any significant deficiencies in and/or material
weaknesses of its internal controls in order to meet the detailed standards
under these rules. Although the Company has evaluated its internal controls over
financial reporting as effective as of September 30, 2009, it may encounter
unanticipated delays or problems in assessing its internal controls as effective
or in completing assessments by required dates. In addition, the Company cannot
assure that an audit of its internal controls by its independent registered
public accountants, if and when required by Sarbanes-Oxley, will result in an
unqualified opinion. If the Company cannot assess its internal controls as
effective, investor confidence and share value may be negatively
impacted.





Change
of control may adversely affect certain contractual relationships.





Pursuant
to Schedule 13D and 13D/A filings with the Securities and Exchange Commission
(“SEC”) on March 19, 2009 and April 22, 2009, the entities DED Enterprises,
Inc., Carpathian Holding Company, Ltd. and Carpathian Resources Ltd.
(“Acquirers”) claim to own or beneficially control 15,097,333 shares of Company
common stock (approximately 28.50% of the outstanding shares) and structured
this beneficial ownership position in a relatively short period of time. The
Acquirers state in their filings that:





“The
Acquirers are not seeking majority control of the Board but will continue to
evaluate whether it is in Acquirers' best interest to do so....The Acquirers are
currently analyzing their investment in the [Company], and are in current
contact with other shareholders, third parties, and members of management....The
Acquirers will continue to review the Acquirers' investment in the [Company] and
reserve the right to change their intentions with respect to any or all of such
matters.”





There can
be no assurance that the Acquirers will not increase their ownership or voting
position in the Company to approach or exceed that of control. Change in control
of the Company, through ownership, beneficial ownership or majority
representation on the Board of Directors, may have an adverse effect on certain
contractual relationships, including those with our financing partners,
programming partners, property owners and executive management.  For
example, pursuant to the terms and conditions of the Company’s amended financing
agreement with FCC, LLC, d/b/a First Capital, and Full Circle Funding, LP
(“Lenders”), dated June 30, 2008, as set forth in Forms 8-K filed July 3, 2008
and July 11, 2008, a change in control is a condition of
default.  Elements constituting a change of control can include a
majority changeover in the directors comprising the Board or a beneficial
shareholder (or group) acquiring an over 50% voting interest in the shares of
stock of the Company.  Should this occur, the Lenders reserve the
right, among other rights, to provide notice of default and call for immediate
repayment of the borrowings outstanding on the credit
facility.   Should such event occur, the Company may not be able
to make such immediate payment.


12




Item 1B.
              Unresolved Staff
      Comments
 
 Not
required under Regulation S-K for smaller reporting companies.
 
 Item 2.
              Properties




Our
headquarters are outside New York City in Totowa, New Jersey, where we
centralize our corporate administrative functions. The office houses our senior
management, accounting and billing functions, call center, subscription
management system and warehouse. We currently hold a lease in Totowa, New Jersey
of 14,909 square feet at a current monthly cost of $22,425, expiring
July 31, 2010. We believe that this space is adequate to suit our needs for
the foreseeable future and are currently negotiating a renewal of this
lease.





We
currently hold a lease for office and warehouse space in Chicago, Illinois for
approximately 4,100 square feet that runs through September 30, 2011 at a cost
of $4,291 per month. This space is adequate to suit our needs for the
foreseeable future in the Chicago metropolitan area.




We currently hold a lease for office and warehouse space in
Pompano Beach, Florida for approximately 4,088 square feet that runs through
December 31, 2012 at a cost of $2,385 per month. This space is adequate to suit
our needs for the foreseeable future in the South Florida area.





We
currently hold a lease for office and warehouse space in Rockville, Maryland for
approximately 2,500 square feet that runs through April 30, 2012 at a cost of
$2,300 per month. This space is adequate to suit our needs for the foreseeable
future in the Mid-Atlantic area.





We
currently hold a lease for office and warehouse space in Amherst, New York for
approximately 1,710 square feet that runs through September 15, 2012 at a cost
of $3,064 per month. This space is adequate to suit our needs for the
foreseeable future.




Item 3.
              Legal
      Proceedings
 
 From time
to time, the Company may be subject to legal proceedings, which could have a
material adverse effect on its business. As of September 30, 2009 and through
the date of this filing, the Company does have litigation in the normal course
of business and it does not expect the outcome to have a material effect on the
Company.
 
 Item
4.
              Submission of Matters to a Vote
      of Security Holders
  None.
 
 PART II
  Item
      5.
              Market for
      Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities


Market Information




The
Company’s common stock is not traded on a national securities exchange or the
NASDAQ Stock Market. The common stock has been quoted on the OTC Bulletin Board
under the symbol “MDTV” since December 2, 1998. The range of high and low
bid prices on the OTC Bulletin Board during each fiscal quarter for the past two
years, as reported by Bloomberg L.P., is as follows:




13




Quarter
      Ended
                                    
                                    High
                                    
                                    
                                    LowDecember 31,
      2007
                                    
                                    $
                                    0.80
                                    
                                    
                                    $
                                    0.34March 31,
      2008
                                    
                                    $
                                    0.58
                                    
                                    
                                    $
                                    0.30June 30,
      2008
                                    
                                    $
                                    0.48
                                    
                                    
                                    $
                                    0.35September 30,
      2008
                                    
                                    $
                                    0.41
                                    
                                    
                                    $
                                    0.30December 31,
      2008
                                    
                                    $
                                    0.37
                                    
                                    
                                    $
                                    0.12March 31,
      2009
                                    
                                    $
                                    0.33
                                    
                                    
                                    $
                                    0.15June 30,
      2009
                                    
                                    $
                                    0.50
                                    
                                    
                                    $
                                    0.31September 30,
      2009
                                    
                                    $
                                    0.47
                                    
                                    
                                    $
                                    0.40




Holders




On
December 28, 2009, the closing price for the Company’s common stock on the OTC
Bulletin Board was $0.41 per share. As of December 28, 2009, the Company
had 140 holders of record of its shares of common stock, with an
approximate total of 1,000 shareholders of its common stock.





Dividends





The
Company has not paid any cash dividends and does not anticipate that it will pay
cash dividends on its common stock in the foreseeable future.  Payment of
cash dividends is within the discretion of the Board of Directors and will
depend, among other factors, upon earnings, financial condition and capital
requirements.  There are no restrictions on the payment of dividends,
except by the September 11, 2006 Credit Facility, as amended, described later in
this Report.




Securities Authorized for Issuance under Equity
Compensation Plans




EQUITY
COMPENSATION PLAN INFORMATION


(September 30,
2009)





Plan category
                                        
                                        Number of securities to be
                                          issued upon exercise of
                                          outstanding options,
                                          warrants and rights
                                        
                                        
                                        Weighted-average exercise
                                          price of outstanding options,
                                          warrants and rights
                                        
                                        Number of securities
                                          remaining available for
                                          future issuance under
                                          equity compensation plansEquity
      compensation plans approved by
                                          security
      holders (1)
                                        
                                        2,177,500
                                        (1)
                                        
                                        $
                                        0.65
                                        
                                        674,802Equity
      compensation plans not approved by security holders
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        0


(1)
                The
      2001 Stock Option Plan was approved by the stockholders on May 10,
      2001, see Note 5 to Consolidated Financial Statements, contained herein.
      On August 5, 2004, the stockholders approved an increase in the number of
      shares available under the 2001 Stock Option Plan from a total of
      4,000,000 to 5,600,000 shares of common stock. As of September 30, 2009,
      2,747,698 options have been
exercised.





Purchases
of Equity Securities by the Issuer





On
December 19, 2008, the Company’s Board of Directors authorized the repurchase of
shares of its common stock over a twelve month period in open market
transactions, up to an aggregate value of $1 million.  This
authorization does not obligate the Company to acquire any particular amount of
common stock, or at any particular price.  The specific timing and
amount of the repurchases will vary based on market conditions and other factors
and the plan may be suspended, modified, extended or terminated by the Board of
Directors at any time. During the fiscal year ended September 30, 2009, the
Company purchased 174,423 shares of its common stock. The following table
provides information with respect to purchases by the Company of shares of its
common stock during the fiscal year ended September 30, 2009:


14





Period
                              
                              Total
                                number of
                                shares
                                purchased
                              
                              
                              Average price
                                paid per share
                              
                              
                              Culminating
                                number of shares
                                purchased as part
                                of program
                              
                              
                              Approximate dollar
                                value of shares still
                                available to be
                                purchased under the
                                program1/1/09
      – 1/31/09
                              
                              
                              -
                              
                              
                              $
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              1,000,0002/1/09
      – 2/28/09
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,000,0003/1/09
      – 3/31/09
                              
                              
                              15,000
                              
                              
                              
                              0.255
                              
                              
                              
                              15,000
                              
                              
                              
                              996,1754/1/09
      – 4/30/09
                              
                              
                              40,362
                              
                              
                              
                              0.357
                              
                              
                              
                              55,362
                              
                              
                              
                              981,7475/1/09
      – 5/31/09
                              
                              
                              70,510
                              
                              
                              
                              0.406
                              
                              
                              
                              125,872
                              
                              
                              
                              958,2646/1/09
      – 6/30/09
                              
                              
                              21,239
                              
                              
                              
                              0.439
                              
                              
                              
                              147,111
                              
                              
                              
                              943,8277/1/09
      – 7/31/09
                              
                              
                              27,312
                              
                              
                              
                              0.445
                              
                              
                              
                              174,423
                              
                              
                              
                              931,6768/1/09
      – 8/31/09
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              174,423
                              
                              
                              
                              931,6769/1/09
      – 9/30/09
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              174,423
                              
                              
                              $
                              931,676Total
                              
                              
                              174,423
                              
                              
                              $
                              0.392
                              
                              
                              
                              174,423


Item 6.
              Selected Financial
      Data
 
 Not
required under Regulation S-K for smaller reporting companies.
  Item
7.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operation




The
following discussion of the financial condition and results of operations of the
Company should be read in conjunction with the consolidated financial statements
and related notes, which are included herein. This Report contains
forward-looking statements that involve risks and uncertainties. The Company’s
actual results could differ materially from those indicated in the
forward-looking statements. The discussion below should be read together with
the risks to our business as described in Item 1A - “Risk Factors.”





RECENT
DEVELOPMENTS




For the
fiscal year ended September 30, 2009, the Company recognized revenue of
$24,753,128, a 5% increase over the prior fiscal year.  The Company’s
average revenue per unit (“ARPU”) across all billable subscriber types was
$33.08 at fiscal year end, a 12% increase over the ARPU of $29.55 realized at
the end of fiscal 2008. ARPU is calculated by dividing average monthly revenues
for the period (total revenues during the period divided by the number of months
in the period) by average subscribers for the period. The average subscribers
for the period is calculated by adding the number of subscribers as of the
beginning of the period and for each quarter end in the current year or period
and dividing by the sum of the number of quarters in the period plus
one.





More
importantly, the Company generated positive EBITDA (as adjusted, and as defined
below) of $8,457,062 for the fiscal year ended September 30, 2009, as compared
to $4,334,927 for the prior fiscal year ended September 30, 2008. Adjusted for
the gain on sale of subscribers during the first quarter (mentioned below), the
Company would still have reported EBITDA (as adjusted) of $3,418,223 for the
fiscal year ended September 30, 2009. At the end of the fourth quarter in fiscal
2008 (with closings in fiscal 2009), the Company entered into an asset purchase
agreement with CSC Holdings, Inc. and on September 30, 2008, 1,686 video
subscribers were transferred for proceeds of $2,529,000, on November 5, 2008,
1,803 subscribers were transferred for proceeds of $2,705,500, and on December
17, 2008, 2,064 subscribers were transferred for proceeds of
$3,096,000.  The proceeds from the sale of
subscribers to CSC Holdings in the first fiscal quarter of 2009 and the
improvements in operating cash flow and EBITDA (as adjusted), combined with
lower capital expenditures, enabled the Company to reduce its Credit Facility
borrowing during the fiscal year.  As of September 30, 2009, the
Company had utilized $16,123,471 of its Credit Facility, as compared to
$16,851,967 on September 30, 2008.




15




The
Company’s fourth fiscal quarter was a main contributor to the Company’s overall
growth during the fiscal year, with revenues increasing from $5,784,778 in
the quarter ended June 30, 2009 to $6,513,403 in the quarter ended September 30,
2009, with a corresponding increase of 3,324 net new subscribers.





The
Company’s continued focus on improving its financial results also resulted in
lower, as a percent of revenue, operating expenses during the fiscal year -
specifically direct costs, customer service and general and administrative
expenses - when compared to the prior fiscal year ended September 30, 2008. The
Company’s sales and marketing expenses, however, increased 1% (as a percent of
revenue) year over year as the Company began new marketing campaigns, hired new
sales department personnel and retained several teams of independent direct
sales representatives to spur organic growth in fiscal 2010.





During
the fiscal year ended September 30, 2009, the Company upgraded 55,404 units in
281 properties to the new DIRECTV HDTV platform.  The Company
estimates that its capital expenditures for these property upgrades completed in
fiscal 2009 were $3.0 million and anticipates that this capital investment
generated approximately $3.2 million in additional revenue in fiscal 2009 and
will result in approximately $8.2 million in additional revenue over the next
three to five years, not including revenue from anticipated increases in
penetration rates. The property upgrade program to the new DIRECTV HD platform,
which is now complete, resulted in the total upgrade of 367 properties
containing 72,263 units. This large undertaking resulted in a significant number
of Company access agreement extensions and renewals, increased penetration
rates, increased sales of advanced services and an increase in the Company’s
DIRECTV subscriber residual, all of which have positively impacted the Company’s
financial results and competitive status. DIRECTV currently offers over 130
national HD programming channels (moving to over 200) and has HD local
programming in 92% of all U.S. household markets. The continued launch and
advertising campaign for the new DIRECTV HD programming and associated services
will continue to provide incremental revenue and improved penetration rates
within Company properties. Due mainly to new HD and DVR service fees and recent
price increases, DIRECTV recently reported in public filings an ARPU increase of
2.1% in its third fiscal 2009 quarter to $85.32 per subscriber.





The
Company reports 65,262 net subscribers as of September 30, 2009 compared with
65,552 subscribers as of September 30, 2008, which was anticipated due to the
sale of over 5,000 subscribers at the beginning of the fiscal year.  A
breakdown of the Company’s subscriber base as of September 30, 2009 is as
follows:




Service Type
                                        
                                        Subscribers
                                          as
      of
                                          Sept.
      30, 2008
                                        
                                        
                                        Subscribers
                                          as
      of
                                          Dec.
      31, 2008
                                        
                                        
                                        Subscribers
                                          as
      of
                                          Mar.
      31, 2009
                                        
                                        
                                        Subscribers
                                          as
      of
                                          June
      30, 2009
                                        
                                        
                                        Subscribers
                                          as
      of
                                          Sept.
      30, 2009Bulk DTH –DIRECTV
                                        
                                        
                                        15,382
                                        
                                        
                                        
                                        12,478
                                        
                                        
                                        
                                        12,925
                                        
                                        
                                        
                                        13,058
                                        
                                        
                                        
                                        13,646Bulk
      BCA -DIRECTV
                                        
                                        
                                        10,337
                                        
                                        
                                        
                                        9,505
                                        
                                        
                                        
                                        9,549
                                        
                                        
                                        
                                        9,925
                                        
                                        
                                        
                                        10,255DTH
      -DIRECTV Choice/Exclusive
                                        
                                        
                                        10,790
                                        
                                        
                                        
                                        11,037
                                        
                                        
                                        
                                        11,802
                                        
                                        
                                        
                                        11,920
                                        
                                        
                                        
                                        12,259Bulk
      Private Cable
                                        
                                        
                                        17,194
                                        
                                        
                                        
                                        14,586
                                        
                                        
                                        
                                        13,609
                                        
                                        
                                        
                                        13,986
                                        
                                        
                                        
                                        14,567Private
      Cable Choice/ Exclusive
                                        
                                        
                                        1,952
                                        
                                        
                                        
                                        2,446
                                        
                                        
                                        
                                        2,548
                                        
                                        
                                        
                                        3,400
                                        
                                        
                                        
                                        3,479Bulk
      ISP
                                        
                                        
                                        5,911
                                        
                                        
                                        
                                        5,215
                                        
                                        
                                        
                                        5,215
                                        
                                        
                                        
                                        5,315
                                        
                                        
                                        
                                        5,719ISP
      Choice or Exclusive
                                        
                                        
                                        3,956
                                        
                                        
                                        
                                        3,952
                                        
                                        
                                        
                                        4,083
                                        
                                        
                                        
                                        4,302
                                        
                                        
                                        
                                        5,275Voice
                                        
                                        
                                        30
                                        
                                        
                                        
                                        23
                                        
                                        
                                        
                                        27
                                        
                                        
                                        
                                        32
                                        
                                        
                                        
                                        62Total
      Subscribers
                                        
                                        
                                        65,552
                                        
                                        
                                        
                                        59,242
                                        
                                        
                                        
                                        59,758
                                        
                                        
                                        
                                        61,938
                                        
                                        
                                        
                                        65,262





As of
September 30, 2009, the Company had 16 properties and 3,961 units in
work-in-progress (“WIP”). Of the current WIP, 2,731 units are in new
construction properties and 1,230 units are in existing conversion properties.
The Company defines its WIP as the number of units in properties where
construction has begun on a signed access agreement property through the
conclusion of a phase-in schedule or a marketing campaign, at which time the
property exits WIP. WIP is not reduced by the number of units turned billable
during any given quarter.   As of September 30, 2009, the Company had 1,327
“under contract” subscribers in WIP that the Company expects will become
“billable” subscribers in the next few quarters.


16





The
Company has embarked on a subscriber growth program in fiscal 2010 that includes
(i) acquisition of system operators severely constrained by the credit crisis,
(ii) organic subscriber growth through new property right of entry agreements,
and (iii) increased penetration rates from within properties recently upgraded
to the new DIRECTV HD platform. The Company has placed in motion all aspects of
this plan. With new sales personnel now established, the Company has built up an
organic sales pipeline of properties already under proposal that should result
in a number of new access agreements in the next few quarters.





As
mentioned, acquisitions will play an integral role in the Company’s growth in
fiscal 2010, and this growth started on June 30, 2009 when the Company executed
an agreement to acquire certain assets from New York based Rocket Broadband
Networks, Inc., which included 31 multi-family properties representing over
9,100 total units passed by wire, which have been fully transitioned. On
September 14, 2009, the Company executed an agreement with Delrey Technologies,
LLC to acquire certain of its assets including 871 units and 472 subscribers to
its Internet and DIRECTV services in New Jersey. Finally, on September 30, 2009,
the Company executed an agreement with a subsidiary of DirecPath, LLC to acquire
certain of its assets in Florida, including 1,839 units and 2,103 subscribers to
its private cable, DIRECTV and Internet services. Approximately 700 of these
units with 890 subscribers transitioned on September 30, 2009, with the
remaining properties closing as assignment documentation is
obtained.





Although
occurring after fiscal year end, on December 2, 2009, the Company executed an
agreement with AT&T Video Services, Inc. (“ATTVS”) to acquire up to 20,000
of its DIRECTV® and private cable subscribers, the associated access agreements
and the related video equipment assets located in 213 multi-family properties.
The agreement provides for an extended timeline with multiple closings in order
to effect a smooth transition and allow for required property consents. The
ATTVS subscribers are comprised of approximately 15,000 DIRECTV subscribers and
5,000 private cable subscribers in approximately 63,000 units passed by wire
with the majority of subscribers located in properties signed to exclusive
access agreements. The subscribers are mainly clustered around the Company’s
already established Texas market with a secondary cluster in California. The
Company intends to fold its current 3,100 Texas subscribers, along with the
ATTVS subscribers (as they close), into a newly created Company Southern Region.
No assets have yet been transferred.




The
Company is also investing in technology that provides more versatility (and
economy) in delivering its high-speed Internet service, including plug and play
capabilities (eliminating professional installation and truck rolls), tiered
bandwidth services, wireless point-to-point property broadband delivery and
splash pages directing residents to an Internet service webpage where they can
sign-up online, pay their monthly bill online and report most service problems
online. To facilitate the bundling of its video, broadband and VoIP services,
the Company converted to a new and more robust billing and subscriber management
system as of August 30, 2009.





Use of Non-GAAP Financial Measures




The
Company uses the common performance gauge of “EBITDA” (as adjusted by the
Company) to evidence earnings exclusive of mainly noncash events, as is common
in the technology, and particularly the cable and telecommunications,
industries. EBITDA (as adjusted) is an important gauge because the Company, as
well as investors who follow this industry, frequently use it as a measure of
financial performance. The most comparable GAAP reference is simply the removal
from net income or loss of - in the Company's case - interest, depreciation,
amortization and noncash charges related to its shares, warrants and stock
options. The Company adjusts EBITDA by then adding back any provision for bad
debts and inventory reserve. EBITDA (as adjusted) is not, and should not be
considered, an alternative to income from operations, net income, net cash
provided by operating activities, or any other measure for determining operating
performance or liquidity, as determined under accounting principles generally
accepted in the Unites States of America. EBITDA (as adjusted) also does not
necessarily indicate whether cash flow will be sufficient to fund working
capital, capital expenditures or to react to changes in the industry or the
economy generally. The following table reconciles the comparative EBITDA (as
adjusted) of the Company to its consolidated net loss as computed under
accounting principles generally accepted in the United States of
America:




17




For the years ended September 30,2009
                        
                        
                        2008EBITDA  (as
      adjusted)
                        
                        $
                        8,457,062
                        
                        
                        $
                        4,334,927Interest
      expense
                        
                        
                        (1,631,923
                        )
                        
                        
                        (1,834,667
                        )Deferred
      finance costs and debt discount amortization (interest
      expense)
                        
                        
                        (287,261
                        )
                        
                        
                        (322,968
                        )Provision
      for doubtful accounts
                        
                        
                        (210,612
                        )
                        
                        
                        (133,486
                        )Depreciation
      and amortization
                        
                        
                        (6,850,478
                        )
                        
                        
                        (6,578,842
                        )Share-based
      compensation expense - employees
                        
                        
                        (92,901
                        )
                        
                        
                        (304,732
                        )Compensation
      expense for issuance of common stock through Employee Stock Purchase
      Plan
                        
                        
                        (34,075
                        )
                        
                        
                        (19,327
                        )Compensation
      expense for issuance of common stock for employee bonuses
                        
                        
                        (28,070
                        )
                        
                        
                        (39,357
                        )Compensation
      expense for issuance of common stock for employee services
                        
                        
                        (2,720
                        )
                        
                        
                        (8,640
                        )Compensation
      expense accrued to be settled through the issuance of common
      stock
                        
                        
                        (187,473
                        )
                        
                        
                        (208,585
                        )Compensation
      expense through the issuance of restricted common stock for services
      rendered
                        
                        
                        (51,530
                        )
                        
                        
                        (70,206
                        )Share-based
      compensation expense - nonemployees
                        
                        
                        —
                        
                        
                        
                        (13,500
                        )Net
      Loss
                        
                        $
                        (919,981
                        )
                        
                        $
                        (5,199,383
                        )





RESULTS
OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008





For the year ended
                        September 30, 2009
                      
                      
                      For the year ended
                        September 30, 2008
                      
                      
                      Change
                        ($)
                      
                      
                      Change
                        (%)REVENUE
                      
                      $
                      24,753,128
                      
                      
                      
                      100
                      %
                      
                      $
                      23,650,725
                      
                      
                      
                      100
                      %
                      
                      $
                      1,102,403
                      
                      
                      
                      5
                      %Direct
      costs
                      
                      
                      10,283,422
                      
                      
                      
                      42
                      %
                      
                      
                      10,076,041
                      
                      
                      
                      43
                      %
                      
                      
                      207,381
                      
                      
                      
                      2
                      %Sales
      expenses
                      
                      
                      1,417,443
                      
                      
                      
                      6
                      %
                      
                      
                      1,266,694
                      
                      
                      
                      5
                      %
                      
                      
                      150,749
                      
                      
                      
                      12
                      %Customer
      service and operating expenses
                      
                      
                      5,997,854
                      
                      
                      
                      24
                      %
                      
                      
                      5,940,525
                      
                      
                      
                      25
                      %
                      
                      
                      57,329
                      
                      
                      
                      1
                      %General
      and administrative expenses
                      
                      
                      4,310,859
                      
                      
                      
                      17
                      %
                      
                      
                      4,692,763
                      
                      
                      
                      20
                      %
                      
                      
                      (381,904
                      )
                      
                      
                      -8
                      %Depreciation
      and amortization
                      
                      
                      6,850,478
                      
                      
                      
                      28
                      %
                      
                      
                      6,578,842
                      
                      
                      
                      28
                      %
                      
                      
                      271,636
                      
                      
                      
                      4
                      %Gain
      on sale of customers and property and equipment
                      
                      
                      (5,104,673
                      )
                      
                      
                      -21
                      %
                      
                      
                      (1,860,593
                      )
                      
                      
                      -8
                      %
                      
                      
                      (3,244,080
                      )
                      
                      
                      174
                      %OPERATING
      INCOME (LOSS)
                      
                      
                      997,745
                      
                      
                      
                      4
                      %
                      
                      
                      (3,043,547
                      )
                      
                      
                      -13
                      %
                      
                      
                      4,041,292
                      
                      
                      
                      -133
                      %Total
      other expense
                      
                      
                      (1,917,726
                      )
                      
                      
                      -8
                      %
                      
                      
                      (2,155,836
                      )
                      
                      
                      -9
                      %
                      
                      
                      238,110
                      
                      
                      
                      -11
                      %NET
      LOSS
                      
                      $
                      (919,981
                      )
                      
                      
                      -4
                      %
                      
                      $
                      (5,199,383
                      )
                      
                      
                      -22
                      %
                      
                      $
                      4,279,402
                      
                      
                      
                      -82
                      %





Net Loss.     Primarily as a result of the matters discussed
below, and noncash charges for the years ended September 30, 2009 and 2008 of
$7,745,120 and $7,699,643, respectively, the Company reported a net loss of
$919,981 for the year ended September 30, 2009, compared to a net loss of
$5,199,383 for the year ended September 30, 2008.




Revenues.   Revenue for the year ended September 30, 2009 increased
5% to $24,753,128, compared to revenue of $23,650,725 for the year ended
September 30, 2008. The revenue increase is mainly attributable to (i) the
installation revenue from the DIRECTV HD Platform upgrade subsidy occurring in
fiscal 2009, (ii) the continued conversion of subscribers from Private Cable to
DTH services, and (iii) a higher percentage of customers subscribing to advanced
services. The Company expects total revenue to continue to increase throughout
fiscal 2010. Revenue for the years ended September 30, 2009 and 2008 (inclusive
of the DIRECTV HD upgrade subsidy) has been derived from the following
sources:




18




For the year ended
                    September 30, 2009
                  
                  
                  For the year ended
                    September 30, 2008Private
      cable programming revenue
                  
                  $
                  4,003,676
                  
                  
                  
                  16
                  %
                  
                  $
                  4,862,851
                  
                  
                  
                  20
                  %DTH
      programming revenue and subsidy
                  
                  
                  13,136,834
                  
                  
                  
                  53
                  %
                  
                  
                  13,048,076
                  
                  
                  
                  55
                  %Internet
      access fees
                  
                  
                  2,806,708
                  
                  
                  
                  12
                  %
                  
                  
                  2,740,902
                  
                  
                  
                  12
                  %Installation
      fees, wiring  and other revenue
                  
                  
                  4,805,910
                  
                  
                  
                  19
                  %
                  
                  
                  2,998,896
                  
                  
                  
                  13
                  %Total
      Revenue
                  
                  $
                  24,753,128
                  
                  
                  
                  100
                  %
                  
                  $
                  23,650,725
                  
                  
                  
                  100
                  %





The
decrease in Private Cable programming revenue is due to the sale of certain
subscribers to CSC Holdings and the conversion of Private Cable properties to
higher revenue DTH services during the periods. The Company expects DTH
programming revenue to continue to increase as properties are converted from low
average revenue Private Cable subscribers to DIRECTV service subscribers and the
increased revenue associated with advanced services. During the year ended
September 30, 2009, approximately 1,200 subscribers were converted from Private
Cable to DIRECTV services. This emphasis is expected to continue in fiscal 2010.
The increase in installation fees, wiring and other revenue is due mainly to the
HD Platform upgrade subsidy and is expected to decline beginning in fiscal
2010.





Direct Costs.   Direct costs are comprised of programming costs,
monthly recurring Internet broadband connections and costs relating directly to
installation services. Direct costs remained relatively constant at $10,283,422
for the year ended September 30, 2009, as compared to $10,076,041 for the year
ended September 30, 2008, primarily as a result of the number of subscribers
over the twelve months as a whole from the prior period being relatively
unchanged after the sale of subscribers to CSC Holdings. While the Company
expects a proportionate increase in direct costs as subscriber growth continues,
direct costs are linked to the type of subscribers added and Choice and
Exclusive DTH DIRECTV subscribers, which the Company is attempting to increase,
have no associated programming cost. Direct costs should continue to decrease as
a percent of revenue in fiscal 2010.





Sales Expenses. Sales expenses increased to $1,417,443 compared to $1,266,694 for
the years ended September 30, 2009 and 2008, respectively, inclusive of noncash
charges in fiscal 2009 of $4,383 and fiscal 2008 of $12,240, a 1% increase in
expense as a percent of revenue. The increase is due to the addition of
several sales personnel, and with the conversion of many of its properties
to the new HD Platform, new marketing initiatives to increase the subscriber
base, including advertising new advanced services, have begun and will continue.
Therefore, the Company expects an increase in sales expense in dollars and
probably as a percent of revenue to continue into fiscal 2010.





Customer Service
and Operating Expenses.   Customer service and operating
expenses are comprised of expenses related to the Company’s call center,
technical support, project management and general operations. Customer service
and operating expenses were $5,997,854 and $5,940,525 for the years ended
September 30, 2009 and 2008, respectively, inclusive of noncash charges of
$2,819 and $4,278, respectively, a 1% decrease as a percent of revenue. These
expenses are expected to increase in dollars in fiscal 2010 primarily as the
result of (i) an increasing subscriber base, (ii) the continued launch of new
DIRECTV HD services in existing and new properties, (iii) an increase in our
customer service quality levels, and (iv) positioning the Company to expand its
services to a larger subscriber base in the future. Despite this dollar
increase, the Company anticipates these expenses to decrease as a percent of
revenue in fiscal 2010. A breakdown of customer service and operating expenses
is as follows:





Year ended
                    September 30, 2009
                  
                  
                  Year ended
                    September 30, 2008Call
      center expenses
                  
                  $
                  1,812,143
                  
                  
                  
                  30
                  %
                  
                  $
                  1,695,709
                  
                  
                  
                  29
                  %General
      operation expenses
                  
                  
                  1,754,538
                  
                  
                  
                  29
                  %
                  
                  
                  1,920,822
                  
                  
                  
                  32
                  %Property
      system maintenance expenses
                  
                  
                  2,431,173
                  
                  
                  
                  41
                  %
                  
                  
                  2,323,994
                  
                  
                  
                  39
                  %Totals
                  
                  $
                  5,997,854
                  
                  
                  
                  100
                  %
                  
                  $
                  5,940,525
                  
                  
                  
                  100
                  %





Property system maintenance
expenses increased due to the immediate need to service and stabilize the
systems in the 31 properties acquired from Rocket Broadband Networks. The
decrease in general operations expense was mainly due the transfer of
certain operations personnel into sales and marketing.




19




General and
Administrative Expenses.General and administrative expenses decreased to
$4,310,859 from $4,692,763 for the years ended September 30, 2009 and 2008,
respectively, a 3% reduction as a percent of revenue. Of the general and
administrative expense for the years ended September 30, 2009 and 2008, the
Company had total noncash charges included of $600,179 and $781,315,
respectively, described below:





Years ended September 30,2009
                        
                        
                        2008Total
      general and administrative expense
                        
                        $
                        4,310,859
                        
                        
                        $
                        4,692,763Noncash charges:Share
      based compensation - nonemployees
                        
                        
                        —
                        
                        
                        
                        13,500Share
      based compensation – employees (1)
                        
                        
                        92,901
                        
                        
                        
                        304,732Compensation
      expense through the issuance of restricted common stock for services
      rendered
                        
                        
                        51,530
                        
                        
                        
                        70,206Excess
      discount for the issuance of stock under stock purchase
    plan
                        
                        
                        34,075
                        
                        
                        
                        19,327Issuance
      of common stock for bonuses
                        
                        
                        23,588
                        
                        
                        
                        36,064Provision
      for compensation expense settled through the issuance of common
      stock
                        
                        
                        187,473
                        
                        
                        
                        204,000Bad
      debt provision
                        
                        
                        210,612
                        
                        
                        
                        133,486Total
      noncash charges
                        
                        
                        600,179
                        
                        
                        
                        781,315Total
      general and administrative expense net of noncash charges
                        
                        $
                        3,710,680
                        
                        
                        $
                        3,911,448Percent
      of revenue
                        
                        
                        15
                        %
                        
                        
                        17
                        %










(1)
            The
      Company recognized noncash share-based compensation expense for employees
      based upon the fair value at the grant dates for awards to employees for
      the years ended September 30, 2009 and 2008 of $92,901 and $304,732,
      respectively, amortized over the requisite vesting period. The total
      stock-based compensation expense not yet recognized and expected to vest
      over the next thirteen months is approximately
  $53,000.





Excluding
the $600,179 and $781,315 in noncash charges from the years ended September 30,
2009 and 2008, respectively, general and administrative expenses were $3,710,680
(15% of revenue) compared to $3,911,448 (17% of revenue). Although the Company
anticipates general and administrative expenses to increase in dollars, it
expects these expenses to decrease as a percent of revenue in fiscal 2010.





Gain on Sale of
Customers and Plant and Equipment.On November 5, 2008 and December 17,
2008, the Company sold subscribers and certain related property and equipment to
CSC Holdings, Inc. for $2,704,500 and $3,061,500, respectively. The total gain
on the sale of customers and the related property and equipment was
$5,038,839.





On April
30, 2009, the Company disposed of assets to a property at the end of its access
agreement for proceeds of $15,000. The total gain on the disposal was
$10,634.





On July
17, 2009, the Company disposed of assets to a property at the end of its access
agreement for proceeds of $75,000. The total gain on the disposal was
$55,200.





On
September 30, 2008, the Company sold subscribers and certain related property
and equipment to CSC Holdings, Inc. for $2,529,000. The total gain on the sale
of customers and the related property and equipment was $1,860,593.





Other Noncash
Charges.  Depreciation and amortization expenses increased
from $6,578,842 during the fiscal year ended September 30, 2008 to $6,850,478
during the fiscal year ended September 30, 2009. The dollar increase in
depreciation and amortization is associated with additional equipment deployed,
including HD Platform upgrade equipment, and other intangible assets that were
acquired over prior periods. Interest expense during the year ended September
30, 2009 and 2008 included noncash charges of $287,261 and $322,968,
respectively, for the amortization of deferred finance costs and debt
discount.




20




Other Income,
Net.During the year ended September 30, 2009, interest expense decreased
to $1,919,184 primarily as a result of the sale of subscribers to CSC Holdings,
Inc. and the corresponding receipts of $5,766,000, which were used to lower the
Credit Facility and related interest expense. During the year ended September
30, 2008, interest expense significantly increased as compared to the previous
fiscal year to $2,157,635, due mainly to an additional $971,461 in interest
expense related to increased Credit Facility borrowing.





LIQUIDITY AND CAPITAL RESOURCES





During
the years ended September 30, 2009 and 2008, the Company recorded a net loss of
$919,981 and $5,199,383, respectively. The Company had positive cash flow from
operation activities of $3,533,641 during the year ended September 30, 2009 and
negative cash flows from operating activities of $688,434 during the year ended
September 30, 2008. However, the cause for positive cash flow from operating
activities for the year ended September 30, 2009 was primarily a result of gain
from the sale of subscribers and related property and equipment to CSC Holdings
of $5,038,839. At September 30, 2009, the Company had an accumulated deficit of
$52,584,376.





On
September 11, 2006, the Company entered into a Loan and Security Agreement with
FCC, LLC, d/b/a First Capital, and Full Circle Funding, LP for a senior secured
$20 million revolving five year Credit Facility to fund the Company's subscriber
growth. The Credit Facility was specifically designed to provide a long-term
funding solution to the Company’s subscriber growth capital requirements. The
$20 million Credit Facility (subject to a borrowing base) is a non-amortizing
five-year term facility. The size of the Credit Facility is ultimately
determined by factors relating to the present value of the Company’s future
revenue as determined by its access agreements. Therefore, as the Company’s
subscriber base increases through the signing of new access agreements and
renewal of existing access agreements, the Company’s borrowing base potential
increases concurrently. Given the Company’s focus on both EBITDA (as adjusted)
and subscriber growth, an increasing percentage of future subscriber acquisition
costs should be funded from earnings, despite the availability of more capital
through an increasing borrowing base. On June 30, 2008, the Company entered into
an Amended and Restated Loan and Security Agreement with the same parties for a
$10 million increase to the $20 million Credit Facility. The senior secured
Credit Facility, of now up to $30 million, has a new five-year term under which
the Company will pay interest on actual principal drawn during the full term of
the agreement. The Company is under no obligation to draw any of the new
increments. To access the Credit Facility above $20 million, the Company must
have (i) positive EBITDA (as adjusted by the Company), on either a trailing 12
month basis or a pro-forma basis, of $1 million, and (ii) 60,000 subscribers. To
access the Credit Facility above $25 million, the Company must have (i) positive
EBITDA (as adjusted by the Company), on either a trailing 12 month basis or
pro-forma basis, of $3 million, and (ii) 65,000 subscribers. The original
material terms and conditions of the Credit Facility, previously negotiated and
executed on September 11, 2006, have not changed.





The
Credit Facility is secured by the Company’s cash and temporary investments,
accounts receivable, inventory, access agreements and certain property, plant
and equipment. The Credit Facility contains covenants limiting the Company’s
ability to, without the prior written consent of FCC, LLC, d/b/a First Capital,
and Full Circle Funding, LP, among other things:




·
            incur other
      indebtedness;


·
            incur other
      liens;


·
            undergo any fundamental
      changes;


·
            engage in transactions with
      affiliates;


·
            issue certain equity, grant
      dividends or repurchase
shares;


·
            change our fiscal
      periods;


·
            enter into mergers or
      consolidations;


·
            sell assets;
      and


·
            prepay other
      debt.





Regarding
the sale transactions with CSC Holdings, FCC, LLC, d/b/a First Capital, and Full
Circle Funding, LP provided their written consent. The Credit Facility also
includes certain events of default, including nonpayment of obligations,
bankruptcy and change of control. Borrowings will generally be available subject
to a borrowing base and to the accuracy of all representations and warranties,
including the absence of a material adverse change and the absence of any
default or event of default.




21




The Credit Facility has a term of five years with interest
payable monthly only on the principal outstanding and is specially tailored to
the Company's needs by being divided into six $5 million increments. The Company
is under no obligation to draw an entire increment at one time. The first $5
million increment carries an interest rate of prime rate plus 4.1%, the second
$5 million at prime plus 3%, the third $5 million at prime plus 2%, the fourth
$5 million at prime plus 1%, and the new $10 million in additional Credit
Facility is also divided into two $5 million increments with the interest rate
on these increments being prime plus 1% to 4%, depending on the Company's ratio
of EBITDA to the total outstanding loan balance. As defined in the Credit
Facility, “prime” shall be a minimum of 7.75%. As of September 30, 2009, the
Company has borrowed a total of $16,123,471 under the Credit Facility, which is
due on June 30, 2013. The Company believes that the combination of revenues and
the remaining available balance under the Credit Facility will provide it with
the needed capital to fund operations as planned through September 30, 2010.





Cash Position. At September 30, 2009 and 2008, the Company had cash and cash
equivalents of $688,335 and $60,634, respectively. As of September 30, 2009, the
Company has adequate financial resources from its cash position and availability
from the $30 million Credit Facility to fund operations.




Operating
Activities. Company operations provided net cash of $3,533,641 for
the year ended September 30, 2009 and used net cash of $688,434 for the year
ended September 30, 2008. Net cash provided by operations for the year ended
September 30, 2009 included a decrease in accounts and other receivables of
$755,881, primarily from the receipt of CSC Holdings sale proceeds from escrow,
an increase in prepaid expenses of $98,772, an increase in accounts payable and
accrued liabilities of $931,782 and an increase in deferred revenue of $141,829.
Net cash used in operating activities included a decrease of $400,286 in
accounts payable and other accrued liabilities and a $154,451 decrease in
deferred revenue during the year ended September 30, 2008. During the year ended
September 30, 2008, the net increase in accounts receivable was $880,089. The
increase in accounts and other receivables for the year ended September 30, 2008
was primarily the result of $1,011,600 in CSC Holdings sale proceeds being held
in escrow on September 30, 2008.





The
Company’s net losses of $919,981 and $5,199,383 for the years ended September
30, 2009 and 2008, respectively, were significantly offset by net noncash
charges associated primarily with depreciation and amortization and other
non-cash charges associated with stock options and warrants of $7,745,120 and
$7,699,643 for the same periods.





Investing
Activities.During the year ended September 30, 2009, the Company
purchased $6,893,767 of equipment relating to subscriber additions and HD
Platform upgrades for the fiscal year and to be used for future periods. During
the year ended September 30, 2009, the Company received $5,703,500 in proceeds,
net of costs of $62,500, for the sale of subscribers and related property and
equipment to CSC Holdings, and $90,000 in proceeds for the sale of equipment to
properties at the end of its access agreement. Additionally, the Company paid
$813,953 for the acquisition of intangible assets and related fees.





During
the year ended September 30, 2008, the Company purchased $5,310,235 of
equipment, installed, relating to subscriber additions and paid $267,181 for the
acquisition of other intangible assets. Additionally, the Company received
proceeds of $2,529,000 (net of the $1,011,600 escrowed receivable) for the sale
of customers and telecommunications equipment from the first closing with CSC
Holdings. During the year ended September 30, 2008, the Company received a
refund on a portion of a previously tendered acquisition purchase price and
reduced intangibles accordingly by $13,120.





Financing
Activities.During the year ended September 30, 2009, the Company
used $62,721 for the repayment of certain notes payable and capital lease
obligations. Equity financing activity provided $15,599 from 63,330 shares of
common stock purchased by employees through the Employee Stock Purchase Plan.
Additionally, during the year ended September 30, 2009, the Company incurred
$150,000 in deferred finance costs and lowered the amount borrowed through the
Credit Facility by $728,496. The Company also repurchased 174,423 shares of its
common stock at an aggregate cost of $68,324.





During
the year ended September 30, 2008, the Company used $51,719 for the repayment of
certain notes payable and $81,039 for capital lease obligations. Equity
financing activity provided $18,422 from 45,134 shares of common stock purchased
by employees through the Employee Stock Purchase Plan. Additionally, the Company
incurred $265,000 in deferred finance costs and borrowed $3,409,524 through the
Credit Facility.




22




Working
Capital. The Company had negative working capital of $1,209,045 as
of September 30, 2009 and positive working capital of $193,091 as of September
30, 2008. The Company lowered the amount borrowed through the Credit Facility by
$728,496 for the year ended September 30, 2009 and the Credit Facility provided
$3,409,524 in proceeds towards working capital for the year ended September 30,
2008. To minimize the draw on the Credit Facility, the Company expects to be at
a break-even or slightly negative working capital. The Company believes that it
has the ability to meet current operating activities through current revenue
levels, expected revenue growth, and in conjunction with the funds available
through the Credit Facility, will have sufficient funds to support growth
through at least September 30, 2010.




Capital
Commitments and Contingencies.   The Company has access
agreements with the owners of MDU properties to supply satellite television and
Internet systems and services to the residents of those properties. However, the
Company has no obligation to build out those properties and no penalties will
accrue if it elects not to do so.





Future Capital
Requirements.    The Company believe that it has
sufficient resources to cover current levels of operating expenses and working
capital needs. However, this is a capital-intensive business and an increasing
rate of growth is dependent on additional cash or financing. Should the Credit
Facility become unavailable, there is no guarantee that the Company will be able
to sustain an increasing rate of growth.




CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL
COMMITTMENTS




As of
September 30, 2009, the resources required for scheduled payment of contractual
obligations were as follows:





Total
                  
                  
                  Due in
                    1 year
                    or less
                  
                  
                  Due after
                    1 year through
                    3 years
                  
                  
                  Due after
                    3 years through
                    5 yearsOperating
      Leases
                  
                  $
                  542,410
                  
                  
                  $
                  316,651
                  
                  
                  $
                  218,311
                  
                  
                  $
                  7,448Credit
      line borrowing
                  
                  
                  16,123,471
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,123,471Total
      contractual obligations
                  
                  $
                  16,665,881
                  
                  
                  $
                  316,651
                  
                  
                  $
                  218,311
                  
                  
                  $
                  16,130,919





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates. The Company
bases its estimates on historical experience and on other assumptions that are
believed to be reasonable under the circumstances. Accordingly, actual results
could differ from these estimates under different assumptions or conditions.
This section summarizes the critical accounting policies and the related
judgments involved in their application.





Revenue
recognition with respect to initial service or connection:





On June
1, 2007, the Company signed a new System Operator Agreement with DIRECTV (the
“DIRECTV Agreement"), which replaced an agreement dated September 29, 2003.
Under the DIRECTV Agreement the Company receives monthly residual fees from
DIRECTV based upon the programming revenue DIRECTV receives from subscribers
within the Company's multi-dwelling unit properties. The Company also receives
an “Individual Subscriber PPC” (prepaid programming commission, also known as an
“activation fee”) for every new subscriber that activates a DIRECTV
commissionable programming package. The Individual Subscriber PPC is paid on a
gross activation basis in choice and exclusive properties and on a one-time
basis in our bulk properties. The payment of the Individual Subscriber PPC
requires an annual commitment for the individual services and is subject to a
“charge back” if a subscriber disconnects within the annual commitment. The
revenue from the Individual Subscriber PPC is recognized over one year in
conjunction with the annual commitment. The DIRECTV Agreement also provides for
an “Analog Commission” to the Company for the addition of a new Bulk Choice
Advantage (“BCA”) subscriber. The Analog Commission is not subject to an annual
commitment from a subscriber and there is no proportional “charge back” by
DIRECTV if a subscriber disconnects at any time. Due to the fact that no portion
of the Analog Commission is subject to the annual commitment or charge back
provision, the Analog Commission is recognizable immediately upon the approval
and acceptance of the subscriber by DIRECTV.




23




On
December 14, 2007, the Company signed a letter agreement with DIRECTV that
allowed the Company to receive an upgrade subsidy when it completes a high
definition (“HD”) system upgrade on certain of its properties. The Company is
required to submit an invoice for this subsidy to DIRECTV within thirty days
after the upgrade of the property and subscribers is complete. This subsidy is
treated as revenue, similar to the “activation fee” referenced above, except
that the entire amount of the subsidy is recognized immediately. On August 15,
2008, the Company signed a subsequent letter agreement with DIRECTV that allowed
the Company to continue to receive from DIRECTV this upgrade subsidy, under
similar terms, through July 2009. This letter agreement originally provided for
a minimum retention period of three years with a refund of the subsidy from
properties that terminate DIRECTV service before expiration of the three year
period. Subsequently, the three year requirement was waived by DIRECTV for all
properties.





Deferred
revenue:





The
Company’s balance sheet line item of deferred revenue represents (i) payments by
subscribers in advance of the delivery of services, and (ii) the Individual
Subscriber PPC commission that DIRECTV pays the Company for obtaining
subscribers with an annual commitment. The quarterly and annual advance payments
made by some subscribers to the Company’s services (see (i) above) and the
commissions paid to the Company from DIRECTV for certain DTH and BCA customers
who sign an annual agreement (see (ii) above) are placed in the current portion
of deferred revenue because such revenue is recognized within one year. The
quarterly and annual advance payments are recognized in each month for which the
payment is intended by the subscriber. The DIRECTV commissions are recognized
equally over a twelve month period because DIRECTV has the ability to pro-rate a
“charge-back” on the commission for any subscriber cancellation of an annual
agreement during the first year of programming service.





Use
of estimates:





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates are
used for, but not limited to, revenue recognition with respect to a new
subscriber activation subsidy, allowance for doubtful accounts, useful lives of
property and equipment, fair value of equity instruments, valuation of deferred
tax assets and potentially impaired long-lived assets. Actual results could
differ from those estimates.





Allowance for doubtful accounts:





The
Company provides an allowance for doubtful accounts equal to the estimated
collection losses based on historical experience coupled with a review of the
current status of existing receivables. Any significant variations in historical
experience or status of existing accounts receivable could have a material
impact on the Company’s statement of operations.





Fair
value of equity instruments (stock-based compensation):





The
Company measures compensation expense based on estimated fair values of all
stock-based awards, including, employee stock options, restricted stock awards
and stock purchase rights. Stock-based compensation is recognized in the
financial statements based on the portion of their grant date fair values
expected to vest over the period during which the employees are required to
provide their services in exchange for the equity instruments.





The
Company uses the Black-Scholes option pricing model to estimate the fair value
of stock-based awards. The Black-Scholes model requires the use of highly
subjective and complex assumptions, including the option’s expected term and the
price volatility of the underlying stock. The expected term of options is based
on observed historical exercise patterns. Expected volatility is based on
historical volatility over the expected life of the options.




24




All other
issuances of common stock, stock options, warrants or other equity instruments
to employees and non-employees as consideration for goods or services received
were accounted for based on the fair value of the consideration received or the
fair value of the equity instrument, whichever is more readily measurable. Such
fair value is measured at an appropriate date and capitalized or expensed as if
the Company had paid cash for the goods or services.





For
purposes of determining the fair values of options and warrants using the
Black-Scholes option pricing model, the Company used the following assumptions
in the years ended September 30, 2009 and 2008:





2009
                        
                        2008Expected
      volatility
                        
                        27%
                        
                        25%Risk-free
      interest rate
                        
                        2.80%
                        
                        4.43%Expected
      years of option life
                        
                        1
      to 4.1
                        
                        1
      to 4.1Expected
      dividends
                        
                        0%
                        
                        0%





Given an
active trading market for its common stock, the Company estimated the volatility
of stock based on week ending closing prices over a historical period of not
less than one year. As a result, depending on how the market perceives any news
regarding the Company or its earnings, as well as market conditions in general,
it could have a material impact on the volatility used in computing the value we
place on these equity instruments.





Valuation
of deferred tax assets:





The
Company regularly evaluates its ability to recover the reported amount of
deferred income tax assets considering several factors, including an estimate of
the likelihood that the Company will generate sufficient taxable income in
future years in which temporary differences reverse and net operating loss carry
forwards may be used. Due to the uncertainties related to, among other things,
the extent and timing of future taxable income, the Company offsets its net
deferred tax assets by an equivalent valuation allowance as of September 30,
2009 and 2008.





Valuation
of long-lived assets:





The
Company assesses the recoverability of long-lived tangible and intangible assets
whenever it determines that events or changes in circumstances indicate that
their carrying amount may not be recoverable. This assessment is primarily based
upon estimate of future cash flows associated with these assets. Accordingly,
the Company has determined that there has not been an impairment of any of
long-lived assets. However, should the Company’s operating results deteriorate,
it may determine that some portions of long-lived tangible or intangible assets
are impaired. Such determination could result in noncash charges to income that
could materially affect the Company’s consolidated financial position or results
of operations for that period.




Reporting segments:





Financial
reporting for segments of a business enterprise establishes standards for the
way that public entities report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performances.





The
Company operates in one reported operating segment - communication services to
the residential MDU industry. Within communication services there are three main
communication products, (i) DTH digital satellite television programming, (ii)
Private Cable television programming, and (iii) high-speed Internet services,
all of which are provided and maintained through four Company regional offices.
Performance of the Company, and its three main products, is evaluated by the
Company's Chief Executive Officer based on total Company results. There are no
segment or product managers. All of the products (in all geographic regions) are
sold to common customers in multi-dwelling unit properties, are delivered over
common wiring schemes and common equipment, by common technicians and installers
trained in all three products, are thereafter maintained and serviced during
common service visits, customers are billed for products on a common invoice and
customer issues are handled through a common call center.




25




Therefore,
the Company maintains that because its products are evaluated with common
financial information by a common decision maker, all of the Company's
operations are in one primary industry segment.





RECENT
ACCOUNTING PRONOUNCEMENTS





Business Combinations.The
changes to accounting for business combinations are effective for the annual
period beginning after December 15, 2008 and interim periods within those fiscal
years.This guidance
will be applicable prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and will have an impact on
accounting for any business combinations occurring after fiscal year ended
September 30, 2009. The Company will continueto account for all business
combinations using the acquisition method (formerly the purchase method) and for
an acquiring entity to be identified in all business combinations. However, the
new business combination requires the acquiring entity in a business combination
to recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. The Company is currently
evaluating whether the adoption of Business Combinations will
have a material impact on its financial statements.




Intangibles – Goodwill and Other.Effective for the annual period beginning after December 15, 2008 and
interim periods within those fiscal years, the Company will be required to
consider renewal or extension assumptions used to determine the useful life of a
recognized intangible asset. The intent will be to improve the consistency
between the useful life of a recognized intangible asset and the period of
expected cash flows used to measure the fair value of the asset under business
combinations. The Company is in the process of evaluating the effect of
utilizing these assumptions on its consolidated financial
statements.





In June
2009, the FASB established the FASB Accounting Standards Codification
(“Codification”), which officially commenced July 1, 2009, to become the source
of authoritative US GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative US GAAP for SEC registrants.
Generally, the Codification is not expected to change US GAAP. All other
accounting literature excluded from the Codification will be considered
non-authoritative. The Codification is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The Company
adopted the new guidance for fiscal year 2009. All references to authoritative
accounting literature are now referenced in accordance with the
Codification.





Subsequent Events.In May
2009, the FASB issued new standards which establish the accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. In particular, the new standards set
forth:





·
            the
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial statements (through the date
      that the financial statements are issued or are available to be
      issued);


·
            the
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements; and


·
            the
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.




The
Company adopted the new standards during the period ended June 30, 2009. The
Company has evaluated subsequent events after the balance sheet date of
September 30, 2009 through the time of filing of our Report on Form 10-K with
the SEC on December 29, 2009 which is the date the financial statements were
issued. See Note 16 – “Subsequent Events.”





The FASB,
the EITF and the SEC have issued certain other accounting pronouncements and
regulations as of September 30, 2009 that will become effective in subsequent
periods, however, management of the Company does not believe that any of those
pronouncements would have significantly affected the Company’s financial
accounting measurements or disclosures had they been in effect during 2009 and
2008, and it does not believe that any of those pronouncements will have a
significant impact on the Company’s consolidated financial statements at the
time they become effective.




26




Off
Balance Sheet Arrangements:





None.




Item
7A.Quantitative and
Qualitative Disclosures about Market Risk





Not
required under Regulation S-K for smaller reporting companies.





Item 8.    Financial
Statements and Supplementary Data





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





Board of
Directors and Stockholders


MDU
Communications International, Inc.





We have
audited the accompanying consolidated balance sheets of MDU Communications
International, Inc. and Subsidiaries as of September 30, 2009 and 2008, and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of MDU Communications
International, Inc. and Subsidiaries as of September 30, 2009 and 2008, and
their results of operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.





/s/ J.H.
Cohn LLP


Roseland,
New Jersey


December
29, 2009




27




MDU COMMUNICATIONS INTERNATIONAL,
INC.


Consolidated
Balance Sheets


September
30, 2009 and 2008





September 30,
                        
                        
                        September 30,2009
                        
                        
                        2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        688,335
                        
                        
                        $
                        60,634Accounts
      and other receivables, net of an allowance of $592,275 and
      $394,960
                        
                        
                        2,071,331
                        
                        
                        
                        3,102,850Prepaid
      expenses and deposits
                        
                        
                        645,802
                        
                        
                        
                        541,612TOTAL
      CURRENT ASSETS
                        
                        
                        3,405,468
                        
                        
                        
                        3,705,096Telecommunications
      equipment inventory
                        
                        
                        781,916
                        
                        
                        
                        682,818Property
      and equipment, net of accumulated depreciation of $22,071,379 and
      $17,283,584
                        
                        
                        22,139,769
                        
                        
                        
                        21,738,007Intangible
      assets, net of accumulated amortization of $6,445,203 and
      $5,338,356
                        
                        
                        2,638,683
                        
                        
                        
                        2,988,557Deposits,
      net of current portion
                        
                        
                        65,489
                        
                        
                        
                        63,037Deferred
      finance costs, net of accumulated amortization of $658,146 and
      $415,446
                        
                        
                        415,303
                        
                        
                        
                        508,273TOTAL
      ASSETS
                        
                        $
                        29,446,628
                        
                        
                        $
                        29,685,788LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
                        
                        $
                        2,079,925
                        
                        
                        $
                        1,583,352Other
      accrued liabilities
                        
                        
                        1,718,170
                        
                        
                        
                        1,287,091Current
      portion of deferred revenue
                        
                        
                        816,418
                        
                        
                        
                        578,841Note
      payable
                        
                        
                        —
                        
                        
                        
                        50,290Capital
      lease obligations
                        
                        
                        —
                        
                        
                        
                        12,431TOTAL
      CURRENT LIABILITIES
                        
                        
                        4,614,513
                        
                        
                        
                        3,512,005Deferred
      revenue, net of current portion
                        
                        
                        284,218
                        
                        
                        
                        379,966Credit
      line borrowing, net of debt discount
                        
                        
                        15,957,381
                        
                        
                        
                        16,641,586TOTAL
      LIABILITIES
                        
                        
                        20,856,112
                        
                        
                        
                        20,533,557COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYPreferred
      stock, par value $0.001; 5,000,000 shares authorized, none
      issued
                        
                        
                        —
                        
                        
                        
                        —Common
      stock, par value $0.001; 70,000,000 shares authorized, 53,497,307 and
      52,005,464 shares issued and 53,322,884 and 52,005,464
      outstanding
                        
                        
                        53,497
                        
                        
                        
                        52,005Additional
      paid-in capital
                        
                        
                        61,189,719
                        
                        
                        
                        60,764,621Accumulated
      deficit
                        
                        
                        (52,584,376
                        )
                        
                        
                        (51,664,395
                        )Less:
      Treasury stock; 174,423 shares, at cost
                        
                        
                        (68,324
                        )
                        
                        
                        —TOTAL
      STOCKHOLDERS’ EQUITY
                        
                        
                        8,590,516
                        
                        
                        
                        9,152,231TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
                        $
                        29,446,628
                        
                        
                        $
                        29,685,788





See
accompanying notes to the consolidated financial statements




28




MDU COMMUNICATIONS INTERNATIONAL,
INC.


Consolidated
Statements of Operations


Years
Ended September 30, 2009 and 2008





Years ended September 30,2009
                  
                  
                  2008REVENUE
                  
                  $
                  24,753,128
                  
                  
                  $
                  23,650,725OPERATING
      EXPENSESDirect
      costs
                  
                  
                  10,283,422
                  
                  
                  
                  10,076,041Sales
      expenses
                  
                  
                  1,417,443
                  
                  
                  
                  1,266,694Customer
      service and operating expenses
                  
                  
                  5,997,854
                  
                  
                  
                  5,940,525General
      and administrative expenses
                  
                  
                  4,310,859
                  
                  
                  
                  4,692,763Depreciation
      and amortization
                  
                  
                  6,850,478
                  
                  
                  
                  6,578,842Gain
      on sale of customers and plant and equipment
                  
                  
                  (5,104,673
                  )
                  
                  
                  (1,860,593
                  )TOTALS
                  
                  
                  23,755,383
                  
                  
                  
                  26,694,272OPERATING
      INCOME (LOSS)
                  
                  
                  997,745
                  
                  
                  
                  (3,043,547
                  )Other
      income (expense)Interest
      income
                  
                  
                  1,458
                  
                  
                  
                  1,799Interest
      expense
                  
                  
                  (1,919,184
                  )
                  
                  
                  (2,157,635
                  )NET
      LOSS
                  
                  $
                  (919,981
                  )
                  
                  $
                  (5,199,383
                  )BASIC
      AND DILUTED LOSS PER COMMON SHARE
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.10
                  )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
                  
                  
                  52,785,634
                  
                  
                  
                  51,827,948





See
accompanying notes to the consolidated financial statements




29




MDU COMMUNICATIONS INTERNATIONAL,
INC.


Consolidated
Statements of Stockholders’ Equity


Years
Ended September 30, 2009 and 2008





Common stock
                                                          
                                                          
                                                          Treasury stock
                                                          
                                                          
                                                          Additional
                                                          
                                                          
                                                          AccumulatedShares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Shares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          paid-in capital
                                                          
                                                          
                                                          deficit
                                                          
                                                          
                                                          TotalBalance,
      October 1, 2007
                                                          
                                                          
                                                          51,556,989
                                                          
                                                          
                                                          $
                                                          51,556
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          60,208,501
                                                          
                                                          
                                                          $
                                                          (46,465,012
                                                          )
                                                          
                                                          $
                                                          13,795,045Issuance
      of common stock through employee stock purchase plan
                                                          
                                                          
                                                          69,134
                                                          
                                                          
                                                          
                                                          69
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          46,320
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          46,389Issuance
      of common stock for employee bonuses
                                                          
                                                          
                                                          232,969
                                                          
                                                          
                                                          
                                                          233
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          82,451
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          82,684Issuance
      of restricted common stock for compensation for services
      rendered
                                                          
                                                          
                                                          146,372
                                                          
                                                          
                                                          
                                                          147
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          64,117
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          64,264Issuance
      of warrants in connection with credit line borrowing
    agreement
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          45,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          45,000Share-based
      compensation - employees
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          304,732
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          304,732Share-based
      compensation - nonemployees
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          13,500
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          13,500Net
      loss
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (5,199,383
                                                          )
                                                          
                                                          
                                                          (5,199,383
                                                          )Balance,
      October 1, 2008
                                                          
                                                          
                                                          52,005,464
                                                          
                                                          
                                                          
                                                          52,005
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          60,764,621
                                                          
                                                          
                                                          
                                                          (51,664,395
                                                          )
                                                          
                                                          
                                                          9,152,231Issuance
      of common stock through employee stock purchase plan
                                                          
                                                          
                                                          91,330
                                                          
                                                          
                                                          
                                                          92
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          55,902
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          55,994Issuance
      of common stock for employee bonuses
                                                          
                                                          
                                                          762,708
                                                          
                                                          
                                                          
                                                          763
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          131,837
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          132,600Issuance
      of restricted common stock for employee bonuses
                                                          
                                                          
                                                          272,073
                                                          
                                                          
                                                          
                                                          271
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          45,982
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          46,253Issuance
      of common stock for compensation for services rendered
                                                          
                                                          
                                                          137,852
                                                          
                                                          
                                                          
                                                          138
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          37,082
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          37,220Issuance
      of restricted common stock for compensation for services
      rendered
                                                          
                                                          
                                                          150,000
                                                          
                                                          
                                                          
                                                          150
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          59,250
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          59,400Exercise
      of warrants (cashless)
                                                          
                                                          
                                                          37,500
                                                          
                                                          
                                                          
                                                          38
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (38
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -Issuance
      of common stock for options exercised, including effects of net share
      settlements
                                                          
                                                          
                                                          40,380
                                                          
                                                          
                                                          
                                                          40
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2,182
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2,222Share-based
      compensation - employees
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          92,901
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          92,901Treasury
      stock acquired
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (174,423
                                                          )
                                                          
                                                          
                                                          (68,324
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (68,324
                                                          )Net
      loss
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (919,981
                                                          )
                                                          
                                                          
                                                          (919,981
                                                          )Balance,
      September 30, 2009
                                                          
                                                          
                                                          53,497,307
                                                          
                                                          
                                                          $
                                                          53,497
                                                          
                                                          
                                                          
                                                          (174,423
                                                          )
                                                          
                                                          $
                                                          (68,324
                                                          )
                                                          
                                                          $
                                                          61,189,719
                                                          
                                                          
                                                          $
                                                          (52,584,376
                                                          )
                                                          
                                                          $
                                                          8,590,516





See
accompanying notes to the consolidated financial statements




30




MDU COMMUNICATIONS INTERNATIONAL,
INC.


Consolidated
Statements of Cash Flows


Years
Ended September 30, 2009 and 2008





.
                              
                              Years ended September 30,2009
                              
                              
                              2008OPERATING
      ACTIVITIESNet
      loss
                              
                              $
                              (919,981
                              )
                              
                              $
                              (5,199,383
                              )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Bad
      debt provision
                              
                              
                              210,612
                              
                              
                              
                              133,486Depreciation
      and amortization
                              
                              
                              6,850,478
                              
                              
                              
                              6,578,842Share-based
      compensation expense - employees
                              
                              
                              92,901
                              
                              
                              
                              304,732Share-based
      compensation expense - nonemployees
                              
                              
                              —
                              
                              
                              
                              13,500Charge
      to interest expense for amortization of deferred finance costs and debt
      discount
                              
                              
                              287,261
                              
                              
                              
                              322,968Compensation
      expense for issuance of common stock through Employee Stock Purchase
      Plan
                              
                              
                              34,075
                              
                              
                              
                              19,327Compensation
      expense for issuance of common stock for employee bonuses
                              
                              
                              28,070
                              
                              
                              
                              39,357Compensation
      expense for issuance of common stock for employee services
                              
                              
                              2,720
                              
                              
                              
                              8,640Compensation
      expense for issuance of restricted common stock for
      compensation
                              
                              
                              51,530
                              
                              
                              
                              70,206Compensation
      expense accrued to be settled through the issuance of common
      stock
                              
                              
                              187,473
                              
                              
                              
                              208,585Gain
      on sale of customers and property and equipment
                              
                              
                              (5,104,673
                              )
                              
                              
                              (1,860,593
                              )Loss
      on write-off of property and equipment and intangible
    assets
                              
                              
                              82,455
                              
                              
                              
                              149,427Changes
      in operating assets and liabilities:Accounts
      and other receivables
                              
                              
                              755,881
                              
                              
                              
                              (880,089
                              )Prepaid
      expenses and deposits
                              
                              
                              (98,772
                              )
                              
                              
                              (42,702
                              )Accounts
      payable
                              
                              
                              496,573
                              
                              
                              
                              (235,242
                              )Other
      accrued liabilities
                              
                              
                              435,209
                              
                              
                              
                              (165,044
                              )Deferred
      revenue
                              
                              
                              141,829
                              
                              
                              
                              (154,451
                              )Net
      cash provided by (used in) operating activities
                              
                              
                              3,533,641
                              
                              
                              
                              (688,434
                              )INVESTING
      ACTIVITIESPurchase
      of property and equipment
                              
                              
                              (6,893,767
                              )
                              
                              
                              (5,310,235
                              )Proceeds
      from the sale of customers and property and equipment
                              
                              
                              5,793,500
                              
                              
                              
                              2,529,000Acquisition
      of intangible assets
                              
                              
                              (813,953
                              )
                              
                              
                              (267,181
                              )Net
      cash used in investing activities
                              
                              
                              (1,914,220
                              )
                              
                              
                              (3,048,416
                              )FINANCING
      ACTIVITIESNet
      proceeds from (repayments of) credit line borrowing
                              
                              
                              (728,496
                              )
                              
                              
                              3,409,524Deferred
      financing costs
                              
                              
                              (150,000
                              )
                              
                              
                              (265,000
                              )Purchase
      of treasury stock
                              
                              
                              (68,324
                              )
                              
                              
                              —Payments
      of notes payable
                              
                              
                              (50,290
                              )
                              
                              
                              (51,719
                              )Proceeds
      from purchase of common stock through Employee Stock Purchase
      Plan
                              
                              
                              15,599
                              
                              
                              
                              18,422Proceeds
      from options exercised
                              
                              
                              2,222
                              
                              
                              
                              —Payments
      of capital lease obligations
                              
                              
                              (12,431
                              )
                              
                              
                              (81,039
                              )Net
      cash provided by (used in) financing activities
                              
                              
                              (991,720
                              )
                              
                              
                              3,030,188NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                              
                              
                              627,701
                              
                              
                              
                              (706,662
                              )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                              
                              
                              60,634
                              
                              
                              
                              767,296CASH
      AND CASH EQUIVALENTS, END OF YEAR
                              
                              $
                              688,335
                              
                              
                              $
                              60,634




31




Years ended September 30,2009
                          
                          2008SUPPLEMENTAL
      DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Issuance
      of 12,000 shares of common stock for accrued compensation
                          
                          $
                          3,600
                          
                          
                          $
                          —Issuance
      of 884,451 and 120,694 shares of common stock for employee
      bonuses
                          
                          $
                          150,783
                          
                          
                          $
                          43,327Issuance
      of 18,037 shares of restricted common stock for services
      rendered
                          
                          $
                          —
                          
                          
                          $
                          14,430Issuance
      of  70,000 and 50,695 shares of restricted common stock for
      services to be rendered
                          
                          $
                          28,000
                          
                          
                          $
                          20,128Issuance
      of warrants in connection with credit line agreement
                          
                          $
                          —
                          
                          
                          $
                          45,000Issuance
      of 137,852 shares of common stock for services rendered
                          
                          $
                          37,220
                          
                          
                          $
                          —SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                          
                          $
                          1,656,947
                          
                          
                          $
                          1,943,801




See accompanying notes to the
consolidated financial statements




32




MDU COMMUNICATIONS INTERNATIONAL, INC.


Notes to Consolidated Financial
Statements





1.
                 
BUSINESS





MDU
Communications International, Inc. and its subsidiaries (the “Company”) provide
delivery of digital satellite television programming and high-speed (broadband)
Internet service to residents of multi-dwelling unit properties (“MDUs”) such as
apartment buildings, condominiums, gated communities, hotels and universities.
Management considers all of the Company’s operations to be in one industry
segment.





2.
                 
SIGNIFICANT ACCOUNTING POLICIES





These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) and
reflect the significant accounting polices described below:





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates are used for, but
not limited to, revenue recognition with respect to a new subscriber activation
subsidy, allowance for doubtful accounts, purchase price allocation, useful
lives of property and equipment, fair value of equity instruments and valuation
of deferred tax assets. Actual results could differ from those
estimates.





Principles
of Consolidation





The
consolidated financial statements include the accounts of MDU Communications
International, Inc. and its subsidiaries, MDU Communications Inc. and MDU
Communications (USA) Inc. All inter-company balances and transactions are
eliminated.




Deferred
Financing Costs and Debt Discount





Costs
related to obtaining loans are presented as deferred finance costs on the
consolidated balance sheets and amortized to interest expense using the
straight-line method over the term of the related obligation. Debt discount is
offset against the principal balance of the related loan and amortized using the
straight-line method over the term of the related loan. As a result of the
Amended and Restated Loan and Security Agreement entered into on June 30, 2008,
the Company incurred additional deferred financing costs that, as well as all
other previously incurred deferred financing costs, will be amortized to
interest expense using the straight-line method over the new term.





Telecommunications
Equipment Inventory and Property and Equipment





Telecommunications
equipment inventory consists of receivers and other supplies that will either be
sold or installed by the Company under subscription agreements and, accordingly,
is not depreciated. Such inventory is stated at the lower of cost or market. The
cost of inventory sold or transferred to telecommunications equipment upon
installation in connection with subscription agreements is determined on a
first-in, first-out basis.





Property
and equipment are recorded at cost less accumulated depreciation and
amortization. Direct costs of placing telecommunications equipment into service
and major improvements are capitalized. Costs of connecting and disconnecting
service are expensed. Depreciation of property and equipment is provided using
the straight-line method over the estimated useful lives as
follows:




33





Installed
      telecommunications equipment
            7
      yearsComputer
      equipment
            5
      yearsFurniture
      and fixtures
            5
      years





Intangible
Assets





Intangible
assets consist of acquired property access agreements and subscriber lists and
their costs are being amortized over their estimated useful lives of five years
using the straight-line method.





Long-lived
Assets





The
Company reviews the carrying value of its long-lived assets for impairment
whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable from the estimated future cash flows expected to result
from its use and eventual disposition. In cases where undiscounted expected
future cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds the fair value
of the assets. No impairment losses were identified by the Company for the years
ended September 30, 2009 and 2008.





Revenue
Recognition





The
Company recognizes revenue for satellite programming and other services to
customers in the period the related services are provided and the amount of
revenue is determinable and collection is reasonably assured.





The
Company offers installation services to building owners and managers for the
construction of wiring and installation of equipment to allow for
telecommunications services, including the sale of related equipment. Revenue
from the sale of equipment is recognized when title transfers, and installation
revenue is recognized in the period that the services are performed when the
amount of revenue is determinable and collection is reasonably
assured.





In
certain arrangements with suppliers of satellite programming or other services,
the Company does not bear inventory or credit risk in connection with the
service provided to the customer.  For those arrangements where the Company
does not act as a principal in the transaction, such revenue is recorded on the
net basis and, accordingly, the amount of revenue is equivalent to the
contractual commission earned by the Company. Revenues from providing services
under contracts where the Company acts as a principal in the transaction,
exercises pricing control and bears the risk of collection are recorded based on
the gross amount billed to the customer when the amount is
determinable.





On June
1, 2007, the Company signed a new System Operator Agreement with DIRECTV (the
“DIRECTV Agreement"), which replaced an agreement dated September 29, 2003.
Under the DIRECTV Agreement, the Company receives monthly residual fees from
DIRECTV based upon the programming revenue DIRECTV receives from subscribers
within the Company's multi-dwelling unit properties. The Company also receives
an “Individual Subscriber PPC” (prepaid programming commission, also known as an
“activation fee”) for every new subscriber that activates a DIRECTV
commissionable programming package. The Individual Subscriber PPC is paid on a
gross activation basis in choice and exclusive properties and on a one-time
basis in our bulk properties. The payment of the Individual Subscriber PPC
requires an annual commitment for the individual services and is subject to a
“charge back” if a subscriber disconnects within the annual commitment. The
revenue from the Individual Subscriber PPC is recognized over one year
in conjunction with the annual commitment. The DIRECTV Agreement also
provides for an “Analog Commission” to the Company for the addition of a new
Bulk Choice Advantage (“BCA”) subscriber. The Analog Commission is not subject
to an annual commitment from a subscriber and there is no proportional “charge
back” by DIRECTV if a subscriber disconnects at any time. Due to the fact that
no portion of the Analog Commission is subject to the annual commitment or
“charge back” provision, the Analog Commission is recognizable immediately upon
the approval and acceptance of the subscriber by DIRECTV.


34


On
December 14, 2007, the Company signed a letter agreement with DIRECTV that
allows the Company to receive from DIRECTV an upgrade subsidy when it completes
a high definition system upgrade on certain properties where the Company
currently is providing DIRECTV services. The Company is required to submit an
invoice for this subsidy to DIRECTV within thirty days after the upgrade of the
property and subscribers are complete. This subsidy is treated as revenue,
similar to the activation fee referenced above, except that the entire amount of
the subsidy is recognized immediately. On August 15, 2008, the Company signed a
subsequent letter agreement with DIRECTV, with similar terms, that allowed the
Company to continue to receive from DIRECTV this upgrade subsidy through July
2009. This letter agreement provided, however, for a minimum retention period of
three years and may require a full refund of the subsidy from properties that
terminate DIRECTV service before expiration of the three year
period.  Subsequently, the three year requirement was waived by
DIRECTV for all properties.





Deferred
Revenue





The
Company’s line item of deferred revenue represents (i) payments by subscribers
in advance of the delivery of services, and (ii) the commission (Individual
Subscriber PPC) that DIRECTV pays the Company for obtaining subscribers with an
annual commitment. The quarterly and annual advance payments made by some
subscribers to the Company’s services (see (i) above) and the commissions paid
to the Company from DIRECTV for certain DTH customers who sign an annual
agreement (see (ii) above) are placed in the current portion of deferred revenue
because such revenue is recognized within one year. The quarterly and annual
advance payments are recognized in each month for which the payment is intended
by the subscriber. The DIRECTV commissions are recognized equally over a twelve
month period because DIRECTV has the ability to pro-rate a “charge-back” on the
commission for any subscriber cancellation of an annual agreement during the
first year of programming service.




Accounts
Receivable





The
Company provides an allowance for doubtful accounts equal to the estimated
collection losses based on historical experience coupled with a review of the
current status of existing receivables.





Loss
Per Common Share





The
Company presents basic earnings (loss) per common share and, if applicable,
diluted earnings per common share. Basic earnings (loss) per common share is
computed by dividing the net income or loss by the weighted average number of
common shares outstanding for the period. The calculation of diluted earnings
per common share is similar to that of basic earnings per common share, except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if all potentially dilutive common
shares, such as those issueable upon the exercise of stock options and warrants,
were issued during the period and the treasury stock method was
applied.




For the
years ended September 30, 2009 and 2008, basic and diluted loss per common share
are the same as the Company had net losses for these periods and the effect of
the assumed exercise of options and warrants would be anti-dilutive. As of
September 30, 2009 and 2008, the Company had potentially dilutive common shares
attributable to options and warrants that were exercisable (or potentially
exercisable) into shares of common stock as presented in the following
table:




For the years ended September 30,2009
                                        
                                        
                                        2008Warrants
                                        
                                        
                                        1,750,000
                                        
                                        
                                        
                                        1,900,000Options
                                        
                                        
                                        2,177,500
                                        
                                        
                                        
                                        2,004,444Potentially
      dilutive shares of common stock
                                        
                                        
                                        3,927,500
                                        
                                        
                                        
                                        3,904,444




Foreign
Exchange





The
Company uses the United States dollar as its functional and reporting currency
since the majority of the Company’s revenues, expenses, assets and liabilities
are in the United States and the focus of the Company’s operations is in that
country. Assets and liabilities in foreign currencies (primarily Canadian
dollars) are translated using the exchange rate at the balance sheet date.
Revenues and expenses are translated at average rates of exchange during the
year. Gains and losses from foreign currency transactions and translation for
the years ended September 30, 2009 and 2008 and cumulative translation
gains and losses as of September 30, 2009 and 2008 were not
material.


35


Stock-Based
Compensation





The
Company measures compensation expense based on estimated fair values of all
stock-based awards, including employee stock options, restricted stock awards
and stock purchase rights.  Stock-based compensation is recognized in
the financial statements based on the portion of their grant date fair values
expected to vest over the period during which the employees are required to
provide their services in exchange for the equity instruments.





The
Company uses the Black-Scholes option pricing model to estimate the fair value
of stock-based awards. The Black-Scholes model requires the use of highly
subjective and complex assumptions, including the option’s expected term and the
price volatility of the underlying stock. The expected term of options is based
on observed historical exercise patterns. Expected volatility is based on
historical volatility over the expected life of the options.





All other
issuances of common stock, stock options, warrants or other equity instruments
to employees and non-employees as consideration for goods or services received
were accounted for based on the fair value of the consideration received or the
fair value of the equity instrument, whichever is more readily measurable. Such
fair value is measured at an appropriate date and capitalized or expensed as if
the Company had paid cash for the goods or services.





Cash
and Cash Equivalents





Cash and
cash equivalents consist of bank deposits and short-term notes with maturities
at the date of acquisition of ninety days or less. The balances maintained
in bank accounts may, at times, exceed Federally insured limits.  At
September 30, 2009, cash balances in bank accounts that exceeded Federally
insured limits amount to approximately $438,000.




Concentrations





Financial
instruments that potentially subject the Company to a concentration of credit
risk consist principally of cash and cash equivalents and accounts
receivable.





Accounts
receivable from DIRECTV (see Note 7) at September 30, 2009 and 2008,
represented 38% and 53%, respectively, of total trade accounts receivable.
Revenues realized directly from DIRECTV represented 31% and 25% of total
revenues in the years ended September 30, 2009 and 2008,
respectively.





Income
Taxes





Deferred
taxes arise due to temporary differences in the bases of assets and liabilities
and from net operating losses and credit carry forwards. In general, deferred
tax assets represent future tax benefits to be received when certain expenses
previously recognized in the Company’s statement of operations become deductible
expenses under applicable income tax laws or loss or credit carry forwards
utilized. Accordingly, realization of deferred tax assets is dependent on future
taxable income against which these deductions, losses and credits can be
utilized. In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers historical
operating losses, scheduled reversals of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment. The
income tax provision or credit is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets and
liabilities.





Recently
Adopted Accounting Standards





Fair Value Measurements and
Disclosures.This guidance provides a
definition of fair value and establishes a framework for measuring fair value in
accordance with GAAP. Certain expanded disclosures related to the fair value
measurements used to value assets and liabilities are also
provided.  This guidance is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years but did not have
any effect on the Company’s financial statements. Effective
for the interim and annual periods ended after June 15, 2009, the Company
extended Fair Value
Measurement to measure fair value when markets for financial assets that
were previously active are no longer active. The adoption of this pronouncement
did not have a material impact on the Company’s consolidated financial
statements.


36





Financial Instruments – Fair Value
Option.The fair value option for financial instruments
permits, but does not require, companies to report at fair value the majority of
recognized financial assets, financial liabilities and firm commitments. Under
this option, which is effective for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years, unrealized gains and losses
on items for which the fair value option is elected are reported in earnings at
each subsequent reporting date. The Company did not elect the fair value option
for any of its assets or liabilities and therefore this option did not have any
effect on the Company’s financial statements.





Hierarchy of Generally Accepted
Accounting Principles.Effective November 15, 2008, the
Company adopted The Hierarchy of Generally Accepted Accounting Principles
to improve financial reporting by identifying a consistent framework, or
hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with GAAP for nongovernmental
entities. The Company does not expect the adoption of this pronouncement to have
a material impact on its consolidated financial statements.





In June
2009, the FASB established the FASB Accounting Standards Codification
(“Codification”), which officially commenced July 1, 2009, to become the source
of authoritative US GAAP recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative US GAAP for SEC
registrants.  Generally, the Codification is not expected to change US
GAAP.  All other accounting literature excluded from the Codification
will be considered non-authoritative.  The Codification is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009.  The Company adopted the new guidance for fiscal
year 2009.  All references to authoritative accounting literature are
now referenced in accordance with the Codification.





Subsequent
Events.In May 2009, the FASB issued new standards which
establish the accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. In particular,
the new standards set forth:





·
            the
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial statements (through the date
      that the financial statements are issued or are available to be
      issued);


·
            the
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements; and


·
            the
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.




The
Company adopted the new standards during the period ended June 30, 2009. The
Company has evaluated subsequent events after the balance sheet date of
September 30, 2009 through the time of filing of our Report on Form 10-K with
the SEC on December 29, 2009 which is the date the financial statements were
issued. See Note 16 – “Subsequent Events.”





Other
Recently Issued and Not Yet Effective Accounting Standards





Business
Combinations.The changes to accounting for business
combinations are effective for the annual period beginning after December 15,
2008 and interim periods within those fiscal years.This guidance
will be applicable prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and will have an impact on
accounting for any business combinations occurring after fiscal year ending
September 30, 2009. The Company will continueto account for all
business combinations using the acquisition method (formerly the purchase
method) and for an acquiring entity to be identified in all business
combinations. However, the new business combination requires the acquiring
entity in a business combination to recognize the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. The Company is currently evaluating whether
the adoption of business combinations will have a material impact on its
financial statements.





Intangibles – Goodwill and
Other.Effective for the annual period beginning after
December 15, 2008 and interim periods within those fiscal years, the Company
will be required to consider renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The intent will be to improve
the consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset under
business combinations. The Company does not believe that utilization of these
assumptions will have a material impact on its consolidated financial
statements.


37





3.
            ACCOUNTS
      AND OTHER RECEIVABLES





As
of September 30, 2009 and 2008, accounts receivable, trade, net of
allowances were $2,071,331 and $2,091,250, respectively. As of September 30,
2008, there were other receivables in the amount of $1,011,600 for a balance due
from CSC Holdings, Inc., being held in escrow, for the sale of subscribers and
certain related property and equipment that was ultimately collected during
fiscal 2009 (see Note 8).





During 2009, the allowance for doubtful
accounts was based on an internal analysis of current economic conditions and
historical payment activity.




4.
            DEBT





Credit
Facility





On
September 11, 2006, the Company entered into a Loan and Security Agreement with
FCC, LLC, d/b/a First Capital, and Full Circle Funding, LP for a senior secured
$20 million credit facility (“Credit Facility”) to fund the Company’s subscriber
growth. On June 30, 2008, the Company entered into an Amended and Restated Loan
and Security Agreement with FCC, LLC, d/b/a First Capital, and Full Circle
Funding, LP for a senior secured $10 million increase to its original $20
million Credit Facility. The Credit Facility, of now up to $30 million, has a
new five-year term under which the Company will pay interest on actual principal
drawn during the full term of the agreement. The original terms and conditions
of the Credit Facility, previously negotiated and executed on September 11,
2006, have not otherwise changed.




The
amount that Company can draw from the Credit Facility is equal to the lesser of
$30 million or the Company's borrowing base which, in large part, is determined
by future revenues and costs accruing from the Company's access agreements. The
borrowing base of the Company currently exceeds $27 million. To access the
Credit Facility above $20 million, the Company must have (i) positive EBITDA, on
either a trailing twelve (12) month basis or a pro-forma basis, of $1 million,
and (ii) 60,000 subscribers. To access the Credit Facility above $25 million,
the Company must have (i) positive EBITDA, on either a trailing 12 month basis
or pro-forma basis, of $3 million, and (ii) 65,000 subscribers.  The
Credit Facility can be prepaid upon thirty days notice with a penalty of 0% to
2% of the outstanding principal balance depending on the prepayment
timing.




The
Credit Facility has a term of five years with interest only payable monthly on
the principal outstanding. The original Credit Facility is divided into four
$5,000,000 increments with the interest rate per increment declining as
principal is drawn from each increment. The first $5,000,000 increment carries
an interest rate of prime rate plus 4.1%, the second $5,000,000 at prime plus
3%, the third $5,000,000 at prime plus 2%, and the fourth $5,000,000 at prime
plus 1%. The additional $10 million to the Credit Facility is divided into two
$5 million increments with the interest rate on these increments being prime
plus 1% to 4%, depending on the Company's ratio of EBITDA to the total
outstanding loan balance. As defined in the Credit Facility, “prime” shall be a
minimum of 7.75%. The Company is under no obligation to draw any of the
increments.





As of
September 30, 2009, the Company has borrowed a total of $16,123,471, which is
reflected in the accompanying consolidated balance sheet, net of debt discount
of $166,090. The outstanding principal is payable on June 30, 2013. As of
September 30, 2009, $13,876,529 remains available for borrowing under the Credit
Facility subject to covenants described below.





In the
three months ended December 31, 2008, the Company incurred an additional
annual $50,000 deferred finance cost that will be amortized to interest
expense using the straight-line method over a twelve month period ending in
November 2009.  In the three months ended March 31, 2009, the Company
incurred an additional annual $50,000 deferred finance cost that will be
amortized to interest expense using the straight-line method over a twelve month
period ending in February 2010. In the three months ended September 30, 2009,
the Company incurred an additional annual $50,000 deferred finance cost that
will be amortized to interest expense using the straight-line method over a
twelve month period ending in June 2010.


38





The
Credit Facility is secured by the Company’s cash and temporary investments,
accounts receivable, inventory, access agreements and certain property, plant
and equipment. The Credit Facility contains covenants limiting the Company’s
ability to, without the prior written consent of FCC, LLC, d/b/a First Capital,
and Full Circle Funding, LP, among other things:





•
            incur other
      indebtedness;


•
            incur other
      liens;


•
            undergo any fundamental
      changes;


•
            engage in transactions with
      affiliates;


•
            issue certain equity, grant
      dividends or repurchase
shares;


•
            change our fiscal
      periods;


•
            enter into mergers or
      consolidations;


•
            sell assets;
      and


•
            prepay other
      debt.




In
connection with the sale transactions with CSC Holdings, FCC, LLC, d/b/a First
Capital, and Full Circle Funding, LP provided their written
consent.  The Credit Facility also includes certain events of default,
including failure to make payment, bankruptcy and change of control. Borrowings
will generally be available subject to a borrowing base and to the accuracy of
all representations and warranties, including the absence of a material adverse
change and the absence of any default or event of default.





In
connection with the Credit Facility, on October 1, 2006, the Company issued to
FCC, LLC, d/b/a First Capital, a five-year warrant to purchase 476,190 shares of
the Company's common stock at an exercise price of $0.82 per share, issued to
Full Circle Funding, LP a five-year warrant to purchase 476,191 shares of the
Company's common stock at an exercise price of $0.82 per share and issued to
Morgan Joseph & Co. Inc., who acted as advisor and placement agent, a
five-year warrant to purchase 47,619 shares of the Company’s common stock at an
exercise price of $0.82 per share. The relative fair value of the warrants of
$290,000, at the time of issuance, which was determined using the Black-Scholes
option pricing model, was recorded as additional paid-in-capital and as debt
discount which is a reduction of the carrying value of the Credit Facility
borrowing, and is being amortized using the interest method over the term of the
related loan.





In
connection with the Amended and Restated Loan and Security Agreement executed on
June 30, 2008, the Company issued to FCC, LLC, d/b/a First Capital a five year
warrant to purchase 375,000 shares of the Company's common stock and issued to
Full Circle Funding, LP a five year warrant to purchase 375,000 shares of the
Company's common stock, both at an exercise price of $0.60 per share. The
warrants had a fair value of $45,000, as determined using the Black-Sholes
pricing model, which is being amortized as debt discount over the remaining term
of the Amended and Restated Loan Agreement.





The
warrants discussed above are subject to customary registration rights set forth
in a Registration Rights Agreement that provides for demand registration within
one hundred and thirty five days and (i) a four (4%) percent share penalty if
not effective within that time period, and (ii) a two (2%) percent share penalty
thereafter for each thirty days until effectiveness or one year, whichever is
earlier.   As of September 30, 2009, there has been no “demand” for
registration pursuant to the Registration Rights Agreement.





5.
            STOCKHOLDERS’
      EQUITY





Preferred
Stock





The
Company is authorized to issue up to 5,000,000 shares of preferred stock with a
par value of $.001 per share. The preferred stock may be issued in one or more
series with dividend rates, conversion rights, voting rights and other terms and
preferences to be determined by the Company’s Board of Directors, subject to
certain limitations set forth in the Company’s Articles of Incorporation. There
were no shares of preferred stock outstanding as of September 30, 2009 or
2008.


39





Stock-Based
Compensation





The cost
of stock-based payments to employees, including grants of employee stock
options, are recognized in the financial statements based on the portion of
their grant date fair values expected to vest over the period during which the
employees are required to provide services in exchange for the equity
instruments. The Company uses the Black-Scholes method of valuation for
stock-based compensation. During the years ended September 30, 2009 and 2008,
the Company recognized stock-based compensation expense for employees of $92,901
and $304,732, respectively, which was included in general and administrative
expense.





The fair
values of options granted during the years ended September 30, 2009 and 2008
were determined using a Black-Scholes option pricing model based on the
following weighted average assumptions:





2009
                            
                            2008Expected
      volatility
                            
                            27%
                            
                            25%Risk-free
      interest rate
                            
                            2.80%
                            
                            4.43%Expected
      years of option life
                            
                            1
      to 4.1
                            
                            1
      to 4.1Expected
      dividends
                            
                            0%
                            
                            0%





During
the year ended September 30, 2009, 137,852 shares of common stock were issued as
compensation for services rendered for $37,220. The entire $37,220 was accrued
in the year ended September 30, 2008, with such shares being issued during
fiscal 2009.





Employee
Stock Option Plan





The 2001
Stock Option Plan (“2001 Option Plan”) was approved by the stockholders at the
Annual General Meeting in 2001 and is currently effective.  In 2004, the
stockholders voted to increase the number of shares available under the 2001
Option Plan from 4,000,000 to 5,600,000. Stock options awards are generally
granted with an exercise price equal to the market price of the Company’s stock
on the date of the grant. The option awards vest quarterly over three years and
have a five-year contractual life. The following table summarizes information
about all of the Company’s stock option activity during the fiscal years ended
September 30, 2009 and 2008:





Number of
                                  shares
                                
                                
                                Weighted-average
                                  exercise price ($)Options outstanding at
      September 30, 2007
                                
                                
                                2,743,340
                                
                                
                                
                                1.82Options
      granted (weighted average fair value of $0.11 per share)
                                
                                
                                605,000
                                
                                
                                
                                0.45Options
      cancelled/expired (1)
                                
                                
                                (1,343,896
                                )
                                
                                
                                2.51Options
      exercised
                                
                                
                                —
                                
                                
                                
                                —Options outstanding at
      September 30, 2008(5)
                                
                                
                                2,004,444
                                
                                
                                
                                0.94Options
      granted (weighted average fair value of $0.05 per share)
                                
                                
                                827,500
                                
                                
                                
                                0.20Options
      cancelled/expired (2)
                                
                                
                                (614,064
                                )
                                
                                
                                1.01Options
      exercised (3)
                                
                                
                                (40,380
                                )
                                
                                
                                0.29Options outstanding at
      September 30, 2009(4)(5)
                                
                                
                                2,177,500
                                
                                
                                
                                0.65Options exercisable at
      September 30, 2009(4)
                                
                                
                                1,400,082
                                
                                
                                
                                0.71Options
      available for issuance at September 30, 2009
                                
                                
                                674,802




40





(1)
            During the fiscal year ended
      September 30, 2008, (i) Sheldon Nelson forfeited back to the Company,
      without consideration, 600,000 stock options with an exercise price of
      $3.01 per share and a fair market value of $1.94 per share and of the
      600,000 options, 558,333 were vested and $1,083,167 in noncash expense had
      already been recognized in general and administrative expense since their
      issuance, (ii) Director Carolyn Howard forfeited back to the Company,
      without consideration, 100,000 stock options with an exercise price of
      $1.83 and a fair market value of $1.18 per share and the entire 100,000
      options were vested and the entire fair market value of $118,000 in
      noncash expense had been recognized in general and administrative expense
      since their issuance, (iii) certain other employees collectively forfeited
      back to the Company, without consideration, 300,000 stock options with an
      exercise price of $2.71 per share and a fair market value of $1.74 per
      share; 100,000 stock options with an exercise price of $2.05 per share and
      a fair market value of $0.89; 100,000 stock options with an exercise price
      of $2.01 and a fair market value of $1.29; 50,000 stock options with an
      exercise price of $2.20 and a fair market value of $1.31, of which the
      entire 550,000 options were vested and the entire fair market value of
      $805,500 in noncash expense had been recognized in general and
      administrative expense since their issuance. All stock options were
      returned for general use under the 2001 Stock Option
      Plan.





(2)
            During
      the fiscal year ended September 30, 2009, (i) 340,000 options expired in
      the following increments, 100,000 options with an exercise price of $1.28
      per share, 100,000 options with an exercise price of $0.65 per share,
      40,000 options with an exercise price of $2.05 per share, and 100,000
      options with an exercise price of $2.29 per share, (ii) 153,333 options
      were forfeited as a result of employees leaving the company, 56,667
      options with an exercise price of $0.75, 57,777 options with an exercise
      price of $0.45 and 38,889 unvested options with an exercise price of
      $0.20, and (iii) 120,731 options were surrendered with an exercise price
      of $0.33 as part of a cashless exercise of options. All expired, forfeited
      and surrendered stock options were returned for general use under the 2001
      Stock Option Plan.





(3)
            During
      fiscal year ended September 30, 2009, 11,111 options were exercised with
      an exercise price of $0.20 with proceeds of $2,222 and 29,269 options were
      exercised with an exercise price of $0.33 as part of a cashless exercise
      discussed above.





(4)
            The weighted average remaining
      contractual term of outstanding and exercisable options at September 30,
      2009 was 2.7 and 2.3 years, respectively. The aggregate intrinsic
      value of outstanding and exercisable options at September 30, 2009 was
      $194,375 and $24,010, respectively. An additional charge of approximately
      $53,000 is expected to vest and be recognized subsequent to September 30,
      2009 over a weighted average period of 13 months. The charge will be
      amortized to general and administrative expense as the options vest in
      subsequent periods.





(5)
            Of
      the option grants outstanding as of September 30, 2009 and 2008, 777,418
      and 579,568 options were unvested,
respectively.





Warrants
to Purchase Common Stock





The
following table summarizes all of the Company’s warrant activity during the
years ended September 30, 2009 and 2008:




Number of
                              warrants outstanding
                            
                            
                            Weighted avg. exercise
                              price per share ($)Outstanding
      at September 30, 2007
                            
                            
                            3,969,567
                            
                            
                            
                            2.01Issued   (1)
                            
                            
                            750,000
                            
                            
                            
                            0.60Cancelled/Expired
      (2)
                            
                            
                            (2,819,567
                            )
                            
                            
                            2.79Exercised
                            
                            
                            —
                            
                            
                            
                            —Outstanding
      at September 30, 2008
                            
                            
                            1,900,000
                            
                            
                            
                            0.68Issued
                            
                            
                            —
                            
                            
                            
                            —Cancelled/Expired
      (3)
                            
                            
                            (112,500
                            )
                            
                            
                            0.33Exercised
      (4)
                            
                            
                            (37,500
                            )
                            
                            
                            0.33Outstanding
      at September 30, 2009
                            
                            
                            1,750,000
                            
                            
                            
                            0.71




41










(1)
            In
      connection with the Amended and Restated Loan and Security Agreement
      executed on June 30, 2008, the Company issued to FCC, LLC, d/b/a First
      Capital a five year warrant to purchase 375,000 shares of the Company's
      common stock at an exercise price of $0.60 per share and issued to Full
      Circle Funding, LP a five year warrant to purchase 375,000 shares of the
      Company's common stock at an exercise price of $0.60 per share. The
      warrants had a fair value of $45,000, as determined using the Black-Sholes
      pricing model, which is being amortized as debt discount over the
      remaining term of the Amended and Restated Loan Agreement. The warrants
      are subject to customary registration rights set forth in a Registration
      Rights Agreement that provides for demand registration within one hundred
      and thirty five days and (i) a four (4%) percent share penalty if not
      effective within that time period, and (ii) a two (2%) percent share
      penalty thereafter for each thirty days until effectiveness or one year,
      whichever is earlier. As of September 30, 2009, there has been no
      “demand” for registration pursuant to the Registration Rights
      Agreement.





(2)
            During the year ended September
      30, 2008, 2,819,567 warrants to purchase shares of common stock expired,
      including 2,122,203 warrants at an exercise price of $3.40, 250,000
      warrants at an exercise price of $1.84, and 447,364 warrants at an
      exercise price of $0.40.





(3)
            During the year ended September
      30, 2009, 112,500 warrants to purchase shares of common stock were
      surrendered at an exercise price of $0.33 as part of a cashless exercise
      of warrants.





(4)
            During fiscal year ended
      September 30, 2009, 37,500 warrants were exercised with an exercise price
      of $0.33 as part of a cashless exercise discussed
      above.





During
the year ended September 30, 2008, a warrant agreement for 150,000 warrants was
extended for an additional twelve months for additional consulting services. As
a result, the Company recognized share-based compensation expense for
non-employees, based on grant date fair values, of $13,500.




Employee
Stock Purchase Plan





In 2001,
the Company established, and the stockholders approved, the 2001 Employee Stock
Purchase Plan (the “2001 Purchase Plan”) whereby certain employees
(i) whose customary employment is greater than 20 hours per week,
(ii) are employed for at least six consecutive months, and (iii) do
not own five percent or more of any class of Company stock can participate in
the 2001 Purchase Plan and invest from one percent to fifty percent of their net
pay, through payroll deduction, in Company common stock. In addition,
participating employees can invest from one percent to one hundred percent of
any Company bonus in Company common stock. Employees are limited to a maximum
investment per calendar year of $25,000. Funds derived from the employee
purchase of Company common stock under the 2001 Purchase Plan can be used for
general corporate purposes.





The
maximum number of shares of Company common stock reserved under the 2001
Purchase Plan was originally 2,000,000 shares. In 2004, the stockholders voted
to increase the number of shares available under the 2001 Purchase Plan to
2,800,000 shares. On April 23, 2009, the shareholders approved the 2009 Employee
Stock Purchase Plan (“2009 Purchase Plan”) to replace the 2001 Purchase Plan (in
all material respects identical to the 2001 Purchase Plan) and reserved
1,500,000 shares of common stock. The 2009 Purchase Plan shall terminate on
April 23, 2016 or (i) upon the maximum number of shares being issued, or
(ii) sooner terminated per the discretion of the Board of Directors. The
purchase price per share under the 2009 Purchase Plan is equal to 85% of the
fair market value of a share of Company common stock at the beginning of the
purchase period or on the exercise date (the last day in a purchase period)
whichever is lower.




During
the year ended September 30, 2009, the Company issued to
employees under the 2001 and 2009 Purchase Plans through payroll deductions, (i)
91,330 shares for $55,994 which was paid by the employees through the offset of
the amount they owed for the shares against an equivalent amount the Company
owed them for accrued salaries, and (ii) 762,708 shares for $132,600 which was
paid by the employees through the offset of the amount they owed for the shares
against an equivalent amount the Company owed them for accrued employee bonuses.
Of the 762,708 shares issued for bonuses, 612,378 shares for $104,531 had been
accrued in the year ended in September 30, 2008, but were not issued until
fiscal 2009.





During
the year ended September 30, 2008, the Company issued to
employees under the 2001 Purchase Plan through payroll deductions, (i) 69,134
shares for $46,389 which was paid by the employees through the offset of the
amount they owed for the shares against an equivalent amount the Company owed
them for accrued salaries, and (ii) 232,969 shares for $82,684 which was paid by
the employees through the offset of the amount they owed for the shares against
an equivalent amount the Company owed them for accrued employee bonuses. Of the
232,969 shares issued for bonuses, 120,694 shares for $43,327 had been accrued
in the year ended in September 30, 2007, but were not issued until fiscal
2008.


42





Restricted
Stock





During
the year ended September 30, 2009, members of the Board of Directors were
granted shares of restricted common stock as part of their approved compensation
for Board service for fiscal 2009 and into fiscal 2010. As a result, 120,000
shares of restricted stock were issued with a fair value of $48,000 based on
the quoted market price at the grant date to be recognized during the
next twelve months and, as a result of the issuance, the Company recognized
compensation expense of $20,000 for the year ended September 30,
2009.





During
the year ended September 30, 2009, the Company issued 30,000 shares of
restricted common stock to an executive. As a result, the Company recognized
$11,400 as compensation expense based on the quoted market price at the
grant date.





During
the year ended September 30, 2009, the Company issued 272,073 shares of
restricted common stock to employees for $46,253 which was paid by the employees
through the offset of the amount they owed for the shares against an equivalent
amount the Company owed them for accrued employee bonuses.  As a
result, the Company recognized $46,253 as compensation expense based on
the quoted market price at the grant date.  The entire 272,073
shares of restricted common stock for $46,253 had been accrued in the year ended
in September 30, 2008, but were not issued until fiscal 2009.





Members
of the Board of Directors were previously granted shares of restricted common
stock as part of their approved compensation for Board service for fiscal 2008
and into fiscal 2009. As a result, 98,335 shares of restricted stock were issued
during the year ended September 30, 2008 with a fair value of $38,734 based on
the quoted market price at the grant date to be recognized during the
next twelve months and, as a result of the issuance, the Company recognized
compensation expense of $20,130 for the year ended September 30,
2009.





During
the year ended September 30, 2008, the Company issued 30,000 shares of
restricted common stock to an executive. As a result, the Company recognized
$11,100 for an employee bonus based on the quoted market price at the grant
date.  Additionally, the Company issued 18,037 shares of restricted
common stock for $14,430 for an employee bonus to the same executive that had
been accrued in the year ended in September 30, 2007, but was not issued until
fiscal 2008.





Three
members of our Board of Directors were each granted 20,000 shares of restricted
common stock as part of their approved compensation for Board service during
fiscal 2007 and into fiscal 2008. As a result, 60,000 shares of restricted
common stock were issued during the year ended September 30, 2007 with a
fair value of $54,000 based on the quoted market price at the
grant date to be recognized during the next twelve months and the Company
recognized compensation expense of $40,500 for the year ended September 30,
2008.





Treasury
Stock





On
December 19, 2008, the Board of Directors approved a common stock repurchase
plan authorizing the Company to repurchase shares of its common stock, from
time-to-time over a twelve month period (subject to securities laws and other
legal requirements), in open market transactions, up to an aggregate value of
$1,000,000. This authorization does not obligate the Company to acquire any
common stock, or any particular amount of common stock, or at any particular
price. The specific timing and amount of the repurchase(s) will vary based on
market conditions and other factors. The stock repurchase plan may be suspended,
modified, extended or terminated by the Board of Directors at any
time.  During the year ended September 30, 2009, the Company
repurchased 174,423 shares of common stock at an aggregate cost of
$68,324.





6.
            COMMITMENTS AND
      CONTINGENCIES





Litigation





From time
to time, the Company may be subject to legal proceedings, which could have a
material adverse effect on its business. As of September 30, 2009 and through
the date of this filing, the Company does have litigation in the normal course
of business and it does not expect the outcome to have a material effect on the
Company.


43





Contracts





The
Company had previously entered into an open ended management agreement with a
senior executive that provides for annual compensation, excluding bonuses, of
$275,000. The Company can terminate this agreement at any time upon reasonable
notice and the payment of an amount equal to 24 months of salary. In the event
of a change in control of the Company, either party may, during a period of 12
months from the date of the change of control, terminate the agreement upon
reasonable notice and the payment by the Company of an amount equal to 36 months
of salary.





Operating
Leases





The
Company is obligated under non-cancelable operating leases for its various
facilities that expire through the year ending September 30, 2013 to make future
minimum rental payments in each of the years subsequent to September 30, 2009 as
summarized in the following table:





Year ending September 30,
                        
                        Minimal Rental
                          Payments2010
                        
                        $
                        316,6512011
                        
                        
                        137,3852012
                        
                        
                        80,9262013
                        
                        
                        7,448Total
      minimum payments
                        
                        $
                        542,410





Rent
expense under all operating leases amounted to $439,842 and $375,408,
respectively, for the years ended September 30, 2009 and 2008.





7.
            STRATEGIC ALLIANCE WITH
      DIRECTV





On June
1, 2007, the Company signed a new System Operator Agreement with DIRECTV (the
“DIRECTV Agreement"), which replaced an agreement dated September 29, 2003. The
DIRECTV Agreement has an initial term of three years with two, two-year
automatic renewal periods upon our achievement of certain subscriber growth
goals, with an automatic extension of the entire DIRECTV Agreement to coincide
with the expiration date of the Company’s latest property access agreement.
Under the DIRECTV Agreement the Company receives monthly residual fees from
DIRECTV based upon the programming revenue DIRECTV receives from subscribers
within the Company's multi-dwelling unit properties. The Company also receives
an “Individual Subscriber PPC” (prepaid programming commission, also known as an
“activation fee”) for every new subscriber that activates a DIRECTV
commissionable programming package. The Individual Subscriber PPC is paid on a
gross activation basis in choice and exclusive properties and on a one-time
basis in our bulk properties. The payment of the Individual Subscriber PPC
requires an annual commitment for the individual services and is subject to a
“charge back” if a subscriber disconnects within the annual commitment. The
revenue from the Individual Subscriber PPC is recognized over one year
in conjunction with the annual commitment. The DIRECTV Agreement also
provides for an “Analog Commission” to the Company for the addition of a new
Bulk Choice Advantage (“BCA”) subscriber. The Analog Commission is not subject
to an annual commitment from a subscriber and there is no proportional “charge
back” by DIRECTV if a subscriber disconnects at any time. Due to the fact that
no portion of the Analog Commission is subject to the annual commitment or
charge back provision, the Analog Commission is recognizable immediately upon
the approval and acceptance of the subscriber by DIRECTV. Additionally, the
Company and DIRECTV have agreed to terms allowing DIRECTV a "first option" to
bid on subscribers at fair market value that the Company may wish to
sell.





On
December 14, 2007, the Company signed a letter agreement with DIRECTV that
allowed the Company to receive an upgrade subsidy when it completes a high
definition system upgrade on certain of its properties. The Company is required
to submit an invoice for this subsidy to DIRECTV within thirty days after the
upgrade of the property and subscribers is complete. This subsidy is treated as
revenue, similar to the “activation fee” referenced above, except that the
entire amount of the subsidy is recognized immediately. On August 15, 2008, the
Company signed a subsequent letter agreement with DIRECTV that allowed the
Company to continue to receive from DIRECTV this upgrade subsidy, under similar
terms, through July 2009. This letter agreement originally provided for a
minimum retention period of three years with a refund of the subsidy from
properties that terminate DIRECTV service before expiration of the three year
period.  Subsequently, the three year requirement was waived by
DIRECTV for all properties.


44





8.
            GAIN/LOSS ON SALE OF CUSTOMERS
      AND RELATED PROPERTY AND
EQUIPMENT





On July
17, 2009, the Company disposed of assets to a property at the end of its access
agreement for proceeds of $75,000. The total gain on the disposal was
$55,200.





On April
30, 2009, the Company disposed of assets to a property at the end of its access
agreement for proceeds of $15,000. The total gain on the disposal was
$10,634.





On
December 17, 2008, the Company sold subscribers and certain related property and
equipment to CSC Holdings, Inc. for $3,061,500. The total gain on the sale was
$2,656,337.





On
November 5, 2008, the Company sold subscribers and certain related property and
equipment to CSC Holdings, Inc. for $2,704,500. The total gain on the sale was
$2,382,502.





On
September 30, 2008, the Company sold subscribers and certain related property
and equipment to CSC Holdings, Inc. for $2,529,000. The total gain on the sale
was $1,860,593.





9.
            ACQUISITIONS OF SUBSCRIBERS AND
      EQUIPMENT





During
the year ended September 30, 2009, the Company acquired assets in 44
properties containing 10,705 units in the amount of $1,296,479, representing
inventory, fixed assets and intangible assets, inclusive of access
agreements.





During
the year ended September 30, 2008, the Company concluded the third closing of
assets from Multiband Corporation, whereby the Company acquired access
agreements and incurred transfer fees, collectively, in the amount of $280,301,
representing intangible assets.  Additionally, the acquisition price
from a Multiband closing concluded in fiscal 2007 was adjusted downward by
$24,820 (of which $13,120 were intangibles) for assets that were unable to be
transferred as per the initial asset purchase agreement.





The
acquisition costs of all acquired access agreements and equipment for the years
ended September 30, 2009 and 2008 were allocated to the fair value of the assets
acquired, as set forth below:





September 30,2009
                        
                        
                        2008Property
      and equipment
                        
                        $
                        438,791
                        
                        
                        $
                        56,216Inventory
                        
                        
                        43,735
                        
                        
                        
                        —Amortizable
      intangible assets
                        
                        
                        813,953
                        
                        
                        
                        267,181Total
      acquisition cost of all acquired access agreements and
      equipment
                        
                        $
                        1,296,479
                        
                        
                        $
                        323,397





10.
            PROPERTY AND
      EQUIPMENT





The
components of property and equipment are set forth below:




September 30,2009
                            
                            
                            2008Telecommunications
      equipment, installed
                            
                            $
                            42,443,115
                            
                            
                            $
                            37,317,427Computer
      equipment
                            
                            
                            1,264,386
                            
                            
                            
                            1,218,163Furniture
      and fixtures
                            
                            
                            257,548
                            
                            
                            
                            254,089Leasehold
      improvements
                            
                            
                            178,169
                            
                            
                            
                            172,482Other
                            
                            
                            67,930
                            
                            
                            
                            59,43044,211,148
                            
                            
                            
                            39,021,591Less:
      Accumulated depreciation
                            
                            
                            (22,071,379
                            )
                            
                            
                            (17,283,584
                            )Totals
                            
                            $
                            22,139,769
                            
                            
                            $
                            21,738,007


45





Depreciation
expense amounted to $5,690,670 and $5,304,496 for the years ended
September 30, 2009 and 2008, respectively.





11.
            INTANGIBLE
      ASSETS





The
components of intangible assets are set forth below:




September 30,2009
                                            
                                            2008Property
      access agreements, including subscriber lists
                                            
                                            $
                                            9,083,886
                                            
                                            
                                            $
                                            8,326,913Less:
      Accumulated amortization
                                            
                                            
                                            (6,445,203
                                            )
                                            
                                            
                                            (5,338,356
                                            )Totals
                                            
                                            $
                                            2,638,683
                                            
                                            
                                            $
                                            2,988,557





Amortization
expense amounted to $1,159,808 and $ 1,274,346 for the years ended
September 30, 2009 and 2008, respectively. Amortization of intangibles in
the years subsequent to September 30, 2009 is as follows:





Year
                            
                            Amortization
                              Amount2010
                            
                            $
                            883,9062011
                            
                            
                            821,7642012
                            
                            
                            602,2412013
                            
                            
                            196,0432014
                            
                            
                            134,729Total
                            
                            $
                            2,638,683





12.
            OTHER ACCRUED
      LIABILITIES




Other
accrued liabilities consist of the following:





September 30,2009
                        
                        
                        2008Accrued
      costs and expenses:Equipment
                        
                        $
                        9,525
                        
                        
                        $
                        4,213Employee
      stock purchases and employee compensation payable in common
      stock
                        
                        
                        188,148
                        
                        
                        
                        212,453Subcontractors
      maintenance and installation
                        
                        
                        31,403
                        
                        
                        
                        52,367Programming
      cost
                        
                        
                        3,558
                        
                        
                        
                        8,872Professional
      fees
                        
                        
                        240,702
                        
                        
                        
                        167,277Wages
                        
                        
                        592,928
                        
                        
                        
                        784,392Acquisition
      balance due, payable in cash
                        
                        
                        531,257
                        
                        
                        
                        —Other
                        
                        
                        120,649
                        
                        
                        
                        57,517Totals
                        
                        $
                        1,718,170
                        
                        
                        $
                        1,287,091





13.
            INCOME
    TAXES





The
Company had pre-tax losses but did not record any benefits for Federal or other
income taxes for the years ended September 30, 2009 and 2008. The Company
did not record Federal income tax benefits at the statutory rate of 34% and
state income tax benefits because (i) it has incurred losses in each period
since its inception, and (ii) although such losses, among other things,
have generated future potential income tax benefits, there is significant
uncertainty as to whether the Company will be able to generate income in the
future to enable it to realize any of those benefits and, accordingly, it has
had to take valuation reserves against those potential benefits as shown
below.


46





As of
September 30, 2009 and 2008, the Company had net deferred tax assets, which
generate potential future income tax benefits that consisted of the effects of
temporary differences attributable to the following:





2009
                          
                          
                          2008Deferred
      tax assets:Benefits
      from net operating loss carry forwards:Federal
      and State
                          
                          $
                          17,363,000
                          
                          
                          $
                          16,953,000Canada
                          
                          
                          279,000
                          
                          
                          
                          3,377,000Tax
      benefit for nonqualified stock options
                          
                          
                          11,000
                          
                          
                          
                          11,000Other
                          
                          
                          252,000
                          
                          
                          
                          163,000Totals
                          
                          
                          17,905,000
                          
                          
                          
                          20,504,000Deferred
      tax liabilities—depreciation and amortization of property and equipment
      and intangible assets
                          
                          
                          (2,841,000
                          )
                          
                          
                          (2,426,000
                          )Net
      deferred tax assets
                          
                          
                          15,064,000
                          
                          
                          
                          18,078,000Less
      valuation allowance
                          
                          
                          (15,064,000
                          )
                          
                          
                          (18,078,000
                          )Totals
                          
                          $
                          —
                          
                          
                          $
                          —





At
September 30, 2009 and 2008, the Company had net operating loss carry
forwards of approximately $43,408,000 and $42,381,000, respectively, available
to reduce future Federal and state taxable income and net operating loss carry
forwards of approximately $612,000 and $7,423,000, respectively, available to
reduce future Canadian taxable income. As of September 30, 2009, the
Federal tax loss carry forwards will expire from 2010 through 2029 and the
Canadian tax loss carry forwards will expire from 2010 through 2016. However,
the Company terminated substantially all of its Canadian operations in the year
ended September 30, 2002.





Income Taxes –
Uncertainty.  Effective October 1, 2007, the Company adopted
the requirements in Accounting for Uncertainty in Income Taxes recognized in an
enterprise’s financial statements which prescribe a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The Company
maintains a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefits as the largest amount that has a greater than 50% likelihood of
being realized upon effective settlement. The standards also provides guidance
on de-recognition, classification, interest and penalties, and other matters.
Interest and penalties, if any, would be included in the income tax provision.
The adoption did not have a material effect on the financial
statements.  The tax years 2006 through 2008 remain open to
examination by the major taxing jurisdictions to which the Company is
subject.





14.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The fair
value of the Company’s cash and cash equivalents, accounts and other
receivables, accounts payable and other accrued liabilities for the year
ended September 30, 2009 are estimated to approximate their carrying values due
to the relative liquidity of these instruments. The Credit Facility carrying
value for the year ended September 30, 2009 approximates fair value based on
other rates and terms available for comparable companies in the marketplace for
similar debt.





15.
            RELATED PARTY
      TRANSACTIONS





On
October 15, 2006, the Company entered into a consulting agreement with Howard
Interests for business advisory services, the principal of which is the spouse
of Board member Carolyn Howard. The consulting agreement is a month to month
agreement with a monthly payment required initially of $5,000, which increased
to $7,500 as of April 2008, and then decreased to $3,500 per month as of July
2009.  During the year ended September 30, 2009, the Company paid
Howard Interests $85,500.


47





16.
            SUBSEQUENT
      EVENTS





The
Company evaluated subsequent events through December 29, 2009, the date of
financial statement issuance.





On
December 2, 2009, the Company executed an agreement with AT&T Video
Services, Inc. to acquire up to 20,000 of its DIRECTV and private cable
subscribers, the associated access agreements and the related video equipment
assets located in 213 multi-family properties.  No assets have yet
been transferred.





On
December 16, 2009, the Company received a letter agreement from DIRECTV agreeing
to provide the Company an upgrade subsidy when it completes an HD system upgrade
in certain of the above-mentioned AT&T Video Services properties when
acquired, similar to the upgrade subsidy letter agreements with DIRECTV
previously disclosed and dated December 14, 2007 and August 15,
2008.





On
December 28, 2009, a majority of the Board of Directors approved the granting of
120,000 shares of common stock from the 2009 Employee Stock Purchase Plan to
mid-level employees as a year end bonus.  The shares of common stock
have not yet been issued.





On
December 28, 2009, a majority of the Board of Directors approved the granting of
628,500 options from the 2001 Stock Option Plan to 23 employees, all at an
exercise price of $0.40 per share.





Item 9.
            Changes in and Disagreements with
      Accountants on Accounting and Financial
  Disclosure





None.





Item 9A(T).
            Controls and
      Procedures




Evaluation
of disclosure controls and procedures





We
maintain "disclosure controls and procedures," as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange
Act"), that are designed to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer, who is also our Chief Financial Officer, or our Vice President of
Finance and Administration, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures,
management recognized that disclosure controls and procedures, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met.
Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures. The design of any
disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.





As of
September 30, 2009 (the end of the period covered by this Report), we carried
out an evaluation, under the supervision and with the participation of our Chief
Executive Officer, who is also our Chief Financial Officer, and our Vice
President of Finance and Administration of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rule
13a-15(e). Based on this evaluation, our Chief Executive Officer and our Vice
President of Finance and Administration concluded that our disclosure controls
and procedures were effective in ensuring that information required to be
disclosed by us in our periodic reports is recorded, processed, summarized and
reported, within the time periods specified for each report and that such
information is accumulated and communicated to our management, including our
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.


48





Management’s
Annual Report on internal controls over financial reporting





Management
is responsible for establishing and maintaining an adequate system of internal
controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act. Internal controls over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with
GAAP.





Our
internal controls over financial reporting includes those policies and
procedures that:





•
            pertain to the maintenance of
      records that in reasonable detail accurately and fairly reflect our
      transactions and dispositions of our
  assets;


•
            provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with GAAP, and that receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and


•
            provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use
      or disposition of our assets that could have a material effect on the
      financial statements.





Management
has conducted, with the participation of our Chief Executive Officer, who is
also our Chief Financial Officer, and our Vice President of Finance and
Administration, an assessment, including testing of the effectiveness of our
internal controls over financial reporting as of September 30, 2009.
Management’s assessment of internal controls over financial reporting was based
on the framework in Internal
Control over Financial Reporting – Guidance for Smaller Public Companiesissued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that our system of
internal controls over financial reporting was effective as of September 30,
2009.





This
annual report does not include an attestation report of our registered
independent public accounting firm regarding internal controls over financial
reporting. Management’s report was not subject to attestation by the Company’s
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report on Form 10-K.





Changes
in internal controls over financial reporting





There
were no changes in our internal controls over financial reporting during the
period ended September 30, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial
reporting.





Item 9B.
            Other
      Information





None.





PART
III




Item 10.
            Directors, Executive Officers and
      Corporate Governance





The
following table and the narrative below sets forth the information concerning
the Company’s directors and officers for the fiscal year ended September 30,
2009:





Directors and Executive
      Officers
                      
                      Age
                      
                      Position(s)Sheldon
      Nelson
                      
                      48
                      
                      President,
      Chief Executive Officer, Chief Financial Officer and
    DirectorJ.E.
      “Ted”  Boyle
                      
                      62
                      
                      Director,
      Chairman of the BoardCarolyn
      Howard
                      
                      45
                      
                      DirectorRichard
      Newman
                      
                      57
                      
                      DirectorJames
      Wiberg
                      
                      51
                      
                      DirectorPatrick
      Cunningham
                      
                      41
                      
                      Vice
      President, Sales and MarketingBrad
      Holmstrom
                      
                      44
                      
                      General
      Counsel and Corporate SecretaryCarmen
      Ragusa, Jr.
                      
                      61
                      
                      Vice
      President, Finance and AdministrationMichael
      Stanway
                      
                      45
                      
                      Vice
      President, Acquisitions and TechnologyJoe
      Nassau
                      
                      53
                      
                      Vice
      President,
Operations


49





Sheldon B. Nelson, 48, has
served as Chief Executive Officer of the Company and a member of the Board of
Directors, including a term as Chairman, since November 1998. From 1983 to
1998 he was President of 4-12 Electronics Corporation, a provider of products
and services to the Canadian satellite, cable, broadcasting and SMATV
industries. In addition to his day-to-day responsibilities during his tenure at
4-12 Electronics, Mr. Nelson developed that company into one of Canada’s
largest private cable system operators. Mr. Nelson is a 1983 graduate of
Gonzaga University in Spokane, Washington where he graduated from the School of
Business Administration, Magna cum Laude, and was the recipient of the School of
Business Administrations’ Award of Excellence.





John Edward "Ted" Boyle, 62,
joined the Board of Directors in May of 2000. He is currently the President of
G2W Solutions Inc. (GWIR:OTCBB), a satellite network service provider to the
horse race and gaming industry. In 2006 and 2007, Mr. Boyle oversaw the launch
of cable VoIP telephony at Cable Bahamas in Nassau. From 2002 until 2006 he
worked for 180 Connect Inc., North America's largest cable and satellite
installation and service contractor, and was the president of their $50M per
annum cable division.  From 1998 to 2001 he was the President and CEO
of Multivision (Pvt.) Ltd., the MMDS wireless cable television provider for Sri
Lanka. From 1996 -1997 Mr. Boyle was the President and CEO of PowerTel TV,
a Toronto based digital wireless cable company. As founding President and CEO of
ExpressVu Inc. (1994 -1996), Mr. Boyle was responsible for taking Canada's first
Direct-to-Home satellite service from inception to launch. Prior to 1994, Mr.
Boyle held executive positions with Tee-Comm Electronics, Regional Cablesystems
and Canadian Satellite Communications (Cancom). As the founding officer of
Regional Cablesystems at Cancom, and later as Vice-President of Market
Development at Regional, he led the licensing and construction, or acquisition,
of over 1000 Canadian and American cable systems. In addition to MDU
Communications, he currently sits on the Board of Asian Television Network
(SAT-TSX-V).





CarolynHoward,45, joined the Board
of Directors in July 2005. She has been employed by Howard Interests since 1987,
a venture capital firm, of which she is a co-founder and manager. Prior to that,
Ms. Howard owned and managed a personnel and staffing firm and held a position
in banking with a focus on Fannie Mae/Freddie Mac lending. Additionally, she has
held positions with securities firms trading and covering institutional
accounts. In 1992 through 1997, she acted as CEO and COO of one of New
Hampshire’s largest food service and bottled water companies. In 1997, she sold
the company to Vermont Pure Springs, Inc., a publicly traded company. Ms. Howard
also sits on the Board and chairs the Audit Committee of Video Display
Corporation, (VIDE) a publicly traded company. In February 2005, she was named
Treasurer to the Jaffrey Gilmore Foundation, a New Hampshire non-profit
organization for the arts.





Richard Newman,57, joined the
Board of Directors in December 2007 and resides in New York City.  He
is currently a Managing Director for Andlinger and Company, a private equity
firm mainly focused on business services, manufacturing and clean technology
investment opportunities.  Prior to joining Andlinger, Mr. Newman was
a Managing Director at East Wind Advisors, a boutique investment banking firm
and a partner at Hart Capital, a private equity firm.  In addition to
his most recent private equity experience noted above, Mr. Newman has 20 years
of experience in various financial advisory and operating roles.  He
holds an MBA from the Stanford University Graduate School of Business, a Master
of Arts from the Stanford University School of Education and a Bachelor of Arts
degree from Brown University.





James Wiberg, 51, joined the
Board of Directors in May of 2009.  He has been appointed for a
two-year term subject to stockholder election at the Company’s next Annual
General Meeting. Mr. Wiberg is currently Vice President and Director of
Investments for International Investors Group, Inc. (“IIG”), a Wyoming
corporation, headquartered in Florida, that invests its own capital directly,
and with other qualified accredited investors through private invitation, in
small and emerging companies with exceptional growth prospects.  Mr. Wiberg
is also an officer and director of Florida incorporated DED Enterprises, Inc.
(“DED”), which along with IIG are wholly-owned subsidiaries of Carpathian
Holding Company, Ltd. (“CHC”), of which Mr. Wiberg is also a
director.  Additionally, Mr. Wiberg is an executive director of
Australian domiciled Carpathian Resources Ltd. (“CPN”), which trades under the
symbol CPN on the Australian Securities Exchange. CHC is a wholly-owned
subsidiary of CPN. Mr. Wiberg also sits on the Board of Directors of Pro Fit
Optix, Inc., a Dallas-based wholesale optical distributor in which CHC has a
controlling interest.  Mr. Wiberg has a 30-year history providing
accounting, management, advisory and financing services to the commercial and
multi-family residential real estate industries in the United
States.  Prior to joining IIG, DED, CHC and CPN, he was Founder and
President of Triode Realty Advisory Corp., which he formed in 1998. Mr. Wiberg
holds a Bachelor of Science, Accounting degree from Florida State
University.


50


Patrick Cunningham, Vice President of
Sales and Marketing. Mr. Cunningham, 41, has been a Vice President with
the Company since 2000.  He has over fifteen years of management experience
focused on the telecommunications industry. Mr. Cunningham was formerly the Vice
President of Distribution and Sales for SkyView World Media. At SkyView, he was
responsible for the distribution, sales, marketing and technical service of the
SkyView products. SkyView was one of the leading private providers of television
services to the MDU and ethnic communities with over 100,000 subscribers
nationwide. SkyView was the largest Master Systems Operator for DIRECTV and a
leading producer and distributor of foreign language television programming.
Prior to SkyView, and after some time as a maintenance manager with Schnieder
National, Inc., Mr. Cunningham was an Officer in the U.S. Army where he served
as a Battalion Communications Officer and an M1A1 Tank Platoon Leader. Mr.
Cunningham has a Bachelor of Science from Union College in Schenectady, NY where
he majored in Industrial Economics.




Brad Holmstrom,
General Counsel and Corporate Secretary.Mr. Holmstrom, 44, has been with
the Company since 2000 serving as the Company’s legal counsel. Prior to joining
the Company, Mr. Holmstrom was partner in the Kansas City, Missouri office of
the law firm Shughart Thomson & Kilroy, PC.





Carmen Ragusa, Jr., Vice President of
Finance and Administration.Mr. Ragusa, 61, has been with the Company
since 2004. He is a CPA, holds an MBA and brought to the Company over
twenty-five years of experience in both the public and private sectors of the
manufacturing and construction industry, with the last ten years in a senior
financial capacities of Vice President of Finance and Chief Financial Officer in
privately held corporations with $40 to $50 million in recurring annual revenue.
Mr. Ragusa has experience not only in the management of all aspects of
accounting and finance departments, but has made significant contributions in
the areas of business development, financial stability and has assisted in the
implementation of operational strategies that support business development and
financial objectives.





Michael Stanway, Vice President of
Acquisition and Technology.Mr. Stanway, 45, joined the Company in 2000
as Manager and then Director of MIS/IT Services. Mr. Stanway then assumed the
position of Director and thereafter Vice President of Operations prior to
becoming Vice President of Acquisitions and Technology. Mr. Stanway has a
post-secondary degree as a Network Specialist with Microsoft and Novell
certifications.





Joe Nassau, Vice President of
Operations.  Mr. Nassau, 53, has been with the Company since June
2005 and is responsible for leading and managing the Company’s Call Center
(sales, customer support and tech support), Subscriber Lifecycle Process
Management, Subscriber Operational Support Systems, Training, Dispatch, and Back
Office operations.  He brings over twenty years of experience in the pay
television and broadband industries in a variety of functional and operational
management roles.  In particular, he led and managed the integration,
growth and operation of HBO’s satellite television call center and back office
operations in Chicago that supported sales and service for over 1 million
subscribers.  He also held key leadership roles in the successful planning,
launch, and deployment of Galaxy Latin America’s DIRECTV services in Latin
America, as well as the highly successful launch of EarthLink’s High-Speed
Internet Service throughout Time Warner Cable’s network nationwide.  Mr.
Nassau holds a BA in Communications from Fordham University and an MBA in
Decision and Information Sciences from the University of Florida.  He also
served as an Infantry Officer in the Unites States Army.





Code of Ethics.The Company
has adopted a Code of Ethics that applies to all upper management, officers and
directors of the Company. A copy of the Company’s Code of Ethics is posted on
the Company’s website.





Board of Directors Meetings and
Committees.  All directors are expected to attend the Company’s
Annual Meeting of Stockholders and to attend 75% of all regular Board and
committee meetings. All of the then-current Board members attended the 2009
Annual Meeting of Stockholders. During the fiscal year ended September 30,
2009, there were four regularly scheduled meetings and three additional
conference calls of the Board of Directors. Each director attended at least 75%
of the total number of meetings of the Board of Directors and committees on
which the director served. The Board of Directors has three standing committees;
the Audit Committee, the Compensation Committee, and the Corporate Governance
and Nominating Committee.




Audit Committee.   The Board of Directors has adopted a charter governing
the duties and responsibilities of the Audit Committee. The principal functions
of the Audit Committee include:


51





•
            
            overseeing
      the integrity of the Company’s financial statements and compliance with
      related legal and regulatory
requirements;




•
            
            monitoring
      the adequacy of the Company’s accounting and financial reporting, and its
      internal controls, procedures and processes for financial reporting;
      and




•
            
            overseeing
      the Company’s relationship with its independent auditors, including
      appointing, evaluating, and reviewing the compensation of the independent
      auditors.




Current
members of the Audit Committee include Mr. Newman (Chair) and Ms. Howard.
Ms. Howard qualifies as an "audit committee financial expert" as defined by the
Securities and Exchange Commission (“SEC”). All members of the Audit Committee
are “independent” as defined by Rule 4200 of the National Association of
Securities Dealers (“NASD”). Each member is an “outside director” as defined in
Section 162(m) of the Internal Revenue Code and a “non-employee director”
as defined in Rule 16b-3 under the Securities Exchange Act of 1934. The Audit
Committee met four times during the fiscal year ended September 30, 2009
for approval and filing of the Company's reports and other matters.





Compensation Committee.  The Board
of Directors has adopted a charter governing the duties and responsibilities of
the Compensation Committee. The principal functions of the Compensation
Committee include:




•
            
            reviewing
      and making recommendations to the Board of Directors regarding all forms
      of salary, bonus and stock compensation provided to executive
      officers;




•
            
            the
      long-term strategy for employee compensation, including the types of stock
      and other compensation plans to be used by the Company;
  and




•
            
            overseeing
      the overall administration of the Company’s equity-based compensation and
      stock option plans.




Current
members of the Compensation Committee include Mr. Boyle (Chair) and Mr. Newman.
All members of the Compensation Committee are "independent” as defined by
Rule 4200 of the NASD. Each member is an “outside director” as defined in
Section 162(m) of the Internal Revenue Code and a “non-employee director”
as defined in Rule 16b-3 under the Securities Exchange Act of 1934. In addition,
there are no Compensation Committee interlocks between the Company and other
entities involving the Company's executive officers and directors who serve as
executive officers of such entities. None of the Company’s executive officers
have served as members of a compensation committee or as a director of any other
entity that has an executive officer serving on the Compensation Committee of
our Board of Directors or as a member of our Board of Directors. The
Compensation Committee met twice during fiscal 2009.




Corporate Governance and Nominating
Committee.The
Board of Directors has adopted a charter governing the duties and
responsibilities of the Corporate Governance and Nominating Committee. The
Corporate Governance and Nominating Committee insures that the Company has the
best management processes in place to run the Company legally, ethically and
successfully in order to increase stockholder value. The principal functions of
the Corporate Governance and Nominating Committee are:




•
            
            assisting
      the Board of Directors in identifying, evaluating, and nominating
      candidates to serve as members of the Board of Directors and as a
      qualified Audit Committee financial
expert;




•
            
            recommending
      to the Board of Directors any director nominees for the next annual
      meeting of stockholders;




•
            
            reviewing
      and making recommendations to the Board of Directors regarding the
      composition of the Board, the operations of the Board, and the continuing
      qualifications of incumbent directors, including any changes to a
      director's primary activity;




•
              
              reviewing
      annually and making recommendations to the Board as to whether each
      non-management director is independent and otherwise qualified in
      accordance with applicable law or regulation; and•
              
              reviewing
      and making recommendations to the Board of Directors regarding corporate
      governance policies and ethical
conduct.





The
Corporate Governance and Nominating Committee identifies potential director
nominees based upon recommendations by directors, management, or stockholders,
and then evaluates the candidates based upon various factors, including, but not
limited to:




52





•
            
            a
      reputation for honesty and integrity and a willingness and ability to
      spend the necessary time to function effectively as a
      director;




•
            
            an
      understanding of business and financial affairs and the complexities of
      business organizations;




•
            
            a
      general understanding of the Company’s specific business and
      industry;




•
            
            strategic
      thinking and willingness to share ideas, network of contacts, and
      diversity of experience; and




•
            
            a
      proven record of competence and accomplishments through leadership in
      industry, education, the professions or
  government.




The
Corporate Governance and Nominating Committee considers these and other criteria
to evaluate potential nominees and does not evaluate proposed nominees
differently depending upon who has made the proposal. To date, the Company has
not paid any third-party fees to assist in this process.




The
Corporate Governance and Nominating Committee will consider and make
recommendations to the Board of Directors regarding any stockholder
recommendations for candidates to serve on the Board of Directors. However, it
has not adopted a formal process for that consideration because it believes that
the informal consideration process has been adequate given the historical
absence of those proposals. If a stockholder wishes to suggest a candidate
for director consideration, the stockholder should send the name of the
recommended candidate, together with pertinent biographical information, a
document indicating the candidate’s willingness to serve if elected, and
evidence of the nominating stockholder’s ownership of Company stock, to the
attention of the Corporate Secretary, 60-D Commerce Way, Totowa, NJ 07512 at
least six months prior to the 2010 Annual Meeting of Stockholders to ensure time
for meaningful consideration. To date, the Company has not had any candidates
submitted by any stockholders for the upcoming Annual Meeting.




Current
members of the Corporate Governance and Nominating Committee are Ms. Howard
(Chair), Mr. Boyle and Mr. Nelson. All members of the Corporate
Governance and Nominating Committee, except Mr. Nelson, are "independent” as
defined by Rule 4200 of the NASD. Additionally, each member is an “outside
director” as defined in Section 162(m) of the Internal Revenue Code and a
“non-employee director” as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, both with the exception of Mr. Nelson. The Corporate Governance and
Nominating Committee met twice during fiscal 2009.




Compensation of Directors. Each director who is
not an employee or full time consultant of the Company receives compensation of
$1,500 per month and an attendance fee of $2,000 per in-person meeting, plus
out-of-pocket expenses for each Board or committee meeting attended. The
Chairman of the Board and the financial expert on the Company’s Audit Committee
each receive an additional $5,000 per year. The Chairperson of the Audit
Committee receives an additional $4,000 per year and the Chairpersons of the
Compensation and Corporate Governance and Nominating Committees each receive an
additional $2,000 per year in compensation.





Directors
may also receive grants of stock options as part of their compensation package.
Mr. Boyle was previously granted a five-year option to purchase 100,000 shares
of common stock as compensation for two years of Board service. These options
were at an exercise price of $0.33 per share and have been exercised.  In
2004, Mr. Boyle received an additional five-year option to purchase 100,000
shares of common stock as compensation for two additional years of Board
service. These options were at an exercise price of $1.28 per share and have
expired without exercise.  In 2005, Ms. Howard was granted a five-year
option to purchase 100,000 shares of common stock as compensation for two years
of Board service. These options were at an exercise price of $1.83 per share.
Ms. Howard returned these options to the Company for no consideration in 2008
without exercise.





Directors
may also receive grants of restricted stock as additional compensation. Mr. Boyle was granted
40,000 shares of restricted common stock for his service from May 2005 through
May 2007. Mr. Boyle and Ms. Howard were each granted 20,000 shares of restricted
common stock for their service from May 2007 through May 2008. Mr. Newman was
granted 20,000 shares of restricted common stock for his service from December
2007 through December 2008. On May 28, 2008, Mr. Boyle and Ms. Howard were
granted 30,000 shares of restricted common stock for their service from May 2008
through May 2009 and Mr. Newman was granted 18,335 shares of restricted common
stock for his service from December 2008 through May 2009. In June of 2009, Mr.
Boyle, Ms. Howard, Mr. Newman and Mr. Wiberg were each granted 30,000 shares of
restricted common stock for their service from May 2009 through May
2010.


53


The table
below sets forth, for each non-employee director, the amount of cash
compensation paid and the number of stock options or shares of common stock
received for his or her service during fiscal 2009:





Non-Employee Director
                
                Fees Earned
                  or Paid in
                  Cash
                  ($)
                
                
                Stock
                  Awards (1)
                  ($)
                
                
                Option
                  Awards
                  ($)
                
                
                Non-Equity
                  Incentive Plan
                  Compensation
                  ($)
                
                
                All Other
                  Compensation
                  ($)(3)
                
                
                Total
                  ($)J.E.
      “Ted” Boyle
                
                
                29,000
                
                
                
                12,000
                
                
                
                -
                
                
                
                -
                
                
                
                6,075
                
                
                
                47,075Carolyn
      Howard
                
                
                26,000
                
                
                
                12,000
                
                
                
                -
                
                
                
                -
                
                
                
                6,075
                
                
                
                44,075Richard
      Newman
                
                
                28,000
                
                
                
                12,000
                
                
                
                -
                
                
                
                -
                
                
                
                6,075
                
                
                
                46,075James
      Wiberg(2)
                
                
                8,000
                
                
                
                12,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000


_____________________





(1)
            Each
      director received 30,000 shares of restricted Company common stock as part
      of their compensation package awarded in fiscal 2009. The amounts shown in
      this column represent compensation expense recognized for financial
      reporting purposes during fiscal 2009 in accordance with SFAS 123R, with
      the exception that estimated forfeitures related to service-based vesting
      were disregarded in these amounts. Assumptions used in the calculation of
      this amount for purposes of our financial statements are included in Note
      5 of the Notes to Consolidated Financial Statements included in our Annual
      Report on Form 10-K for the fiscal year ended September 30,
      2009.


(2)
            Mr.
      Wiberg joined the Board in May
2009.


(3)
            On
      November 7, 2008, the Board awarded non-management directors each with an
      additional 22,500 shares of restricted Company common stock, which were
      issued on March 20, 2009.





Item 11.
            Executive
      Compensation




Overview.The
Compensation Committee has responsibility for establishing, monitoring and
implementing the Company’s compensation program. The Compensation Committee
designs its policies to attract, retain and motivate highly qualified
executives. It compensates executive officers (Mr. Sheldon Nelson, Mr. Patrick
Cunningham, Mr. Brad Holmstrom, Mr. Carmen Ragusa, Jr., Mr. Michael Stanway and
Mr. Joe Nassau (collectively, “Executives”)) through a combination of base
salary, incentive bonus payments and stock options and grants, designed to be
competitive with comparable employers and to align each Executive’s compensation
with the long-term interests of our stockholders.





WhattheCompensation
Program is Designed to Reward.The
Compensation Committee focuses on the long-term goals of the Company and designs
reward programs that recognize business achievements it believes are likely to
promote sustainable growth. The Compensation Committee believes compensation
programs should reward Executives who take actions that are best for the
long-term performance of the Company while delivering positive annual operating
results. Compensation decisions take into account performance by both the
Company and the Executive. To supplement its decision making, the Compensation
Committee has the authority to retain an independent compensation consultant to
provide data, analysis and counsel as necessary.





Role of the Chief
Executive Officer in Compensation Decisions.The Chief
Executive Officer is required to provide to the Compensation Committee annual
reviews of the performance of each Executive, other than himself. The Committee
considers these evaluations and the recommendations of the CEO in determining
adjustments to base salaries, bonus and equity incentive awards for the
Executives. The Compensation Committee considers the CEO’s recommendations
regarding the compensation of Executives and a number of qualitative and
quantitative factors, including the Company’s performance during the fiscal year
and rates of compensation for similar public and private companies. The
Compensation Committee itself reviews the performance of the CEO.




Elements of the
Executive Compensation Plan and How it Relates to Company
Objectives.The Compensation Committee believes that
compensation paid to Executives should be closely aligned with the performance
of the Company on both a short-term and long-term basis and that such
compensation should assist the Company in attracting and retaining key
executives critical to long-term success. Currently, the Compensation Committee
uses short-term compensation (base salary and incentive bonuses) and long-term
equity compensation (stock options and/or stock grant incentive awards) to
achieve its goal of driving sustainable growth. Specifically, the Compensation
Committee considers: (i) overall financial, strategic and operational
Company performance; (ii) individual performance; (iii) market data;
and (iv) certain additional factors within the Committee’s discretion.The Compensation Committee
may exercise its discretion in modifying any recommended adjustments or awards
to Executives or determining the mix of compensation.


54


Employment
Agreements. The Company has previously entered into Management
Employment Agreements with each of the Executives described
below:





Sheldon Nelson.The Company
has a Management Employment Agreement with its Chief Executive Officer, Sheldon
Nelson, with a current annual salary of $275,000 terminable by the Company upon
four (4) weeks notice and a termination payment equal to twenty four (24) months
salary. Upon a change in control, either party may terminate the Agreement with
the Company paying a termination payment equal to thirty-six (36) months
salary.





Patrick Cunningham.The
Company has a Management Employment Agreement with its Vice President of Sales
and Business Development, Patrick Cunningham, with a current annual salary of
$189,000 terminable by the Company upon four (4) weeks notice and a termination
payment equal to twelve (12) months salary. Upon a change in control, either
party may terminate the Agreement with the Company paying a termination payment
equal to twenty four (24) months salary.





Brad Holmstrom.The Company
has a Management Employment Agreement with its General Counsel, Brad Holmstrom,
with a current annual salary of $175,000 terminable by the Company upon four (4)
weeks notice and a termination payment equal to four (4) months salary. Upon a
change in control, either party may terminate the Agreement with the Company
paying a termination payment equal to twelve (12) months salary.





Carmen Ragusa, Jr.The
Company has a Management Employment Agreement with its Vice President of Finance
and Administration, Carmen Ragusa, Jr., with a current annual salary of $176,000
terminable by the Company upon four (4) weeks notice and a termination payment
equal to four (4) months salary. Upon a change in control, either party may
terminate the Agreement with the Company paying a termination payment equal to
twelve (12) months salary.





Short-Term
Compensation.




Base
Salary. Base salary is negotiated into each Executive’s Management
Employment Agreement. Increases are not preset and take into account the
individual’s performance, responsibilities of the position, experience and the
methods used to achieve results, as well as external market practices. At the
end of the year, the CEO evaluates the Executive’s performance in light of
Company objectives. Base salary compensates each Executive for the primary
responsibilities of his position and level of experience and is set at levels
that the Company believes enables it to attract and retain talent.





Management
Incentive Bonus Plan.The Company utilizes
quarterly and annual bonuses as an incentive to promote achievement of
individual and Company performance goals. Bonus awards are determined and based
primarily on Company performance and secondarily on individual performance.
Company performance is determined at the end of the year (or quarter) based on
actual business results compared to preset business objectives, annual financial
performance goals and strategic performance initiatives.  The
Committee may also take into account additional considerations that it deems
fundamental.





Under the
2009 Management Incentive Bonus Plan, Executives could earn an equivalent amount
of up to 35% of their annual salary (100% for the CEO) payable one-half in
Company common stock and one-half in cash. The Compensation Committee reserves
the right to award additional bonuses for extraordinary events related to
performance during the year. The Bonus Plan is based and paid in accordance with
the achievement of the business and operating goals of the Company, both
quantitative and qualitative, as determined by the Compensation Committee.
Quantitative goals are based on criteria such as subscriber growth, revenue
growth, EBITDA growth, acquisition cost containment, upgrade completion and
borrowing base capacity. This portion of the bonus is paid quarterly and based
on a percentage of salary, 3% percent for the first quarter and 4% percent for
the remaining three quarters for a total maximum quantitative bonus of 15% of
salary (50% for the CEO). The qualitative bonus is worth up to 20% of the
Executive’s base salary (50% for the CEO) and is awarded at the year end.
Current year qualitative performance criteria include HDTV property upgrade
fulfillment, penetration rate increases, current property renewal success,
accretive asset acquisitions, and other metrics such as strategic partner
initiatives.


55


For
fiscal 2009, the Compensation Committee met in November and December and
reviewed Executive performance against performance goals using the fiscal 2009
actual results and the criteria set forth above. The Compensation Committee
relied to a large extent on the CEO’s evaluations of each Executive’s
performance. The Compensation Committee itself reviewed the performance of the
CEO. The Compensation Committee did not award Executives the full annual
incentive bonus, since only certain of the pre-established targets were met. The
2009 Management Incentive Bonus Plan payouts and the percentage of target
opportunity for the CEO and top three highly compensated Executives earned for
fiscal 2009 are set forth below:




·
            Mr.
      Nelson received a bonus of $137,500, which represented 50% of his target
      bonus opportunity (100% of salary), paid one-half in cash and one-half in
      shares of Company common stock. The qualitative component of Mr. Nelson’s
      2009 Management Incentive Bonus Plan has been deferred by the Board
      pending the outcome of certain acquisitions and will be re-discussed in
      fiscal 2010.




·
            Mr.
      Cunningham received a bonus of $56,700, which represented 30% of the 35%
      target bonus opportunity of salary, paid 50% in cash and 50% in shares of
      Company common stock.




·
            Mr.
      Ragusa received a bonus of $52,800, which represented 30% of the 35%
      target bonus opportunity of salary, paid 50% in cash and 50% in shares of
      Company common stock.




·
            Mr.
      Holmstrom received a bonus of $52,500, which represented 30% of the 35%
      target bonus opportunity of salary, paid 50% in cash and 50% in shares of
      Company common stock.





Long-Term
Compensation.





Long-term
performance-based compensation for the Executives takes the form of stock option
awards from the 2001 Stock Option Plan and occasional stock awards from the 2009
Employee Stock Purchase Plan or of restricted shares of common stock. The
Compensation Committee continues to believe in the importance of equity
ownership for all Executives and certain management for purposes of incentive,
retention and alignment with stockholders. The long-term incentive compensation
is intended to motivate Executives to make stronger business decisions, improve
financial performance, focus on both short-term and long-term objectives and
encourage behavior that protects and enhances the long-term interests of
stockholders.





Pursuant
to the Management Employment Agreements mentioned above, Executives are entitled
to receive stock options at an exercise price equal to the fair market value of
the Company’s common stock on the date of grant. Stock options vest based on an
Executive’s continued employment with the Company over a period of three years.
In fiscal 2009, the Company granted 450,000 stock options to Executives at an
exercise price of $0.20 per share (see Outstanding Cumulative Equity Awards
Table).





The
Company also provides retirement benefits to all employees, including
limited matching contributions, under the terms of its tax-qualified 401(k)
defined contribution plan. The Executives participate in the 401(k) plan on the
same terms as other participating employees.





Severance
Benefits.




The
Company provides severance in certain cases as a means to attract
individuals with superior ability and managerial talent and to protect our
competitive position.




The
Company has previously entered into Management Employment Agreements that
may require it to make certain payments to certain Executives in the event of a
termination of employment or a change of control. The following tables
summarizes the potential payments to each Executive assuming that one of the
events listed in the tables below occurs.





Named Executive Officer
                                      
                                      Payments upon a
                                        termination by the Company
                                        without cause(1)
                                      
                                      
                                      Payments upon a
                                        termination by the Executive or Company
                                        without cause during
                                        a change in control(1)Sheldon
      Nelson
                                      
                                      $
                                      550,000
                                      
                                      
                                      $
                                      825,000Patrick
      Cunningham
                                      
                                      $
                                      189,000
                                      
                                      
                                      $
                                      378,000Brad
      Holmstrom
                                      
                                      $
                                      58,333
                                      
                                      
                                      $
                                      175,000Carmen
      Ragusa, Jr.
                                      
                                      $
                                      58,666
                                      
                                      
                                      $
                                      176,000





(1)
            Does
      not assume any pro-rata portion of target bonus for a fiscal
      year.


56




SUMMARY
COMPENSATION TABLE FOR FISCAL YEAR ENDED SEPTEMBER 30, 2009
  The
following summary compensation table sets forth certain information concerning
compensation for services rendered in all capacities awarded to, earned by or
paid to our Chief Executive Officer and our three other most highly
compensated Executives, who were serving as executive officers at the end of our
fiscal year ended September 30, 2009:
 
 Name
      and Principal Position
                                      
                                      Fiscal
                                        Year
      (1)
                                      
                                      Annual
                                        Salary
                                      
                                      
                                      Year
      end
                                        Bonus(3)
                                      
                                      
                                      Other
                                        Bonus(4)
                                      
                                      
                                      Stock
                                        Awards
                                      
                                      
                                      Option
                                        Awards(2)
                                      
                                      
                                      TotalSheldon
      Nelson,
                                      
                                      2009
                                      
                                      $
                                      275,000
                                      
                                      
                                      $
                                      137,500
                                      
                                      
                                      $
                                      27,810
                                      
                                      
                                      $
                                      20,885
                                      
                                      
                                      $
                                      5,000
                                      
                                      
                                      $
                                      466,195
                                      (5)CEO
                                      
                                      2008
                                      
                                      $
                                      275,000
                                      
                                      
                                      $
                                      228,250
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      14,429
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      517,679Patrick
      Cunningham,
                                      
                                      2009
                                      
                                      $
                                      189,000
                                      
                                      
                                      $
                                      56,700
                                      
                                      
                                      $
                                      83,430
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      4,500
                                      
                                      
                                      $
                                      333,630Vice
      President Sales and Marketing
                                      
                                      2008
                                      
                                      $
                                      189,000
                                      
                                      
                                      $
                                      55,755
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      9,900
                                      
                                      
                                      $
                                      254,655Brad
      Holmstrom,
                                      
                                      2009
                                      
                                      $
                                      175,000
                                      
                                      
                                      $
                                      52,500
                                      
                                      
                                      $
                                      37,080
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      4,500
                                      
                                      
                                      $
                                      269,080General
      Counsel
                                      
                                      2008
                                      
                                      $
                                      175,000
                                      
                                      
                                      $
                                      51,625
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      14,300
                                      
                                      
                                      $
                                      240,925Carmen
      Ragusa,
                                      
                                      2009
                                      
                                      $
                                      176,000
                                      
                                      
                                      $
                                      52,800
                                      
                                      
                                      $
                                      9,270
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      5,250
                                      
                                      
                                      $
                                      243,320Vice
      President Finance and Admin.
                                      
                                      2008
                                      
                                      $
                                      176,000
                                      
                                      
                                      $
                                      51,920
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      9,900
                                      
                                      
                                      $
                                      237,820
  (1)
              The
      information is provided for each fiscal year referenced beginning October
      1 and ending September 31 for compensation earned during or for each
      fiscal year.(2)
              Represents
      the dollar amount recognized for financial statement reporting purposes,
      in accordance with FAS 123(R). Assumptions used in the calculation of this
      amount are included in Note 5 to our audited financial statements included
      in our Annual Report on Form 10-K for the year ended September 30, 2009.
      Our named executive officers will not realize the value of these awards in
      cash unless and until these awards vest, are exercised and the underlying
      shares subsequently sold.
 
 (3)
                Fiscal
      year end 2009 bonus per the 2009 Management Incentive Bonus Plan, paid 50%
      in cash and 50% in common stock.(4)
                Board
      approved special one-time bonus for the completed sale of subscribers to
      CSC Holdings resulting in a $7 million gain to the Company, paid 50% in
      cash and 50% in common stock in January
2009.
 
 (5)
                The
      qualitative component to Mr. Nelson’s 2009 fiscal year end bonus was
      deferred pending the outcome of certain acquisitions and will be
      re-discussed by the Board in fiscal
2010.


57


OUTSTANDING
CUMULATIVE EQUITY AWARDS AT SEPTEMBER 30, 2009





The
following table provides a summary of equity awards outstanding at September 30,
2009 for our CEO and top three highly compensated named Executives:





Executive Officer
                                
                                Option
                                  Expiration
                                  Date
                                
                                Option
                                  Exercise
                                  Price ($)
                                
                                Number of Securities
                                  Underlying Options (#)
                                  Exercisable
                                
                                Number of Securities
                                  Underlying Options (#)
                                  UnexercisableSheldon
      Nelson,
                                
                                
                                10/20/11
                                
                                .75
                                
                                
                                48,608
                                
                                1,392Chief
      Executive Officer
                                
                                
                                12/19/13
                                
                                .20
                                
                                
                                24,999
                                
                                75,001Patrick
      Cunningham,
                                
                                
                                10/20/11
                                
                                .75
                                
                                
                                24,302
                                
                                698VP
      of Sales and Marketing
                                
                                
                                11/30/12
                                
                                .45
                                
                                
                                55,000
                                
                                35,00012/19/13
                                
                                .20
                                
                                
                                22,500
                                
                                67,500Bradley
      Holmstrom,
                                
                                
                                10/20/11
                                
                                .75
                                
                                
                                24,302
                                
                                698General
      Counsel
                                
                                
                                11/30/12
                                
                                .45
                                
                                
                                79,494
                                
                                50,50612/19/13
                                
                                .20
                                
                                
                                22,500
                                
                                67,500Carmen
      Ragusa, Jr.,
                                
                                
                                10/20/11
                                
                                .75
                                
                                
                                82,636
                                
                                2,364VP
      of Finance and Admin.
                                
                                
                                11/30/12
                                
                                .45
                                
                                
                                55,000
                                
                                35,00012/19/13
                                
                                .20
                                
                                
                                26,250
                                
                                78,750




Item 12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters





The
following table sets forth information (to the best of our knowledge) with
respect to beneficial ownership of MDU Communications International, Inc.
outstanding common stock as of December 28, 2009 by each person or group known
to the Company to be the beneficial owner of more than 4% of the Company’s
common stock based upon Schedules 13G and 13D (and amendments) filed with the
Securities and Exchange Commission:





Name and Address of Beneficial Owner of Common Stock
                      
                      Shares
                      
                      
                      Percent of ClassRonald
      Ordway
                        1868
      Tucker Industrial Rd., Tucker, GA  30084
                      
                      
                      1,734,988
                      
                      
                      
                      4.11
                      %Jonathan
      R. Ordway
                        245
      Mountain View St., Decatur, GA  30030
                      
                      
                      10,864,500
                      
                      
                      
                      20.2
                      %DED
      Enterprises, Inc.; Carpathian Holding Company, Ltd; Carpathian Resources
      Ltd.
                        210
      Crystal Grove Blvd.,Lutz,
      FL  33548 (1)
                      
                      
                      5,097,333
                      (1)
                      
                      
                      9.6
                      %SC
      Fundamental, et al.
                        747
      Third Ave., New York, NY 10017
                      
                      
                      2,842,000
                      
                      
                      
                      5.5
                      %





(1)
            In
      a Schedule 13D filed with the SEC on March 19, 2009, DED et al. acquired
      (i) an option to purchase 10,000,000 shares of Company common stock from
      Ron Ordway, and (ii) an irrevocable proxy to vote any and all shares held
      by Ron Ordway (13,192,857 shares) expiring on March 18, 2010. In a
      Schedule 13D/A filed with the SEC on September 28, 2009, DED et al.
      declined to exercise the option on the 10,000,000 shares after Ron Ordway
      gave notice of his intention to sell.  In a Schedule 13D filed
      with the SEC on October 19, 2009, Jonathan Ordway acquired 10,000,000
      shares of Company common stock.  In a Schedule 13G/A filed with
      the SEC on October 26, 2009, Ron Ordway sold 10,000,000 shares of Company
      common stock. Although DED et al. last reported with the SEC a beneficial
      ownership position in 15,097,333 shares of Company common stock,
      10,000,000 of these shares are also reported with the SEC as owned by
      record stockholder Jonathan Ordway. DED et al. has not filed an amended
      Schedule 13D.


58


The following table sets forth information with
respect to beneficial ownership of our outstanding common stock (only
outstanding voting security) as of September 30, 2009, including; (i) each
executive officer named in the Summary Compensation Table; (ii) each of the
Company’s directors, and; (iii) all of the Company’s executive officers and
directors as a group:





Name and of Beneficial Owner of Common Stock
                            
                            Amount and
                              Nature of
                              Beneficial
                              Ownership
                            
                            Percent of
                              ClassSheldon
      Nelson 1
                            
                            
                            1,826,599
                            
                            3.3Patrick
      Cunningham 2
                            
                            
                            837,949
                            
                            1.5Brad
      Holmstrom 3
                            
                            
                            603,938
                            
                            1.1Carmen
      Ragusa, Jr. 4
                            
                            
                            384,086
                            
                            0.7Joe
      Nassau 5
                            
                            
                            389,782
                            
                            0.7Michael
      Stanway 6
                            
                            
                            99,621
                            
                            *J.E.
      (Ted) Boyle 7
                            
                            
                            192,500
                            
                            *Richard
      Newman 8
                            
                            
                            223,185
                            
                            *Carolyn
      Howard 9
                            
                            
                            428,100
                            
                            0.7James
      Wiberg 10
                            
                            
                            30,000
                            
                            *All
      executive officers and directors as group (10 persons)
                            
                            
                            5,015,760
                            
                            9.2
                            11





(1)
            Includes
      972,916 shares held of record by 567780 BC Ltd., a British Columbia
      Canada corporation wholly owned by the Sheldon Nelson Family Trust whose
      trustees are Sheldon Nelson and his sister, Nicole Nelson, 780,076 shares
      held personally and 73,607 exercisable options, within the next sixty
      days, to purchase shares of common stock.(2)
            Includes
      736,147 shares of common stock and 101,802 exercisable options, within the
      next sixty days, to purchase shares of common stock.(3)
            Includes
      477,642 shares of common stock and 126,296 exercisable options, within the
      next sixty days, to purchase shares of common stock.(4)
            Includes
      220,200 shares of common stock and 163,886 exercisable options, within the
      next sixty days, to purchase shares of common stock.(5)
            Includes
      251,723 shares of common stock and 138,059 exercisable options, within the
      next sixty days, to purchase shares of common stock.(6)
            Includes
      99,621 shares of common stock only.(7)
            Includes
      192,500 shares of common stock only(8)
            Includes
      192,685 shares of common stock owned directly, 20,500 beneficially owned
      through family members or trusts, and 10,000 beneficially owned through a
      wholly owned company.(9)
            Includes
      353,100 shares of common stock and 75,000 exercisable options, within the
      next sixty days, to purchase shares of common stock.(10)
            Includes
      30,000 shares of common stock issued to Triode Systems, Inc. Mr. Wiberg is
      also an officer within the DED et al. group mentioned above, but such
      shares are not included herein.(11)
            Based
      on 54,175,957 shares, which includes 53,497,307 outstanding shares on
      January 27, 2009, and the above mentioned 678,650
  options.*
            Less
      than 0.5%





SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE




Under the
securities laws of the United States, the Company’s directors and officers, and
any persons who own more than 10% of the Company’s common stock, are required
under Section 16(a) of the Securities Exchange Act of 1934 to file initial
reports of ownership and reports of changes in ownership with the SEC. Specific
due dates have been established by the SEC, and the Company is required to
disclose any failure to file by those dates. The Company files
Section 16(a) reports on behalf of its directors and executive officers to
report their initial and subsequent changes in beneficial ownership of common
stock. Based solely upon its review of the copies of such reports for fiscal
year 2009 as furnished to MDU Communications and representations from its
directors and officers, the Company believes that all directors, officers, and
greater-than-10% beneficial owners have made all required Section 16(a)
filings on a timely basis for such fiscal year.


59





Item 13.
            Certain
      Relationships and Related Transactions, and Director
      Independence




The Audit
Committee of the Board of Directors is responsible for the review, approval, or
ratification of “related-person transactions” between the Company or its
subsidiaries and related persons. Under SEC rules, a related person is a
director, officer, nominee for director, or 5% stockholder of the Company since
the beginning of the last fiscal year, and the immediate family members of these
persons. The Audit Committee determines whether any such transaction constitutes
a “related-person transaction” and may approve, ratify, rescind, or take other
action with respect to the transaction in its discretion. On October 15, 2006,
the Company entered into a Consulting Agreement with Howard Interests for
business advisory services, the principal of which is the spouse of Board member
Carolyn Howard. The Consulting Agreement is a month to month agreement with a
monthly payment required initially of $5,000 that increased to a monthly payment
of $7,500 in April of 2008 and then decreased to $3,500 per month in July of
2009.  This Agreement is still in effect as of December 28, 2009 at a
rate of $3,500 per month.




Item 14.
            Principal
      Accounting Fees and Services




J.H. Cohn
LLP has served as the Company's Principal Accountant since January 1, 2002.
Their fees billed to the Company for the past two fiscal years are set forth
below:




Fiscal year ended
                    September 30, 2009
                  
                  
                  Fiscal year ended
                    September 30, 2008Audit
      Fees
                  
                  $
                  188,902
                  
                  
                  $
                  166,471Audit
      Related Fees
                  
                  
                  —
                  
                  
                  
                  —Tax
      Fees
                  
                  $
                  23,836
                  
                  
                  
                  46,070All
      Other Fees
                  
                  $
                  -
                  
                  
                  $
                  -




Audit
Committee Pre-Approval Policy




All audit
and non-audit services to be performed for the Company by its independent
auditor must be pre-approved by the Audit Committee, or a designated member of
the Audit Committee, to assure that the provision of such services do not impair
the auditor’s independence. The Audit Committee has delegated interim
pre-approval authority to the Chairman of the Audit Committee. Any interim
pre-approval of service is required to be reported to the Audit Committee at the
next scheduled Audit Committee meeting. The Audit Committee does not delegate
its responsibility to pre-approve services performed by the independent auditor
to management.




The
engagement terms and fees for annual audit services are subject to the
pre-approval of the Audit Committee. The Audit Committee will approve, if
necessary, any changes in terms, conditions, and fees resulting from changes in
audit scope or other matters. All other audit services not otherwise included in
the annual audit services engagement must be pre-approved by the Audit
Committee.




Audit-related
services are services that are reasonably related to the performance of the
audit or review of the Company’s financial statements or traditionally performed
by the independent auditor. Examples of audit-related services include employee
benefit and compensation plan audits, due diligence related to mergers and
acquisitions, attestations by the auditor that are not required by statute or
regulation, and consulting on financial accounting/reporting standards. All
audit-related services must be specifically pre-approved by the Audit
Committee.





The Audit
Committee may grant pre-approval of other services that are permissible under
applicable laws and regulations and that would not impair the independence of
the auditor. All of such permissible services must be specifically pre-approved
by the Audit Committee.





PART IV




Item 15.
            Exhibits,
      Financial Statement Schedules




1.
            Financial
      Statements: See Part II, Item 8 of this Annual Report on Form
      10-K.




2.
            Exhibits:
      The exhibits listed in the accompanying index to exhibits are filed or
      incorporated by reference as part of this Annual Report on Form
      10-K.


60


INDEX
TO EXHIBITS





Exhibits2.1
                
                Acquisition
      Agreement dated November 2, 1998 between Alpha Beta Holdings, Ltd. and MDU
      Communications Inc. (1)3.1
                
                Certificate
      of Incorporation (1)3.2
                
                Amendment
      to Certification of Incorporation (4)3.3
                
                Bylaws
      (1)3.4
                
                Amendment
      to Bylaws (2)4.1
                
                Form
      of Warrant to Purchase Common Stock, dated November 24, 2004, to various
      purchasers in the Company’s November 24, 2004 private placement of units
      (5)4.2
                
                Form
      of Stock and Warrant Purchase Agreement, dated November 24, 2004, with
      various purchasers in the Company’s November 24, 2004 private placement of
      units (5)4.3
                
                Form
      of Registration Rights Agreement, dated November 24, 2004, related to the
      Company’s November 24, 2004 private placement of units
  (5)10.1
                
                Loan
      and Security Agreement for September 11, 2006 $20M credit facility
      (6)21.1
                
                Subsidiaries
      of the Company (5)23.1
                
                Consent
      of Independent Registered Public Accounting Firm of incorporation of
      financial statements by reference into Registration Statement on Form S-8
      (7)31.1
                
                Certification
      by CEO pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002
      (7)31.2
                
                Certification
      by Vice President of Finance pursuant to Sections 302 of the
      Sarbanes-Oxley Act of 2002 (7)32.1
                
                Certification
      of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (7)32.2
                
                Certification
      Vice President of Finance pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002 (7)


_____________(1)
              Incorporated
      by reference from Form 10-SB filed on May 12, 1999(2)
              Incorporated
      by reference from Form 10-SB/A, Amendment No. 3 filed on April 14,
      2000(3)
              Incorporated
      by reference from the Registrant’s Form SB-2 (Reg. No. 333-87572) as filed
      with the Securities and Exchange Commission on May 3,
  2002.(4)
              Incorporated
      by reference from Report on Form 8-K, filed November 17,
    2004(5)
              Incorporated
      by reference from Report on Form 10-KSB, filed December 29,
      2004(6)
              Incorporated
      by reference from Report on Form 8-K, filed September 15,
    2006(7)
              Filed
      herewith


61


SIGNATURES





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




MDU
      COMMUNICATIONS INTERNATIONAL, INC.By:
              /s/  SHELDON
    NELSONSheldon
      NelsonChief
      Financial OfficerDecember
      29, 2009




MDU
      COMMUNICATIONS INTERNATIONAL, INC.By:
              /s/  CARMEN RAGUSA,
      JR.Carmen
      Ragusa, Jr.Vice
      President of FinanceDecember
      29, 2009




Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
                              
                              Title
                              
                              Date/s/  SHELDON
      B. NELSONSheldon
      B. Nelson
                              
                              Principal
      Executive Officer and Director
                              
                              December
      29, 2009/s/  JOHN
      EDWARD BOYLEJohn
      Edward Boyle
                              
                              Director
                              
                              December
      29, 2009/s/  CAROLYN
      C. HOWARDCarolyn
      C. Howard
                              
                              Director
                              
                              December
      29, 2009/s/
      RICHARD NEWMANRichard
      Newman
                              
                              Director
                              
                              December
      29, 2009/s/
      JAMES WIBERGJames
      Wiberg
                              
                              Director
                              
                              December
      29,
2009


62