UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-KSB

|ý                                                | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------------ | ----------------------------------------------------------------------------------
|For the fiscal year ended September 30, 2002, 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

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MDU COMMUNICATIONS INTERNATIONAL, INC.(Name of Small Business Issuer 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 Exchange Act:

Title of Each Class

Name of Each Exchange
On Which Registered


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

Common Stock, par value $0.001 per share(Title of Class)

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Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ý    No o

Check
if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained herein, and no disclosure will 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-KSB or any amendment to this
Form 10-KSB. o

The
issuer's revenues for its most recent fiscal year were $3,015,709.

The
aggregate market value of the common equity held by non-affiliates, computed by reference to the price at which the issuer's common stock was sold, based on the average
of bid and asked prices on December 19, 2002, was $3,712,731.

As
of December 19, 2002 there were 20,626,284 shares of common stock outstanding and no other outstanding classes of a common equity security.

Transitional
Small Business Disclosure Format (check
one): Yes o    No ý

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FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language. The forward-looking statements
are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under "Risk Factors" described in that section, and
"Management's Discussion and Analysis." Our actual results may differ materially from results anticipated in these forward-looking statements. We base our forward-looking statements on information
currently available to us, and we assume no obligation to update them.

PART I

Item 1Description of Business

BUSINESS OF THE COMPANY

MDU Communications International, Inc. concentrates exclusively on delivering state-of-the-art digital satellite
television and high-speed Internet solutions 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 seek to
differentiate ourselves from other 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 such
groups as DIRECTV, Inc. and Cisco Systems, Inc. and have been working with large U.S. property owners and real estate investment trusts (REITs) such as AvalonBay Communities, Trammell
Crow Residential, Roseland Property Company, KSI Services, as well as many others, to understand and meet the technology needs of these groups.

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 was 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. In March 2000, we formed MDU Communications (USA) Inc., a Washington corporation ("MDU USA") to conduct business
in the U.S. In May of 2000, MDU USA entered into a MDU System Operator Agreement with DIRECTV, Inc. ("DIRECTV"), the largest United States provider of satellite television programming. We now
operate essentially as a holding company with MDU Canada and MDU USA as our wholly owned operating subsidiaries.

In
early 2001, the Company made a fundamental re-assessment of its 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 corporate focus, on January 31, 2001 and April 27, 2001, respectively we completed a two-stage agreement with Star Choice Television
Network, Inc. ("Star Choice"), one of our Canadian strategic partners, for the sale of certain satellite television assets for a total adjusted selling price of approximately
$7.0 million. As a result, by May 30, 2001, the Company relocated its operations and

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certain key employees to our New York Metro Area office in Totowa, New Jersey. MDU Canada now operates on only a limited basis.

The
Company earns its revenue through the sale of digital satellite television programming and high-speed Internet services to 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. We have two types of digital satellite television serviceDigital Broadcast Service ("DBS"), which uses an in-suite
set-top digital box, and private cable service, where digital satellite television programming can be tailored to the needs of an individual property. For DBS, under our agreement with
programming provider DIRECTV, we receive a substantial upfront subscriber activation subsidy for each net new subscriber, a percentage of the fees charged by DIRECTV to the subscriber each month, and
also a per subscriber monthly digital access fee for subscriber rental of the set-top box and the connection to the property satellite network system. In our private cable systems, our
revenues result from the difference between the wholesale price charged to us by program providers and the price we charge for the private cable programming package. In addition, we derive revenue
from installation services to building owners and managers for the construction of wiring and the installation of equipment to allow for telecommunications services. From subscribers to our Internet
service, we earn a monthly Internet access service fee.

We
began offering high-speed (broadband) Internet access services in July of 2000. In July of 2001, we entered into a Master Lease Agreement to Purchase Equipment with Cisco
Systems, Inc. ("Cisco"). Under this agreement, we receive preferred pricing and discounts for equipment purchased to support our high-speed Internet services. As part of this
agreement, Cisco has extended $500,000 of lease financing to the Company to purchase Internet related equipment and to finance a portion of installation costs.

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 atwww.mduc.com.

OUR STRENGTHS

In addition to the high quality of our digital satellite television programming, our high-speed (broadband) Internet solution and the choices that our
products offer to MDU residents, we believe that our access agreements, relationships with MDU property owners and our strategic alliances represent significant competitive and business strengths.

Access Agreements

Our access agreements with the owners of MDU properties generally grant us exclusive rights to provide digital satellite television services, and in some cases
video services altogether, for terms of seven to ten years, and in many cases a right of first refusal for other new telecommunications services. Most access agreements provide for marketing services
by the owner or manager on our behalf, and in many cases, these marketing arrangements are exclusive. These access agreements are in the name of the Company and provide us with revenue streams either
directly from property owners in bulk properties or from individual subscribers in choice or exclusive properties.

Strategic Alliance With DIRECTV

In May of 2000, we entered into a long-term System Operator Agreement with DIRECTV. Under this agreement we are able to establish and maintain MDU
distribution systems in non-rural states of the United States (as identified in the agreement) and act as a commissioned sales agent for the marketing of DIRECTV programming to residents
of MDU properties. We only incur costs associated

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with the implementation of our services and do not pay any of DIRECTV's programming or broadcasting costs.

Under
the DIRECTV agreement, we may not solicit sales or provide equipment for any other direct-to-home 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. We are not, however, prohibited from contracting with other program providers in
connection with our private cable services. During the fiscal year ended September 30, 2002, revenues from DIRECTV were 12% 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.

Our
agreement with DIRECTV runs for an initial term of five years, with an automatic extension of the entire agreement to coincide with the termination of our longest running property
access agreement. Thereafter, the agreement is renewable for an additional five-year period at the option of both parties. Either party may terminate for the other's breach, bankruptcy or
unapproved assignment of the agreement. The terms of the Agreement provide us with an upfront activation fee, a percentage of the monthly programming fees paid to DIRECTV by subscribers and other
marketing/incentive payments from time to time.

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.

Strategic Alliance With Cisco

In June of 2001, we entered into a non-exclusive Master Purchase Sales Agreement with Cisco to become part of their preferred network in order to
provide broadband Internet products, systems and value added services, through our new high-speed Internet service to our MDUs. Cisco selected us to participate in a direct purchasing
program as a result of our mutual interest in developing closer working relationships with application service providers involved in developing emerging market opportunities. As a result, we signed a
preferential agreement with Cisco Systems Capital for the purchase of high-speed Internet related equipment and installation, which includes a half million-dollar lease financing line of
credit. Our strategic alliance with Cisco also provides significant name recognition of high quality products and we benefit from the large-scale national marketing campaigns that are continuously run
by Cisco.

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 with the most densely populated MDU areas in the Northeast. Our short-term goal is to become a significant provider of
bundled MDU products and services to the over 8 million MDUs in Northeastern United States marketplace. Future growth plans include Texas, where we already have operations, and Florida.

Historically,
the MDU market has been served by local cable television operators. Generally, these providers used analog technology and MDU residents could not access digital or
competitive services. Although many cable companies have begun the process of upgrading to a digital signal, this transition will require significant capital outlays and time to complete, and even
then only a portion of the programming will be digital. Additionally, the relationship between the property owners and managers that control access to these properties and the cable operator have been
significantly strained over the past 15 years due to the monopolistic sentiment of the cable operator.

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



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, wireless cable 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. In the U.S., the traditional cable companies serve an estimated 78% of the 100 million U.S.
television households. The majority of cable operators currently use analog technologies, which produce inferior quality video and sound compared to digital technologies. Many cable operators have
begun the process of upgrading to a digital signal, however, this transition requires significant capital outlays and time to deploy. Cable operators are also beginning to offer telephony. In the
meantime, we believe that direct to home ("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
and over 200 video and audio channels at a comparable price to most cable operators' current service.

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.

Wireless Cable Systems (Multi-Channel Multi-Point Distribution Services ("MMDS")).MMDS systems are a hybrid of cable
transmission and off-air broadcasting. MMDS was developed as an alternative where hard-wired cable systems are unavailable or not possible. MMDS programming is transmitted by
local cable operators in a scrambled form through the air via microwave frequencies to a small microwave dish at the subscriber's property, which converts the signal to a frequency band used by
standard cable services. However, this system generally requires a direct "line-of-sight" from the transmission facility to the subscriber's receiving dish, which limits its
range and capability of being

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received. There are very few MMDS providers operating in North America and they serve regional markets only.

GOVERNMENTAL REGULATION

Federal Regulation of Our Satellite Television Business.We are not directly subject to rate regulation or certification
requirements by the Federal Communications Commission (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 direct broadcast satellite (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.

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 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. The FCC has recently issued an order prohibiting telecommunications service providers from negotiating exclusive contracts
with owners of commercial MDU properties, though it deferred determination in a pending rulemaking whether to render existing exclusive access agreements unenforceable, or to extend this prohibition
to residential MDUs due to an inadequate administrative record. Although it is open to question whether the FCC has statutory and constitutional authority to compel mandatory access, there can be no
assurance that it will not attempt to do so. Any such action may undermine the exclusivity

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provisions of our rights of entry on the one hand, but would also open up many other properties to which we could provide a competing service. 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 our High-Speed Internet Business.Information 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, it has been suggested that certain telephone-to-telephone services provided by ISPs using the Internet backbone may
be reclassified as "telecommunications services" and subject to regulation. Any such change may affect demand for Internet related services, which we intend to provide. 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

The Company had 33 employees, all full-time, as of September 30, 2002. None of the Company's employees are represented by a labor union. The
Company has experienced no work stoppages and believes that its employee relations are good.

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:

We May Be Unable To Meet Our Future Capital Requirements.

We may require additional capital to finance our continued expansion. Our existing capital and funds from operations may not be sufficient to meet our anticipated
cash needs during the fiscal year ending September 30, 2003. Because of the uncertainties in raising additional capital, there can be no assurance that we will be able to obtain the necessary
capital to finance our operations and growth. Insufficient capital will require us to delay and scale back or eliminate our proposed development activities.

We Have Incurred Losses Since Inception And May Incur Future Losses.

To date, we have not shown a profit in our operations. Through our fiscal year ended September 30, 2002, we have incurred net losses of approximately
$15,200,000. We do not expect to have profitable operations until sometime in fiscal year 2003, and we cannot assure that we will ever achieve or attain profitability. If we cannot achieve operating
profitability or positive cash flows, we may not be able to meet our working capital requirements, which could have a material adverse effect on our business and may impair our ability to continue as
a going concern.

We Have A Limited Operating History.

We commenced operations in August 1998. Accordingly, we have a limited operating history and our business strategy may not be successful. Our failure to
implement our business strategy or an

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unsuccessful business strategy could materially adversely affect our business, financial condition and operating losses.

We Depend Upon Our Relationship With DIRECTV.

In May 2000, we entered into a five-year system operator agreement with DIRECTV to install and maintain distribution systems in MDU properties.
Under our agreement with DIRECTV, we may not maintain MDU distribution systems or market direct-to-home satellite broadcast services for others. Consequently, we are totally
dependent upon DIRECTV for set-top programming. During the fiscal year ended September 30, 2002, revenues from DIRECTV were 12% of our total revenues. DIRECTV is not required to use
us on an exclusive basis for marketing its programming to MDUs. Also, adverse events at DIRECTV beyond our control could adversely affect us.

We Face Competition.

We face competition from others who are competing for a share of the MDU subscriber base including other satellite companies, other DIRECTV system operators,
cable companies and off-air broadcasters. Also, DIRECTV itself could corporately focus on MDUs. Other companies with substantially greater assets and operating histories could enter this
market. Our 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 our business.

We Need To Manage Our Growth.

We have experienced growth, but to manage potential future growth effectively, we must improve our operational, financial and management information systems and
must hire, train and manage our employees and commissioned salespersons. Our future success will also depend on the ability to increase our customer base and to attract and retain qualified technical,
sales, marketing and management personnel, for whom competition is intense. We may not be able to effectively manage such growth, and failure to do so could have a material adverse effect on our
business, financial condition and results of operations.

We Depend On Key Personnel To Maintain Our Success.

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

We May Issue Preferred Stock.

Our Board of Directors has the authority to issue up to 5,000,000 shares of convertible preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without any vote or action by our 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.

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Issuance Of Shares Of Common Stock In The Future.

Our certificate of incorporation authorizes the issuance of 50,000,000 shares of common stock. The future issuance of all or part of the remaining authorized
common stock may result in substantial dilution in the percentage of our common stock held by our existing stockholders. Also, any stock we sell in the future may be valued on an arbitrary basis by us
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 shareholders.

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 our existing or future products or services obsolete. Our 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 our services could harm our ability to attract and retain users.

System Disruptions.

Our ability to attract and retain subscribers depends on the performance, reliability and availability of our services and infrastructure. We may experience
periodic service interruptions caused by temporary problems in our own systems or in the systems of third parties upon whom we rely to provide service or support. Fire, floods, earthquakes, power
loss, telecommunications failures, break-ins and similar events could damage these systems and interrupt our services. Service disruptions could adversely affect our revenue and, if they
were prolonged, would seriously harm our business and reputation. We do 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 our business.

Item 2Description of Property

Our headquarters are 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 6,983 square feet at a current monthly cost of $8,147, expiring July 31,
2004, with a two year extension. We believe that this space is adequate to suit our needs for the foreseeable future.

Item 3Legal Proceedings

From time to time, we may be subject to legal proceedings, which could have a material adverse effect on our business. At year end there is only one currently
pending legal proceedings.Whistler Cable Television Ltd.commenced a lawsuit against us in The Supreme Court of British Columbia on
July 14, 1999. Other defendants are Whistler Resort Management Ltd. and The Owners, Strata Plan No. LMS3230. Plaintiff alleges that its personal property was taken and seeks return of
its personal property or damages in the alternative, damages resulting from breach of the Broadcasting Act, R.S.C. 1991, C.11, an injunction against use of its personal property, interest and costs.
This case is in the discovery phase. Given the preliminary stage of the proceedings, it is not presently possible to estimate or determine whether there will be any loss to the Company resulting from
this claim.

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Item 4Submission of Matters to a Vote of Security Holders

On May 9, 2002, the Company held its Annual General Meeting of Shareholders in Totowa, New Jersey. Two issues were put forth to the shareholders; Approval
of the 2001 Employee Stock Purchase Plan and ratification of the appointment of JH Cohn LLP as our independent auditors.

On
the issue of approving the 2001 Employee Stock Purchase Plan, with a quorum of votes represented, 6,157,369 votes were registered in favor, 77,215 votes were registered against and
20,000 abstained. This Plan was approved as only a majority of voting shares (exclusive of broker non-votes) was needed for passage.

On
the issue of ratification of new auditors, JH Cohn LLP were appointed as independent auditors for the upcoming fiscal year with 11,893,754 votes in favor, 12,265 votes against and
219,860 abstentions, broker non-votes inclusive.

PART II

Item 5Market for Common Equity and Related Stockholder Matters

MARKET FOR COMMON STOCK

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, as reported by Bloomberg L.P., is as follows:

Quarter Ended

High

LowDecember 31, 1998

$
1.56

$
1.31March 31, 1999

$
2.69

$
1.44June 30, 1999

$
2.38

$
1.06September 30, 1999

$
1.72

$
0.63December 31, 1999

$
1.88

$
0.31March 31, 2000

$
9.00

$
2.13June 30, 2000

$
6.75

$
1.53September 30, 2000

$
2.50

$
0.81December 31, 2000

$
1.50

$
0.25March 31, 2001

$
0.71

$
0.23June 30, 2001

$
0.74

$
0.37September 30, 2001

$
0.48

$
0.26December 31, 2001

$
0.50

$
0.25March 31, 2002

$
0.77

$
0.33June 30, 2002

$
0.63

$
0.35September 30, 2002

$
0.50

$
0.25


These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

As
of December 19, 2002, the Company had approximately 65 holders of record of its shares of common stock excluding shares held by broker-dealers. 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 Company's Board of
Directors and will depend, among other factors, upon the Company's earnings, financial condition and capital requirements.

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"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, its bid price is below $5.00 per share, has net tangible assets of less than $5,000,000, and average annual revenue has not exceeded
$6,000,000 in the past three years.

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.

UNREGISTERED SECURITIES SALES (not previously disclosed)

Preferred Stock

There were no sales or issuances of these securities during the fiscal year ended September 30, 2002.

Common Stock

On October 1, 2002, 92,308 shares of unregistered common stock were issued to Dean Taylor as part of his Termination Agreement. These shares were issued
without registration under the Securities Act of 1933, as amended ("1933 Act").

All
other unregistered common stock issuances for this fiscal year have been previously disclosed in the Company's disclosures on Forms 10-QSB.

Warrants

On August 28, 2002, the Company issued warrants as partial consideration for certain creditors to enter into a project financing agreement. Warrants to
purchase common stock were issued to Protea Ventures, Ltd in the amount of 12,500, Domino International, Ltd in the amount of 25,000, Jon Gruber in the amount of 50,000 and Lloyd Berhoff
in the amount of 37,500. These warrants are for the purchase of shares of common stock exercisable at $0.43 per share for two years. This issuance was made without registration under
Section 4(2) of the 1933 Act.

All
other warrants for the purchase of unregistered stock for this fiscal year have been previously disclosed in the Company's disclosures on Forms 10-QSB.

Options



All supplier options to purchase unregistered common stock for this fiscal year have been previously disclosed in the Company's disclosures on Forms
10-QSB.



There were no issuances of options to purchase unregistered common stock during the fiscal year ended September 30, 2002.

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Convertible Promissory Notes

All issuances under convertible promissory notes to purchase unregistered common stock for this fiscal year have been previously disclosed in the Company's
disclosures on Forms 10-QSB.

Item 6Management's Discussion and Analysis

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.

OVERVIEW

In this discussion, the words "MDU Communications," "the Company," "we," "our," and "us" refer to MDU Communications
International, Inc. together with its subsidiaries, where appropriate.

MDU
Communications International, Inc. concentrates exclusively on delivering state-of-the-art digital satellite television and
high-speed Internet solutions principally to the United States multi-dwelling unit (MDU) residential marketestimated to include 26 million residences. The Company seeks
to differentiate itself from other 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, the Company has partnered with such groups as DIRECTV, Inc. and Cisco Systems, Inc. and
have been working with large property owners, managers and real estate investment trusts (REITs) such as AvalonBay Communities, Inc., Trammell Crow Residential, Roseland Property Company, KSI
Services, Inc., The Related Companies, L.P., as well as many others, to understand and meet the technology needs of these groups in what has become a swiftly changing and challenging market.

The
Company's subscriber growth during the most recent quarters has been steady and significant. As of September 30, 2001 the Company had 6,067 subscribers to its services in 151
properties; 6,883 as of December 31, 2001 in 163 properties; 7,741 as of March 31, 2002 in 165 properties; 11,061 as of June 30, 2002 in 215 properties and 13,704 at
September 30, 2002 in 231 properties. The Company realized 126% growth in subscribers from 2001 to 2002.

Revenues
also significantly increased during the fiscal year. The Company realized revenue of $362,875 in the quarter one year ago ending September 30, 2001, revenue of $630,349
during the quarter ending December 31, 2001, revenue of $688,841 during the quarter ending March 31, 2002, revenue of $825,192
during the quarter ending June 30, 2002, and revenue of $871,327 during the current quarter ending September 30, 2002. In total, revenue of $3,015,709 for fiscal year 2002 increased 170%
over revenue of $1,117,607 in fiscal year 2001.

MDU
Communications is also experiencing a decrease in the cost of obtaining subscribers. The cost of set-top boxes and other telecommunications equipment have come down in
price considerably. In addition, the climate of door fees and revenue share agreements with property owners, run up by the vast number of entrants to the market during the "new economy" revolution,
has subsided as these new entrants have left the market due to financial constraints. These reductions in deployment costs, in conjunction with cost cutting overhead measures, have put the Company
currently close to positive EBITDA.

12

---

The Company has for the past year been projecting that its break-even point, or positive EBITDA, would be reached at approximately the 14,000 subscriber level in and around
the time frame of its fiscal year end. Actual revenues were a bit short of the preliminary figures released in October and certain expense reductions were not yet fully realized, therefore the Company
did not reach positive EBITDA for the quarter, but fully expects to be so early in fiscal 2003. To insure this occurrence, the Company has taken additional steps to reduce expenses and increase
revenues.

During
the three previous quarters, the Company has signed three renewable debt project financing agreements, that served to bridge the time gap between the initial outlay of
construction costs on select properties and the time the Company receives its upfront subsidy from DIRECTV and begins to receive customer revenue streams. These project financings gave the Company
access to $725,000 in project financing funds. This greatly assisted the Company in its financial flexibility this fiscal year to deploy, at a more rapid pace, installation of both DIRECTV and
high-speed Internet systems. However, as of September 30, 2002, the Company was in default of these agreements for violations of loan covenants requiring minimum amounts of working
capital and tangible net worth, thus making the principal amount due on demand. As of December 20, 2002, the noteholders had not yet enforced such provision.

Demand
for the Company's products and services remains quite high. DIRECTV, the Company's U.S. partner, has grown at consistently high levels, as has the satellite industry as a whole.
Industry analysts have quantified that consumers are in record numbers turning to satellite as their choice for home entertainment over standard franchised cable and are more satisfied with the
satellite product and service over their cable-subscribing counterparts. Demand for private (satellite-based) video systems, tailored to the demographics of a specific MDU, is also on the rise as an
alternative to franchised cable.

Because
this is a cash intensive business, the Company's cash resources are continually being depleted due to operations and capital investment. Although our cash increased slightly from
nil at June 30, 2002, to $99,000 at September 30, 2002, the Company still suffers from low cash resources. Although the Company believes that it can reach profitability with existing
financial resources, to aggressively reach its business plan goals, the ability to fund all of its operating expenses and working capital needs for growth may be dependent upon the ability to raise
additional financing through public and private placements of both equity and debt securities, in addition to revenues from operations.

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.

New subscriber activation subsidies from the satellite programming provider are recognized as revenue on a straight-line basis over the estimated
average period that a customer will remain a subscriber to a maximum of five years. The expected customer relationship is estimated based on the historical relationship with similar type customers.
Any significant variations to these historical relationships would cause an increase or decrease in the expected term of the customer relationship, which would have a converse effect on the amount of
revenue recognized.

13

---

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.

We estimate 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 Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and common stock using the market value
of our stock. In accordance with SFAS 123, all other issuances of common stock, stock options, warrants or other equity instruments to employees and nonemployees as consideration for goods or
services received by us are 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 fair value of options and warrants using the Black-Scholes option pricing model we have used the following assumptions in the year ended September 30, 2002: Expected
Volatility 127%; Risk Free Interest Rate 4.75%; Expected Years of Option Life 1 to 5 years; and Expected Dividends 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.

We regularly evaluate our ability to recover the reported amount of our deferred income taxes 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, 2002.

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, 2002, 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 non-cash charges to income that could materially affect our consolidated financial position or results of operations for that period.

RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

Net Loss.The Company reported a net loss of $2,988,035 for the year ended September 30, 2002
compared to a net loss of $2,426,455 for the year ended September 30, 2001. However, the net loss for

14

---

2001 was offset by a gain on the sale of Canadian subscribers in the amount of $2,401,695, making the pre-adjusted loss for 2001 equal to $4,828,150. The reduction in actual net loss from
2001 to 2002 is due to three main reasons: consolidation of all operations to the New York metro area; a significant reduction in selling and general and administrative expenses from $4,806,901 in
2001 to $3,171,668 in 2002; and, substantially increased revenues of $3,015,709 in 2002 from $1,117,607 in 2001.

Revenues.Revenue for the year ended September 30, 2002 of $3,015,709 increased 170% from
September 30, 2001 revenue of $1,117,607. Revenue for the twelve months ended September 30, 2002 was comprised of 6% private cable revenue, 26% net programming revenue, 9% Internet
access fees and 59% from wiring, equipment and other sales. Increased revenue for the current period is due to an increase in subscribers from 6,067 on September 30, 2001 to 13,704 on
September 30, 2002. We also recorded interest income of $4,344 and $70,025 for the twelve months ended September 30, 2002 and 2001, respectively, with the decrease due to investing a
lower balance of available funds and using cash to meet operating expenses.

Direct Costs.Direct costs are primarily comprised of private cable programming, monthly recurring
Internet T-1 line connections, system maintenance costs and equipment costs and are 38% of revenue for the year ended September 30, 2002 compared to 32% for the same period in the
prior year. Direct cost of sales increased to $1,145,761 as of September 30, 2002 from $358,257 in the year ended September 30, 2001. This increase is due to the significant increase in
subscribers over the year as well as a significant increase in the number of bulk and private cable properties where programming costs are a significant portion of direct costs.

Sales Expenses.Sales expenses consist mainly of salaries, commissions, marketing materials, trade
shows, advertising and promotion. Sales expenses declined from $837,947 as of September 30, 2001 to $367,988 in the year ended September 30, 2002. This significant decline in sales
expenses was mainly due to a reduction in direct marketing as a sales strategy and a consolidation of marketing efforts solely to the Northeastern United States.

Customer Service Expenses.Customer service expenses consist mainly of call center and customer
technical services. Customer service expenses were $512,736 for the year ended September 30, 2002 compared to $560,810 for the year ended September 30, 2001. This decrease is primarily
the result of the consolidation of two call centers into one as well as other cost saving measures achieved by the consolidation of customer service departments to the Northeast.

General and Administrative Expenses.General and administrative expenses decreased from $3,408,144 in
2001 to $2,290,944 at September 30, 2002. This decrease from the prior period is primarily due to a reduction in the number of employees and the closing of the remaining Canadian offices as
well as other cost containment measures. Stock option compensation and non-cash charges (excluding
amortization) of $103,108 and $135,302 are respectively included in general and administrative expenses in the years ended September 30, 2002 and 2001. The balance of general and administrative
expenses for the years ended September 30, 2002 and 2001 is mainly comprised of the following:

Year ended
September 30, 2002

% of
G&A

Year ended
September 30, 2001

% of
G&AWages

$
782,918

34
%
$
1,818,440

53
%Professional fees


118,912

5
%

277,985

8
%Office


22,886

1
%

460,684

14
%Travel


60,704

3
%

316,196

9
%


Other Non-Cash Charges.Interest expense in the twelve months ended September 30,
2002 was $865,743 compared to interest expense at September 30, 2001 of $321,900. Of these amounts, $730,667

15

---

and $60,000 were respectively non-cash interest expense items related to warrants and the beneficial conversion feature of convertible notes issued during the twelve months ended
September 30, 2002 and 2001, respectively.

OUTLOOK

Although the Company has incurred operating losses since our inception, with consolidated operations in the most profitable U.S. markets, a subscriber base of
almost 14,000 and a significant reduction in monthly expenses, the Company expects to achieve positive EBITDA in early fiscal 2003. Although the Company believes that it can reach profitability with
existing financial resources, to aggressively reach business plan forecasts, the funding of our operating expenses and working capital and capital commitments at current levels of deployment, may be
dependent upon our ability to obtain additional financing.

LIQUIDITY AND CAPITAL RESOURCES

Our consolidated financial statements have been prepared on the going concern basis of accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. During the years ended September 30, 2002 and 2001, we recorded a net loss of $2,988,035 and $2,426,455, respectively. In addition, we had
negative cash flows from operating activities of $282,419 and $4,329,174 during the years ended September 30, 2002 and 2001, respectively. At September 30, 2002, we had working capital
deficiency of $1,286,494 and an accumulated deficit of $15,206,019.

The
funding of our working capital needs and capital commitments that contemplate growth will be dependent upon our ability to raise additional financing. We received net proceeds of
$1,967,000 ($1,000,000 of which automatically converts to common stock) through the issuance of notes payable during the year ended September 30, 2002. As of September 30, 2002, we were
in default on three of these notes executed on March 6, 2002, June 24, 2002 and August 28, 2002 for violations of loan covenants requiring minimum amounts of working capital and
tangible net worth, thus making the principal amounts due on demand. As of December 20, 2002, the noteholders have not yet enforced such provision. Additionally, we have unused borrowing
capacity as of September 30, 2002 for equipment from Cisco in the amount of $271,467. We have been and will continue to pursue opportunities to raise additional financing through private
placements of both equity and debt securities to fund future growth, however, there is no assurance that we will be successful in these discussions. Should we be unable to raise additional financing,
we believe, but cannot assure, that we would be able to maintain operations, but would have to significantly scale back operations and growth.

Cash Position.At September 30, 2002, we had cash and cash equivalents of $99,277 compared to
$785,452 at September 30, 2001.The decrease in our cash position is due to use of cash in operations and expenditures of capital, mainly for building system assets.

Operating Activities.Net cash of $282,417 and $4,329,174 was used in operating activities during the
years ended September 30, 2002 and 2001, respectively. During 2002, the primary use of cash in operations was from our net loss of $2,988,035, partially offset by $1,757,276 of
non-cash charges, represented primarily by $856,927 in depreciation and amortization and $103,108 in stock option and warrant compensation charges and $703,667 of non-cash
interest expense.

Investing and Financing Activities.During the twelve months ended September 30, 2002, we
purchased $1,792,476 of equipment of which $228,533 was acquired under lease financing from Cisco Systems Capital Corp., a non-cash acquisition. In July 2001, Cisco Systems Capital
Corp. extended lease financing to the Company in order to purchase Internet related equipment with monthly repayment terms over three years from the date that the goods were accepted. The total credit
available under the

16

---

agreement is $500,000, 30% of which can be installation costs capitalized under the lease. As of September 30, 2002, the Company had available $271,467 under the agreement. In addition, in
connection with our agreement with Verizon Media Ventures and Verizon Entertainment Services, as of September 30, 2002 we paid $763,210 for additional subscribers and related assets.

In
January 2002, the Company entered into convertible promissory note transactions with three groups and received total proceeds of $250,000 to be used as working capital. The
convertible promissory notes bear interest at 9% with potential conversion into Company common stock at $0.33 per share. The first and second quarterly payments on April 18, 2002 and
July 18, 2002 converted into Company common stock.

On
January 24, 2002, the Company entered into a convertible promissory note transaction with another group for $1,000,000. The convertible promissory note bears interest at 3%
with potential conversion into Company common stock at $0.33 per share. As of September 30, 2002, two monthly conversion took place on August 1, 2002 and September 1, 2002 for
264,003 and 263,363 shares each.

On
March 6, 2002, the Company entered into a project financing Term Loan Agreement with an investment group for $300,000, repayable in four quarterly payments of principal and
interest at the rate of 20%. The first two quarterly payments due on June 6 and September 6, 2002 were made.

On
June 24, 2002, the Company entered into a project financing Term Loan Agreement with an investment group for $175,000, repayable in four quarterly payments of principal and
interest at the rate of 20%. The first quarterly payment on September 24, 2002 was made.

On
August 28, 2002, the Company entered into a project financing Term Loan Agreement with an investment group for $250,000, repayable in four quarterly payments of principal and
interest at the rate of 20%.

Working Capital.As at September 30, 2002 we had a working capital deficiency of $1,286,494 as
compared to $748,381 as of September 30, 2001.

Capital Commitments and Contingencies.We have access agreements with the owners of multiple dwelling
unit properties to supply our satellite television viewing 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 have sufficient current asset resources to cover current levels of
operating expenses. However, this is a capital-intensive business and continued growth is dependant, at least partially, on raising additional capital. To this end, we are reviewing several financing
initiatives. There is no assurance that we will be successful on any of these initiatives.

17

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Item 7Financial Statements

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
MDU Communications International, Inc.

We
have audited the accompanying consolidated balance sheet of MDU Communications International, Inc. and Subsidiaries as of September 30, 2002 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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
consolidated 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 audit provides 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, 2002, and their results of operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States
of America.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As further discussed in Note 1 to the financial statements, the
Company's operations have generated recurring losses and its operating activities have been using cash. As of September 30, 2002, the Company had substantial working capital deficiencies and it
was in
default under certain debt agreements. Such matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/
J. H. Cohn LLP

Roseland,
New Jersey
December 20, 2002

18

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INDEPENDENT AUDITORS' REPORT

To
the Shareholders
MDU Communications International, Inc.

We
have audited the accompanying consolidated balance sheet of MDU Communications International, Inc. and Subsidiaries as of September 30, 2001, and the related consolidated statements
of operations and comprehensive loss, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2001, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company's recurring losses from operations and limited financial resources raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are
also described in
Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/
DELOITTE & TOUCHE LLP

Chartered
Accountants
Vancouver, British Columbia
November 18, 2001

19

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MDU COMMUNICATIONS INTERNATIONAL, INC.        Consolidated Balance Sheets

|                                                                                                                      |  | September 30,
2002 |             | September 30,
2001 |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | ------------------ | -
|ASSETS                                                                                                                |  |                    |             |                    |  
|CURRENT                                                                                                               |  |                    |             |                    |  
|Cash and cash equivalents                                                                                             |  | $                  | 99,277      |                    | $
|Accounts receivabletrade, net of an allowance of $80,000 and $16,500                                                 |  |                    | 755,056     |                    |  
|Prepaid expenses and deposits                                                                                         |  |                    | 100,370     |                    |  
|                                                                                                                      |  |                    |             |                    |  
|TOTAL CURRENT ASSETS                                                                                                  |  |                    | 954,703     |                    |  
|Telecommunications equipment inventory                                                                                |  |                    | 266,595     |                    |  
|Property and equipment, net                                                                                           |  |                    | 3,320,375   |                    |  
|Investment in joint venture                                                                                           |  |                    | 311,466     |                    |  
|Intangible assets, net                                                                                                |  |                    | 1,505,229   |                    |  
|Deferred finance costs, net                                                                                           |  |                    | 88,859      |                    |  
|                                                                                                                      |  |                    |             |                    |  
|TOTAL ASSETS                                                                                                          |  | $                  | 6,447,227   |                    | $
|                                                                                                                      |  |                    |             |                    |  
|LIABILITIES and STOCKHOLDERS' EQUITY                                                                                  |  |                    |             |                    |  
|CURRENT                                                                                                               |  |                    |             |                    |  
|Accounts payable                                                                                                      |  | $                  | 611,239     |                    | $
|Other accrued liabilities                                                                                             |  |                    | 666,111     |                    |  
|Current portion of notes payable, net of debt discount of $713,969                                                    |  |                    | 828,197     |                    |  
|Current portion of capital lease obligation                                                                           |  |                    | 135,650     |                    |  
|                                                                                                                      |  |                    |             |                    |  
|TOTAL CURRENT LIABILITIES                                                                                             |  |                    | 2,241,197   |                    |  
|Deferred revenue                                                                                                      |  |                    | 781,099     |                    |  
|Notes payable, net of current portion and debt discount of $21,963                                                    |  |                    | 18,120      |                    |  
|Capital lease obligation, net of current portion                                                                      |  |                    | 87,000      |                    |  
|                                                                                                                      |  |                    |             |                    |  
|TOTAL LIABILITIES                                                                                                     |  |                    | 3,127,416   |                    |  
|                                                                                                                      |  |                    |             |                    |  
|COMMITMENTS AND CONTINGENCIES                                                                                         |  |                    |             |                    |  
|STOCKHOLDERS' EQUITY                                                                                                  |  |                    |             |                    |  
|Common stock, par value $0.001; 50,000,000 shares authorized, 19,539,136 and 18,046,320 shares issued and outstanding |  |                    | 19,539      |                    |  
|Convertible preferred stock, par value $0.001; 5,000,000 shares authorized, 7,200 issued and outstanding              |  |                    |            |                    |  
|Additional paid-in capital                                                                                            |  |                    | 18,506,291  |                    |  
|Accumulated deficit                                                                                                   |  |                    | (15,206,019 | )                  |  
|                                                                                                                      |  |                    |             |                    |  
|TOTAL STOCKHOLDERS' EQUITY                                                                                            |  |                    | 3,319,811   |                    |  
|                                                                                                                      |  |                    |             |                    |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                            |  | $                  | 6,447,227   |                    | $
|                                                                                                                      |  |                    |             |                    |  

See
accompanying notes to the consolidated financial statements

20

---

MDU COMMUNICATIONS INTERNATIONAL, INC.        Consolidated Statements of Operations

|                                           |                                                                       | For the year
ended
September 30,
2002 |            | For the year
ended
September 30,
2001 |  
|------------------------------------------ | --------------------------------------------------------------------- | ------------------------------------- | ---------- | ------------------------------------- | -
|REVENUE                                    |                                                                       | $                                     | 3,015,709  |                                       | $
|                                           |                                                                       |                                       |            |                                       |  
|OPERATING EXPENSES                         |                                                                       |                                       |            |                                       |  
|Direct costs                               |                                                                       |                                       | 1,145,761  |                                       |  
|Sales expenses                             |                                                                       |                                       | 367,988    |                                       |  
|Customer service expenses                  |                                                                       |                                       | 512,736    |                                       |  
|General and administrative expenses        |                                                                       |                                       | 2,290,944  |                                       |  
|Depreciation and amortization expense      |                                                                       |                                       | 856,927    |                                       |  
|                                           |                                                                       |                                       |            |                                       |  
|TOTAL                                      |                                                                       |                                       | 5,174,356  |                                       |  
|                                           |                                                                       |                                       |            |                                       |  
|OPERATING LOSS                             |                                                                       |                                       | (2,158,647 | )                                     |  
|Other income (expenses)                    |                                                                       |                                       |            |                                       |  
|                                           | Gain on sale of Canadian operations                                   |                                       |            |                                      |  
|                                           | Interest income                                                       |                                       |            | 4,344                                 |  
|                                           | Interest expense (including non cash interest of $730,667and $60,000) |                                       |            | (865,743                              | )
|                                           | Equity in earnings of joint venture                                   |                                       |            | 32,010                                |  
|                                           |                                                                       |                                       |            |                                       |  
|NET LOSS                                   |                                                                       | $                                     | (2,988,036 | )                                     | $
|                                           |                                                                       |                                       |            |                                       |  
|BASIC AND DILUTED LOSS PER COMMON SHARE    |                                                                       | $                                     | (0.16      | )                                     | $
|                                           |                                                                       |                                       |            |                                       |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |                                                                       |                                       | 18,384,874 |                                       |  
|                                           |                                                                       |                                       |            |                                       |  

See
accompanying notes to the consolidated financial statements

21

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MDU COMMUNICATIONS INTERNATIONAL, INC.        Consolidated Statements of Stockholders' Equity

|                                                                                   |  |            |  |   |        | Convertible
preferred stock |          | Additional
paid-in capital |   |      |   |   |            |   |  
|---------------------------------------------------------------------------------- |  | ---------- |  | - | ------ | --------------------------- | -------- | -------------------------- | - | ---- | - | - | ---------- | - | -
|
|
|
|Balance, September 30, 2000                                                        |  | 16,904,620 |  | $ | 16,905 |                             | 565,200  |                            | $ | 565  |   | $ | 15,938,476 |   | $
|Translation adjustments                                                            |  |           |  |   |       |                             |         |                            |   |     |   |   |            |   |  
|Grant of consultant and supplier stock options                                     |  |           |  |   |       |                             |         |                            |   |     |   |   | 149,744    |   |  
|Conversion of preferred shares                                                     |  | 641,700    |  |   | 642    |                             | (558,000 | )                          |   | (558 | ) |   | (69        | ) |  
|Issuance of warrants                                                               |  |            |  |   |        |                             |          |                            |   |      |   |   | 69,223     |   |  
|Beneficial conversion feature related to issuance of convertible debt and warrants |  |            |  |   |        |                             |          |                            |   |      |   |   | 91,602     |   |  
|Issuance of shares to puchase Digital Solutions                                    |  | 500,000    |  |   | 500    |                             |          |                            |   |      |   |   | 234,500    |   |  
|Net loss                                                                           |  |           |  |   |       |                             |         |                            |   |     |   |   |            |   |  
|                                                                                   |  |            |  |   |        |                             |          |                            |   |      |   |   |            |   |  
|Balance, September 30, 2001                                                        |  | 18,046,320 |  | $ | 18,047 |                             | 7,200    |                            | $ | 7    |   | $ | 16,483,476 |   | $
|Issuance of warrants in exchange for services                                      |  |            |  |   |        |                             |          |                            |   |      |   |   | 83,108     |   |  
|Issuance of warrants in connection with issuance of notes payable                  |  |            |  |   |        |                             |          |                            |   |      |   |   | 1,367,625  |   |  
|Beneficial conversion feature related to issuance of notes payable and warrants    |  |            |  |   |        |                             |          |                            |   |      |   |   | 19,500     |   |  
|Issuance of warrants in connection with extension of due dates of notes payable    |  |            |  |   |        |                             |          |                            |   |      |   |   | 55,500     |   |  
|Issuance of common stock in connection with issuance of notes payable              |  | 150,000    |  |   | 150    |                             |          |                            |   |      |   |   | 74,850     |   |  
|Conversion of notes payable                                                        |  | 861,077    |  |   | 861    |                             |          |                            |   |      |   |   | 283,293    |   |  
|Grant of consultant stock options                                                  |  |            |  |   |        |                             |          |                            |   |      |   |   | 20,000     |   |  
|Issuance of common stock under employee stock purchase plan                        |  | 473,459    |  |   | 473    |                             |          |                            |   |      |   |   | 118,940    |   |  
|Conversion of preferred shares                                                     |  | 8,280      |  |   | 8      |                             | (7,200   | )                          |   | (7   | ) |   | (1         | ) |  
|Net loss                                                                           |  |            |  |   |        |                             |          |                            |   |      |   |   |            |   |  
|                                                                                   |  |            |  |   |        |                             |          |                            |   |      |   |   |            |   |  
|Balance, September 30, 2002                                                        |  | 19,539,136 |  | $ | 19,539 |                             |         |                            |   |     |   | $ | 18,506,291 |   | $
|                                                                                   |  |            |  |   |        |                             |          |                            |   |      |   |   |            |   |  

See accompanying notes to the consolidated financial statements

22

---

MDU COMMUNICATIONS INTERNATIONAL, INC.        Consolidated Condensed Statements of Cash Flows

|                                             |                                                                                       | For the year
ended
September 30,
2002                                                    |          | For the year
ended
September 30,
2001 |         
|-------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------- | ------------------------------------- | --------
|OPERATING ACTIVITIES                         |                                                                                       |                                                                                          |          |                                       |         
|                                             | Net loss                                                                              |                                                                                          | $        | (2,988,036                            | )       
|                                             | Adjustments to reconcile net loss to cash provided by (used in) operating activities: |                                                                                          |          |                                       |         
|                                             |                                                                                       | Provision for doubtful accounts                                                          |          |                                       | 98,584  
|                                             |                                                                                       | Depreciation and amortization                                                            |          |                                       | 856,927 
|                                             |                                                                                       | Issuance of options and warrants in exchange for services                                |          |                                       | 103,108 
|                                             |                                                                                       | Gain on sale of Canadian operations                                                      |          |                                       |         
|                                             |                                                                                       | Charges to interest expense for amortization of deferred finance costs and debt discount |          |                                       | 730,667 
|                                             |                                                                                       | Equity in earnings of joint venture                                                      |          |                                       | (32,010 
|                                             | Changes in operating assets and liabilities:                                          |                                                                                          |          |                                       |         
|                                             |                                                                                       | Accounts receivable                                                                      |          |                                       | (503,890
|                                             |                                                                                       | Prepaid expenses and deposits                                                            |          |                                       | (48,632 
|                                             |                                                                                       | Accounts payable                                                                         |          |                                       | 359,006 
|                                             |                                                                                       | Other accrued liabilities                                                                |          |                                       | 616,685 
|                                             |                                                                                       | Deferred revenue                                                                         |          |                                       | 525,174 
|                                             |                                                                                       |                                                                                          |          |                                       |         
|                                             | Net cash used in operating activities                                                 |                                                                                          |          | (282,417                              | )       
|                                             |                                                                                       |                                                                                          |          |                                       |         
|INVESTING ACTIVITIES                         |                                                                                       |                                                                                          |          |                                       |         
|                                             | Purchase of property and equipment                                                    |                                                                                          |          | (1,365,513                            | )       
|                                             | Proceeds from sale of Canadian operations                                             |                                                                                          |          |                                      |         
|                                             | Acquisition of Verizon assets                                                         |                                                                                          |          | (763,210                              | )       
|                                             | Acquisition of Digital Solutions, net of cash acquired                                |                                                                                          |          |                                       |         
|                                             | Contributions to joint venture                                                        |                                                                                          |          | (207,622                              | )       
|                                             | Distributions from joint venture                                                      |                                                                                          |          | 127,387                               |         
|                                             |                                                                                       |                                                                                          |          |                                       |         
|                                             | Net cash provided by (used in) investing activities                                   |                                                                                          |          | (2,208,958                            | )       
|                                             |                                                                                       |                                                                                          |          |                                       |         
|FINANCING ACTIVITIES                         |                                                                                       |                                                                                          |          |                                       |         
|                                             | Proceeds from issuance of convertible notes payable                                   |                                                                                          |          | 2,005,166                             |         
|                                             | Prepayment of notes payable                                                           |                                                                                          |          |                                       |         
|                                             | Payment of notes payable                                                              |                                                                                          |          | (156,250                              | )       
|                                             | Proceeds from issuance of warrants                                                    |                                                                                          |          |                                       |         
|                                             | Payment of finance costs                                                              |                                                                                          |          | (37,833                               | )       
|                                             | Repayment of lease financing                                                          |                                                                                          |          | (5,883                                | )       
|                                             |                                                                                       |                                                                                          |          |                                       |         
|                                             | Net cash provided by financing activities                                             |                                                                                          |          | 1,805,200                             |         
|                                             |                                                                                       |                                                                                          |          |                                       |         
|NET DECREASE IN CASH AND CASH EQUIVALENTS    |                                                                                       |                                                                                          | (686,175 | )                                     |         
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |                                                                                       |                                                                                          | 785,452  |                                       |         
|                                             |                                                                                       |                                                                                          |          |                                       |         
|CASH AND CASH EQUIVALENTS, END OF YEAR       |                                                                                       | $                                                                                        | 99,277   |                                       | $       
|                                             |                                                                                       |                                                                                          |          |                                       |         
|SUPPLEMENTAL CASH FLOW DISCLOSURE            |                                                                                       |                                                                                          |          |                                       |         
|                                             | Interest paid                                                                         |                                                                                          | $        | 85,676                                |         
|                                             |                                                                                       |                                                                                          |          |                                       |         

See
accompanying notes to the consolidated financial statements

23

---



MDU COMMUNICATIONS INTERNATIONAL, INC.    Notes to Consolidated Financial Statements

1.    BUSINESS AND BASIS OF PRESENTATION

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. In
2001, the Company sold substantially all of its Canadian operations and redeployed in the United States, also moving its headquarters, and as such, effective September 30, 2001 has adopted the
United States dollar as its functional and reporting currency (see Note 2).

The
consolidated financial statements have been prepared on the going concern basis of accounting, which contemplates realization of assets and liquidation of liabilities in the ordinary
course of business. During the years ended September 30, 2002 and 2001, the Company recorded a net loss of $2,988,035 and $2,426,455, respectively. In addition, the Company had negative cash
flows from operating activities of $282,419 and $4,329,174 during the years ended September 30, 2002 and 2001, respectively. At September 30, 2002, the Company had working capital
deficiency of $1,286,494 and an accumulated deficit of $15,206,019.

The
Company's funding of its working capital needs and capital commitments that contemplate growth will be dependent upon its ability to raise additional financing. The Company received
net proceeds of $1,967,000 ($1,000,000 of which automatically converts to common stock) through the issuance of notes payable during the year ended September 30, 2002. As of
September 30, 2002, the Company was in default on three of these notes executed on March 6, 2002, June 24, 2002 and August 28, 2002 for violations of loan covenants
requiring minimum amounts of working capital and tangible net worth, thus making the principal amounts due on demand (see Note 3). As of December 20, 2002, the noteholders have not yet
enforced such provision. Additionally, as explained in Note 6, the Company has unused borrowing capacity as of September 30, 2002 for equipment from Cisco Systems, Inc. ("Cisco")
in the amount of $271,467. The Company has been and will continue to pursue opportunities
to raise additional financing through private placements of both equity and debt securities to fund future growth. There is no assurance that the Company will be successful in these discussions.
Should the Company not raise additional financing, management believes, but cannot assure that the Company would be able to maintain existing operations, but would have to significantly scale back
growth.

These
matters raise substantial doubt about the Company's ability to continue as a going concern. The ability to continue as a going concern will be primarily dependent on the Company's
ability to raise additional funds as required and ultimately to achieve profitable operations. The accompanying consolidated financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

24

---

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:







Telecommunications equipment, installed

7 yearsComputer equipment

5 yearsFurniture and fixtures

5 yearsVehicles

5 years










25

---





26

---











27

---







28

---

3.    NOTES PAYABLE

Notes payable under term loans and convertible promissory notes payable outstanding as of September 30, 2002 consisted of the following:

|                                                                                   |  | 9% note under term loan due in installments through September 30, 2004(A)                                                                                  |         | $ | 30,166 
|----------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | - | -------
|                                                                                   |  | 20% notes under term loans due in installments through August 28, 2003 or at maturity on November 28, 2003, net of unamortized debt discount of $23,877(B) |         |   | 226,123
|                                                                                   |  | 20% notes under term loans due in installments through June 24, 2003 or at maturity on September 24, 2003, net of unamortized debt discount of $18,562(C)  |         |   | 150,188
|                                                                                   |  | 20% notes under term loans due in installments through March 6, 2003, net of unamortized debt discount of $36,777(D)                                       |         |   | 113,223
|                                                                                   |  | 9% convertible notes due in installments through January 18, 2003, net of unamortized debt discount of $45,205(E)                                          |         |   | 29,795 
|                                                                                   |  | 9% convertible notes due in installments through January 24, 2004, net of unamortized debt discount of $65,890(F)                                          |         |   | 9,110  
|                                                                                   |  | 3% convertible notes due in installments through July 1, 2003, net of unamortized debt discount of $545,620(G)                                             |         |   | 287,712
|                                                                                    |  |                                                                                                                                                            |         |  
|                                                                                    |  | Total                                                                                                                                                      |         |   | 846,317
|Less current portion of notes payable, net of unamortized debt discount of $713,969 |  |                                                                                                                                                            | 828,197
|                                                                                    |  |                                                                                                                                                            |         |  
|Long-term portion, net of unamortized debt discount of $21,963                      |  | $                                                                                                                                                          | 18,120 
|                                                                                    |  |                                                                                                                                                            |         |  

---



29

---



30

---



31

---





Year Ending September 30,

Amount2003

$
1,542,1662004


40,083Total

$
1,582,249




4.    SHARE CAPITAL



32

---





33

---



Year ended September 30,2002

2001Pro forma net loss

$
(4,641,344
)
$
(8,012,295
)Pro forma loss per common share

$
(0.25
)
$
(0.46
)






34

---









Options Available
For Issuance

Number of Options
Outstanding

Weighted Avg. Exercise
Price Per ShareOutstanding at Sept. 30, 2000

526,640

3,598,360

$
4.29Granted (weighted average fair value of $0.48 per share)

(1,141,500
)
1,141,500

$
0.62Expired

1,451,264

(1,451,264
)
$
1.48Outstanding at Sept. 30, 2001

836,404

3,288,596

$
0.75Granted (weighted average fair value of $0.40 per share)

(430,000
)
430,000

$
0.60Expired

895,846

(895,846
)
$
0.60Outstanding at Sept. 30, 2002

1,302,250

2,822,750

$
0.68




Exercise
Prices

Number
Outstanding

Weighted-
Average
Remaining
Contractual
Life (years)

Number
Exercisable$
0.60

2,572,750

2.76

2,056,8331.50

223,885

1.35

223,8851.75

12,375

2.42

12,3752.00

13,740

2.42

13,7402,822,750



2,306,833




35

---



|        |                                                  | Number of
Warrants |           | Weighted-
Average
Exercise Price |   | Fair
Value |  | Expiration
Date
|------- | ------------------------------------------------ | ------------------ | --------- | -------------------------------- | - | ---------- |  | ---------------
|Issued: |                                                  |                    |           |                                  |   |            |  |                
|        | M.H. Holdings (see 1, below)                     |                    | 165,000   |                                  | $ | 0.75       |  | $              
|        | Small Caps Online (see 2, below)                 |                    | 100,000   |                                  |   | 0.31       |  |                
|        | Jeffrey Davis (see 2, below)                     |                    | 50,000    |                                  |   | 0.31       |  |                
|        | Daniel Fitzgerald (see 3, below)                 |                    | 225,000   |                                  |   | 0.43       |  |                
|        | William Begley (see 3, below)                    |                    | 225,000   |                                  |   | 0.43       |  |                
|        | Roselink Investors (see 4, below)                |                    | 300,000   |                                  |   | 0.43       |  |                
|        | Trinity Pacific Investments, Ltd. (see 5, below) |                    | 3,000,000 |                                  |   | 0.43       |  |                
|        | Haywood Securities Inc. (see 5, below)           |                    | 150,000   |                                  |   | 0.43       |  |                
|        | Protea Ventures, Ltd. (see 6, below)             |                    | 25,000    |                                  |   | 0.43       |  |                
|        | Vancadia Capital Corp. (see 6, below)            |                    | 25,000    |                                  |   | 0.43       |  |                
|        | Aspen International Ltd. (see 6, below)          |                    | 50,000    |                                  |   | 0.43       |  |                
|        | Jon Gruber (see 6, below)                        |                    | 50,000    |                                  |   | 0.43       |  |                
|        | Protea Ventures, Ltd. (see 7, below)             |                    | 25,000    |                                  |   | 0.43       |  |                
|        | William Begley (see 7, below)                    |                    | 50,000    |                                  |   | 0.43       |  |                
|        | The Kourt Trust (see 7, below)                   |                    | 12,500    |                                  |   | 0.43       |  |                
|        | Protea Ventures, Ltd. (see 8, below)             |                    | 12,500    |                                  |   | 0.43       |  |                
|        | Domino International, Ltd. (see 8 below)         |                    | 25,000    |                                  |   | 0.43       |  |                
|        | Jon Gruber (see 8, below)                        |                    | 50,000    |                                  |   | 0.43       |  |                
|        | Lloyd Berhoff (see 8 below)                      |                    | 37,500    |                                  |   | 0.43       |  |                
|        |                                                  |                    |           |                                  |   |            |  |                
|        | Outstanding at Sept. 30, 2002                    |                    | 4,577,500 |                                  | $ | 0.43       |  | $              
|        |                                                  |                    |           |                                  |   |            |  |                





36

---



37

---



2002

2001Expected volatility

127%

160%Risk-free interest rate

4.75%

4.7%Expected years of option life

1 to 5

1 to 5Expected dividends

0%

0%








5.    COMMITMENTS AND CONTINGENCIES





38

---







Amount2003

$
97,7622004


81,4682005 and thereafter


$
179,230




6.    STRATEGIC ALLIANCES



39

---



Year Ending September 30,

Amount2002

$
152,1102003

$
82,9692004

$
6,914Total minimum lease payments

$
241,993Less amount representing interest

$
19,343Present value of net minimum lease payments

$
222,650Less current portion

$
135,650Long-term portion

$
87,000




7.    ACQUISITION OF DIGITAL SOLUTIONS, LLC

On April 30, 2001, the Company acquired Digital Solutions, LLC ("Digital Solutions"), a New England based digital satellite television service provider,
for $1,750,000 in cash and 500,000 shares of common stock of the Company with a fair value of $235,000. The acquisition was accounted for under the
purchase method and the assets, liabilities, revenues and expenses related to Digital Solutions were consolidated with the accounts of the Company effective April 30, 2001.

Acquisition
costs were allocated to the fair value of the net assets assumed as set forth below:

Cash

$
30,833Other current assets


52,605Investment in Joint Venture


103,011Property and equipment


233,604Intangible assets


1,675,380Less: current liabilities


(110,433
)Acquisition cost

$
1,985,000


The
acquisition costs exceeded the fair value of the net assets assumed by $1,675,000. Such excess was attributable to building access agreements and customer lists and, accordingly,
included in intangible assets. Intangible assets acquired are being amortized over five years.

The
following table presents the unaudited pro forma results of operations for informational purposes, assuming that the Company had acquired Digital Solutions at the beginning of the
year ended September 30, 2001:

Total revenue

$
1,315,334Net loss


(2,645,709
)Net loss per common share

$
(0.15
)


40

---

The
pro forma results of operations give effect to certain adjustments including amortization of purchased intangibles. This information may not necessarily be indicative of the future
combined results of operations of the Company.

8.    ACQUISITION OF SUBSCRIBERS AND EQUIPMENT

In February 2002, the Company executed an agreement with Verizon Media Ventures and Verizon Entertainment Services ("Verizon") to purchase certain assets
of its digital satellite video division. A majority of the funds raised through the series of privately offered convertible promissory notes in January 2002 were for the purchase, integration,
maintenance and growth of the portfolio of subscribers and properties being acquired by the Company from Verizon (see Note 3). The assets acquired consisted of digital satellite video
subscribers and the equipment and systems to service these subscribers in MDU properties located mainly in the Northeast U.S. The total acquisition price of $763,210 was attributable to building
access agreements and customer lists and, accordingly, included in intangible assets. Intangible assets acquired are being amortized over four years.

9.    INVESTMENT IN AND TRANSACTIONS WITH AVALONBAY JOINT VENTURE

As part of the acquisition of Digital Solutions, the Company assumed all obligations and benefits of Digital Solutions' interest in a joint venture agreement with
AvalonBay Cable I, Inc. ("Joint Venture"), an affiliate of AvalonBay Communities, Inc. ("AvalonBay"), for the purpose of managing, owning and otherwise operating systems and equipment to
provide digital satellite television services to certain of AvalonBay's residential communities. The investment in the Joint Venture is accounted for pursuant to the equity method and, accordingly,
the Company's proportionate interest in the net earnings of the Joint Venture has been reflected separately in the Company's consolidated statements of operations for the years ended
September 30, 2002 and 2001. As at September 30, 2001, the investment in the Joint Venture of $199,221 was comprised of the fair value of acquired assets of $103,011, plus additional
contributions of $88,249 less distributions of $12,509, plus the Company's 50% share of the Joint Venture's cumulative net income from the date of acquisition of Digital Solutions, which amounted to
$20,470. During the year ended September 30, 2002, the Company made additional contributions of
$207,622, received distributions of $127,387 and recorded $32,010 as its 50% share of the Joint Venture's net income, and, as a result, its investment in the Joint Venture had increased to $311,466 at
September 30, 2002.

The
assets, liabilities and operating results of the Joint Venture as of and for the years ended September 30, 2002 and 2001 are summarized below:

September 30,
2002

September 30,
2001Current assets

$
301,239

$
71,761Total assets


1,103,753


429,121Current liabilities


480,775


2,021Deferred revenue


127,596


30,681Venturers' equity


622,978


396,419


Year ended
September 30,
2002

From acquisition on
April 30, 2001 to
September 30, 2001Revenues

$
496,697

$
236,029Expenses


432,675


191,216Net earnings

$
64,022


44,813


41

---

The
Company's revenue for the year ended September 30, 2002 includes $280,818 from sales of receivers to the Joint Venture and charges primarily for installation and management
fees. The Company's revenue for the year ended September 30, 2001 derived from transactions with the Joint Venture were not material. The Company also receives certain payments from DIRECTV on
behalf of the Joint Venture. The Company did not have any material net receivables from or payables to the Joint Venture at September 30, 2002 and 2001.

10.  PROPERTY AND EQUIPMENT

The components of property and equipment are set forth below:

September 30,2002

2001Telecommunications equipment, installed

$
3,587,397

$
1,517,207Computer equipment


341,732


328,265Furniture and fixtures


105,640


94,940Vehicles


24,954


49,9544,059,723


1,990,366Less: Accumulated amortization


(739,348
)

(263,656
)$
3,320,375

$
1,726,710


Depreciation
expense amounted to $487,391 and $412,332 for the years ended September 30, 2002 and 2001, respectively.

11.  INTANGIBLE ASSETS

The components of intangible assets are set forth below:

September 30,2002

2001Building access agreements and subscriber lists

$
2,011,627

$
1,675,380Less: Accumulated amortization


(506,398
)

(136,862
)$
1,505,229

$
1,538,518


Amortization
expense amounted to $369,536 and $136,862 for the years ended September 30, 2002 and 2001, respectively.

12.  INCOME TAXES

The Company had pre-tax losses but did not record any credits for Federal or other income taxes for the years ended September 30, 2002 and
2001. 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.

42

---

As
of September 30, 2002 and 2001, 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:

2002

2001Deferred tax assets:Benefits from net operating loss carryforwards:United States

$
2,802,000

$
719,000Canada


3,135,000


3,135,000Depreciation of property and equipment





32,000Amortization of intangible assets


135,000Other


40,000Total


6,112,000


3,886,000Deferred tax liabilitiesdepreciation of property and equipment


(281,000
)Net deferred tax assets


5,831,000


3,886,000Less valuation allowance


(5,831,000
)

(3,886,000
)Total

$


$



At
September 30, 2002 and 2001, the Company had net operating loss carry forwards of approximately $7,005,000 and $2,591,000, respectively, available to reduce future Federal
taxable income and net operating loss carryforwards of approximately $689,000 and $6,548,000, respectively, available to reduce future Canadian taxable income. As of September 30, 2002, the
Federal tax carry forwards will expire from 2003 through 2022 and the Canadian tax carryforwards will expire from 2005 through 2009. However, the Company terminated substantially all of its Canadian
operations in the year ended September 30, 2001 (see Note 13).

The
deferred tax valuation allowance increased by $1,945,000 and $810,000 in the years ended September 30, 2002 and 2001, respectively.

13.  GAIN ON SALE OF CANADIAN SUBSCRIBERS

On January 31, 2001, the Company completed an agreement with Star Choice Television Network, Inc. ("Star Choice") for the sale to Star Choice of
certain Canadian satellite television subscribers and the telecommunications equipment required to service the related subscribers for $3,681,100. The equipment sold had an original cost of $3,348,300
and a net book value of $2,784,744 at January 31, 2001. Net intangible assets carried by the Company at $59,672 at January 31, 2001 was related to the sold subscribers and, accordingly,
were written off. The transaction resulted in a gain of $836,984, which was reduced by cumulative foreign exchange losses relating to these assets.

On
April 27, 2001, the Company completed an agreement with Star Choice for the sale to Star Choice of certain Canadian satellite television subscribers and the telecommunications
equipment required to service the related subscribers for $3,276,227. The equipment sold had an original cost of approximately $1,431,732 and a net book value of $1,236,500 at April 27, 2001.
The transaction resulted in a gain of $2,039,727, which was reduced by cumulative foreign exchange losses relating to these assets.

As
a result of these sales, the Company ceased substantially all of its Canadian operations and it subsequently redeployed its assets and operations in the United States.

43

---

14.  SEGMENT AND RELATED INFORMATION

The Company operates in one industry segment. The Company's operations are comprised of providing delivery of home entertainment and information technology to
multi-unit dwellings. Revenues for the year ended September 30, 2001 of $570,377 and $547,230 related to the United States and Canada, respectively. As explained in Note 13,
the Company ceased substantially all of its Canadian operations in the year ended September 30, 2001 and, accordingly, it had no significant Canadian revenues in the year ended
September 30, 2002 and no significant Canadian assets as of September 30, 2002 and 2001.

15.  SUBSEQUENT EVENTS

On October 1, 2002, the Company issued 46,855 shares of its common stock to employees that were purchased by employees through September 30, 2002
pursuant to the Purchase Plan (see Note 4(e)).

On
November 26, 2002, the Company renegotiated payment terms for Promissory Notes held by Lloyd Berhoff and William Begley (see Note 3). As part of the consideration for
the renegotiated promissory notes, the Company issued 200,000 warrants to William Begley and 150,000 warrants to Lloyd Berhoff, all at an exercise price of $0.25 per share for a three-year
exercise period.

On
January 18, 2002, the Company entered into two Convertible Promissory Note and Loan Agreements, one with Daniel Fitzgerald and the other with William Begley, each for $75,000
(see Note 3). The third quarterly payment was due on October 18, 2002. Conversion was requested and a total of 118,750 shares were each issued to Begley and Fitzgerald on
November 14, 2002.

On
January 24, 2002, the Company entered into a Convertible Promissory Note and Loan Agreement with Roselink for $100,000 (see Note 3). The third quarterly payment was due
on October 24, 2002. Because the payment was not made, the amount due was automatically converted into a total of 42,995 common shares which were issued on November 14, 2002.

On
January 24, 2002, the Company entered into a Convertible Promissory Note and Loan Agreement with Trinity for $1,000,000 (see Note 3). The monthly payments of principal
and earned interest automatically convert into common stock at an exercise price of $0.33 per share. Automatic conversions took place on October 1, 2002, November 1, 2002 and
December 1, 2002 with 262,721, 262,080 and 261,439 shares issued, respectively.

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PART III

Item 9Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

The following are the directors and executive officers of the Company:

Robert
Dyck, 45, joined the Board of Directors in May 2000. He has been president of WRE Development Ltd. since 1978. WRE Development Ltd. owns, develops and manages
residential rental properties throughout the U.S. and Canada. Mr. Dyck is also co-owner of Norquay Management, a residential property management venture. He has overseen the
expansion of a property and development portfolio now valued at more that C$100 million. Mr. Dyck has substantial experience in the supervision of new apartment construction, analysis of
acquisition opportunities for development and investment purposes and review of new technologies to increase the efficiency of the property portfolio.

Douglas
G. Hooper, 42, joined the Board of Directors in May 2000. He is currently an acquisitions and finance consultant, who has extensive experience as a venture capitalist and
mergers and acquisition specialist in the mineral exploration, industrial processing and software industries. He was President and CEO of Sand River Resources Ltd. from 1995 to 1997.
Mr. Hooper was a founder and President of TelSoft Mobile Data Inc. from 1992 to 1995, now Mobile Data Solutions, Inc., a wireless communications software company. In that
position, he developed and implemented corporate strategy and was responsible for raising capital, strategic alliances and mergers and acquisitions.

John
Edward Boyle, 58, joined the Board of Directors in May 2000. From 1998 to 2001 he was President and CEO of Multivision (Pvt.) Ltd., a cable television company. From
1996 to 1997, Mr. Boyle was President and CEO of PowerTel TV Inc., a digital wireless cable company. As founding President and CEO of ExpressVu Inc. (1995-1996),
Mr. Boyle was responsible for taking one of Canada's first national direct-to-home satellite services from conception to launch readiness while raising public awareness
of DTH. Prior to 1995, Mr. Boyle has also held executive positions with Tee-Comm Electronics, Regional Cablesystems and Canadian Satellite Communications Inc. (Cancom). As
Vice-President of Regional Companies at Cancom, and later as Vice President of Market Development at Regional Cablesystems, he led the licensing or acquisition of over 1,000 Canadian and
American cable systems.

Sheldon
B. Nelson, 40, has served as President, Chief Executive Officer and a director of the Company since November 1998. From 1983 to 1998, he was President of 4-12
Electronics Corporation, a provider of products and services to the Canadian satellite, cable, broadcasting and SMATV industries. In addition to his day to day responsibilities during his tenure at
4-12 Electronics, Mr. Nelson developed the Company into one of Canada's largest private cable system operators. Mr. Nelson is a graduate of Gonzaga University, in Spokane, WA. He
graduated from the School of Business Administration in 1983, Magna cum Laude, and was the recipient of the School of Business Administrations' Award of Excellence.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own beneficially more than 10% of
the Company's common stock to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the Company or advice that no filings were required, during fiscal year 2002

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all officers, directors and greater than 10% beneficial owners complied with the Section 16(a) filing requirements.

Item 10Executive Compensation

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth certain information regarding compensation paid during each of the Company's last three fiscal years to our chief executive officer
and other executive officers whose total annual salary and bonuses exceeded $100,000 (the "named executive officers").

SUMMARY COMPENSATION TABLE

|                                                      |  |                |  |     |                        | Long Term
Compensation
Awards |                         |  |     |               
|----------------------------------------------------- |  | -------------- |  | --- | ---------------------- | ----------------------------- | ----------------------- |  | --- | --------------
|
|
|
|Sheldon B. Nelson,(1)
President and CEO               |  | 2002
2001
2000 |  | $$$ | 181,723
143,395
96,108 |                               | 800,000
800,000
575,000 |  | $$$ | -0-
29,656
-0-
|Dean Taylor,(3)
VP of Business Development            |  | 2002
2001      |  | $$  | 121,228
103,930        |                               | 400,000
400,000         |  | $$  | -0-
84,771    
|Patrick Cunningham,(4)
VP of Marketing and Operations |  | 2002
2001      |  | $$  | 160,000
160,000        |                               | 300,000
300,000         |  | $$  | -0-
23,333    
|Bradley D. Holmstrom,(5)
General Counsel              |  | 2002           |  | $   | 105,000                |                               | 250,000                 |  | $   | -0-           
|David Marmour,(6)
Director of Operations              |  | 2002
2001      |  | $$  | 54,908
115,000         |                               | 150,000
150,000         |  | $$  | -0-
3,000     

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OPTIONS GRANTED IN FISCAL YEAR 2002

The Company granted options to the following named executive officers and director during fiscal year ending September 30, 2002.

|                     |  | Individual Grants
|-------------------- |  | -----------------
|
|Bradley D. Holmstrom |  | 50,000           
|Robert Dyck          |  | 50,000           
|J.E. "Ted" Boyle     |  | 50,000           
|Douglas Hooper       |  | 50,000           

COMPENSATION OF DIRECTORS

Each director who is not an employee or full time consultant of the Company is paid C$1,000 per month and an attendance fee of C$1,000, plus
out-of-pocket expenses, for each Board or committee meeting attended. In addition, during the fiscal year ended September 30, 2002, Messrs. Boyle, Dyck and Hooper
each received five-year, fully-vested options to purchase 50,000 shares of common stock at $0.60 per share. This grant is for renumeration for sitting on the Board for fiscal years 2002
and 2003.

Item 11Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to beneficial ownership of our outstanding stock as of September 30, 2002 by (i) each person
known to the Company to be the beneficial owner of more than 5% of the Company's common stock; (ii) each of the Company's directors; (iii) each executive officer named in the Summary
Compensation Table; and (iv) all of the Company's executive officers and directors as a group.

|                                                               |  | Shares Beneficially
Owned(1) | 
|-------------------------------------------------------------- |  | ---------------------------- | 
|
|
|Sheldon B. Nelson(2)                                           |  | 1,608,673                    | 
|Dean Taylor                                                    |  | 460,940                      | 
|Patrick Cunningham                                             |  | 289,525                      | 
|Bradley Holmstrom                                              |  | 258,969                      | 
|J.E. (Ted) Boyle                                               |  | 100,000                      | 
|Robert Dyck                                                    |  | 100,000                      | 
|Douglas G. Hooper                                              |  | 100,000                      | 
|All executive officers and directors as a group (7 persons)(4) |  | 2,918,107                    | 

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Item 12Certain Relationships and Related Transactions

There have been no such transactions during the past two fiscal years, other than transactions with the Joint Venture. The Company's revenue for the year ended
September 30, 2002 includes $280,818 from sales of receivers to Joint Venture and charges primarily for installation and management fees. The Company's revenue for the year ended
September 30, 2001 derived from transactions with the Joint Venture were not material. The Company also receives certain payments from DIRECTV on behalf of the Joint Venture. The Company did
not have any material net receivables from or payables to the Joint Venture at September 30, 2002 and 2001.

Item 13Exhibits and Reports On Form 8-K

On February 11, 2002 we filed an 8-K disclosing our change in independent auditors

On
February 22, 2002 we filed an 8-K disclosing the existence of our agreement with Verizon for the purchase of assets.

On
August 20, 2002 we filed an 8-K certifying the financial statements included in our report on Form 10-QSB.

The
Company files herewith Exhibit 99, Certification of the Annual Report of MDU Communications International, Inc. on Form 10-KSB for the fiscal year ended September 30,
2002 filed with the SEC on January 14, 2002.

Item 14Controls and Procedures

It is the Chief Executive Officer's responsibility to ensure the Company maintains disclosure controls and procedures designed to provide reasonable assurance
that material information, both financial and non-financial, and other information required under the securities laws to be disclosed, is identified and
communicated to senior management on a timely basis. Our disclosure controls and procedures include mandatory communication of material events, management review of monthly and quarterly results and
an established system of internal controls

During
the fourth quarter, management, including the Chief Executive Officer, conducted an evaluation of disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based on that evaluation, the Chief Executive Officer concluded that the disclosure controls and procedures currently in place, for a company its size, are adequate to
ensure material information and other information requiring disclosure are identified and communicated in a timely fashion. There have been no significant changes in internal controls, or in factors
that could significantly affect internal controls, subsequent to the date the Chief Executive Officer completed his evaluation.

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SIGNATURES

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

| |  | MDU COMMUNICATIONS INTERNATIONAL, INC.
| |  | --------------------------------------
| |  | By:                                   

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 |  | January 10, 2003
|/s/DOUGLAS G. HOOPERDouglas G. Hooper |  | Director                                 |  | January 10, 2003
|/s/ROBERT DYCKRobert Dyck             |  | Director                                 |  | January 10, 2003
|/s/JOHN EDWARD BOYLEJohn Edward Boyle |  | Director                                 |  | January 10, 2003

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