**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 1934****For
                  the fiscal year ended September 30, 2007,
                  or**o
              **TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF 1934****For
                  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 o
      No
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 x 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. x





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


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




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


Yes o No 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, 2007) held by
      non-affiliates was approximately $46.25M. The number of shares of common stock
      ($0.001 par value) outstanding as of December 19, 2007 was 51,585,712.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Portions
      of the registrant’s Definitive Proxy Statement to be filed with the Commission
      pursuant to Regulation 14A in connection with the registrant’s 2008 Annual
      Meeting of Stockholders, to be filed subsequent to the date hereof, are
      incorporated by reference into Part III of this Report. Such Definitive Proxy
      Statement will be filed with the Securities and Exchange Commission not later
      than 120 days after the conclusion of the registrant’s fiscal year ended
      September 30, 2007. Except with respect to information specifically
      incorporated by reference in this Form 10-K, the Proxy Statement is not deemed
      to be filed as part of this Annual Report on Form 10-K.









**TABLE
      OF CONTENTS**





**Page****PART
                I**ITEM
                1.
            Business
            3ITEM
                1A.
            Risk
                Factors
            9ITEM
                1B.
            Unresolved
                Staff Comments
            13ITEM
                2.
            Properties
            14ITEM
                3.
            Legal
                Proceedings
            14ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            14**PART
                II**ITEM
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            14ITEM
                6.
            Selected
                Financial Data
            16ITEM
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operation
            17ITEM
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            33ITEM
                8.
            Financial
                Statements and Supplementary Data
            34ITEM
                9.
            Changes
                In and Disagreements with Accountants on Accounting and Financial
                Disclosure
            57ITEM
                9A.
            Controls
                and Procedures
            57ITEM
                9A(T).
            Controls
                and Procedures
            58ITEM
                9B.
            Other
                Information
            58**PART
                III**ITEM
                10.
            Directors,
                Executive Officers and Corporate Governance
            58ITEM
                11.
            Executive
                Compensation
            58ITEM
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            58ITEM
                13.
            Certain
                Relationships and Related Transactions, and Director Independence
            58ITEM
                14.
            Principal
                Accounting Fees and Services
            59**PART
                IV**ITEM
                15.
            Exhibits,
                Financial Statement Schedules
            59




2





**FORWARD
      LOOKING STATEMENTS**





This
      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.





**PART
      I**





**Item
              1.**
            **Business**





**OVERVIEW**





MDU
      Communications International, Inc. concentrates exclusively on installing
      and delivering state-of-the-art digital satellite television, high-speed
      Internet solutions and other information and communication services to the
      United States multi-dwelling unit (“MDU”) residential market—estimated to
      include 26 million residences. MDUs include apartment buildings,
      condominiums, gated communities, universities, nursing homes, hospitals, hotels,
      motels 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 provide digital satellite television and
      high-speed Internet services, and potentially other services, to their
      residents. We earn our revenue through the sale of digital and analog satellite
      television programming and high-speed Internet services to owners and residents
      of MDUs.





Multi-dwelling
      unit properties present unique technological, management and marketing
      challenges, as compared to single family homes - challenges we have certain
      experience and expertise in overcoming. We seek to differentiate ourselves
      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, Trammell Crow Residential, Post
      Properties, Roseland Property Company, Related Companies, as well as many
      others, to understand and meet the technology needs of these groups. We operate
      in only one market segment.




3




**HISTORY
      OF THE COMPANY**





Our
      Canadian operating company, MDU Communications Inc. (“MDU Canada”), was
      incorporated in March 1998. In November 1998, MDU Canada’s
      shareholders sold all of their MDU Canada stock to Alpha Beta
      Holdings, Ltd., an inactive U.S. public reporting company, in exchange for
      Alpha Beta stock, and renamed it “MDU Communications International, Inc.”
Alpha Beta had been incorporated in Colorado in July 1995, but never
      conducted any significant business activities and was essentially inactive
      in
      November 1998. In April 1999, we reincorporated 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, beginning with the Northeast United States. To further this change,
      in
      2001 we completed an agreement with Star Choice Television Network, Inc.
      for the sale of certain 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 essentially inactive. MDU USA operates in fourteen states with
      regional offices in the New York, Chicago, Washington, DC and Miami greater
      metropolitan areas.





**HOW
      WE DERIVE REVENUE**





We
      derive
      revenue through the sale of digital and analog satellite television programming
      and high-speed Internet 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 digital satellite television and high-speed
      Internet services, and potentially other services, to their residents, resulting
      in monthly annuity-like revenue streams. The Company offers two types of
      satellite television service, Direct Broadcast Satellite (“DBS”) (also called
      Direct to Home (“DTH”)) and Private Cable (“PC”) programming. The DBS or DTH
      service uses a set-top digital receiver for residents to receive
      state-of-the-art digital satellite and local channel programming. For DBS,
      the
      Company exclusively offers DIRECTV programming packages.  From the DBS or
      DTH offerings we receive the following revenue; (i) a substantial 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
      rental of the set-top box and connection to the property satellite network
      system, and (iv) occasional other marketing incentives 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
      DBS, Private Cable and Internet services 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 of 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 are referred to as Bulk ISP.




4




**STRATEGIC
      ALLIANCE WITH DIRECTV**





In
      May of 2000, we entered into our first long-term proprietary System
      Operator Agreement with DIRECTV. Under this agreement we are able to establish
      and maintain MDU distribution systems and act as a commissioned sales agent
      for
      the marketing of DIRECTV programming to residents of MDU properties. We only
      incur costs associated with the implementation of our services and do not pay
      any of DIRECTV’s programming or broadcasting costs. On September 29, 2003,
      the Company entered into a System Operator Agreement with DIRECTV, which
      replaced the May 2000 System Operator Agreement, and effective June 1, 2007,
      the
      Company entered into a new System Operator Agreement with DIRECTV (“New
      Agreement”), which replaced the September 29, 2003 Agreement. The New 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. A vast majority of the terms set
      forth in the September 29, 2003 agreement have been carried over to the New
      Agreement, however, the significant changes are set forth below.





The
      New
      Agreement will result in an increase in the amount of "residual" fees the
      Company receives from DIRECTV. We are paid these fees monthly by DIRECTV based
      upon the programming revenue DIRECTV receives from subscribers within the
      Company's multi-dwelling unit properties. The new residual rate will apply
      to
      both our existing subscriber base and for all new subscribers we add.
      Additionally, the number of DIRECTV digital programming packages that qualify
      for residual fees in determining the total monthly fee paid to us by DIRECTV
      has
      increased.





Under
      the
      terms of the New Agreement, the Company will continue to be paid an "activation
      fee" for every new subscriber that activates a DIRECTV commissionable
      programming package. The activation fee will be paid on a gross activation
      basis
      in our choice and exclusive properties and on a one-time basis in our bulk
      properties, as was previously the case under the terms of our previous agreement
      with DIRECTV. The activation fee paid will be slightly lower than that
      previously paid to us for subscribers located in our choice and exclusive
      properties, however, it will remain the same amount as previously paid to us
      for
      subscribers 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.





Under
      the
      DIRECTV agreements, we may not solicit sales or provide equipment for any other
      DBS 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, 2007, revenues
      from DIRECTV services were 21% 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 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
      70
      national HDTV channels with 100 expected in 2008 giving DIRECTV the distinct
      edge in high definition programming. We believe that DIRECTV’s extensive line up
      of high definition 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 DBS 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.





**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 15 years due to the monopolistic
      sentiment of the cable operator.




5





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 (HDTV), 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, telecom providers and off-air broadcasters:





*Hardwired
      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 DBS operators such as Echostar.





*Off-Air
      Broadcasters.* A
      majority of U.S. households that are not serviced by cable operators are
      serviced only by broadcast networks and local television stations (“off-air
      broadcasters”). Off-air broadcasters send signals through the air, which are
      received by traditional television antennas at the customer’s property. Signals
      are accessible to anyone with an antenna and programming is funded by
      advertisers. Audio and video quality is limited and service can be adversely
      affected by weather or by buildings blocking a signal.





*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 growth 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
      multi-dwelling unit market. Video offerings from traditional phone companies
      are
      becoming a significant competitor in the MDU market.




6




**GOVERNMENTAL
      REGULATION**





*Federal
      Regulation.* In
      February 1996, Congress passed the Telecommunications Act, 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
      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. SHIVIA 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 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.




7




*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 inside wire) to
      provide satellite 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
      126 employees, all full-time, as of September 30, 2007. 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.





**Executive
      Officers of the Registrant**




Our
      executive officers serve at the discretion of the Board. The names of our
      executive officers and their ages, titles, and biographies as of September
      31,
      2007 are set forth below:





**Executive
                Officers**
            
            **Age**
            
            **Position(s)**Sheldon
                Nelson
            
            46
            
            President,
                Chief Executive Officer and DirectorPatrick
                Cunningham
            
            39
            
            Vice
                President, Sales and MarketingBrad
                Holmstrom
            
            42
            
            General
                Counsel and Corporate SecretaryCarmen
                Ragusa, Jr.
            
            59
            
            Vice
                President, Finance and AdministrationsJoe
                Nassau
            
            49
            
            Vice
                President, Operations





**Sheldon
      B. Nelson** ,
      46, has
      served as President, Chief Executive Officer and Chairman of the Board of the
      Company since November 1998. Mr. Nelson relinquished his title of Chairman
      of the Board in June of 2007. 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.




8




**Patrick
      Cunningham, Vice President of Sales and Marketing** .
      Mr.
      Cunningham, 39, has been a Vice President with the Company since 2000.  He
      has over fourteen 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, 42, 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 Shughart Thomson & Kilroy, PC.





**Carmen
      Ragusa, Jr., Vice President of Finance and Administration.** Mr.
      Ragusa, 59, 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.





**Joe
      Nassau, Vice President of Operations.** Mr. Nassau, 49, 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 Backoffice operations.  He brings
      over 20 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 backoffice 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.





**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:




9




***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, 2007, it has accumulated losses of $46,465,012. The Company
      does not expect to have profitable operations in fiscal 2008, and it cannot
      assure that it will ever achieve or attain profitability. 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 operating losses.





***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 DBS services for
      any
      other provider. Consequently, the Company is totally dependent upon DIRECTV
      for
      its set-top DBS programming service. During the year ended September 30, 2007,
      revenues from DIRECTV were 21% 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 contract with DIRECTV can be terminated under various
      circumstances, including, in particular, an uncured material breach by the
      Company of the contract. 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; it 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.





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.




10




***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, traditional phone companies and off-air
      broadcasters. Also, DIRECTV itself could corporately focus on MDUs. 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.





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 DBS providers is their ability to provide
      subscribers with more channels and a better quality digital signal than
      traditional analog cable television systems. Many cable television operators
      have made significant investments to upgrade their systems from analog to
      digital, 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 DBS 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. The Company intends
      to be timely Sarbanes-Oxley compliant for its internal controls and procedures
      by the end of fiscal 2008.





***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. DBS technology is
      highly complex and is still evolving. As with any high technology product or
      system, it may not function as expected.




11




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





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 shareholder
      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 shareholder 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.




12




***Absence
      of dividends on Common Stock.***





The
      Company has never declared or 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 million revolving five year credit facility to fund the Company’s subscriber
      growth. There are several terms of default set forth in the Loan and Security
      Agreement. 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
      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.





**Item
              1B.**
            **Unresolved
                Staff Comments**





Inapplicable.




13




**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 and subscription
      management system. 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, 2009.
      We believe that this space is adequate to suit our needs for the foreseeable
      future.





We
      currently hold a lease for office and warehouse space in Chicago, Illinois
      for
      approximately 4,100 square feet that runs through September 30, 2008 at a
      monthly cost of $4,051 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 Davie, Florida for
      approximately 2,000 square feet that runs through January 14, 2008 at a monthly
      cost of $2,394 per month. We recently signed a new lease for an office and
      warehouse location in Pompano Beach, Florida for approximately 4,088 square
      feet
      that runs through December 31, 2012. This space is adequate to suit our needs
      for the foreseeable future in the South Florida area.





In
      addition, we carry a short term lease for office/warehouse space in Rockville,
      Maryland, outside Washington, DC.





**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. At September 30, 2007 and through
      the
      date of this filing, the Company was not a party to any material litigation
      matter.





**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:





**Quarter
                Ended**
            
            **High**
            
            **Low**December 31,
                2005
            
            $
            1.92
            
            $
            1.39March 31,
                2006
            
            $
            1.53
            
            $
            1.15June 30,
                2006
            
            $
            1.33
            
            $
            0.88September 30,
                2006
            
            $
            0.95
            
            $
            0.50December 31,
                2006
            
            $
            0.88
            
            $
            0.57March 31,
                2007
            
            $
            0.97
            
            $
            0.70June 30,
                2007
            
            $
            1.02
            
            $
            0.76September 30,
                2007
            
            $
            0.89
            
            $
            0.74




14




**“Penny
      Stock” Rules**





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.





**** **Holders**





As
      of
      December 19, 2007, the Company had 132 holders of record of its shares of
      common stock, with an approximate total of 1,500 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 described later in this Report.





**Securities
      Authorized for Issuance under Equity Compensation Plans**





**EQUITY
      COMPENSATION PLAN INFORMATION**


**(September 30,
      2007)**





**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 plans**Equity
                compensation plans approved by security holders (1)
            
            
            2,743,340
                shares
            (1)
            $
            1.82
            
            
            149,342Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            0
            
            
            0









(1)
            2001
                Stock Option Plan, approved by the shareholders on May 10, 2001, see
                Note 4 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 common shares.





**Recent
      Sales of Unregistered Securities**





On
      September 11, 2006, MDU Communications International, Inc., and its wholly
      owned
      subsidiary MDU Communications (USA) Inc., entered into a Loan and Security
      Agreement and ancillary Transaction Documents with FCC, LLC, d/b/a First
      Capital, and Full Circle Funding, LP for a senior secured $20 million revolving
      five year credit facility (“Credit Facility”) to fund the Company’s subscriber
      growth. In connection therewith, 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 and 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. The Company 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. For the term of the warrants, they are subject to
      a Registration Rights Agreement that provides for demand registration
      within one hundred thirty five days of demand and a four (4%) percent penalty
      if
      not effective within that time period. Thereafter, the penalty accrues at two
      (2%) percent per thirty days until effective registration or one year, whichever
      is earlier. The warrants were issued pursuant to exemption from registration
      found in Rule 506 of Regulation D promulgated under the Securities Act of 1933,
      as amended, as these entities are “accredited investors” as such term is defined
      in Rule 501 of said Regulation D. Through the date of this filing, these
      warrants have not been registered or exercised and therefore there are no
      proceeds.




15




**Purchases
      of Equity Securities**





None.





**Item
              6.**
            **Selected
                Financial Data**





The
      following table sets forth certain of our historical consolidated financial
      year
      end data for the five years ended September 30, 2007. The selected consolidated
      financial data should be read in conjunction with, “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations,” and our Audited
      Consolidated Financial Statements and related Notes included elsewhere in this
      Report.





**Years
                ended September 30,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****Consolidated
                Statements Of Operations Data:**Revenue
            
            $
            16,658,392
            
            $
            13,366,205
            
            $
            9,142,228
            
            $
            4,490,235
            
            $
            4,124,394Operating
                Expenses (1)
            
            
            23,025,649
            
            
            21,480,612
            
            
            14,778,568
            
            
            10,725,947
            
            
            6,033,043Other
                Income (Expenses) (2)
            
            
            (1,141,402
            )
            
            103,353
            
            
            955,902
            
            
            (2,705,423
            )
            
            (209,058
            )Net
                Loss
            
            $
            (7,508,659
            )
            $
            (8,011,054
            )
            $
            (4,680,438
            )
            $
            (8,941,135
            )
            $
            (2,117,707
            )Basic
                And Diluted Loss Per Common Share (3)
            
            $
            (0.15
            )
            $
            (0.16
            )
            $
            (0.10
            )
            $
            (0.24
            )
            $
            (0.09
            )Weighted
                Average Common Shares Outstanding
            
            
            51,307,618
            
            
            50,204,409
            
            
            48,479,204
            
            
            37,607,929
            
            
            22,788,924**Consolidated
                Balance Sheet Data:**Total
                Assets
            
            $
            31,448,244
            
            $
            27,169,019
            
            $
            29,260,416
            
            $
            15,696,476
            
            $
            6,393,961Long
                Term Debt (4)
            
            
            13,695,666
            
            
            3,921,574
            
            
            266,037
            
            
            107,895
            
            
            181,374Total
                Liabilities
            
            
            17,653,199
            
            
            7,250,913
            
            
            3,511,154
            
            
            1,925,612
            
            
            1,950,761Total
                Stockholders’ Equity
            
            $
            13,795,045
            
            $
            19,918,106
            
            $
            25,749,262
            
            $
            13,770,864
            
            $
            4,443,200









(1)
            Operating
                expenses include noncash charges. Additionally, the Company was required
                to adopt the provisions of SFAS 123R effective October 1, 2005 and
                has
                selected the Black-Scholes method of valuation for share-based
                compensation. The Company used the modified prospective transition
                method which requires that compensation cost be recorded as earned
                for new
                share-based payments and for all unvested stock options outstanding
                at the
                beginning of the first quarter of adoption of SFAS 123R. The Company’s
                Consolidated Financial Statements for the years ended September 30,
                2007
                and 2006 reflect the impact of the adoption of SFAS 123R. In accordance
                with the modified prospective transition method, the Company’s
                Consolidated Financial Statements for prior periods have not been
                restated
                to reflect, and do not include, the impact of SFAS 123R. The Company
                recognized stock-based compensation expense for the years ended September
                30, 2007 and 2006 of $822,525 and $1,048,856, respectively, based
                upon the
                fair value at the grant dates for outstanding awards to employees
                using
                the fair value originally calculated for pro forma disclosure purposes
                under SFAS 123 amortized over the requisite vesting
                period.





(2)
            For
                the year ended September 30, 2007, interest expense includes noncash
                interest expense of $195,873 for the amortization of deferred finance
                costs and debt discount related to the Company’s Credit Facility. For the
                years ended September 30, 2004 and 2003, interest expense included
                cashless transactions for the issuance of warrants and for the conversion
                of notes payable into common stock for principal and interest. Other
                income (expense) for fiscal 2004 includes a $2,755,115 charge for
                variable
                accounting related to stock
                options.




16




(3)
            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.
                The
                Company has had a net loss in each period and, accordingly, the effect
                of
                assuming the exercise of options and warrants would be
                anti-dilutive.





(4)
            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 outstanding balance for the years
                ended
                September 30, 2007 and 2006 was $13,442,443 and $3,879,569,
                respectively.





**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**




Important
      events accomplished by the Company during this fiscal year have put it on a
      steady revenue and subscriber growth curve which was achieved in conjunction
      with maintaining positive EBITDA (as adjusted) for the year end. Catalysts
      that
      assisted with this steady growth were (i) the acquisition of the subscriber
      assets of Multiband Corporation, (ii) the new DIRECTV agreement which took
      effect on June 1, 2007, and (iii) the efficient and structured growth of the
      Company's subscriber base in each of its regions. To build on these growth
      initiatives for fiscal 2008, the Company is looking toward (i) the final and
      full integration of subscribers from Multiband, (ii) DIRECTV's full launch
      of
      high definition ("HDTV") programming that will far surpass the competition
      giving the Company a competitive edge, (iii) a Company branded voice over
      Internet protocol (“VoIP”) service giving it a true "triple play" with an
      additional revenue stream, and (iv) key changes to the Company's residential
      subscriber offer which should increase service penetration rates within its
      current properties as well as new properties.




Although
      the Company is and has been on a track of quarterly positive EBITDA (as adjusted
      by the Company), the fourth fiscal quarter was negative due to two primary
      reasons. First, an increase of over $100,000 in one time non-capital expenses
      related to the due diligence, negotiation and transition of the Multiband asset
      acquisition that spanned three closings in July, August and October. Certain
      of
      these one-time expenses have also been incurred in the first fiscal quarter
      of
      2008. Second, the Company experienced the loss of a 536 unit property that
      the
      Company previously acquired from another service provider, which terminated
      its
      contract prior to expiration pursuant to a certain provision of Florida
      condominium law giving narrow protections to new condominium boards, resulting
      in a loss to the Company of approximately $125,000.




The
      Company's growth continued to increase with the addition of 17,690 net
      subscribers during the fiscal year for total billable subscribers of 64,343
      as
      of September 30, 2007. The Company's average revenue per unit (“ARPU”) across
      all billable subscriber types was $26.17 at September 30, 2007, a slight
      increase over the final adjusted ARPU of $26.04 for fiscal 2006. 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. The Company anticipates that its
      ARPU
      will increase in fiscal 2008 due to (i) the increase in the residual percent
      under the new DIRECTV agreement, (ii) the fact that this higher residual percent
      is based on an increasing DIRECTV ARPU, (iii) the continued conversion of
      private cable subscribers to higher margin DIRECTV services, and (iv) revenue
      increases resulting from the launch of the new DIRECTV HDTV programming and
      services into many Company properties.




17




One
      of
      the most important Company milestones was the new Key Account Operator Agreement
      with DIRECTV which replaced the previous agreement dated September 29, 2003.
      The
      new agreement will position the Company for greater growth and competitiveness
      in that the agreement (i) will result in an approximate 30% increase in the
      percentage of monthly recurring residual fees (for Choice and Exclusive
      subscribers and a lesser increase for certain Bulk subscribers) the Company
      receives from DIRECTV as well as an increase in the number of programming
      packages that qualify for residual fees, and (ii) provides for an approximate
      80% subsidy to the Company on the standard digital set-top receivers that the
      Company purchases and installs in a customer's residence, which will result
      in a
      significant cost savings to the Company and provide a competitive advantage
      over
      franchised cable. The new DIRECTV agreement provides the Company with the
      ability to offer up to four standard digital set-top receivers to the resident
      for little or no additional fee, which dramatically enhances the competitiveness
      of the Company's offering. This is in stark contrast to the Company's previous
      offer which required the subscriber to pay additional fees for each additional
      set-top box installed in their residence. Moreover, subscribers will be allowed
      to take their standard set-top boxes to their new residence when they move
      and
      the Company will continue to receive a revenue stream as long as the customer
      remains a DIRECTV customer, thus the Company will no longer incur a cost to
      retrieve the set-top boxes. This will result in increased Company revenues
      and
      reduced customer deactivation expenses.




The
      other
      important milestone achieved this year started with the concentration of a
      vast
      majority of the Company's resources to completing the due diligence and
      acquisition, and transitioning the subscriber assets in 181 multi-family
      properties acquired from Multiband Corporation. This acquisition closed in
      stages with the first on July 19, 2007 where 6,484 subscribers were immediately
      transferred to the Company, the second closing on August 30, 2007 with an
      additional 2,280 subscribers transferred to the Company and the final closing
      on
      October 19, 2007 with an additional 811 subscribers being transitioned to the
      Company. Due to adjustments, the previously reported acquisition price of $4.01
      million has been reduced to $3.4 million. The Company estimates that the
      acquisition will still increase the Company's monthly revenues by approximately
      20%. Additional payments may accrue to Multiband over the next two year period
      based on certain property and subscriber performance criteria. Combining the
      Multiband subscribers, properties and property contacts with those of the
      Company results in significant operating synergies, basic cost savings, and
      an
      immediate revenue increase - all of which result in greater economies of scale
      for the Company, not to mention that the acquisition removes Multiband as a
      market competitor. Additionally, and more importantly, this combination gives
      each of the Company's regions a greater critical mass from which to assert
      their
      presence and increase profile and reputation in their respective markets.




Finally,
      the Company's largest partner, DIRECTV, remains on the cutting edge with its
      technology and programming and will be even more competitive with franchised
      cable due to the successful launch of the "DIRECTV 10" satellite. This new
      satellite is currently delivering 70 national HDTV channels with 100 expected
      in
      2008 to satisfy the appetite of HDTV customers who have doubled in number over
      the last year. In addition, new technology is being developed which will make
      advanced and HDTV services more easily accessible in the multi-family market.
      Unfortunately, this equipment which was developed specifically (and required)
      for the multi-family market has not been readily available which has hindered
      the Company's rollout of these services. The Company believes that this
      equipment will become available in the quantities needed during its second
      and
      third fiscal quarters.




Regarding
      other upcoming initiatives, the Company is still exploring the launch of a
      VoIP
      beta trial during early fiscal 2008, with the goal of beginning to bundle this
      service with the Company’s DIRECTV and broadband services in select markets for
      a true “triple play.” Additionally, the Company is exploring (i) a few non-core
      asset sales in outlying service areas, and (ii) additional acquisition
      opportunities that fit within its expansion plans for fiscal 2008.





**RESULTS
      OF OPERATIONS**





The
      Company continued along a strong growth curve for fiscal 2007. It reports
      revenue for the year ended September 30, 2007 of $16,658,392, an increase of
      25%
      over the prior fiscal year and the Company reports positive EBITDA (as adjusted)
      of $250,234. Positive EBITDA (as adjusted) for the fiscal year ended September
      30, 2007 represents a significant improvement compared to the negative
      $1,447,923 reported for the fiscal year ended September 30, 2006.




18




**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
      debt 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 our
      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 our cash flow will be sufficient to fund
      working capital, capital expenditures or to react to changes in our industry
      or
      the economy generally. The following table reconciles the comparative EBITDA
      (as
      adjusted) of the Company to our consolidated net loss as computed under
      accounting principles generally accepted in the United States of America:




**For
                the years ended September 30,****2007**
            
            **2006**
            
            **2005**EBITDA
                (as adjusted)
            
            $
            250,234
            
            $
            (1,447,923
            )
            $
            (767,947
            )Interest
                expense
            
            
            (863,206
            )
            
            (25,556
            )
            
            (7,771
            )Deferred
                finance costs and debt discount amortization (interest
                expense)
            
            
            (195,873
            )
            
            —
            
            
            —Provision
                for doubtful accounts
            
            
            (191,989
            )
            
            (107,044
            )
            
            (63,658
            )Provision
                for inventory reserve
            
            
            —
            
            
            (57,977
            )
            
            (69,821
            )Depreciation
                and amortization
            
            
            (5,384,562
            )
            
            (4,391,640
            )
            
            (3,055,287
            )Effect
                of shares and warrants issued for termination of professional service
                agreement
            
            
            —
            
            
            —
            
            
            (270,200
            )Effect
                of cancellation of shares and warrants issued for termination of
                professional service agreement
            
            
            —
            
            
            —
            
            
            426,041Effect
                of variable accounting for option plans
            
            
            —
            
            
            —
            
            
            (271,885
            )Share-based
                compensation expense - employees
            
            
            (822,525
            )
            
            (1,048,856
            )
            
            —Compensation
                expense for issuance of common stock through employee stock purchase
                plan
            
            
            (19,808
            )
            
            (50,290
            )
            
            —Compensation
                expense for issuance of common stock for employee bonuses
            
            
            (37,240
            )
            
            (99,833
            )
            
            —Compensation
                expense for issuance of common stock for employee wages
            
            
            (33,945
            )
            
            (83,634
            )
            
            —Compensation
                expense accrued to be settled through the issuance of common
                stock
            
            
            (73,120
            )
            
            (299,907
            )
            
            —Compensation
                expense through the issuance of restricted common stock for services
                rendered
            
            
            (73,500
            )
            
            —
            
            
            —Share-based
                compensation expense - nonemployees
            
            
            (63,125
            )
            
            (398,394
            )
            
            (599,910
            )Net
                Loss
            
            $
            (7,508,659
            )
            $
            (8,011,054
            )
            $
            (4,680,438
            )





**Subscriber
      Activity and ARPU**





The
      Company's growth continued to increase with the addition of 17,690 net
      subscribers during the fiscal year . The Company experienced a 38% increase
      in
      its subscriber base during fiscal 2007, from 46,653 total subscribers as of
      September 30, 2006 to 64,343 total subscribers as of September 30, 2007. The
      Company’s ARPU, defined as the average revenue from all revenue sources divided
      by the number of subscribers, was $26.17 at September 30, 2007. The Company
      anticipates that its ARPU will increase in upcoming quarters due to (i) the
      increase in the residual percent under the new DIRECTV agreement, (ii) the
      fact
      that this higher residual percent is based on an increasing DIRECTV ARPU, (iii)
      the continued conversion of private cable subscribers to higher margin Bulk
      DTH
      or Bulk Choice Advantage (BCA) DIRECTV services, and (iv) revenue increases
      resulting from the launch of the new DIRECTV HDTV programming and services
      into
      many Company properties. A breakdown of the Company’s subscriber base as of
      September 30, 2007 is as follows:




19




**Service
                Type**
            
            **Subscribers**
              **as
                of**
              **Sept. 30, 2006**
            
            **Subscribers**
              **as
                of**
              **Dec. 31, 2006**
            
            **Subscribers**
              **as
                of**
              **March 31, 2007**
            
            **Subscribers**
              **as
                of**
              **June 30, 2007**
            
            **Subscribers**
              **as
                of**
              **Sept. 30, 2007****Bulk
                DTH**
            
            
            8,475
            
            
            9,079
            
            
            9,823
            
            
            10,655
            
            
            14,196**DTH
                Choice or Exclusive**
            
            
            8,095
            
            
            7,988
            
            
            8,225
            
            
            8,161
            
            
            10,034**Bulk
                Private Cable**
            
            
            17,596
            
            
            16,107
            
            
            15,825
            
            
            17,870
            
            
            20,912**Private
                Cable Choice or Exclusive**
            
            
            1,240
            
            
            1,219
            
            
            1,397
            
            
            1,376
            
            
            2,684**Bulk
                BCA**
            
            
            5,334
            
            
            7,420
            
            
            8,164
            
            
            8,001
            
            
            7,573**Bulk
                ISP**
            
            
            3,118
            
            
            4,093
            
            
            4,857
            
            
            4,759
            
            
            5,403**ISP
                Choice or Exclusive**
            
            
            2,795
            
            
            2,933
            
            
            3,090
            
            
            3,225
            
            
            3,541**Total
                Subscribers**
            
            
            46,653
            
            
            48,839
            
            
            51,381
            
            
            54,047
            
            
            64,343




As
      of
      September 30, 2007, the Company had 48 properties and 18,500 units in
      work-in-progress (“WIP”). Of the current WIP, 10,502 are in new construction
      properties and 7,998 are in existing conversion properties. The Company’s
      breakdown of WIP units by type of service in the new construction area are
      as
      follows: (i) DIRECTV (Bulk DTH) 1,755; (ii) DIRECTV (DTH Choice/Exclusive)
      3,111; (iii) DIRECTV Bulk BCA Program (Bulk Choice Advantage) 1,170; (iv)
      Private Cable (Bulk PC) 205; (v) Private Cable (PC Choice/Exclusive) 580; (vi)
      Internet (Bulk ISP) 1,401; and, (vii) Internet (ISP Choice/Exclusive) 2,280.
      The
      Company’s breakdown of WIP units by type of service in the existing conversion
      properties are as follows: (i) DIRECTV (Bulk DTH) 43; (ii) DIRECTV (DTH
      Choice/Exclusive) 4,499; (iii) DIRECTV Bulk BCA Program (Bulk Choice Advantage)
      201; (iv) Private Cable (Bulk PC) 0; (v) Private Cable (PC Choice/Exclusive)
      0;
      (vi) Internet (Bulk ISP) 0; and, (vii) Internet (ISP Choice/Exclusive) 3,255.
      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, 2007, the Company had 6,012 “under contract” subscribers in WIP
      that the Company expects will become “billable” subscribers in the next few
      quarters. Under contract is defined in actual potential subscribers, not as
      units. The under contract subscribers are an important component of the
      Company’s subscriber base evaluation in that they represent the number of
      remaining "billable" subscribers the Company expects to realize from WIP. The
      Company breaks down and reports its under contract subscribers into new
      construction and existing conversion properties, due to the time differential
      that new construction properties remain in under contract. A breakdown of these
      “under contract” subscribers for new construction and existing conversion
      properties (already reduced to reflect appropriate property type and penetration
      rate) shows the following:





**Bulk**
              **Subscribers**
            
            **Exclusive**
              **Subscribers**
            
            **Competitive**
              **Subscribers**
            
            **Total**
              **Subscribers**New
                construction “under contract”subscribers
                as of
              September
                30, 2007:
            
            
            3,075
            
            
            219
            
            
            810
            
            
            4,104Existing
                conversion “under contract”subscribers
                as of
              September
                30, 2007:
            
            
            228
            
            
            1,057
            
            
            623
            
            
            1,908Total
                “under contract” subscribers:
            
            
            3,303
            
            
            1,276
            
            
            1,433
            
            
            6,012





The
      Company continues to concentrate its efforts on bulk and exclusive type service
      deployments. Bulk contracts (both video, Internet or an increasingly popular
      bundle of the two services) provide guaranteed long term revenue streams that
      support regional operations, which in turn, drive future subscriber growth.
      The
      Company’s emphasis on developing this market segment has resulted in a 58%
      increase in combined Bulk DTH and Bulk Choice Advantage (BCA) subscriber growth
      and a 51% increase in combined Bulk and Choice/Exclusive broadband ISP
      subscriber growth over the past fiscal year. The Company will continue to focus
      on bulk deployments in fiscal 2008. However, its growing presence in the
      Southeast and Mid-Atlantic is also expected to generate a significant number
      of
      exclusive type access agreements. Property owners seeking choice or
      non-exclusive competitive services are generally being provided proposals that
      include the owner paying for all or part of the system installation. The Company
      believes that this strategy serves two important purposes, first, it funds
      certain capital costs, and second, it provides owners with an incentive to
      support the Company’s marketing efforts in the properties as the owners may
      receive a share of the earned revenue. Collectively, this emphasis on service
      types should positively impact ARPU, EBITDA (as adjusted), subscriber growth
      and
      the Company’s subscriber penetration rates, while maintaining or reducing its
      subscriber acquisition capital costs.





20




**RESULTS
      OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006**





**For
                the year endedSeptember 30, 2007**
            
            **For
                the year endedSeptember 30, 2006**
            
            **Change**
              **($)**
            
            **Change(%)**REVENUE
            
            $
            16,658,392
            
            
            100
            %
            $
            13,366,205
            
            
            100
            %
            $
            3,292,187
            
            
            25
            %Direct
                costs
            
            
            7,266,595
            
            
            44
            %
            
            5,307,770
            
            
            40
            %
            
            1,958,825
            
            
            37
            %Sales
                expenses
            
            
            1,296,570
            
            
            8
            %
            
            1,629,228
            
            
            12
            %
            
            (332,658
            )
            
            -20
            %Customer
                service and operating expenses
            
            
            4,784,931
            
            
            29
            %
            
            4,762,336
            
            
            36
            %
            
            22,595
            
            
            0
            %General
                and administrative expenses
            
            
            4,292,991
            
            
            25
            %
            
            5,389,638
            
            
            40
            %
            
            (1,096,647
            )
            
            -20
            %Depreciation
                and amortization
            
            
            5,384,562
            
            
            32
            %
            
            4,391,640
            
            
            33
            %
            
            992,922
            
            
            23
            %OPERATING
                LOSS
            
            
            (6,367,257
            )
            
            -38
            %
            
            (8,114,407
            )
            
            -61
            %
            
            1,747,150
            
            
            -22
            %Total
                other income (expense)
            
            
            (1,141,402
            )
            
            -7
            %
            
            103,353
            
            
            1
            %
            
            (1,244,755
            )
            
            -1204
            %NET
                LOSS
            
            $
            (7,508,659
            )
            
            -45
            %
            $
            (8,011,054
            )
            
            -60
            %
            $
            502,395
            
            
            -6
            %





***Net
      Loss.*** Primarily as a result of the matters discussed below, and noncash charges for
      the years ended September 30, 2007 and 2006 of $6,895,687 and $6,537,575,
      respectively, we reported a net loss of $7,508,659 for the year ended September
      30, 2007, compared to a net loss of $8,011,054 for the year ended September
      30,
      2006.





***Revenues.*** Revenue
      for the year ended September 30, 2007 increased 25% to $16,658,392 compared
      to
      revenue of $13,366,205 for the year ended September 30, 2006. The revenue
      increase is directly attributable to the (i) 38% increase in the number of
      subscribers between the two periods, including approximately $355,000 in revenue
      derived from the new Multiband subscribers, (ii) product shift to subscribers
      that produce higher recurring revenue streams, (iii) increase in the number
      of
      subscribers to Internet services, and (iv) 39% increase in installation revenue.
      We expect an increase in revenue as our subscriber growth and conversion to
      DIRECTV from Private Cable continues.  Revenue for the years ended
      September 30, 2007 and 2006 was derived, as a percent, from the following
      sources:




**2007**
            
            **2006**Private
                Cable Programming Revenue
            
            
            23
            %
            
            29
            %DTH
                Programming Revenue and Subsidy
            
            
            57
            %
            
            54
            %Internet
                Access Fees
            
            
            13
            %
            
            11
            %Installation
                Fees, Wiring and other Sales
            
            
            7
            %
            
            6
            %





The
      shift
      between the revenue streams is the result of the Company continuing to emphasize
      the conversion of low average revenue private cable subscribers to DIRECTV
      service subscribers. During the year ended September 30, 2007, approximately
      2,000 subscribers were converted from Private Cable to DIRECTV services. The
      new
      DIRECTV Agreement will result in further favorable shift to DIRECTV DTH and
      BCA
      programming revenue as a result of improved “residual” revenue from
      DIRECTV. This emphasis is expected to continue in fiscal 2008.





***Direct
      Costs.*** Direct
      costs are comprised of private cable programming costs, monthly recurring
      Internet T-1 line connections and costs relating directly to installation
      services. Direct costs increased to $7,266,595 for the year ended September
      30,
      2007, as compared to $5,307,770 for the year ended September 30, 2006, primarily
      as a result of the increase in the number of subscribers over the twelve months
      as a whole from the prior period.  While we expect a proportionate increase
      in direct costs as our subscriber growth continues, direct costs are linked
      to
      the type of subscribers we add. We expect to continue to increase the number
      of
      DIRECTV and broadband subscribers and convert certain private cable subscribers
      to DIRECTV services throughout 2008.





21




***Sales
      Expenses.*** Sales
      expenses were $1,296,570 and $1,629,228 for the years ended September 30, 2007
      and 2006, respectively. This is a 4% reduction in expense as a percent of
      revenue. The decrease in sales expenses primarily results from the elimination
      of one time charges from previous regional expansion and the transfer of certain
      personnel into operational roles during 2006. New marketing initiatives to
      increase our subscriber base are continuing, however, we anticipate a decrease
      in sales expense as a percent of revenue in 2008.





***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 $4,784,931 and
      $4,762,336 for the years ended September 30, 2007 and 2006, respectively,
      inclusive of noncash charges of $61,446 and $46,229, respectively, a 7% decrease
      as a percent of revenue. Certain personnel and expense reduction initiatives
      were implemented to achieve positive EBITDA (as adjusted) and expected to reduce
      the expenses as a percentage of revenue in fiscal 2008. These expenses remained
      comparable to the same period ended September 30, 2006, but are expected to
      increase in dollars throughout 2008 primarily as the result of (i) an increase
      in the number of subscribers the Company will service during this time period,
      (ii) an increase in our customer service quality levels, and (iii) the launch
      of
      new DIRECTV HDTV services in existing and new properties, 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 2008. A breakdown of customer service and
      operating expenses is as follows:





**Year
                ended**
              **September
                30, 2007**
            
            **Year
                ended**
              **September
                30, 2006**Call
                center expenses
            
            $
            1,601,111
            
            
            33
            %
            $
            1,718,168
            
            
            36
            %General
                operation expenses
            
            
            1,461,249
            
            
            31
            %
            
            1,388,743
            
            
            29
            %Property
                system maintenance expenses
            
            
            1,722,571
            
            
            36
            %
            
            1,655,425
            
            
            35
            %Total
                customer service and operating expense
            
            $
            4,784,931
            
            
            100
            %
            $
            4,762,336
            
            
            100
            %




***General
        and Administrative Expenses.***General and administrative expenses
        decreased to $4,292,991 from $5,389,638 for the years ended September 30,
        2007
        and 2006, respectively.  Of the general and administrative expenses
        for the years ended September 30, 2007 and 2006, the Company had total noncash
        charges included of $1,253,806 and $2,099,706, respectively, described
        below:




**Years
                ended September 30,****2007**
            
            **2006**Total
                general and administrative expense
            
            $
            4,292,991
            
            $
            5,389,638**Noncash
                charges:**Share
                based compensation –
                nonemployees (1)
            
            
            63,125
            
            
            398,394Share
                based compensation – employees (1)
            
            
            822,525
            
            
            1,048,856Compensation
                expense through the issuance of restricted common stock for services
                rendered
            
            
            73,500
            
            
            —Excess
                discount for the issuance of stock under stock purchase
                plan
            
            
            19,808
            
            
            50,290Issuance
                of common stock for bonuses
            
            
            11,973
            
            
            99,833Issuance
                of common stock for wages
            
            
            —
            
            
            83,634Provision
                for compensation expense settled through the issuance of common
                stock
            
            
            70,886
            
            
            253,678Bad
                debt provision
            
            
            191,989
            
            
            107,044Inventory
                reserve provision
            
            
            —
            
            
            57,977Total
                noncash charges
            
            
            1,253,806
            
            
            2,099,706Total
                general and administrative expense, net of noncash charges
            
            $
            3,039,185
            
            $
            3,289,932General
                and administrative expense, net of noncash charges, as a percent
                of
                revenue
            
            
            18
            %
            
            25
            %




22









(1)
            Effective
                October 1, 2005, the Company was required to adopt the provisions
                of SFAS
                123R which revised SFAS 123 and eliminated the option the Company
                had been
                using to account for options under the intrinsic value method pursuant
                to
                APB 25 in its historical financial statements. The pro forma disclosures
                previously permitted under SFAS 123 are no longer an alternative
                to
                financial statement recognition. As a result of adopting the provisions
                of
                SFAS 123R, 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, 2007 and 2006 amortized
                over
                the requisite vesting period of $822,525 and $1,048,856, respectively.
                The
                total stock-based compensation expense not yet recognized and expected
                to
                vest over the next 27 months is approximately $450,000.





Excluding
      $1,253,806 and $2,099,706 in noncash charges from the years ended September
      30,
      2007 and 2006, respectively, general and administrative expenses were $3,039,185
      (18% of revenue), compared to $3,289,932 (25% of revenue). Although we
      anticipate general and administrative expense to increase, general and
      administrative expense should decrease as a percent of revenue in fiscal
      2008.





***Other
      Noncash Charges.*** Depreciation
      and amortization expenses increased from $4,391,640 during the fiscal year
      ended
      September 30, 2006 to $5,384,562 during the fiscal year ended September 30,
      2007.  The increase in depreciation and amortization is associated with
      additional equipment being deployed and other intangible assets that
      were acquired over the prior period.  Interest expense included
      noncash charges of $195,873 for the amortization of deferred finance costs
      and
      debt discount and is higher due to the new Credit Facility which was entered
      into on September 11, 2006.





***Other
      Income, Net.*** On
      May
      31, 2007, we sold 163 subscribers to the Continental Group Inc. for $80,715.
      The
      total gain on the sale of the customers and the related property and equipment
      was $14,245. Additionally, on September 1, 2007, a property acquired from
      another service provider containing 536 subscribers terminated their contract
      prior to expiration pursuant to a certain provision of Florida condominium
      law
      for new condominiums resulting in a loss of $124,297. The Company did not sell
      any subscribers in fiscal 2006. During the year ended September 30, 2007,
      interest expense significantly increased to $1,059,079 due mainly to $837,917
      in
      interest related to the Credit Facility. Interest expense for the year ended
      September 30, 2006 was $25,556.





**RESULTS
      OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005**


**Year
                  ended**
                **September
                  30, 2006**
              
              **Year
                  ended**
                **September
                  30, 2005**
              
              **Change****($)**
              
              **Change(%)**REVENUE
              
              $
              13,366,205
              
              
              100
              %
              $
              9,142,228
              
              
              100
              %
              $
              4,223,977
              
              
              46
              %Direct
                  costs
              
              
              5,307,770
              
              
              40
              %
              
              3,582,407
              
              
              39
              %
              
              1,725,363
              
              
              48
              %Sales
                  expenses
              
              
              1,629,228
              
              
              12
              %
              
              1,963,127
              
              
              22
              %
              
              (333,899
              )
              
              -17
              %Customer
                  service and operating expenses
              
              
              4,762,336
              
              
              36
              %
              
              2,858,881
              
              
              31
              %
              
              1,903,455
              
              
              67
              %General
                  and administrative expenses
              
              
              5,389,638
              
              
              40
              %
              
              3,318,866
              
              
              36
              %
              
              2,070,772
              
              
              62
              %Depreciation
                  and amortization
              
              
              4,391,640
              
              
              33
              %
              
              3,055,287
              
              
              34
              %
              
              1,336,353
              
              
              44
              %OPERATING
                  LOSS
              
              
              (8,114,407
              )
              
              -61
              %
              
              (5,636,340
              )
              
              -62
              %
              
              (2,478,067
              )
              
              44
              %Total
                  other income, net
              
              
              103,353
              
              
              1
              %
              
              955,902
              
              
              10
              %
              
              (852,549
              )
              
              -89
              %NET
                  LOSS
              
              $
              (8,011,054
              )
              
              -60
              %
              $
              (4,680,438
              )
              
              -52
              %
              $
              (3,330,616
              )
              
              71
              %




***Net
      Loss.*** Primarily as a result of the matters discussed below, we reported a net loss
      of
      $8,011,054 for the year ended September 30, 2006, compared to a net loss of
      $4,680,438 for the year ended September 30, 2005.





***Revenues.*** Revenue
      for the year ended September 30, 2006 increased 46% to $13,366,205 compared
      to
      revenue of $9,142,228 for the year ended September 30, 2005. The revenue
      increase is directly attributable to the (i) 26% increase in the number of
      subscribers between the two periods, (ii) product shift to subscribers that
      produce higher recurring revenue streams, (iii) increase in the number of
      subscribers to Internet services, and (iv) increase in installation revenue.
      We
      expect an increase in revenue as our subscriber growth and conversion to DTH
      from private cable continues.  Revenue for the years ended September 30,
      2006 and 2005 was derived, as a percent, from the following sources:




23




**2006**
            
            **2005**Private
                Cable Programming Revenue
            
            
            29
            %
            
            41
            %DTH
                Programming Revenue and Subsidy
            
            
            54
            %
            
            47
            %Internet
                Access Fees
            
            
            11
            %
            
            8
            %Installation
                Fees, Wiring and other Sales
            
            
            6
            %
            
            4
            %





The
      shift
      between the revenue streams is the result of the Company continuing to emphasize
      the conversion of low average revenue private cable subscribers to DIRECTV
      service subscribers.





***Direct
      Costs.*** Direct
      costs are comprised of private cable and certain DTH programming costs, monthly
      recurring Internet T-1 line connections and costs relating directly to
      installation services. Direct costs stayed fairly constant as a percent of
      revenue, however, direct costs increased to $5,307,770 for the year ended
      September 30, 2006, as compared to $3,582,407 for the year ended September
      30,
      2005, primarily as a result of the increase in the number of bulk type
      subscribers over the twelve months as a whole from the prior period. Direct
      costs are linked to the type of subscribers we add due to certain types of
      subscribers having an associated direct cost, such as Bulk PC and DTH, while
      others, such as DTH Choice and Exclusive, do not.





***Sales
      Expenses.*** Sales
      expense consists mainly of salaries, commissions, marketing material, trade
      shows, advertising and promotions. Sales expenses were $1,629,228 and $1,963,127
      for the years ended September 30, 2006 and 2005, respectively. This is a
      significant (10%) reduction in expense as a percent of revenue. The decrease
      in
      sales expenses primarily results from the elimination of one time charges from
      the expansion into the Midwest, Southeast and Mid-Atlantic regions. New
      marketing initiatives to increase our subscriber base, including expansion
      into
      the Midwest, Southeast, inclusive of expansion into the Atlanta area, and
      Mid-Atlantic regions are continuing.





***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 $4,762,336, inclusive
      of noncash charges of $46,229 for the year ended September 30, 2006 compared
      to
      $2,858,881, with no noncash charges, for the year ended September 30, 2005,
      a 5%
      increase as a percent of revenues. This increase is primarily the result of
      (i)
      the 26% increase in number of subscribers the Company serviced during these
      time
      periods, (ii) the utilization of contractors in new regions to assist with
      service, maintenance and project management, (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. A breakdown of customer service
      and
      operating expenses is as follows:





**Year
                ended**
              **September
                30, 2006**
            
            **Year
                ended**
              **September
                30, 2005**Call
                center expenses
            
            $
            1,718,168
            
            
            36
            %
            $
            1,054,807
            
            
            37
            %General
                operation expenses
            
            
            1,388,743
            
            
            29
            %
            
            787,364
            
            
            28
            %Property
                system maintenance expenses
            
            
            1,655,425
            
            
            35
            %
            
            1,016,710
            
            
            35
            %$
            4,762,336
            
            
            100
            %
            $
            2,858,881
            
            
            100
            %





***General
      and Administrative Expenses.*** General
      and administrative expenses increased to $5,389,638 from $3,318,866 for the
      years ended September 30, 2006 and 2005, respectively.  Of the general
      and administrative expenses for the years ended September 30, 2006 and 2005,
      the
      Company had total noncash charges included of $2,099,706 and $849,433,
      respectively, described below:




24





**Years
                ended September 30,****2006**
            
            **2005**Total
                general and administrative expense
            
            $
            5,389,638
            
            $
            3,318,866**Noncash
                charges:**Share
                based compensation - nonemployees (1)
            
            
            398,394
            
            
            599,910Share
                based compensation - employees (1)
            
            
            1,048,856
            
            
            —Effect
                of variable accounting for stock options
            
            
            —
            
            
            271,885Effect
                of issuance of common stock in exchange for termination of
                agreement
            
            
            —
            
            
            270,200Effect
                of cancellation of common stock and warrants in exchange for termination
                of agreement
            
            
            —
            
            
            (426,041
            )Excess
                discount for the issuance of stock under stock purchase
                plan
            
            
            50,290
            
            
            —Issuance
                of common stock for bonuses
            
            
            99,833
            
            
            —Issuance
                of common stock for wages
            
            
            83,634
            
            
            —Provision
                for compensation expense settled through the issuance of common
                stock
            
            
            253,678
            
            
            —Bad
                debt provision
            
            
            107,044
            
            
            63,658Inventory
                provision
            
            
            57,977
            
            
            69,821Total
                noncash charges
            
            
            2,099,706
            
            
            849,433Total
                general and administrative expense, net of noncash charges
            
            $
            3,289,932
            
            $
            2,469,433General
                and administrative, net of noncash charges, as a percent of
                revenue
            
            
            25
            %
            
            27
            %










(1)
            Effective
                October 1, 2005, the Company was required to adopt the provisions
                of SFAS
                123R which revised SFAS 123 and eliminated the option the Company
                had been
                using to account for options under the intrinsic value method pursuant
                to
                APB 25 in its historical financial statements. The pro forma disclosures
                previously permitted under SFAS 123 are no longer an alternative
                to
                financial statement recognition. As a result of adopting the provisions
                of
                SFAS 123R, the Company recognized noncash share-based compensation
                expense
                for employees of $1,048,856 based upon the fair value at the grant
                dates
                for awards to employees for the year ended September 30, 2006 amortized
                over the requisite vesting period. The total stock-based compensation
                expense not yet recognized and expected to vest over the next 24
                months is
                approximately $1,100,000.





Excluding
      $2,099,706 and $849,433 in noncash charges from the years ended September 30,
      2006 and 2005, respectively, general and administrative expenses were $3,289,932
      (25% of revenue), compared to $2,469,433 (27% of revenue).





***Other
      Noncash Charges.*** Depreciation
      and amortization expenses increased from $3,055,287 during the fiscal year
      ended
      September 30, 2005 to $4,391,640 during the fiscal year ended September 30,
      2006.  The increase in depreciation and amortization is associated with
      additional equipment being deployed and other intangible assets that
      were acquired over the prior period.





***Other
      Income, Net.*** On
      May
      31, 2005, we sold 447 subscribers to Comcast of Maryland, Inc. for $1,049,048.
      The total gain on the sale of the customers and the related property and
      equipment was $1,046,088 of which, pursuant to the Joint Venture termination
      agreement, AvalonBay Communities, the former joint venture
      partner, received $411,708. The Company’s gain on the sale of this system,
      after expenses, was $634,380 (Note 7 to the Consolidated Financial Statements).
      On November 8, 2004, we sold 102 subscribers to Comcast of Maryland, Inc. for
      $183,600. The total gain on the sale of customers and the related property
      and
      equipment was $161,120 of which, pursuant to the Joint Venture termination
      agreement, AvalonBay Communities, the former joint venture
      partner, received $79,804. The Company's gain on the sale of this system,
      after expenses, was $81,316 (Note 7 to the Consolidated Financial Statements).
      The Company did not sell any subscribers in fiscal 2006.




25


**LIQUIDITY
      AND CAPITAL RESOURCES**





During
      the years ended September 30, 2007, 2006 and 2005, we recorded a net
      loss of $7,508,659, $8,011,054, and $4,680,438, respectively. We had negative
      cash flows from operating activities of $567,402, $1,992,912, and $852,929
      during the years ended September 30, 2007, 2006 and 2005, respectively.
      However, for the year ended September 30, 2007, cash flows from operating
      activities have been a positive $464,371 since the quarter ended December 31,
      2006. At September 30, 2007, we had an accumulated deficit of $46,465,012.





**At
                quarters ended:**
            
            **Cash provided by (used in)
                operating activities**Net
                cash used in operating activities - December 31, 2006
            
            $
            (1,031,774
            )Net
                cash provided by operating activities - March 31, 2007
            
            
            295,336Net
                cash used in operating activities - June 30, 2007
            
            
            (22,104
            )Net
                cash provided by operating activities - September 30, 2007
            
            
            191,140Total
                net cash used in operating activities - September 30, 2007
            
            $
            (567,402
            )





On
      September 11, 2006, MDU Communications International, Inc., and its wholly
      owned
      subsidiary MDU Communications (USA) Inc., entered into a Loan and Security
      Agreement and ancillary Transaction Documents with FCC, LLC, d/b/a First
      Capital, and Full Circle Funding, LP for a senior secured $20 million revolving
      five year credit facility (“Credit Facility”) to fund the Company's subscriber
      growth. The Credit Facility was specifically designed to provide a permanent
      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.




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, 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.





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 four $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%, and the final
      $5 million at prime plus 1%. The Credit Facility requires that to access funds
      above $10 million that the Company comply with a rolling quarterly covenant
      of
      positive EBITDA and maintain certain subscriber growth rates. As of
      September 30, 2007, we had $13,442,443 outstanding under the Credit
      Facility which is due on September 11, 2011.




26




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.





***Cash
      Position.*** At
      September 30, 2007, 2006 and 2005 we had cash and cash equivalents of
      $767,296, $3,238,939 and $9,358,021, respectively.





For
      the
      years ended September 30, 2007 and 2006 the Company has adequate financial
      resources from its cash position and from the $20 million Credit Facility to
      fund operations.




***Operating
      Activities.*** Our operations used net cash of $567,402, $1,992,912 and $852,929 for the years
      ended September 30, 2007, 2006 and 2005, respectively. Net cash used from
      operating activities included increases of $892,434, $169,614, and $1,168,015
      in
      our accounts payable and accrued liabilities during the years ended September
      30, 2007, 2006 and 2005, respectively. Additionally, during the years ended
      September 30, 2007, 2006 and 2005 the net increase in accounts receivable was
      $931,044, $186,825 and $687,404, respectively.  Our net losses of
      $7,508,659, $8,011,054 and $4,680,438 for the years ended September 30, 2007,
      2006 and 2005, 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 $6,895,687, $6,537,575 and
      $3,904,720 for the same periods.





***Investing
      Activities.*** During
      the year ended September 30, 2007, we purchased $8,053,457 of equipment relating
      to subscriber additions and paid $3,276,742 for the acquisition of other
      intangible assets. Additionally, the Company received proceeds of $80,715 for
      the sale of customers and telecommunications equipment.





During
      the year ended September 30, 2006, we purchased $7,549,353 of equipment relating
      to subscriber additions and paid $42,864 for the acquisition of other intangible
      assets.





During
      the year ended September 30, 2005, we purchased $11,402,476 of equipment
      relating to subscriber additions and paid $390,600 for the acquisition of other
      long-term assets. Additionally, we received $1,232,648 in proceeds from the
      sale
      of 549 subscribers in AvalonBay properties, which had been part of a
      joint venture. The Company purchased AvalonBay's interest in the Joint Venture
      on July 28, 2003. The Company's gain on the sale of these private cable systems,
      after expenses, was $715,696.





***Financing
      Activities.*** During
      the year ended September 30, 2007, we used $48,838 for the repayment of certain
      notes payable and $73,879 for capital lease obligations.  Equity financing
      activity provided $83,504 through the issuance of 401,384 shares of common
      stock
      from the exercise of options and $21,582 from 32,003 shares of common stock
      purchased by employees through the Employee Stock Purchase Plan. Additionally,
      we incurred $200,000 in deferred finance costs and borrowed $9,562,874 through
      the Credit Facility.





During
      the year ended September 30, 2006, we used $68,915 for capital lease obligations
      and $45,459 for the repayment of certain notes payable and entered into a
      capital lease agreement in the amount of $166,533. Regarding equity
      financing activities, we (i) issued 350,000 shares of common stock upon the
      exercise of warrants to purchase common shares, which resulted in net proceeds
      to the Company of $87,500, (ii) received $41,718 in proceeds which resulted
      in
      the issuance of 35,958 shares of common stock through the Employee Stock
      Purchase Plan, (iii) issued 50,136 shares of common stock upon the exercise
      of
      options, which resulted in net proceeds to the Company of $16,544, (iv) entered
      into a senior secured $20,000,000 revolving five year Credit Facility and
      borrowed $3,879,569, and (v) incurred $444,910 in deferred finance
      costs.





27


During
      the year ended September 30, 2005, we used $73,532 and $3,694 for the repayment
      of certain notes payable and entered into a capital lease agreement in the
      amount of $35,368 and received proceeds of $200,000 from the issuance of a
      note
      payable to Wachovia Bank.  Regarding equity financing activities, we (i)
      issued 449,667 shares of common stock upon the exercise of warrants to purchase
      common shares, which resulted in net proceeds to the Company of $448,958, (ii)
      issued 1,004,104 common shares upon the exercise of options, which resulted
      in
      net proceeds to the Company of $409,772, (iii) issued 18,040 shares of common
      stock through the Employee Stock Purchase Plan, which resulted in net proceeds
      of $38,708, and (iv) closed a $16,250,000 private equity placement financing
      for
      net proceeds of $15,045,444.





***Working
      Capital.*** As
      of
      September 30, 2007 and 2006, we had negative working capital of $226,684 and
      $2,063,075, respectively. The Credit Facility discussed earlier provided
      $9,562,874 and $3,879,569 in proceeds towards working capital for the years
      ended September 30, 2007 and 2006, respectively. To
      minimize the draw on the Credit Facility and the liability, the Company expects
      to be at a break-even or negative working capital. We believe that we have
      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 the Company’s growth
      through at least September 30, 2008.





***Capital
      Commitments and Contingencies.*** We
      have access agreements with the owners of multiple dwelling unit properties
      to
      supply our satellite television and Internet systems and services to the
      residents of those properties. However, we have no obligation to build out
      those
      properties and no penalties will accrue if we elect not to do so.





***Future
      Capital Requirements.*** We believe that we have sufficient cash 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 September 11, 2006 Credit Facility
      become unavailable to us, there is no guarantee that we will be able to sustain
      an increasing rate of growth.




**CONTRACTUAL
      OBLIGATIONS AND OTHER COMMERCIAL COMMITTMENTS**




As
      of
      September 30, 2007, the resources required for scheduled payment of contractual
      obligations were as follows:





**Total**
            
            **Due
                in1 yearor less**
            
            **Due
                after1 year through3 years**
            
            **Due
                after3 years through5 years**Capital
                lease (equipment)
            
            $
            93,470
            
            $
            81,291
            
            $
            12,179
            
            $
            **-**Operating
                leases
            
            
            574,933
            
            
            345,737
            
            
            229,196
            
            
            -Notes
                payable
            
            
            102,009
            
            
            51,723
            
            
            50,286
            
            
            -Credit
                facility borrowing
            
            
            13,442,443
            
            
            -
            
            
            -
            
            
            13,442,443Total
                contractual obligations
            
            $
            14,212,855
            
            $
            478,751
            
            $
            291,661
            
            $
            13,442,443





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





Our
      consolidated financial statements 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. We base our
      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.




28




*Revenue
      recognition with respect to initial service or connection:*





On
      June
      5, 2007, the Company signed a new Key Account Operator Agreement with DIRECTV
      (the “New Agreement"). The New Agreement is effective June 1, 2007 and replaces
      the current agreement dated September 29, 2003 which was already in its first
      renewal period. The New Agreement will result in an increase in the amount
      of
      "residual" fees the Company receives from DIRECTV. The Company is paid these
      fees monthly by DIRECTV based upon the programming revenue DIRECTV receives
      from
      subscribers within the Company's multi-dwelling unit properties. The new
      "residual" rate will apply to both the Company's existing subscriber base and
      for all new subscribers the Company adds. Additionally, the number of DIRECTV
      digital programming packages that qualify for residual fees in determining
      the
      total monthly fee paid to the Company by DIRECTV has increased. The method
      of
      determining the recurring monthly residual fees will remain unchanged, however,
      the new higher rate, by approximately 30%, will be applied in the estimation
      of
      the recurring monthly residual fees.





Under
      the
      New Agreement, the Company will continue to be paid an "activation fee" for
      every new subscriber that activates a DIRECTV commissionable programming
      package. The activation fee will be paid on a gross activation basis in the
      Company's choice and exclusive properties and on a one-time basis in the
      Company's bulk properties, as was previously the case under the terms of the
      Company's previous agreement with DIRECTV. The "activation fee" paid will be
      slightly lower than that previously paid to the Company for subscribers located
      in the Company's choice and exclusive properties, however, it will remain the
      same amount as previously paid to the Company for subscribers in the Company's
      bulk properties. The method of calculating the activation fees and the treatment
      of these fees will remain the same as prior to the New Agreement, however,
      the
      new rates as stated in the New Agreement will be applied.





The
      New
      Agreement calls for an “Analog Commission” to the Company for the addition of a
      new Bulk Choice Advantage (“BCA”) subscriber. The 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 BCA “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. The New Agreement
      also offers the “Individual Subscriber PPC” (prepaid programming commission).
      Contrary to the “Analog Commission,” the payment of the “Individual Subscriber
      PPC” by DIRECTV 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 comprised of two
      components, commission and equipment discount. The commission portion is
      recognized over one year in conjunction with the annual commitment.
      However, the portion of the “Individual Subscriber PPC” that relates to the
      equipment discount is currently recognized in conjunction with the depreciation
      of the related equipment over seven years.





*Deferred
      Revenue:*





The
      Company’s line item of deferred revenue represents (i) payments by subscribers
      in advance of the delivery of services, (ii) the commission that DIRECTV pays
      the Company for obtaining subscribers with an annual commitment, and (iii)
      the
      prepaid commission received from DIRECTV for certain fixed asset equipment
      associated with the subscribers in (ii), above.





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 direct-to-home and bulk-choice-advantage 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.




The
      equipment referenced in (iii) above are set-top receivers and due to the fact
      that the Company depreciates this equipment over seven years, the prepaid
      commission received for the receivers is recognized over the seven years. The
      portion that is not recognized within twelve months (current) is set forth
      in
      the long term portion of the deferred revenue. However, as previously discussed,
      the Company entered into a New Agreement with DIRECTV on June 1, 2007 and in
      this New Agreement, it is the intent that these set-top receivers, regardless
      of
      subscriber type, will be discounted as a reduction of the cost of the equipment.
      This equipment will be subject to EITF 02-16 and will be accounted for in this
      manner starting with the Company’s fiscal year 2008 beginning on October 1,
      2007.




29




*Use
      of Estimates:*





The
      preparation of the consolidated financial statements in conformity with United
      States 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:*





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





*Fair
      value of equity instruments:*





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123R (revised 2004),
“Share-Based Payment,” (“SFAS 123R”) which revised SFAS No. 123, “Accounting for
      Stock-Based Compensation” (“SFAS 123”) and superseded the previous accounting
      under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
      Issued to Employees,” (“APB 25”). SFAS 123R requires all share-based payments to
      employees, including grants of employee stock options, to be 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 pro forma
      disclosures previously permitted under SFAS 123 are no longer an alternative
      to
      financial statement recognition.




The
      Company was required to adopt the provisions of SFAS 123R effective October
      1,
      2005 and has selected the Black-Scholes method of valuation for share-based
      compensation. The Company used the modified prospective transition method
      which requires that compensation cost be recorded as earned for new share-based
      payments and for all unvested stock options outstanding at the beginning of
      the
      first quarter of adoption of SFAS 123R. The Company’s Consolidated Financial
      Statements for the years ended September 30, 2006 and 2007 reflect the impact
      of
      the adoption of SFAS 123R. In accordance with the modified prospective
      transition method, the Company’s Consolidated Financial Statements for prior
      periods have not been restated to reflect, and do not include, the impact of
      SFAS 123R.




Prior
      to
      the adoption of SFAS 123R, the Company accounted for its stock-based employee
      compensation plans under the intrinsic value method in accordance with
      Accounting Principles Board Opinion 25, “Accounting for Stock Options issued to
      Employees” and provided proforma information as if a fair value based method had
      been used to determine the cost of options and that the cost was amortized
      over
      the vesting period of the options. We estimated the fair value of options
      issued to employees for pro-forma disclosure purposes using an option-pricing
      model (generally, the Black-Scholes model) that meets the criteria set forth
      in SFAS 123. In accordance with SFAS 123, 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 by us 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 pursuant to the guidance in the
      consensus reached for EITF Issue No. 96-18 (generally, the earlier of the
      date the other party becomes committed to provide goods or services or the
      date
      the performance by the other party is complete) and capitalized or expensed
      as
      if we had paid cash for the goods or services. For purposes of determining
      the
      historical and proforma fair values of options and warrants using the
      Black-Scholes option pricing model, we used the following assumptions in the
      year ended September 30, 2007, 2006 and 2005:




30




**2007**
            
            **2006**
            
            **2005**Expected
                volatility
            
            
            53
            %
            
            52
            %
            
            76
            %Risk-free
                interest rate
            
            
            4.63
            %
            
            4.72
            %
            
            4.00
            %Expected
                years of option life
            
            
            1
                to 5
            
            
            1
                to 5
            
            
            1
                to 5Expected
                dividends
            
            
            0
            %
            
            0
            %
            
            0
            %




Given
      an
      active trading market for our common stock, we estimate the volatility of our
      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 us or our earnings, as well as market conditions in general, it could
      have a material impact on the volatility we use in computing the value we place
      on these equity instruments.





*Valuation
      of deferred tax assets:*





We
      regularly evaluate our ability to recover the reported amount of our deferred
      income tax assets considering several factors, including our estimate of the
      likelihood that we will generate sufficient taxable income in future years
      in
      which temporary differences reverse. Due to the uncertainties related to, among
      other things, the extent and timing of future taxable income, we offset our
      net
      deferred tax assets by an equivalent valuation allowance as of
      September 30, 2007 and 2006.





*Valuation
      of long-lived assets:*





We
      assess
      the recoverability of long-lived tangible and intangible assets whenever we
      determine that events or changes in circumstances indicate that their carrying
      amount may not be recoverable. Our assessment is primarily based upon our
      estimate of future cash flows associated with these assets. Although there
      has
      been a sustained weakness in our operating results through September 30,
      2007, we continue to project income in the future. Accordingly, we have
      determined that there has not been an impairment of any of our long-lived
      assets. However, should our operating results deteriorate, we may determine
      that
      some portions of our long-lived tangible or intangible assets are impaired.
      Such
      determination could result in noncash charges to income that could materially
      affect our consolidated financial position or results of operations for that
      period.





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      June
      2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards No. 154, *Accounting
      Changes and Error Corrections* ,
      a
      replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). This
      SFAS 154 replaces APB Opinion No. 20, *Accounting
      Changes* ,
      and
      FASB Statement No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* ,
      and
      changes the requirements for accounting for and reporting of a change in
      accounting principle. SFAS 154 requires retrospective application to financial
      statements of prior periods’ for a voluntary change in accounting principle
      unless it is impracticable. SFAS 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      The adoption of SFAS 154 did not have a material impact on our financial
      position and results of operations.




In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes.* FIN
      48
      prescribes 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. FIN 48 also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. FIN 48 will apply to fiscal years beginning after
      December 15, 2006, with earlier adoption permitted. The adoption of FASB
      Interpretation No. 48 is not expected to have a material impact on our financial
      position and results of operations.





31




In
      September 2006, the FASB issued SFAS No. 157,*Fair
      Value Measurement*(“SFAS
      157”). SFAS 157 defines fair value and establishes a framework for measuring
      fair value in accordance with accounting principles generally accepted in the
      United States of America. SFAS 157 also expands the disclosures related to
      the
      fair value measurements used to value assets and liabilities. SFAS 157 is
      effective for fiscal years beginning after November 15, 2008 and interim periods
      within those fiscal years. We are currently evaluating whether the adoption
      of
      SFAS 157 will have a material impact on our financial statements.





In
      September 2006, the Securities and Exchange Commission (“SEC”) released Staff
      Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”). SAB 108 provides guidance on how the effects of the carryover or reversal
      of prior year financial statement misstatements should be considered in
      quantifying a current year misstatement. Prior practice allowed the evaluation
      of materiality on the basis of (i) the error quantified as the amount by which
      the current year income statement was misstated (rollover method) or (ii) the
      cumulative error quantified as the cumulative amount by which the current year
      balance sheet was misstated (iron curtain method). Reliance on either method
      in
      prior years could have resulted in misstatement of the financial statements.
      The
      guidance provided in SAB 108 requires both methods to be used in evaluating
      materiality. Immaterial prior year errors may be corrected with the first filing
      of prior year financial statements after adoption. The cumulative effect of
      the
      correction would be reflected in the opening balance sheet with appropriate
      disclosure of the nature and amount of each individual error corrected in the
      cumulative adjustment, as well as a disclosure of the cause of the error and
      that the error had been deemed to be immaterial in the past. We do not believe
      the adoption of this pronouncement will have any material effects on our
      consolidated financial position, results of operations, or cash flows.





In
      September 2006, the Emerging Issues Task Force, or EITF, issued EITF
      No. 06-1, *Accounting
      for Consideration Given by a Service Provider to a Manufacturer or Reseller
      of
      Equipment Necessary for an End-Customer to Receive Service from the Service
      Provider* (“EITF
      No. 06-1”), which provides guidance to service providers regarding the
      proper reporting of consideration given to manufacturers or resellers of
      equipment necessary for an end-customer to receive its services. Depending
      on
      the circumstances, such consideration is reported as either an expense or a
      reduction of revenues. EITF No. 06-1 is effective for fiscal years beginning
      after June 15, 2007. We do not expect a material impact on our consolidated
      results of operations, but the adoption of EITF No. 06-1 may effect how certain
      considerations are classified in our consolidated results of operations.





In
      February 2007, the FASB, issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      Amendment of FASB Statement No. 115* (“SFAS
      159”) which permits, but does not require, companies to report at fair value the
      majority of recognized financial assets, financial liabilities and firm
      commitments. Under SFAS 159, unrealized gains and losses on items for which
      the
      fair value option is elected are reported in earnings at each subsequent
      reporting date. We are currently assessing the effect SFAS 159 may have, if
      any,
      on our consolidated financial position, results of operations or cash
      flows.





In
      December 2007, the FASB issued SFAS No. 141 ( revised
      2007), *Business
      Combinations* (“SFAS
      141(R)”) *.* In
      SFAS
      141(R), the FASB retained the fundamental requirements of Statement No. 141
      to
      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
      standard 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. SFAS
      141(R) is effective for annual periods beginning on or after December 15, 2008. We
      are
      currently evaluating whether the adoption of SFAS 141(R) will have a material
      impact on our financial statements.


32




In
      December 2007, the FASB issued SFAS No. 160 , *Noncontrolling
      Interests in Consolidated Financial Statements* (“SFAS
      160”) *.* SFAS 160
      amends Accounting Research Bulletin No. 51, *Consolidated
      Financial Statements,* and
      requires all entities to report noncontrolling (minority) interests in
      subsidiaries within equity in the consolidated financial statements, but
      separate from the parent shareholders’ equity. SFAS 160 also requires any
      acquisitions or dispositions of noncontrolling interests that do not result
      in a
      change of control to be accounted for as equity transactions.  Further,
      SFAS 160 requires that a parent recognize a gain or loss in net income when
      a
      subsidiary is deconsolidated. SFAS 160 is effective for annual periods beginning
      on or after December 15, 2008. We
      are
      currently evaluating whether the adoption of SFAS 160 will have a material
      impact on our financial statements.




The
      FASB,
      the EITF and the SEC have issued certain other accounting pronouncements and
      regulations as of September 30, 2007 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
      2007, 2006 and 2005, 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.




**Item 7A.**
            **Quantitative
                and Qualitative Disclosures about Market
                Risk**




Our
      operating results and cash flows are subject to minor fluctuations from changes
      in foreign currency exchange rates and interest rates.




We
      maintain relationships with certain suppliers in Canada. To date, the market
      risk associated with foreign currency exchange rates has not been material
      in
      relation to the Company's financial position, results of operations, or cash
      flows. The Company does not have any significant trade accounts receivable,
      trade accounts payable, or commitments in a currency other than that of the
      reporting unit's functional currency. A 10% adverse change in the underlying
      foreign currency exchange rates would not have a material impact to our
      financial condition. As such, the Company does not currently use derivative
      financial instruments to manage the exposure in its non-U.S. operations or
      for
      trading or speculative purposes.




The
      Company seeks to manage its exposure to adverse interest rate changes through
      its normal operations and does not use any derivative financial instruments
      to
      manage such exposure. The Company uses a line of credit to provide for a portion
      of its financing needs. At September 30, 2007, the balance outstanding under
      this arrangement was $13,442,443. Interest costs would increase by approximately
      $136,291, annually, for each percentage point increase in the rate of interest
      on this credit facility, assuming current balances.





Our
      interest income is immaterially exposed to interest rate fluctuations on our
      short-term investments that are comprised of United States government treasury
      notes, which we hold on an available-for-sale basis. We have not entered into
      derivative financial instruments.




33




**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, 2007 and
      2006, and the related consolidated statements of operations, stockholders’
equity and cash flows for each of the years in the three year period ended
      September 30, 2007. These consolidated financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the 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, 2007 and
      2006, and their results of operations and cash flows for each of the years
      in
      the three year period ended September 30, 2007, in conformity with accounting
      principles generally accepted in the United States of America.





As
      discussed in Note 2 to the consolidated financial statements, the Company
      changed the manner in which it accounts for share-based compensation in the
      year
      ended September 30, 2006.




/s/
                J. H. Cohn LLPRoseland,
                New Jersey
              December 20,
                2007




34


**MDU
      COMMUNICATIONS INTERNATIONAL, INC.**


**Consolidated
      Balance Sheets**


**September
      30, 2007 and 2006**





**September
                30,**
              **2007**
            
            **September
                30,**
              **2006****ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            767,296
            
            $
            3,238,939Accounts
                receivable- trade, net of an allowance of $167,674 and
                $162,402
            
            
            2,381,234
            
            
            1,642,179Prepaid
                expenses and deposits
            
            
            582,319
            
            
            387,812TOTAL
                CURRENT ASSETS
            
            
            3,730,849
            
            
            5,268,930Telecommunications
                equipment inventory
            
            
            970,456
            
            
            906,448Property
                and equipment, net of accumulated depreciation of $12,784,932 and
                $8,384,705
            
            
            22,046,390
            
            
            18,719,922Intangible
                assets, net of accumulated amortization of $4,153,493 and
                $3,241,154
            
            
            4,186,809
            
            
            1,822,415Deferred
                financing costs, net of accumulated amortization of $144,979 and
                $7,415
            
            
            513,740
            
            
            451,304TOTAL
                ASSETS
            
            $
            31,448,244
            
            $
            27,169,019**LIABILITIES
                and STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            1,818,594
            
            $
            1,131,462Other
                accrued liabilities
            
            
            1,301,307
            
            
            1,348,999Current
                portion of deferred revenue
            
            
            704,618
            
            
            597,356Current
                portion of note payable
            
            
            51,723
            
            
            48,732Current
                portion of capital lease obligations
            
            
            81,291
            
            
            79,306TOTAL
                CURRENT LIABILITIES
            
            
            3,957,533
            
            
            3,205,855Deferred
                revenue, net of current portion
            
            
            408,640
            
            
            251,522Credit
                line borrowing, net of debt discount
            
            
            13,224,561
            
            
            3,603,378Note
                payable, net of current portion
            
            
            50,286
            
            
            102,115Capital
                lease obligations, net of current portion
            
            
            12,179
            
            
            88,043TOTAL
                LIABILITIES
            
            
            17,653,199
            
            
            7,250,913COMMITMENTS
                AND CONTINGENCIES**STOCKHOLDERS’
                EQUITY**Preferred
                stock, par value $0.001; 5,000,000 shares authorized, none issued
            
            
            —
            
            
            —Common
                stock, par value $0.001; 70,000,000 shares authorized, 51,556,989
                and
                50,462,121 shares issued and outstanding
            
            
            51,556
            
            
            50,462Additional
                paid-in capital
            
            
            60,208,501
            
            
            58,823,997Accumulated
                deficit
            
            
            (46,465,012
            )
            
            (38,956,353
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            13,795,045
            
            
            19,918,106TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            31,448,244
            
            $
            27,169,019





See
      accompanying notes to the consolidated financial statements




35




**MDU
      COMMUNICATIONS INTERNATIONAL, INC.**


**Consolidated
      Statements of Operations**


**Years
      Ended September 30, 2007, 2006 and 2005**


**Years
                  ended September 30,****2007**
              
              **2006**
              
              **2005**REVENUE
              
              $
              16,658,392
              
              $
              13,366,205
              
              $
              9,142,228OPERATING
                  EXPENSESDirect
                  costs
              
              
              7,266,595
              
              
              5,307,770
              
              
              3,582,407Sales
                  expenses
              
              
              1,296,570
              
              
              1,629,228
              
              
              1,963,127Customer
                  service and operating expenses
              
              
              4,784,931
              
              
              4,762,336
              
              
              2,858,881General
                  and administrative expenses
              
              
              4,292,991
              
              
              5,389,638
              
              
              3,318,866Depreciation
                  and amortization
              
              
              5,384,562
              
              
              4,391,640
              
              
              3,055,287TOTALS
              
              
              23,025,649
              
              
              21,480,612
              
              
              14,778,568OPERATING
                  LOSS
              
              
              (6,367,257
              )
              
              (8,114,407
              )
              
              (5,636,340
              )Other
                  income (expense)Gain
                  on settlement of accounts payable
              
              
              —
              
              
              —
              
              
              15,190Gain
                  (loss) on sale of customers, and property and equipment
              
              
              (110,052
              )
              
              —
              
              
              715,696Interest
                  income
              
              
              27,729
              
              
              128,909
              
              
              232,787Interest
                  expense
              
              
              (1,059,079
              )
              
              (25,556
              )
              
              (7,771
              )NET
                  LOSS
              
              $
              (7,508,659
              )
              $
              (8,011,054
              )
              $
              (4,680,438
              )BASIC
                  AND DILUTED LOSS PER COMMON SHARE
              
              $
              (0.15
              )
              $
              (0.16
              )
              $
              (0.10
              )WEIGHTED
                  AVERAGE COMMON SHARES OUTSTANDING
              
              
              51,307,618
              
              
              50,204,409
              
              
              48,479,204




See
      accompanying notes to the consolidated financial statements




36




**MDU
      COMMUNICATIONS INTERNATIONAL, INC.**


**Consolidated
      Statements of Stockholders’ Equity**


**Years
      Ended September 30, 2007, 2006 and 2005**





**Common
                Stock**
              **(Shares)**
            
            **Common
                Stock**
              **(Amount)**
            
            **Additional**
              **Paid-in
                Capital**
            
            **Unearned**
              **Compensation**
            
            **Accumulated**
              **Deficit**
            
            **Total****Balance,
                October 1, 2004**
            
            
            42,672,671
            
            $
            42,673
            
            $
            42,122,896
            
            $
            (2,129,844
            )
            $
            (26,264,861
            )
            $
            13,770,864Issuance
                of common stock through employee stock purchase plan
            
            
            18,040
            
            
            18
            
            
            38,690
            
            
            
            
            
            
            
            
            38,708Issuance
                of common stock and warrants in connection with private
                placement
            
            
            6,063,440
            
            
            6,063
            
            
            15,039,381
            
            
            
            
            
            
            
            
            15,045,444Issuance
                of common stock for warrants exercised
            
            
            449,667
            
            
            450
            
            
            448,508
            
            
            
            
            
            
            
            
            448,958Issuance
                of common stock for options exercised
            
            
            1,004,104
            
            
            1,006
            
            
            408,766
            
            
            
            
            
            
            
            
            409,772Effect
                of variable accounting for options
            
            
            
            
            
            
            
            
            271,885
            
            
            
            
            
            
            
            
            271,885Issuance
                of common stock in exchange for termination of agreements
            
            
            105,000
            
            
            105
            
            
            468,595
            
            
            (198,500
            )
            
            
            
            
            270,200Cancellation
                of common stock and warrants in exchange for terminated
                agreements
            
            
            (500,000
            )
            
            (500
            )
            
            (1,604,500
            )
            
            1,178,959
            
            
            
            
            
            (426,041
            )Amortization
                of unearned compensation
            
            
            
            
            
            
            
            
            
            
            
            599,910
            
            
            
            
            
            599,910Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,680,438
            )
            
            (4,680,438
            )**Balance,
                October 1, 2005**
            
            
            49,812,922
            
            
            49,815
            
            
            57,194,221
            
            
            (549,475
            )
            
            (30,945,299
            )
            
            25,749,262Effect
                of adoption of SFAS 123R
            
            
            
            
            
            
            
            
            
            
            
            549,475
            
            
            
            
            
            549,475Issuance
                of common stock through employee stock purchase plan
            
            
            162,678
            
            
            161
            
            
            175,481
            
            
            
            
            
            
            
            
            175,642Issuance
                of common stock for employee bonuses
            
            
            86,385
            
            
            86
            
            
            99,747
            
            
            
            
            
            
            
            
            99,833Issuance
                of common stock for warrants exercised
            
            
            350,000
            
            
            350
            
            
            87,150
            
            
            
            
            
            
            
            
            87,500Issuance
                of common stock for options exercised
            
            
            50,136
            
            
            50
            
            
            16,494
            
            
            
            
            
            
            
            
            16,544Issuance
                of warrants in connection with credit line agreement
            
            
            
            
            
            
            
            
            290,000
            
            
            
            
            
            
            
            
            290,000Share-based
                compensation - employees
            
            
            
            
            
            
            
            
            1,048,856
            
            
            
            
            
            
            
            
            1,048,856Share-based
                compensation credit - nonemployees
            
            
            
            
            
            
            
            
            (87,952
            )
            
            
            
            
            
            
            
            (87,952
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,011,054
            )
            
            (8,011,054
            )**Balance,
                October 1, 2006**
            
            
            50,462,121
            
            
            50,462
            
            
            58,823,997
            
            
            -
            
            
            (38,956,353
            )
            
            19,918,106Issuance
                of common stock for accrued compensation
            
            
            311,008
            
            
            311
            
            
            192,513
            
            
            
            
            
            
            
            
            192,824Issuance
                of common stock for employee bonuses
            
            
            210,473
            
            
            210
            
            
            131,145
            
            
            
            
            
            
            
            
            131,355Issuance
                of common stock through employee stock purchase plan
            
            
            32,003
            
            
            32
            
            
            41,358
            
            
            
            
            
            
            
            
            41,390Issuance
                of restricted common stock for compensation for services to be
                rendered
            
            
            140,000
            
            
            140
            
            
            113,860
            
            
            
            
            
            
            
            
            114,000Issuance
                of common stock for options exercised, including effects of net share
                settlements
            
            
            401,384
            
            
            401
            
            
            83,103
            
            
            
            
            
            
            
            
            83,504Share-based
                compensation - employees
            
            
            
            
            
            
            
            
            822,525
            
            
            
            
            
            
            
            
            822,525Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,508,659
            )
            
            (7,508,659
            )**Balance,
                September 30, 2007**
            
            
            51,556,989
            
            $
            51,556
            
            $
            60,208,501
            
            $
            -
            
            $
            (46,465,012
            )
            $
            13,795,045




See
      accompanying notes to the consolidated financial statements




37




**MDU
      COMMUNICATIONS INTERNATIONAL, INC.**


**Consolidated
      Statements of Cash Flows**


**Years
      Ended September 30, 2007, 2006 and 2005**




**Years
                  ended September 30,****2007**
              
              **2006**
              
              **2005**OPERATING
                  ACTIVITIESNet
                  loss
              
              $
              (7,508,659
              )
              $
              (8,011,054
              )
              $
              (4,680,438
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Bad
                  debt provision
              
              
              191,989
              
              
              107,044
              
              
              63,658Inventory
                  provision
              
              
              —
              
              
              57,977
              
              
              69,821Depreciation
                  and amortization
              
              
              5,384,562
              
              
              4,391,640
              
              
              3,055,287Share-based
                  compensation expense - employees
              
              
              822,525
              
              
              1,048,856
              
              
              —Share-based
                  compensation expense - nonemployees
              
              
              63,125
              
              
              398,394
              
              
              599,910Effect
                  of variable accounting for stock options
              
              
              —
              
              
              —
              
              
              271,885Effect
                  of issuance of common stock in exchange for termination of
                  agreement
              
              
              —
              
              
              —
              
              
              270,200Effect
                  of cancellation of common stock and warrants in exchange for termination
                  of agreement
              
              
              —
              
              
              —
              
              
              (426,041
              )Charge
                  to interest expense for amortization of deferred finance costs
                  and debt
                  discount
              
              
              195,873
              
              
              7,415
              
              
              —Compensation
                  expense for issuance of common stock through employee stock purchase
                  plan
              
              
              19,808
              
              
              50,290
              
              
              —Compensation
                  expense for issuance of common stock for employee bonuses
              
              
              37,240
              
              
              99,833
              
              
              —Compensation
                  expense for issuance of common stock for employee services
              
              
              33,945
              
              
              83,634
              
              
              —Compensation
                  expense for issuance of restricted common stock for services to
                  be
                  rendered
              
              
              73,500
              
              
              —
              
              
              —Gain
                  on settlement of accounts payable
              
              
              —
              
              
              —
              
              
              (15,190
              )Loss
                  (gain) on sale of customers and property and equipment
              
              
              110,052
              
              
              —
              
              
              (715,696
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (931,044
              )
              
              (186,825
              )
              
              (687,404
              )Prepaid
                  expenses and deposits
              
              
              (217,132
              )
              
              (124,338
              )
              
              (101,511
              )Accounts
                  payable
              
              
              687,132
              
              
              (65,043
              )
              
              602,579Other
                  accrued liabilities
              
              
              205,302
              
              
              234,657
              
              
              565,436Deferred
                  revenue
              
              
              264,380
              
              
              (85,392
              )
              
              274,575Net
                  cash used in operating activities
              
              
              (567,402
              )
              
              (1,992,912
              )
              
              (852,929
              )INVESTING
                  ACTIVITIESPurchase
                  of property and equipment
              
              
              (8,053,457
              )
              
              (7,549,353
              )
              
              (11,402,476
              )Proceeds
                  from sale of customers and related property and equipment
              
              
              80,715
              
              
              —
              
              
              1,232,648Acquisition
                  of intangible assets
              
              
              (3,276,742
              )
              
              (42,864
              )
              
              (390,600
              )Net
                  cash used in investing activities
              
              
              (11,249,484
              )
              
              (7,592,217
              )
              
              (10,560,428
              )FINANCING
                  ACTIVITIESNet
                  proceeds from credit line borrowing
              
              
              9,562,874
              
              
              3,879,569
              
              
              —Deferred
                  financing costs
              
              
              (200,000
              )
              
              (444,910
              )
              
              —Proceeds
                  from notes payable
              
              
              —
              
              
              —
              
              
              200,000Payments
                  of notes payable
              
              
              (48,838
              )
              
              (45,459
              )
              
              (3,694
              )Proceeds
                  from purchase of common stock through employee stock purchase
                  plan
              
              
              21,582
              
              
              41,718
              
              
              38,708Proceeds
                  from private placement of common stock and warrants
              
              
              —
              
              
              —
              
              
              15,045,444Proceeds
                  from options exercised
              
              
              83,504
              
              
              16,544
              
              
              409,772Proceeds
                  from warrants exercised
              
              
              —
              
              
              87,500
              
              
              448,958Payments
                  of capital lease obligations
              
              
              (73,879
              )
              
              (68,915
              )
              
              (73,532
              )Net
                  cash provided by financing activities
              
              
              9,345,243
              
              
              3,466,047
              
              
              16,065,656**NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              (2,471,643
              )
              
              (6,119,082
              )
              
              4,652,299**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR**
              
              
              3,238,939
              
              
              9,358,021
              
              
              4,705,722**CASH
                  AND CASH EQUIVALENTS, END OF YEAR**
              
              $
              767,296
              
              $
              3,238,939
              
              $
              9,358,021




38


**Years
                  ended September 30,****2007**
              
              **2006**
              
              **2005****SUPPLEMENTAL
                  DISCLOSURE OF NONCASH INVESTING AND FINANCING
                  ACTIVITIES:**Issuance
                  of 256,258 and 126,720 shares of common stock for accrued
                  compensation
              
              $
              158,879
              
              $
              133,924
              
              $
              —Issuance
                  of 151,799 shares of common stock for employee bonuses
              
              $
              94,115
              
              $
              —
              
              $
              —Issuance
                  of 45,000 shares of restricted common stock for services to be
                  rendered
              
              $
              40,500
              
              $
              —
              
              $
              —Issuance
                  of warrants in connection with credit line borrowing
                  agreement
              
              $
              —
              
              $
              290,000
              
              $
              —Equipment
                  acquired through capital lease obligations
              
              $
              —
              
              $
              166,533
              
              $
              35,368**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION**Interest
                  paid
              
              $
              863,206
              
              $
              25,556
              
              $
              7,771


See
      accompanying notes to the consolidated financial statements




39


**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 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, provision for inventory reserve,
      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.





*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 financing 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.





*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:





Telecommunications
                equipment, installed
            
            
            7
                yearsComputer
                equipment
            
            
            5
                yearsFurniture
                and fixtures
            
            
            5
                years




40





*Intangible
      Assets*





Intangible
      assets consist of acquired building access agreements and subscriber lists
      and
      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, 2007, 2006 and 2005.





*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
      5, 2007, the Company signed a new Key Account Operator Agreement with DIRECTV
      (the "New Agreement"). The New Agreement is effective June 1, 2007 and replaces
      the current agreement dated September 29, 2003 which was already in its first
      renewal period. The New Agreement will result in an increase in the amount
      of
      "residual" fees the Company receives from DIRECTV. The Company is paid these
      fees monthly by DIRECTV based upon the programming revenue DIRECTV receives
      from
      subscribers within the Company's multi-dwelling unit properties. The new
      "residual" rate will apply to both the Company's existing subscriber base and
      for all new subscribers the Company adds. Additionally, the number of DIRECTV
      digital programming packages that qualify for residual fees in determining
      the
      total monthly fee paid to the Company by DIRECTV has increased. The method
      of
      determining the recurring monthly residual fees will remain unchanged, however,
      the new higher rate, by approximately 30%, will be applied in the estimation
      of
      the recurring monthly residual fees.





Under
      the
      New Agreement, the Company will continue to be paid an "activation fee" for
      every new subscriber that activates a DIRECTV commissionable programming
      package. The activation fee will be paid on a gross activation basis in the
      Company's choice and exclusive properties and on a one-time basis in the
      Company's bulk properties, as was previously the case under the terms of the
      Company's previous agreement with DIRECTV. The "activation fee" paid will be
      slightly lower than that previously paid to the Company for subscribers located
      in the Company's choice and exclusive properties, however, it will remain the
      same amount as previously paid to the Company for subscribers in the Company's
      bulk properties. The method of calculating the activation fees and the treatment
      of these fees will remain the same as prior to the New Agreement, however,
      the
      new rates as stated in the New Agreement will be applied.





41





The
      New
      Agreement calls for an “Analog Commission” to the Company for the addition of a
      new Bulk Choice Advantage (“BCA”) subscriber. The 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 BCA “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. The New Agreement
      also offers the “Individual Subscriber PPC” (prepaid programming commission).
      Contrary to the “Analog Commission,” the payment of the “Individual Subscriber
      PPC” by DIRECTV 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 comprised of two
      components, commission and equipment discount. The commission portion is
      recognized over one year in conjunction with the annual commitment.
      However, the portion of the “Individual Subscriber PPC” that relates to the
      equipment discount is currently recognized in conjunction with the depreciation
      of the related equipment over seven years.





*Deferred
      Revenue:*





The
      Company’s line item of deferred revenue represents (i) payments by subscribers
      in advance of the delivery of services, (ii) the commission that DIRECTV pays
      the Company for obtaining subscribers with an annual commitment, and (iii)
      the
      prepaid commission received from DIRECTV for certain fixed asset equipment
      associated with the subscribers in (ii), above.





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 direct-to-home and bulk-choice-advantage 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.





However,
      the equipment referenced in (iii) above are set-top receivers and due to the
      fact that the Company depreciates this equipment over seven years, the prepaid
      commission received for the receivers is currently recognized over the seven
      years. The portion that is not recognized within twelve months (current) is
      set
      forth in the long term portion of the deferred revenue.





*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 pursuant to the provisions of Statement of
      Financial Accounting Standards No. 128, “Earnings Per 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, 2007, 2006 and 2005, 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, 2007, 2006 and 2005 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:




42




**For
                the years ended September 30,****2007**
            
            **2006**
            
            **2005**Warrants
            
            
            3,969,567
            
            
            6,298,885
            
            
            5,648,885Options
            
            
            2,743,340
            
            
            2,602,072
            
            
            3,300,342Potentially
                dilutive common shares
            
            
            6,712,907
            
            
            8,900,957
            
            
            8,949,227




*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, 2007, 2006 and 2005 and cumulative
      translation gains and losses as of September 30, 2007, 2006 and 2005 were
      not material.





*Share-Based
      Compensation*





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123R (revised 2004),
“Share-Based Payment,” (“SFAS 123R”) which revised SFAS No. 123, “Accounting for
      Stock-Based Compensation” (“SFAS 123”) and superseded the previous accounting
      under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
      Issued to Employees,” (“APB 25”). SFAS 123R requires all share-based payments to
      employees, including grants of employee stock options, to be 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 adopted the provisions of SFAS 123R effective October 1, 2005 and has
      selected the Black-Scholes method of valuation for share-based compensation.
      The
      Company used the modified prospective transition method which requires that
      compensation cost be recorded as earned for new share-based payments and for
      all
      unvested stock options outstanding at the beginning of the first quarter of
      adoption of SFAS 123R. The Company’s Consolidated Financial Statements for the
      years ended September 30, 2007 and 2006 reflect the impact of the adoption
      of
      SFAS 123R. In accordance with the modified prospective transition method, the
      Company’s Consolidated Financial Statements for prior periods have not been
      restated to reflect, and do not include, the impact of SFAS 123R.




Prior
      to
      the adoption of SFAS 123R, the Company accounted for its stock-based employee
      compensation plans under the intrinsic value method in accordance with APB
      25
      and provided pro forma information as if a fair value-based method had been
      used
      as further disclosed in Note 4. Under APB 25 and its related interpretations,
      employee stock options with cashless exercise provisions and options that had
      been re-priced were subject to variable accounting, pursuant to which the
      Company recognized a charge or credit to compensation expense for the increase
      or decrease in the excess of the market price of the Company’s stock over the
      exercise price of the option in each period.





Stock-based
      compensation charges arising from options and warrants issued to non-employees
      are recorded in accordance with the consensus in Emerging Issues Tasks Force
      (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to Other Than
      Employees for Acquiring, or in Conjunction with Selling, Goods or Services”,
      over the service period. The amount of the compensation is based on the fair
      value of the option or warrant at the applicable measurement date.





*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.




43


*Fair
      Value of Financial Instruments*





The
      fair
      value of the Company’s cash and cash equivalents, accounts receivable, accounts
      payable, other accrued liabilities, notes payable, revolving credit line
      borrowings and capital lease obligations at September 30, 2007 and 2006 are
      estimated to approximate their carrying values due to the relative liquidity
      or
      short-term nature of these instruments.





*Concentrations*





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





The
      Company places its cash and cash equivalents with high credit quality
      institutions.  At September 30, 2007, the Company has cash balances that
      exceed Federally insured limits.





Accounts
      receivable from DIRECTV (see Note 6 to the Consolidated Financial
      Statements) at September 30, 2007 and 2006, represented 32% and 47%,
      respectively, of total trade accounts receivable. Revenues realized from DIRECTV
      represented 21%, 23% and 25% of total revenues in the years ended
      September 30, 2007, 2006 and 2005, respectively. Management believes the
      Company has an adequate allowance for potential losses from such concentration.





*Income
      Taxes*





The
      Company accounts for income taxes pursuant to the asset and liability method
      which requires deferred income tax assets and liabilities to be computed
      annually for temporary differences between the financial statement and tax
      bases
      of assets and liabilities that will result in taxable or deductible amounts
      in
      the future based on enacted tax laws and rates applicable to the periods in
      which the differences are expected to affect taxable income. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amount expected to be realized. 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.





*Other
      Recently Issued and Not Yet Effective Accounting Standards*





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes.* FIN
      48
      prescribes 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. FIN 48 also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. FIN 48 will apply to fiscal years beginning after
      December 15, 2006, with earlier adoption permitted. The adoption of FASB
      Interpretation No. 48 is not expected to have a material impact on our financial
      position and results of operations.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurement* (“SFAS
      157”). SFAS 157 defines fair value and establishes a framework for measuring
      fair value in accordance with accounting principles generally accepted in the
      United States of America. SFAS 157 also expands the disclosures related to
      the
      fair value measurements used to value assets and liabilities. SFAS 157 is
      effective for fiscal years beginning after November 15, 2008 and interim periods
      within those fiscal years. We are currently evaluating whether the adoption
      of
      SFAS 157 will have a material impact on our financial statements.




44


In
      September 2006, the Securities and Exchange Commission (“SEC”) released Staff
      Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”). SAB 108 provides guidance on how the effects of the carryover or reversal
      of prior year financial statement misstatements should be considered in
      quantifying a current year misstatement. Prior practice allowed the evaluation
      of materiality on the basis of (i) the error quantified as the amount by which
      the current year income statement was misstated (rollover method) or (ii) the
      cumulative error quantified as the cumulative amount by which the current year
      balance sheet was misstated (iron curtain method). Reliance on either method
      in
      prior years could have resulted in misstatement of the financial statements.
      The
      guidance provided in SAB 108 requires both methods to be used in evaluating
      materiality. Immaterial prior year errors may be corrected with the first filing
      of prior year financial statements after adoption. The cumulative effect of
      the
      correction would be reflected in the opening balance sheet with appropriate
      disclosure of the nature and amount of each individual error corrected in the
      cumulative adjustment, as well as a disclosure of the cause of the error and
      that the error had been deemed to be immaterial in the past. We do not believe
      the adoption of this pronouncement will have any material effects on our
      consolidated financial position, results of operations, or cash flows.





In
      September 2006, the Emerging Issues Task Force, or EITF, issued EITF
      No. 06-1, *Accounting
      for Consideration Given by a Service Provider to a Manufacturer or Reseller
      of
      Equipment Necessary for an End-Customer to Receive Service from the Service
      Provider* (“EITF
      No. 06-1”), which provides guidance to service providers regarding the
      proper reporting of consideration given to manufacturers or resellers of
      equipment necessary for an end-customer to receive its services. Depending
      on
      the circumstances, such consideration is reported as either an expense or a
      reduction of revenues. EITF No. 06-1 is effective for fiscal years beginning
      after June 15, 2007. We do not expect a material impact on our consolidated
      results of operations, but the adoption of EITF No. 06-1 may effect how certain
      considerations are classified in our consolidated results of operations.





In
      February 2007, the FASB, issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      Amendment of FASB Statement No. 115* (“SFAS
      159”) which permits, but does not require, companies to report at fair value the
      majority of recognized financial assets, financial liabilities and firm
      commitments. Under SFAS 159, unrealized gains and losses on items for which
      the
      fair value option is elected are reported in earnings at each subsequent
      reporting date. We are currently assessing the effect SFAS 159 may have, if
      any,
      on our consolidated financial position, results of operations or cash flows.





In
      December 2007, the FASB issued SFAS No. 141 ( revised
      2007), *Business
      Combinations* (“SFAS
      141(R)”) *.* In
      SFAS
      141(R), the FASB retained the fundamental requirements of Statement No. 141
      to
      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
      standard 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. SFAS
      141(R) is effective for annual periods beginning on or after December 15, 2008. We
      are
      currently evaluating whether the adoption of SFAS 141(R) will have a material
      impact on our financial statements.




In
      December 2007, the FASB issued SFAS No. 160 , *Noncontrolling
      Interests in Consolidated Financial Statements* (“SFAS
      160”) *.* SFAS 160
      amends Accounting Research Bulletin No. 51, *Consolidated
      Financial Statements,* and
      requires all entities to report noncontrolling (minority) interests in
      subsidiaries within equity in the consolidated financial statements, but
      separate from the parent shareholders’ equity. SFAS 160 also requires any
      acquisitions or dispositions of noncontrolling interests that do not result
      in a
      change of control to be accounted for as equity transactions.  Further,
      SFAS 160 requires that a parent recognize a gain or loss in net income when
      a
      subsidiary is deconsolidated. SFAS 160 is effective for annual periods beginning
      on or after December 15, 2008. We
      are
      currently evaluating whether the adoption of SFAS 160 will have a material
      impact on our financial statements.




The
      FASB,
      the EITF and the SEC have issued certain other accounting pronouncements and
      regulations as of September 30, 2007 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
      2007, 2006 and 2005, 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.




45




**3.**
            **DEBT
                AND CAPITAL LEASE
                OBLIGATIONS**





*Credit
      Facility*





On
      September 11, 2006, the Company entered into a Loan and Security Agreement
      and
      ancillary Transaction Documents 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.





The
      Credit Facility has a term of five years with interest only payable monthly
      on
      the principal outstanding. The 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 final $5,000,000 at prime plus 1%. The
      Company is under no obligation to draw an entire increment at one time. As
      of
      September 30, 2007, the Company had drawn into the second and third increments
      and has borrowed a total of $13,442,443 under the Credit Facility, which is
      reflected in the accompanying consolidated balance sheet as of September 30,
      2007, net of debt discount of $217,882. The outstanding principal is payable
      on
      September 11, 2011. As of September 30, 2007, $6,557,557 remains available
      for
      borrowing under the Credit Facility subject to covenants described below.





As
      a
      result of drawing into the second $5,000,000 increment, the Company incurred
      an
      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 2008.





As
      a
      result of drawing into the third $5,000,000 increment, 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 2008. Additionally, Morgan Joseph & Co. Inc., who acted as
      advisor and placement agent, also received a success fee of 2% (or $100,000)
      when the Company drew into the third increment, which was charged to deferred
      finance costs that will be amortized to interest expense using the straight-line
      method over the remaining life of the Credit Facility.





The
      amount that the Company can draw from the Credit Facility is equal to the
      Company’s borrowing base which, in large part, is determined by future revenue
      and costs accruing from the Company’s access agreements. The borrowing base of
      the Company currently exceeds $20,000,000. To access the Credit Facility above
      $10,000,000, the Company must have positive Earnings Before Interest, Taxes,
      Depreciation and Amortization (“EBITDA”), as defined, and 50,000 subscribers. To
      access the Credit Facility above $15,000,000, the Company must have positive
      EBITDA (as adjusted) and 55,000 subscribers.  The Credit Facility can be
      prepaid upon thirty days notice with a penalty of 4% to 1% of the outstanding
      principal balance depending on the prepayment timing.





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, 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.




46




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, 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 warrants were issued pursuant to exemption from registration found in Rule
      506 of Regulation D promulgated under the Securities Act of 1933, as amended,
      as
      the lenders are "accredited investors" as such term is defined in Rule 501
      of
      said Regulation D. 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.




*Capital
      Lease Obligations*





The
      Company finances certain equipment acquisitions through capital lease agreements
      that expire through 2009. Future minimum rental payments under capital leases
      and related information in years subsequent to September 30, 2007 is presented
      in the table below:





**Year
                ending September 30,**2008
            
            $
            88,9502009
            
            
            12,618Total
                minimum payments
            
            
            101,568Less
                amount representing interest
            
            
            8,098Present
                value of net minimum payments
            
            
            93,470Less
                current portion
            
            
            81,291Long-term
                portion
            
            $
            12,179





The
      net
      book value of equipment under capital leases as of September 30, 2007 and
      2006 was $143,269 and $154,159, respectively, and is included in property
      and equipment.





*Notes
      Payable*





Notes
      payable under term loans outstanding as of September 30, 2007 consisted of
      the following:





**2007**
            
            **2006**Wachovia
                Bank Note**(1)**-
                current portion
            
            $
            51,723
            
            $
            48,732Wachovia
                Bank Note**(1)**-
                long term
            
            
            50,286
            
            
            102,115Total
            
            $
            102,009
            
            $
            150,847








(1)
            On
                August 1, 2005, the Company entered into an unsecured Term Loan and
                Promissory Note Agreement with Wachovia Bank, National Association
                for
                $200,000. The note had a term of four years commencing September
                1, 2005
                with equal monthly payments of $4,719 of principal and interest at
                a fixed
                rate of 6.15% per annum through July,
                2009.




47


**4.**
            **STOCKHOLDERS’
                EQUITY**





*Preferred
      Shares*





As
      of
      September 30, 2007, the Company was 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, 2007 and 2006.





*Common
      Stock Issued to Consultants*





On
      April
      6, 2004 and May 7, 2004, respectively, the Company issued 250,000 shares of
      common stock and warrants for the purchase of 250,000 shares of common stock
      exercisable at $1.84 per share to each of PDI Communications Inc. (“PDI”) and
      B.A.A.M., LLC (“BAAM”) pursuant to an agreement for future assistance. The
      market value of the shares was $1,100,000 on the date of issuance, which
      resulted in a charge to unearned compensation and an increase in additional
      paid-in capital in that amount. The unearned compensation was being amortized
      to
      expense over three years.





On
      November 18, 2004, the Company and PDI executed an agreement for the termination
      of the agreement and PDI returned to the Company for cancellation the original
      stock certificate representing 250,000 shares of common stock and returned
      to
      the Company for cancellation the original warrant agreement for the purchase
      of
      250,000 shares of common stock exercisable at $1.84 per share. In return, the
      Company re-issued to PDI a stock certificate for 50,000 registered shares of
      common stock. The Company had initially recorded the fair value of the 250,000
      shares and the warrants to purchase 250,000 shares of $1,055,000 as unearned
      compensation of which $219,791 was amortized to expense during the period from
      February 12, 2004 to September 30, 2004. The 50,000 shares issued in connection
      with the termination of the PDI Agreement had a fair value of $152,500.
      Accordingly, the Company recorded a net credit to expense of $67,291 during
      the
      three months ended December 31, 2004 thereby reducing the total compensation
      charged to expense over the period from February 12, 2004 to November 18, 2004
      to $152,500. The Company also reversed the remaining $835,209 of unearned
      compensation.





On
      May
      19, 2005, the Company and BAAM executed an agreement for the termination of
      the
      agreement resulting in the return to the Company for cancellation of the
      original stock certificate representing 250,000 shares of common stock. In
      return, the Company re-issued to BAAM a stock certificate for 55,000 registered
      shares of common stock. The Company had initially recorded the fair value
      of the 250,000 shares of $550,000 as unearned compensation of which $206,250
      was
      amortized to expense during the period from February 12, 2004 to March 31,
      2005.
      The 55,000 shares issued in connection with the termination of the BAAM
      agreement had a fair value of $117,700. Accordingly, the Company recorded a
      net
      credit to expense of $88,550 during the three months ended June 30, 2005 thereby
      reducing the total compensation charged to expense over the period from February
      12, 2004 to May 19, 2005 to $117,700. The Company also reversed the remaining
      $343,750 of unearned compensation.





*Employee
      Stock Option Plans (“Employee Plans”)*





On
      November 24, 1998, the Company established an Employee Stock Option Plan
      whereby certain employees, officers and directors were granted options to
      purchase up to an aggregate of 600,000 common shares of the Company. On
      February 5, 2000, the Company approved the 2000 Incentive Stock Option Plan
      (“2000 Option Plan”). Under the 2000 Option Plan, the Company was authorized to
      grant certain employees, consultants, officers and directors of the Company
      and
      its affiliates options to purchase up to 4,000,000 common shares of the Company
      at $5.00 per share. The options have vesting periods ranging from immediate
      to
      three years after the grant date.





On
      April 11, 2001, the Board of Directors approved the 2001 Stock Option Plan
      (“2001 Option Plan”) to replace the 2000 Option Plan. The 2001 Option Plan is in
      all respects identical to the 2000 Option Plan, which had not been approved
      by a
      vote of the stockholders within one year of its adoption by the Board and
      therefore became ineffective. The 2001 Option Plan was approved by a vote of
      the
      stockholders at the Annual General Meeting on May 10, 2001.  As a
      result of previous repricings, the Company was subject to variable-plan
      accounting for such options in 2005 and, accordingly, it recognized noncash
      charges for compensation expense of $265,088 during the year ended
      September 30, 2005 based on the net increases in the market value of the
      options subsequent to the respective dates of repricing.  On August 5,
      2004, the stockholders voted at the Annual General Meeting to increase the
      number of shares available under the 2001 Option Plan from 4,000,000 to
      5,600,000.




48


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 years ended September 30, 2005, 2006 and 2007:




**Number of shares**
            
            **Weighted-average****exercise price ($)****Options
                outstanding at October 1, 2004**
            
            
            2,539,306
            
            
            0.77Options
                granted (weighted average fair value of $2.09 per share)
            
            
            2,100,000
            
            
            2.51Options
                cancelled/expired
            
            
            (334,860
            )
            
            2.69Options
                exercised
            
            
            (1,004,104
            )
            
            0.41**Options
                outstanding at September 30, 2005**(1)
            
            
            3,300,342
            
            
            1.79Options
                granted
            
            
            —
            
            
            —Options
                cancelled/expired
            
            
            (648,134
            )
            
            1.83Options
                exercised (2)
            
            
            (50,136
            )
            
            0.33**Options
                outstanding at September 30, 2006**
            
            
            2,602,072
            
            
            1.81Options
                granted (weighted average fair value of $0.38 per share)
            
            
            595,000
            
            
            0.75Options
                cancelled/expired
            
            
            (52,348
            )
            
            0.69Options
                exercised (3)
            
            
            (401,384
            )
            
            0.33**Options
                outstanding at September 30, 2007**(4)
            
            
            2,743,340
            
            
            1.82**Options
                exercisable at September 30, 2007**(4)
            
            
            2,169,012
            
            
            1.95










(1)
            As
                discussed above, the Company re-priced certain options and, as a
                result,
                such options were subject to variable accounting provisions prior
                to the
                adoption of SFAS 123R.  Accordingly, during the year ended September
                30, 2005, the Company recognized charges to general and administrative
                expenses of $271,885 for the increase in market price per share of
                the
                Company’s common stock.





(2)
            The
                aggregate intrinsic value of options exercised during the year ended
                September 30, 2006 was $22,818.





(3)
            Of
                the 509,334 options exercised during the year ended September 30,
                2007,
                256,292 options were granted cashless exercise status by the Board
                of
                Directors, so that upon exercise of these options, 85,602 options
                were
                surrendered back to the Company during the three months ended December
                31,
                2006 at fair market value of $0.74 per share and an additional 22,348
                options were surrendered back to the Company during the three months
                ended
                June 30, 2007 at fair market value of $0.95 in lieu of the exercise
                price,
                with the remaining 148,342 shares issued to the employees. The aggregate
                intrinsic value of options exercised during the year ended September
                30,
                2007 was $169,244.(4)
            The
                weighted average remaining contractual term of outstanding and exercisable
                options at September 30, 2007 was 2.6 and 2.4 years, respectively.
                The aggregate intrinsic value of outstanding and exercisable options
                at
                September 30, 2007 was $125,612 and $93,458, respectively. An additional
                charge of approximately $450,000 is expected to vest and be recognized
                subsequent to September 30, 2007 over a weighted average period of
                24
                months. The charge will be amortized to general and administrative
                expense
                as the options vest in subsequent periods.





The
      Company recorded the share-based compensation expense under SFAS 123R of
      $822,525 and $1,048,856 for the years ended September 30, 2007 and 2006,
      respectively, which is included in general and administrative expense. At
      September 30, 2007, a total of 149,342 shares of common stock were
      available for grant.




49


Prior
      to
      the adoption of SFAS 123R, as explained in Note 2, the Company accounted for
      its
      stock-based employee compensation plans under the intrinsic value method per
      APB
      25, whereby compensation cost was only recorded for the excess, if any, of
      the
      quoted market price of the common shares over the exercise price at the date
      of
      grant for all employee stock options issued. SFAS 123 had established accounting
      and disclosure requirements using a fair-value-based method of accounting for
      stock-based employee compensation plans. However, SFAS 123, and SFAS
      148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
      permitted a company to elect to continue to apply the intrinsic-value-based
      method of accounting described above until it adopted SFAS 123R provided it
      made
      appropriate pro forma disclosures of the use of a method
      that estimated the fair value of the options at the grant date and then
      amortized the fair value to expense over the options' vesting period. For the
      year ended September 30, 2005, the Company has shown its historical results
      of operations using the intrinsic value method under the provisions of APB
      25
      and, accordingly, is required to present the additional pro forma information
      in
      the table that follows showing the effects on its historical results of
      operations of the use of a method that estimates the fair value of the options
      at the grant date and then amortizes the fair value to expense over the options’
vesting period:




**Year
                endedSeptember 30, 2005**Net
                loss, as reported
            
            $
            (4,680,438
            )Add:
                Total stock-based employee compensation expense determined under
                the
                intrinsic value method for all awards, net of related tax effects
            
            
            304,485Deduct:
                Total stock-based employee compensation expense determined under
                the
                Black-Scholes option-pricing model (which is a fair value based method)
                for all awards, net of related tax effects
            
            
            (1,041,900
            )Pro
                forma net loss
            
            $
            (5,417,853
            )Basic
                and diluted net loss per share:As
                reported
            
            $
            (0.10
            )Pro
                forma
            
            $
            (0.11
            )





*Warrants
      to Purchase Common Shares*





The
      following table summarizes all of the Company’s warrant activity during the
      years ended September 30, 2007, 2006 and 2005:




**Number
                of****warrants outstanding**
            
            **Weighted avg. exercise****price
                per share ($)**Outstanding
                at October 1, 2004
            
            
            4,226,348
            
            
            1.57Issued
                (A)
            
            
            2,122,204
            
            
            3.40Cancelled
                (B)
            
            
            (250,000
            )
            
            1.84Exercised
                (C)
            
            
            (449,667
            )
            
            1.00Outstanding
                at September 30, 2005
            
            
            5,648,885
            
            
            2.29Issued
                (D)
            
            
            1,000,000
            
            
            0.82Cancelled
                (E)
            
            
            —
            
            
            —Exercised
                (F)
            
            
            (350,000
            )
            
            0.25Outstanding
                at September 30, 2006
            
            
            6,298,885
            
            
            2.17Issued
                (G)
            
            
            —
            
            
            —Cancelled
                (H)
            
            
            (2,329,317
            )
            
            2.13Exercised
                (I)
            
            
            —
            
            
            —Outstanding
                at September 30, 2007
            
            
            3,969,568
            
            
            2.01







(A)
            In
                connection with the November 24, 2004 private placement described
                below,
                the Company issued warrants to purchase 2,122,204 shares of common
                stock
                at an exercise price of $3.40 per share that expire on November 24,
                2007.(B)
            As
                explained above, on November 18, 2004, the Company and PDI terminated
                an
                agreement executed on February 12, 2004. As part of the termination,
                PDI
                returned to the Company for cancellation the original warrant agreement
                for the purchase of 250,000 shares of common stock exercisable at
                $1.84
                per share originally issued on February 12, 2004.(C)
            During
                the year ended September 30, 2005, certain investors exercised warrants
                to
                purchase 253,000 shares of common stock with an exercise price of
                $0.33
                per share, 166,667 shares of common stock with an exercise price
                of $1.75
                per share, and 30,000 shares of common stock with an exercise price
                of
                $2.46 per share, and as a result, the Company received cash proceeds
                of
                $448,958.




50




(D)
            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 warrants had a fair value of $290,000. For the term of
                the
                warrants, they are subject to 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) two (2%) percent share penalty thereafter for
                each
                thirty days until effectiveness or one year, whichever is
                earlier.(E)
            During
                the year ended September 30, 2006, no warrants expired or were
                cancelled.(F)
            During
                the year ended September 30, 2006, certain investors exercised warrants
                to
                purchase 350,000 shares of common stock with an exercise price of
                $0.25
                per share, and as a result, the Company received cash proceeds of
                $87,500.(G)
            During
                the year ended September 30, 2007, no warrants were
                issued.(H)
            During
                the year ended September 30, 2007, 2,329,317 warrants to purchase
                shares
                of common stock expired; 40,000 warrants at an exercise price of
                $0.33,
                40,000 warrants at an exercise price of $0.65, 833,334 warrants at
                an
                exercise price of $1.75 and 1,415,983 warrants at an exercise price
                of
                $2.46.(I)
            During
                the year ended September 30, 2007, no warrants were
                exercised.





*Assumptions
      Used in Determining Fair Value of Stock Options and Warrants*





For
      purposes of determining the fair value of options and warrants using the
      Black-Scholes option pricing model, we used the following assumptions in the
      years ended September 30, 2007, 2006 and 2005:





**2007**
            
            **2006**
            
            **2005**Expected
                volatility
            52%
            
            52%
            
            76%Risk-free
                interest rate
            4.12%
            
            4.72%
            
            4.00%Expected
                life of option
            1
                to 5 years
            
            1
                to 5 years
            
            1
                to 5 yearsExpected
                dividends
            0%
            
            0%
            
            0%





*Employee
      Stock Purchase Plan*





On
      October 23, 2001, the Company established, and the stockholders approved,
      the 2001 Employee Stock Purchase Plan (the “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 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.





The
      maximum number of shares of Company common stock reserved under the Purchase
      Plan was originally 2,000,000 shares. On August 5, 2004, the stockholders voted
      to increase the number of shares available under the Purchase Plan to 2,800,000
      shares. As extended by the shareholders on June 1, 2006, the Purchase Plan
      shall
      terminate on August 5, 2014 or (i) upon the maximum number of shares being
      issued, or (ii) sooner terminated per the discretion of the administrator.
      The purchase price per share under the 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.




51


During
      the years ended September 30, 2007, 2006 and 2005, the Company issued
      32,003, 35,958 and 18,040 shares, respectively, to employees who directly
      purchased shares under the Purchase Plan through payroll deductions. The
      aggregate purchase price for those shares of $41,390, $175,642 and $38,708,
      respectively, 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. Funds derived from the employee purchase of Company common
      stock under the Purchase Plan can be used for general corporate purposes.





Additionally,
      during the year ended September 30, 2007, (i) the Company recognized
      compensation expense of $33,945 for the issuance of 54,750 shares of common
      stock for employee wages and $37,240 for the issuance of 58,674 shares of common
      stock for employee bonuses, and (ii) the Company issued 256,258 shares of common
      stock for $158,879 in compensation expense and 151,799 shares of common stock
      for $94,115 in employee bonuses that were previously accrued in the year ended
      in September 30, 2006, but had not yet been issued.





*Shares
      Issued Pursuant to Private Placement*





On
      November 24, 2004, the Company completed a $16.25 million private equity
      placement, pursuant to which the Company sold 6,063,440 units. Each unit
      consisted of one share of common stock and three-tenths of one three-year
      warrant to purchase one share of common stock at an exercise price of $3.40
      per
      share, to accredited investors at a per unit price of $2.68. After the payment
      of fees and expenses, the Company received net proceeds of $15,045,444 and
      issued 6,063,440 common shares and 2,122,204 warrants to purchase common
      shares.





**5.**
            **COMMITMENTS
                AND CONTINGENCIES**





*Litigation*





None





*Contracts*





The
      Company has 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, 2009 to make future
      minimum rental payments in years subsequent to September 30, 2007 as summarized
      in the following table:





**Year
                ending September 30,**
            
            **Minimal RentalPayments**2008
            
            $
            345,7372009
            
            
            229,196Total
                minimum payments
            
            $
            574,933





Rent
      expense under all operating leases amounted to $364,821, $368,105 and $193,374,
      respectively, for the years ended September 30, 2007, 2006 and
      2005.




52


**6.**
            **STRATEGIC
                ALLIANCE WITH DIRECTV**





On
      June
      5, 2007, the Company signed a new Key Account Operator Agreement with DIRECTV
      (the "New Agreement"). The New Agreement is effective June 1, 2007 and replaces
      the current agreement dated September 29, 2003 which was already in its first
      renewal period. A vast majority of the terms set forth in the September 29,
      2003
      agreement have been carried over to the New Agreement. The term of the New
      Agreement essentially mirrors the previous agreement, that being a three-year
      term with two two-year automatic renewals upon achieving a moderate level of
      subscriber additions.





The
      New
      Agreement will result in an increase in the amount of "residual" fees the
      Company receives from DIRECTV. The Company is paid these fees monthly by DIRECTV
      based upon the programming revenue DIRECTV receives from subscribers within
      the
      Company's multi-dwelling unit properties. The new "residual" rate will apply
      to
      both the Company's existing subscriber base and for all new subscribers the
      Company adds. Additionally, the number of DIRECTV digital programming packages
      that qualify for residual fees in determining the total monthly fee paid to
      the
      Company by DIRECTV has increased.





Under
      the
      terms of the New Agreement, the Company will continue to be paid an "activation
      fee" for every new subscriber that activates a DIRECTV commissionable
      programming package. The activation fee will be paid on a gross activation
      basis
      in the Company's choice and exclusive properties and on a one-time basis in
      the
      Company's bulk properties, as was previously the case under the terms of the
      Company's previous agreement with DIRECTV. The "activation fee" paid will be
      slightly lower than that previously paid to the Company for subscribers located
      in the Company's choice and exclusive properties, however, it will remain the
      same amount as previously paid to the Company for subscribers in the Company's
      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.





**7.**
            **GAIN/LOSS
                ON SALE OF CUSTOMERS AND RELATED PROPERTY AND
                EQUIPMENT**





On
      September 1, 2007, a 536 unit property that the Company acquired from another
      service provider terminated its contract prior to expiration pursuant to a
      certain provision of Florida condominium law relating strictly to new
      condominium boards, resulting in a loss of $124,297.





On
      June
      1, 2007, the Company received notification that a property, which was previously
      acquired by the Company, was exercising its previously negotiated right to
      terminate its access agreement with the Company. In accordance with the “Buyout
      Schedule” contained within the access agreement, upon payment of the buyout fee,
      ownership of the equipment transfers to the property. The Company received
      proceeds of $80,715 which resulted in a gain of $14,245.





On
      May
      31, 2005, the Company sold 447 subscribers and certain related property and
      equipment to Comcast of Maryland, Inc. for $1,049,048. The total gain on the
      sale was $1,046,088 of which, pursuant to the Joint Venture termination
      agreement, AvalonBay Communities, the former joint venture partner, received
      $411,708. The Company’s gain on the sale of this system, after expenses, was
      $634,380.





On
      November 8, 2004, the Company sold 102 subscribers and certain related property
      and equipment in a non-core 158-unit system to Comcast of Maryland, Inc. for
      $183,600. The total gain on the sale was $161,120 of which, pursuant to the
      Joint Venture termination agreement, AvalonBay Communities, the former joint
      venture partner, received $79,804. The Company's gain on the sale of this
      system, after expenses, was $81,316.





**8.**
            **ACQUISITIONS
                OF SUBSCRIBERS AND EQUIPMENT**





During
      the year ended September 30, 2007, the Company acquired access agreements and/or
      telecommunications equipment for a number of properties in various stages of
      completion and/or deployment.




53


On
      July
      19, 2007, the Company executed an asset purchase agreement to acquire 9,575
      subscribers and the related access agreement and telecommunications assets
      located in 181 multi-family properties from Multiband Corporation. Collectively,
      the 181 properties represent approximately 32,600 units passed by wire. The
      acquisition price was $3,372,620 payable in cash at the closings for the entire
      9,575 subscribers. The final acquisition differs from the initial projection
      of
      11,166 subscribers due to contractual constraints that prevented the transfer
      of
      certain subscribers. As a result, the initial acquisition price of $4,008,000
      was adjusted down to $3,372,620 to compensate for the lower subscriber
      count.





The
      acquisition costs of all acquired access agreements and equipment (including
      Multiband set forth above) were allocated to the fair value of the assets
      acquired, as set forth below:





Property
                and equipment
            
            $
            2,147,076Amortizable
                intangible assets
            
            
            3,276,742Total
                acquisition cost of all acquired access agreements and equipment
                during
                year ended Sept. 30, 2007
            
            $
            5,423,818





**9.**
            **PROPERTY
                AND EQUIPMENT**





The
      components of property and equipment are set forth below:





**September 30,****2007**
            
            **2006**Telecommunications
                equipment, installed
            
            $
            33,187,713
            
            $
            25,680,276Computer
                equipment
            
            
            1,170,187
            
            
            975,996Furniture
                and fixtures
            
            
            252,416
            
            
            234,447Leasehold
                improvements
            
            
            163,083
            
            
            163,083Other
            
            
            57,923
            
            
            50,82534,831,322
            
            
            27,104,627Less:
                Accumulated depreciation
            
            
            (12,784,932
            )
            
            (8,384,705
            )$
            22,046,390
            
            $
            18,719,922




Depreciation
      expense amounted to $4,472,214, $3,430,404 and $2,182,970 for the years ended
      September 30, 2007, 2006 and 2005, respectively.





**10.**
            **INTANGIBLE
                ASSETS**





The
      components of intangible assets are set forth below:





**September 30,****2007**
            
            **2006**Building
                access agreements, including subscriber lists
            
            $
            8,340,311
            
            $
            5,063,569Less:
                Accumulated amortization
            
            
            (4,153,502
            )
            
            (3,241,154
            )$
            4,186,809
            
            $
            1,822,415





Amortization
      expense amounted to $912,348, $961,236 and $872,317 for the years ended
      September 30, 2007, 2006 and 2005, respectively. Amortization of
      intangibles in the years subsequent to September 30, 2007 is as follows:





**Year**
            
            **Amortization****Amount**2008
            
            $
            1,266,5642009
            
            
            1,133,0712010
            
            
            716,9642011
            
            
            656,0302012
            
            
            414,180




54




**11.**
            **OTHER
                ACCRUED LIABILITIES**





Other
      accrued liabilities consist of the following:





**2007**
            
            **2006**Accrued
                costs and expenses:Equipment
            
            $
            107,043
            
            $
            296,295Employee
                stock purchases and employee compensation payable in common
                stock
            
            
            79,018
            
            
            227,000Subcontractors
                maintenance and installation
            
            
            169,958
            
            
            228,827Programming
                costs
            
            
            233,702
            
            
            42,868Professional
                fees
            
            
            262,740
            
            
            166,577Wages
            
            
            334,808
            
            
            282,466Other
            
            
            114,038
            
            
            104,966Totals
            
            $
            1,301,307
            
            $
            1,348,999





**12.**
            **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, 2007, 2006 and 2005. The
      Company did not record Federal income tax benefits at the statutory rate of
      34%
      and state income tax credits because (a) it has incurred losses in each
      period since its inception and cannot carry back any of its losses against
      previously recorded income tax expense and (b) 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.





As
      of
      September 30, 2007 and 2006, 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:





**2007**
            
            **2006**Deferred
                tax assets:Benefits
                from net operating loss carryforwards:United
                States
            
            $
            14,797,000
            
            $
            11,469,000Canada
            
            
            3,375,000
            
            
            3,374,000Tax
                benefit for nonqualified stock options
            
            
            11,000
            
            
            26,000Amortization
                of intangible assets
            
            
            —
            
            
            795,000Other
            
            
            92,000
            
            
            224,000Totals
            
            
            18,275,000
            
            
            15,888,000Deferred
                tax liabilities—depreciation and amortization of property and equipment
                and intangible assets
            
            
            (3,811,000
            )
            
            (2,012,000
            )Net
                deferred tax assets
            
            
            14,464,000
            
            
            13,876,000Less
                valuation allowance
            
            
            (14,464,000
            )
            
            (13,876,000
            )Totals
            
            $
            —
            
            $
            —





At
      September 30, 2007 and 2006, the Company had net operating loss carry
      forwards of approximately $36,991,000 and $28,700,000, respectively, available
      to reduce future Federal taxable income and net operating loss carryforwards
      of
      approximately $7,419,000 and $7,400,000, respectively, available to reduce
      future Canadian taxable income. As of September 30, 2007, the Federal tax
      loss carryforwards will expire from 2008 through 2027 and the Canadian tax
      loss
      carryforwards will expire from 2008 through 2012. However, the Company
      terminated substantially all of its Canadian operations in the year ended
      September 30, 2002.





The
      deferred tax valuation allowance increased by $588,000, $2,768,000, and
      $1,218,000 for the years ended September 30, 2007, 2006 and 2005,
      respectively.




55


**13.**
            **SUBSEQUENT
                EVENTS**





On
      October 16, 2007, the Company closed on the third and final asset purchase
      agreement closing with Multiband for an additional 811 subscribers for
      $168,099.




On October 22, 2007, 10, 686 shares of common stock were
      issued to employees from the Employee Stock Purchase Plan for total cash
      proceeds of $7,264.




On
      October 31, 2007, a lease agreement was executed for a larger facility for
      the
      Southeast Regional Office in Florida with 4,088 square feet of
      space.


On
        November 15, 2007, a certain executive forfeited 500,000 vested and 100,000
        unvested employee stock options having an exercise price of $3.01 back to
        the
        Company for no consideration.




On
      November 24, 2007, previously issued warrants to purchase 2,122,204 shares
      of
      the Company’s common stock expired.




On
      November 30, 2007, the Board of Directors granted 13 employees a total of
      605,000 options from the 2001 Stock Option Plan at an exercise price of $0.45
      per share.





On
      December 5, 2007, 18,037 shares of restricted common stock were issued to an
      executive officer as part of his 2007 compensation plan.





**14.**
            **VALUATION
                AND QUALIFYING ACCOUNTS**





Information
      with respect to valuation and qualifying accounts is shown in the following
      schedule:





**Description**
            
            **Balance
                atbeginning ofperiod**
            
            **Additionscharged tocosts
                andexpenses**
            
            **Additionscharged
                tootheraccounts (1)**
            
            **Deductions(2)**
            
            **Balance atend
                ofperiod****Year
                ended September 30, 2007:**Allowance
                for doubtful accounts
            
            $
            (162,402
            )
            $
            (191,989
            )
            $
            (47,014
            )
            $
            233,731
            
            $
            (167,674
            )**Year
                ended September 30, 2006:**Allowance
                for doubtful accounts
            
            
            (151,045
            )
            
            (128,715
            )
            
            (23,768
            )
            
            141,126
            
            
            (162,402
            )Reserve
                for inventory obsolescence
            
            
            (69,821
            )
            
            (85,004
            )
            
            -
            
            
            154,825
            
            
            -**Year
                ended September 30, 2005:**Allowance
                for doubtful accounts
            
            
            (76,319
            )
            
            (29,392
            )
            
            (53,421
            )
            
            8,087
            
            
            (151,045
            )Reserve
                for inventory obsolescence
            
            
            -
            
            
            (69,821
            )
            
            -
            
            
            -
            
            
            (69,821
            )








(1)
            Adjustment
                to allowance for doubtful accounts(2)
            Write-off
                of accounts receivable and telecommunications equipment
                inventory




56


**15.**
            **SUPPLEMENTAL
                QUARTERLY INFORMATION (UNAUDITED)**




Summarized
      operations information for the years ended September 30, 2007 and 2006 is shown
      in the following schedules:




**Quarter
                Ended****Dec. 31,2006**
            
            **March 31,2007**
            
            **June 30,****2007**
            
            **Sept. 30,****2007****Consolidated
                Statements of Operations Data:**Revenue
            
            $
            3,934,350
            
            $
            3,981,485
            
            $
            3,956,978
            
            $
            4,785,579Operating
                expenses (1)
            
            
            5,408,936
            
            
            5,510,352
            
            
            5,446,756
            
            
            6,659,605Operating
                loss
            
            
            (1,474,586
            )
            
            (1,528,867
            )
            
            (1,489,778
            )
            
            (1,874,026
            )Other
                expenses
            
            
            (183,425
            )
            
            (200,302
            )
            
            (236,189
            )
            
            (521,486
            )Net
                loss
            
            
            (1,658,011
            )
            
            (1,729,169
            )
            
            (1,725,967
            )
            
            (2,395,512
            )Basic
                and diluted loss per common share
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )Weighted
                average common shares outstanding
            
            
            51,003,121
            
            
            51,324,899
            
            
            51,346,257
            
            
            51,556,989




**Quarter
                Ended****Dec. 31,2005**
            
            **March 31,2006**
            
            **June 30,****2006**
            
            **Sept. 30,****2006****Consolidated
                Statements of Operations Data:**Revenue
            
            $
            2,918,061
            
            $
            3,326,136
            
            $
            3,449,752
            
            $
            3,672,256Operating
                expenses (1)
            
            
            4,892,009
            
            
            5,505,777
            
            
            5,660,024
            
            
            5,422,802Operating
                loss
            
            
            (1,973,948
            )
            
            (2,179,641
            )
            
            (2,210,272
            )
            
            (1,750,546
            )Other
                income (expenses)
            
            
            56,404
            
            
            35,816
            
            
            15,753
            
            
            (4,620
            )Net
                loss
            
            
            (1,917,544
            )
            
            (2,143,825
            )
            
            (2,194,519
            )
            
            (1,755,166
            )Basic
                and diluted loss per common share
            
            $
            (0.04
            )
            $
            (0.04
            )
            $
            (0.04
            )
            $
            (0.03
            )Weighted
                average common shares outstanding
            
            
            49,972,555
            
            
            50,185,014
            
            
            50,252,146
            
            
            50,408,019








(1)
            Operating
                expenses includes noncash charges of $1,315,252 and $2,145,935 for
                the
                years ended September 30, 2007 and 2006, respectively. In accordance
                with
                the modified prospective transition method, the Company's Consolidated
                Financial Statements for prior periods have not been restated and
                do not
                include the impact of SFAS 123R. The Company recognized stock-based
                compensation expense for the years ended September 30, 2007 and 2006
                of
                $822,525 and $1,048,856,
                respectively.





**Item
              9.**
            **C****hanges
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure**





None.





**Item 9A.**
            **Controls
                and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**





The
      Company, under the supervision and with the participation of its management,
      including the Chief Executive Officer, who is also the Chief Financial Officer,
      as well as the Vice President of Finance and Administration, evaluated the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures (as defined in Rule 13a-15(e) under the Securities Exchange
      Act
      of 1934 (the “Exchange Act”)) as of September 30, 2007, the end of the period
      covered by this report. Disclosure
      controls and procedures are designed to ensure that information required to
      be
      disclosed in our reports filed under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s 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 and our Vice President of Finance and
      Administration, to allow timely decisions regarding required
      disclosure.




57


Based
      on
      the evaluation of our disclosure controls and procedures as of
      September 30, 2007, our Chief Executive Officer, who is also our Chief
      Financial Officer, and our Vice President of Finance and Administration
      concluded that as of that date, that
      the
      disclosure controls and procedures were effective.





**Changes
      in Internal Controls**





There
      has
      been no change in the Company’s internal control over financial reporting or in
      other factors during the quarter ended September 30, 2007 that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting subsequent to the date of the evaluation
      referred to above.





**Item 9A(T).**
            **Controls
                and Procedures**





Not
      applicable.





**Item 9B.**
            **Other
                Information**





None.





**PART
      III**




**Item
              **10.****
            **Directors,
                Executive Officers and Corporate Governance**





The
      information required by this item concerning our directors, compliance with
      Section 16 of the Exchange Act, our code of ethics and Corporate Governance
      and Nominating Committee and Audit Committee is incorporated by reference from
      the information set forth in the sections under the headings “Election of
      Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and
“Corporate Governance Matters” in our Definitive Proxy Statement to be filed
      with the Securities and Exchange Commission, within 120 days of the end of
      the fiscal year covered by this report, in connection with the Annual Meeting
      of
      Stockholders to be held in 2008 (the “2008 Proxy Statement”).




Information
      regarding our executive officers is set forth in Item 1 of Part I of this
      Report under the caption “Executive Officers of the Registrant.”




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




The
      information required by this item concerning executive compensation is
      incorporated by reference from the information in the 2008 Proxy Statement
      under
      the headings “Executive Compensation,” “Corporate Governance Matters” and
“Executive Compensation—Compensation Committee Report.”




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




The
      information required by this item concerning securities authorized for issuance
      under equity compensation plans and security ownership of certain beneficial
      owners and management is incorporated by reference from the information in
      the
      2008 Proxy Statement under the headings “Executive Compensation—Equity
      Compensation Plan Information” and “Security Ownership of Certain Beneficial
      Owners and Management.”




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




The
      information required by this item concerning transactions with related persons
      and director independence is incorporated by reference from the information
      in
      the 2008 Proxy Statement under the headings “Certain Relationships and Related
      Transactions” and “Corporate Governance Matters”




58




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




The
      information required by this item is incorporated by reference from the
      information in the 2008 Proxy Statement under the heading “Ratification of
      Independent Registered Public Accounting Firm – Principal Accounting Fees
      and Services.”





**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.
            Financial
                Statements Schedule: See Valuation and Qualifying Accounts in Note
                14 to
                the Notes to Consolidated Financial Statements of this Annual Report
                on
                Form 10-K




3.
            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.





59


**INDEX
      TO EXHIBITS**





**Exhibits**2.1
            
            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)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




60


**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
                Nelson*Chief
                Financial Officer*December
                21, 2007





MDU
                COMMUNICATIONS INTERNATIONAL, INC.By:
            /s/  CARMEN
                RAGUSA, JR.Carmen
                Ragusa, Jr.*Vice
                President of Finance*December
                21, 2007




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
                21, 2007/s/  DOUGLAS
                G. HOOPERDouglas
                G. Hooper
            
            Director
            
            December
                21, 2007/s/  JOHN
                EDWARD BOYLEJohn
                Edward Boyle
            
            Director
            
            December
                21, 2007/s/  CAROLYN
                C. HOWARDCarolyn
                C. Howard
            
            Director
            
            December
                21, 2007/s/
                RICHARD NEWMANRichard
                Newman
            
            Director
            
            December
                21, 2007




61