PROSPECTUS REGISTRATION NO. 33-35820
FILED PURSUANT TO

RULE 424(b)(3)

11,155,014 SHARES

MDU COMMUNICATIONS INTERNATIONAL, INC.

COMMON STOCK

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MDU COMMUNICATIONS INTERNATIONAL, INC. We have prepared this prospectus to allow Selling
108-11951 Hammersmith Way Richmond, Stockholders to sell up to 11,155,014 shares of our
British Columbia Canada V7A 5H9 common stock which the Selling Stockholders currently
hold or may acquire upon:
- conversion of our outstanding Series A convertible
preferred stock; or

- exercise of warrants and options to purchase shares of
our common stock.

SELLING STOCKHOLDERS: We are registering these shares by filing a registration
See page 40 for the names of the Selling statement with the Securities and Exchange Commission
Stockholders using a "shelf" registration process. This process
allows the Selling Stockholders to sell their common
stock over a period of time and in varying amounts, as
described under "Plan of Distribution."

TRADING MARKET AND SYMBOL: We will receive no proceeds from the conversion of the
NASD OTC Bulletin Board - MDTV Series A convertible preferred stock or the sale of any
of our common stock by the Selling Stockholders. We will
receive the proceeds from the Selling Stockholders'
exercise of warrants and options. However, the Selling
Stockholders are under no obligation to exercise the
warrants and options.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

THE DATE OF THIS PROSPECTUS IS JULY 19, 2000

PRESENTATION OF OUR FINANCIAL AND OTHER INFORMATION

Unless we indicate otherwise, financial information in this prospectus has
been prepared in accordance with United States generally accepted accounting
principles. We present our financial information in Canadian dollars. In this
prospectus, except where we indicate, all dollar amounts are in Canadian
dollars. References to "$" or "Cdn$" are to Canadian dollars and references to
"US$" are to U.S. dollars.

TABLE OF CONTENTS

PAGE
--------

Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Cautionary Note Regarding Forward-Looking Statements........ 10
Use of Proceeds............................................. 11
Price Range of Common Stock and Related Stockholder
Matters................................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Business.................................................... 20
Management.................................................. 33
Certain Transactions........................................ 37
Legal Proceedings........................................... 38
Principal Stockholders...................................... 38
Selling Stockholders........................................ 40
Plan of Distribution........................................ 43
Description of Capital Stock................................ 44
Changes In and Disagreements With Accountants............... 47
Legal Matters............................................... 47
Experts..................................................... 47
Where You Can Find Additional Information................... 47
Index to Financial Statements............................... F-1

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Except as otherwise required by the context, all references in this
prospectus to (a) "we," "us," "our," or "Company" refer to the consolidated
operations of MDU Communications International, Inc., a Delaware corporation,
and its wholly-owned subsidiaries, MDU Communications Inc., a Canadian
corporation, and MDU Communications (USA) Inc., a Washington corporation, and
(b) "you" refers to prospective investors in the common stock. Unless otherwise
indicated or unless the context otherwise requires, all information in this
prospectus assumes the conversion of all the shares of Series A convertible
preferred stock and the exercise of all the warrants and options by the Selling
Stockholders as more fully described in "Selling Stockholders," "Description of
Capital Stock" and "Plan of Distribution."

PROSPECTUS SUMMARY

NOTE: This summary contains basic information about us and this offering.
Because it is a summary, it does not contain all of the information that may be
important to you. You should read the entire prospectus carefully, including the
section entitled "Risk Factors," and our Consolidated Financial Statements and
the related Notes to those statements included in this prospectus. This
prospectus contains certain forward-looking statements. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed in this prospectus.
See "Cautionary Note Regarding Forward-Looking Statements."

OUR BUSINESS

We provide digital satellite television services to residents of
multi-dwelling unit properties ("MDUs"). 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 offer two types of digital television services, digital set-top
television services and satellite master antennae television ("SMATV") services,
to the residents of MDUs. We provide our services under access agreements with
MDU property owners. Many of these agreements give us the exclusive right to
provide digital satellite television services to the residents of the MDU
properties.

We have entered into a long-term agreement with Star Choice Communications
Inc. ("Star Choice") to establish and maintain distribution systems and sell
Star Choice satellite programming packages to the residents of Canadian MDU
properties. Star Choice is one of the only two satellite broadcasters licensed
to operate in Canada.

We have recently entered into a similar arrangement with DirecTV, Inc.
("DirecTV"), a United States provider of satellite television programming, under
which we are now providing our digital set-top services to MDUs in the United
States. DirecTV is the largest satellite broadcaster operating in the United
States.

We earn our revenue through the sale of digital satellite television
programming packages to the MDU residents. In our digital set-top systems, we
earn digital access fees and a percentage of the fees charged subscribers by
Star Choice or DirecTV. In our SMATV systems, our earnings result from the
difference between the wholesale price charged to us by program providers and
the price we charge for the programming package.

We provide and install our television viewing infrastructure into MDU
properties at our cost. This includes installation of a digital television
satellite dish, off-air antennae, internal wiring, and signal routing and
decoding equipment, including television set-top boxes.

We have been providing our digital satellite television services in Canada
since November 1998. As of May 2000, we had approximately 13,600 subscribers in
190 properties throughout Canada. We began operations and marketing to building
owners in the U.S. in June 2000 and we expect to begin adding subscribers in
July 2000.

Recently, we have begun offering security monitoring services to residents
of our MDU properties, using the existing or our installed infrastructure. We
have entered into a three-year agreement with ADT Security Services
Canada, Inc. under which we are authorized to resell their service in exchange
for an up-front subscriber fee and a revenue sharing fee.

In addition, we are in the process of developing high-speed Internet access
services. We have recently entered into a strategic agreement with 3Com
Corporation under which we license software and hardware which is particularly
suited to MDU applications. We expect to begin offering our Internet access
services by July 2000.

Finally, we are seeking distribution arrangements with telecommunications
carriers to resell long distance telephone services. We expect to begin offering
our long distance telephone services during the fall of 2000.

THE MDU MARKET

The North American MDU marketplace represents a large niche market of
potential telecommunications customers. As of March 2000, there were over four
million MDU television households in Canada out of a total of 11.8 million
television households. In the United States, there were over 25 million MDU
television households out of a total of 100 million television households. Our
goal is to become a significant provider of bundled MDU products and services,
using products and services that are available in the marketplace, to the North
American MDU marketplace.

Historically, the MDU market has been served almost exclusively by local
cable television operators. Generally, these providers used analog technology
and MDU residents could not access digital or competitive services. Many cable
companies have begun the process of upgrading to a digital signal; however, this
transition will require significant capital outlays and time to complete.

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

- Advances in communications and information technology have created a large
demand for new state-of-the-art services such as digital satellite
television.

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

- Our marketing program focuses on that choice and the benefits of using
satellite television programming over cable programming.

- There exists a significant percentage of MDU households that are either
not served or are under-served by either cable television providers or the
digital satellite television program providers.

- To date, Star Choice, DirecTV and other digital satellite television
program providers have focused primarily on the single family residence
market because of the lower cost of deployment and fewer technical
difficulties than those incurred in MDU properties.

THE INDUSTRY

The home entertainment and video programming industry continues to develop
competitive alternatives and consumer choices. The major choices in the industry
are: cable systems, direct-to-home satellite service (including SMATV systems),
wireless cable systems, and broadcast television. There are other competitors in
the field, such as Internet video providers, home video sales and rentals, and
even local telephone companies.

The cable system providers have continued to grow and dominate this industry
in terms of subscriber penetration, the number of programming services
available, audience ratings and expenditures on programming. However, for
non-cable systems, direct broadcast satellite providers dominate the delivery of
multi-channel video programming distribution systems.

Technological advances are rapidly occurring that permit all of these
various system providers to increase both:

- quantity of service (i.e., an increased number of channels using the same
amount of bandwidth or spectrum space), and

- types of offering (i.e., interactive services).

In addition, operators and distributors are developing and deploying
advanced technologies, especially digital compression, in order to deliver
additional video options and other services, such as Internet access and
telephony to their customers.

CORPORATE HISTORY

Our Canadian operating company, MDU Communications Inc. ("MDU Canada"), was
formed in British Columbia 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 in Delaware. In March 2000, we formed MDU
Communications (USA) Inc., a Washington corporation ("MDU USA") to conduct
business in the U.S. We now operate as a holding company with MDU Canada and MDU
USA as our wholly-owned subsidiaries.

Our common stock currently trades under the symbol "MDTV" on the OTC
Bulletin Board.

PRINCIPAL EXECUTIVE OFFICES

Our principal executive offices are located at 108-11951 Hammersmith Way,
Richmond, British Columbia, Canada V7A 5H9 and our telephone number is (604)
277-8150. Our website is located at "www.mduc.com."

THE OFFERING

COMMON STOCK OFFERED BY SELLING
STOCKHOLDERS:........................... 11,155,014 shares(1)

COMMON STOCK OUTSTANDING BEFORE THIS
OFFERING:............................... 13,371,820 shares(2)

COMMON STOCK TO BE OUTSTANDING AFTER THIS
OFFERING:............................... 21,046,349 shares(3)

USE OF PROCEEDS FROM CONVERSION OF SERIES
A CONVERTIBLE PREFERRED STOCK AND SALE
OF COMMON STOCK:........................ We will not receive any proceeds from conversion of
the Series A convertible preferred stock or the sale
of the shares of our common stock offered by the
Selling Stockholders.

USE OF PROCEEDS FROM EXERCISE OF WARRANTS
AND OPTIONS:............................ We will receive the exercise price of any warrants and
options that are exercised by the Selling
Stockholders. Assuming exercise of all of the warrants
and options, the proceeds to us would be approximately
US$4,844,525. We intend to use any proceeds from
exercise of the warrants and options for working
capital and general corporate purposes.

NASD OTC BULLETIN BOARD SYMBOL:........... "MDTV"

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(1) This number consists of (a) 7,674,529 shares of common stock that we have
reserved for issuance upon conversion of the Series A convertible preferred
stock and exercise of the warrants and options held by the Selling
Stockholders and (b) 3,480,485 shares of common stock now owned by the
Selling Stockholders. See "Selling Stockholders."

(2) Based on our outstanding common stock as of May 31, 2000, which includes the
3,480,485 shares of common stock beneficially owned by certain of the
Selling Stockholders.

(3) This number does not include (a) 3,385,360 shares reserved as of May 31,
2000 for issuance upon exercise of outstanding stock options granted under
our 2000 Incentive Stock Option Plan, or (b) any shares of common stock
issued by us in transactions occurring after the date of this prospectus.

RISK FACTORS

Potential investors should carefully consider the risk factors set forth
under the caption "Risk Factors" beginning on page 5 and the other information
included in this prospectus prior to purchasing our common stock. An investment
in our common stock involves a high degree of risk. We have a limited operating
history and anticipate losses and negative operating cash flow for the
foreseeable future. Our operations are dependent on the viability of our
unproven business model, our relationships with strategic partners and key
vendors, and the availability of additional capital. See "Risk Factors" for a
description of these and other risks.

SUMMARY FINANCIAL DATA

The following summary financial information was derived from our historical
consolidated financial statements. You should read this information in
conjunction with the Consolidated Financial Statements and the related Notes,
and the discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contained elsewhere in this prospectus.

YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------- --------------------------
(ALL AMOUNTS IN CANADIAN DOLLARS) 1998(1) 1999 1999 2000
- --------------------------------- ---------- ------------ ----------- ------------
(AUDITED) (UNAUDITED)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 0 $ 566,698 142,482 585,789
Gross profit.............................. 0 227,128 16,202 259,140
Operating expenses........................ (97,845) (2,752,788) (1,035,125) (8,053,492)
Net loss.................................. (97,845) (2,525,660) (1,018,923) (7,714,111)
Adjustment for beneficial conversion
feature of convertible preferred
shares.................................. -- -- -- (11,147,175)
Adjustment for beneficial conversion
feature of warrants..................... -- -- -- (355,047)
Net loss applicable to common
stockholders............................ $ (97,845) $(2,525,660) $(1,018,923) $(19,216,333)
========= =========== =========== ============
Basic and diluted loss per share.......... $ (0.02) $ (0.28) $ (0.11) $ (1.86)
Shares used in computing basic and diluted
loss per share.......................... 8,581,335 9,114,668 9,221,335 10,341,555

SEPTEMBER 30, MARCH 31,
1999 2000
------------- -----------
(AUDITED) (UNAUDITED)

CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficiency).............................. $(2,304,410) $ 8,602,481
Total assets.............................................. 4,000,578 13,869,864
Total liabilities......................................... 2,621,892 915,294
Total stockholders' equity................................ $ 1,378,686 $12,954,570

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(1) Since we began operations on March 26, 1998, the information for the year
ended September 30, 1998, does not reflect a full 12 months of results.

RISK FACTORS

NOTE: You should consider carefully the following risks before you decide to buy
our common stock. We have described these risks and uncertainties under the
following general categories: "Risks Related to Our Business," "Risks Related to
the Industry" and "Risks Related to Our Common Stock." Our business, financial
condition or results of operations could be materially and adversely affected by
any of these or other risks. In that case, the trading price of our common stock
could decline, and you may lose all or part of the money you paid to buy our
common stock. You should also consider the risks and uncertainties associated
with forward-looking statements included in this prospectus with respect to our
plans, objectives, expectations, and intentions. See "Cautionary Note Regarding
Forward-Looking Statements."

RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED HISTORY OF OPERATIONS ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS.

We are a start-up company with a short history of commercial operations. Our
business is, therefore, subject to all of the risks inherent in a company with
little or no operating history. To establish viable commercial operations, among
other things, we must:

- secure adequate capital to fund (1) expansion of our services and our
territories, (2) acquisition or leasing of necessary equipment needed to
expand our business, and (3) working capital and capital expenditures
until we have positive cash flow (which may not occur for the foreseeable
future or at all);

- attract and retain management, technical, sales and marketing and other
personnel; and

- obtain market acceptance of our services and respond to competitive
pressures.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE.

Since our inception, we have incurred significant losses and we continue to
incur losses, resulting primarily from costs related to installing our systems
in a rapidly increasing number of MDU properties and general corporate overhead.
At March 31, 2000, we had an accumulated deficit of $10,337,616. As a result of
our business plan to continue expansion in Canada and to begin expansion into
the United States, we expect to incur losses for the foreseeable future. We
believe these expenditures are necessary to implement our business plan. If our
revenue growth is slower than we anticipate or our operating expenses exceed our
expectations, our losses may be significantly greater. We may never achieve or
sustain profitability.

WE WILL NEED FURTHER CAPITAL.

We currently anticipate that our available funds will be sufficient to meet
our needs for working capital, capital expenditures and business expansion
through the fourth quarter of fiscal 2000, which ends September 30, 2000. After
that time we will need to raise additional funds. Also, we may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new or
enhanced services, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. There can be no assurance
that additional financing will be available on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms, we
may not be able to fund expansion, respond to competitive pressures, or take
advantage of unanticipated acquisition opportunities. Such inability could
negatively impact our business.

WE DEPEND SIGNIFICANTLY ON OUR STRATEGIC RELATIONSHIPS WITH OUR PROGRAMMING
PROVIDERS.

Under our agreements with Star Choice and DirecTV, we may not maintain
distribution systems or market direct-to-home satellite broadcast services for
others in Canada or the U.S., respectively. Consequently, we are totally
dependent on our program providers for satellite signals and programming. Events
at our program providers, which we cannot control, could adversely affect us.
Moreover, the satellite communications and programming industry is regulated and
regulations may be enacted that could have an adverse effect on our program
providers. Termination of our programming contracts would have a material
adverse effect on us.

COMPETITION IN OUR INDUSTRY IS INTENSE AND GROWING, AND WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.

The satellite communications and programming industry is highly competitive,
and we expect competition to intensify in the future. Satellite television
systems face competition from several sources, such as traditional hard-wire
cable companies, satellite receivers, direct broadcast satellites, wireless
cable, and other alternative methods of distributing and receiving television
transmissions. Further, premium movie services offered by cable and satellite
television systems have encountered significant competition from the home video
cassette recorder industry. In areas where several local off-air VHF/ UHF
broadcast signals can be received without the benefit of cable television, cable
television systems have also experienced competition from the availability of
broadcast signals generally and have found market penetration more difficult. We
do not have significant market share in any of our markets. Our competitors in
each of our existing and future markets have greater financial, technical,
marketing and other resources, including brand or corporate name recognition,
than we do. In addition, a continuing trend towards business combinations and
alliances in this industry may create significant new competitors for us. Many
of these combined entities will have resources far greater than ours. These
combined entities may provide bundled packages of communications video
programming or cable services, including local, long distance and digital
subscriber line services, that compete directly with the services we now offer
or may offer in the future. These entities may also offer services sooner and at
more competitive rates than we do. No assurance can be given that we will
compete successfully with hard-wire cable and other pay television systems, or
other companies engaged in providing services provided by us.

WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.

We are currently experiencing a period of significant expansion. In order to
execute our business plan, we must continue to grow significantly. This growth
will strain our personnel, management, systems, policies and procedures and
other resources. To manage our growth, we must implement adequate operational
and financial systems and controls and recruit, train and manage new employees.
We cannot be certain that we will be able to integrate new executives and other
employees into our organization effectively. If we do not implement adequate
systems and controls, recruit, integrate and retain necessary personnel or
otherwise manage growth effectively, our business, results of operations and
financial condition would be materially and adversely affected.

WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS.

Our performance is substantially dependent on the continued services of our
executive officers and other key employees, particularly Sheldon B. Nelson,
President and CEO, Robert A. Biagioni, CFO, and Gary J. Monaghan, President of
MDU Canada. The loss of the services of any of our executive officers could
materially and adversely affect our business. Additionally, we believe we will
need to attract, retain and motivate talented management and other highly
skilled employees, particularly those with technical backgrounds, to be
successful. Competition for employees that possess knowledge of both the
satellite communications and programming industry and our target market is
intense. We may

be unable to retain our key employees or attract, assimilate and retain other
highly qualified employees in the future.

WE MAY BE ADVERSELY IMPACTED BY CHANGES IN FOREIGN CURRENCY EXCHANGE RATES.

We do not currently engage in significant operating transactions denominated
in United States dollars so any change in the Canadian/US dollar exchange rate
does not currently have a material effect on our operating cash flows. However,
as we expand our operations into the United States, exchange rates may have a
material adverse effect.

RISKS RELATING TO OUR INDUSTRY

CANADIAN REGULATIONS COULD ADVERSELY AFFECT US.

We are not directly regulated by the Canadian Radio-television and
Telecommunications Commission ("CRTC"). Our primary program provider, Star
Choice, is licensed by and subject to regulation by the CRTC, under a license
that expires in 2002. The CRTC's failure to renew Star Choice's license, or
changes in the laws, policies and regulations that may modify the present
regulatory environment, would directly affect Star Choice and we are unable to
predict the impact of such laws or regulations on Star Choice's operations. In
addition, preliminary CRTC regulations that allow us to obtain competitive
access to an MDU's internal wiring may not be adopted in a final form that is
favorable to us, which would have a material adverse effect on our business.
Finally, there can be no assurance that material and adverse changes in
regulations affecting the digital direct-to-home services business, and the
broadcasting industry, in general will not occur in the future.

UNITED STATES REGULATIONS COULD ADVERSELY AFFECT US.

As a sales agent for direct broadcast satellite (DBS) operators, Internet
service providers and home security services, we are not directly subject to
rate regulation or certification requirements by the Federal Communications
Commission ("FCC") or state public utility commissions because we are not
engaged in the provision of common carrier services. However, the communications
service providers for whom we act as a sales agent are subject to varying
degrees of federal, state and local regulation. Many aspects of regulation at
the federal, state and local levels currently are subject to judicial review or
are the subject of administrative or legislative proposals to modify, repeal, or
adopt new laws and administrative regulations and policies, the results of which
we are unable to predict. The United States Congress and the FCC have in the
past, and may in the future, adopt new laws, regulations and policies regarding
a wide variety of matters, including rulemakings to implement provisions of the
Telecommunications Act of 1996 ("Telecom Act"), that could, directly or
indirectly, affect the operation of our business. Our business prospects could
be materially adversely affected (1) by the application of current FCC rules or
policies in a manner leading to a change in the regulatory status of our
satellite television and telecommunications operations, (2) by the adoption of
new laws, policies or regulations, (3) by changes in existing laws, policies or
regulations, including changes to their interpretations or applications, that
modify the present regulatory environment, or (4) by the failure of certain
rules or policies to change in the manner anticipated by us.

WE FACE THE RISK OF SYSTEMS INTERRUPTIONS.

The satisfactory performance, reliability and availability of our services
is critical to our reputation and to our ability to attract and retain customers
and maintain adequate customer service levels. From time to time, we have
experienced temporary system interruptions for a variety of reasons, including
software bugs and lack of reliable integration between various elements of our
systems and those of our users. We may not be able to correct a problem in a
timely manner. Because some of the reasons for a systems interruption may be
outside of our control, we may not be able to remedy a problem quickly or

at all. Any future system interruption that results in the unavailability of our
services could result in negative publicity, which would negatively affect our
business.

RISKS RELATED TO OUR COMMON STOCK

SINCE OUR STOCK IS SUBJECT TO THE PENNY STOCK RULES, INVESTORS MAY FIND IT
DIFFICULT TO SELL THEIR STOCK.

Our common stock is subject to penny stock rules promulgated by the
Securities and Exchange Commission. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for our common
stock and make it more difficult to sell our common stock.

YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE.

You may experience substantial dilution of your investment in our common
stock upon conversion of our Series A convertible preferred stock and upon the
exercise of our outstanding stock options and warrants. As of May 31, 2000:

- Each share of our outstanding Series A convertible preferred stock was
convertible into 1.15 shares of our common stock for a total of 4,182,780
shares.

- 3,241,749 shares of common stock were reserved for issuance upon exercise
of outstanding warrants, at exercise prices ranging from US$0.75 to
US$2.50 per share. All of these warrants are currently exercisable.

- 3,585,360 shares of common stock were reserved for issuance upon exercise
of outstanding stock options at exercise prices ranging from US$1.00 to
US$5.00 per share. Of such stock options, 1,555,908 are currently
exercisable.

In addition, if we raise additional capital through the sale of additional
capital stock or the issuance of debt that is convertible into our capital
stock, then your percentage ownership of our stock will be reduced, you may
experience additional dilution, and the new stock or debt may have rights,
preferences and privileges senior to those of our common stock.

OUR COMMON STOCK PRICE IS HIGHLY VOLATILE.

The market price of our common stock has been, and is likely to continue to
be, highly volatile. For example, between December 2, 1998, when our common
stock began being quoted on the OTC Bulletin Board, and May 31, 2000, the price
of our common stock ranged from US$0.31 to US$9.00 per share. Purchasers of our
common stock may not be able to resell their shares following periods of
volatility because of the market's adverse reaction to volatility. We cannot
assure you that our stock will trade at or above historic levels or sustain its
current market price.

SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE.

If our stockholders sell substantial amounts of our common stock in the
public market in the future, including the 11,155,014 offered by the Selling
Stockholders under this prospectus, then the

market price of our common stock could fall and our ability to raise capital
through the sale of our securities could be impaired. To date, we have had
limited trading volume in our common stock and the shares of common stock
offered by the Selling Stockholders constitutes a significant portion of our
outstanding common stock.

Our certificate of incorporation authorizes the issuance of 50,000,000
shares of common stock. At May 31, 2000, 13,371,820 shares of common stock were
outstanding. 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 stockholders.

MUCH OF OUR STOCK IS OWNED BY MANAGEMENT.

Our current executive officers and directors beneficially own or have voting
control over outstanding shares of our common stock and hold presently
exercisable options to acquire our common stock, which taken together constitute
approximately 16% of our common stock. Accordingly, these individuals will have
the ability to influence the election of our directors. Also, this concentration
of ownership may have the effect of delaying, deterring or preventing a change
in control.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains "forward-looking statements." In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology. These forward-looking statements include,
without limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our business
plan, and the adequacy of our available cash resources. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. The information set forth under the headings "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," identify important additional factors that could materially
adversely affect our actual results and performance. We claim the protection of
the safe harbor for forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995.

USE OF PROCEEDS

We will not receive any proceeds upon conversion of the Series A convertible
preferred stock or upon sale of shares of our common stock by the Selling
Stockholders.

We will receive the exercise price of any warrants and options that are
exercised by the Selling Stockholders. Assuming exercise of all of the Selling
Stockholders' warrants and options, the gross proceeds to us would be
approximately US$4,844,525. We intend to use any proceeds from exercise of the
warrants and options for working capital and general corporate purposes.

PRICE RANGE OF COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICE

Our common stock is not traded on a national securities exchange or the
Nasdaq Stock Market. It has been quoted on the OTC Bulletin Board under the
symbol "MDTV" since December 2, 1998. The range of high and low bid quotations
on the OTC Bulletin Board during each fiscal quarter since December 2, 1998, as
reported by Bloomberg, L.P., is as follows:

FISCAL YEAR 2000
-----------------------
QUARTER ENDED HIGH LOW
- ------------- -------- --------

December 31, 1999.......................................... $1.88 $0.31
March 31, 2000............................................. $9.00 $2.13
June 30, 2000.............................................. $6.75 $1.53
(April 1, 2000 through May 31, 2000 only)

FISCAL YEAR 1999
-----------------------
QUARTER ENDED HIGH LOW
- ------------- -------- --------

December 31, 1998.......................................... $1.56 $1.31
March 31, 1999............................................. $2.69 $1.44
June 30, 1999.............................................. $2.38 $1.06
September 30, 1999......................................... $1.72 $0.63

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

As of May 31, 2000, we had approximately 64 holders of record of our shares
of Common Stock.

"PENNY STOCK" RULES

Our common stock is a "penny stock" which is subject to Rule 15g-9 under the
Securities Exchange Act of 1934 (the "Exchange Act"). It is considered penny
stock because it is not listed on a national exchange or Nasdaq, we have been in
business less than three years and have net tangible assets of less than
US$5,000,000, and our average annual revenue has not exceeded US$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 our 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.

DIVIDEND POLICY

We have not paid any cash dividends and we do not anticipate that we will
pay cash dividends on our common stock in the foreseeable future. Payment of
cash dividends is within the discretion of our Board of Directors and will
depend, among other factors, upon our earnings, financial condition and capital
requirements.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTE: This section contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements are not guarantees of our
future performance. They are subject to risks and uncertainties related to
business operations, some of which are beyond our control. Our actual results
may differ materially from those anticipated in these forward-looking
statements. See "Cautionary Note Regarding Forward-Looking Statements."

OVERVIEW

We earn our revenue through the sale of satellite television programming
packages to MDU residents. Under agreements with our programming providers, we
earn a percentage of the fees charged to the subscriber. We also earn a digital
access fee for our digital set-top box service.

We have been providing our digital satellite television services in Canada
since November 1998 and will begin services in the U.S. in July, 2000. As of May
31, 2000, we had approximately 13,600 subscribers in 190 buildings throughout
Canada.

In addition, we recently began offering other services, such as in-suite
security monitoring services, to residents of our MDU properties. Also, we are
in the process of developing products to provide high speed Internet access and
long distance telephone services. We expect to begin offering our Internet
access services by July 2000 and our long distance telephone services during the
fall of 2000.

We have incurred operating losses since our inception and do not expect to
generate profitable operations until fiscal 2001 or later. Our funding of our
operating expenses, working capital needs and capital commitments is dependent
upon our ability to raise financing through public and private placements of
both equity and debt securities, in addition to revenues from operations.

BASIS OF PRESENTATION

Our consolidated financial statements at and for the fiscal years ended
September 31, 1998 and 1999, and for the six-month periods ended March 31, 1999
and 2000, and their respective Notes ("Consolidated Financial Statements") have
been stated in Canadian dollars and have been prepared in accordance with
accounting principles generally accepted in the United States, consistently
applied. We have designated the Canadian dollar as our functional and reporting
currency on the basis that our principal business and activities are located and
conducted in Canada. We have accounted for the business combination of Alpha
Beta Holdings, Ltd. and MDU Communications Inc. as a reverse acquisition whereby
MDU Communications Inc. was identified as the acquirer and the assets and
liabilities of Alpha Beta Holdings, Ltd. were acquired at fair value. In
accordance with generally accepted accounting principles for reverse
acquisitions, our consolidated financial statements reflect the historical
results of MDU Communications Inc. and the related assets and liabilities at
their historic cost. The operations of Alpha Beta Holdings, Ltd., being the
legal parent but accounting subsidiary, are reflected in the consolidated
financial statements from November 22, 1998, and its assets and liabilities are
reflected at their fair value at the date of acquisition. Since Alpha Beta
Holdings, Ltd. was essentially inactive prior to the business combination, the
following discussion will relate to our continuing Canadian operations.

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE PERIOD FROM INCEPTION (MARCH 26,
1998) TO YEAR ENDED SEPTEMBER 30, 1998

REVENUES. Our 1999 fiscal year's revenue of $566,698 was comprised of 69%
SMATV revenue, 20% net programming revenue from Star Choice and 11% from digital
access fees ("set-top revenue"). SMATV revenue represented approximately 8,700
subscribers, most of which had been added by January 1999, and the set-top
revenue represented approximately 2,900 subscribers who were acquired

over the last nine months of the fiscal year. Fiscal 1998 revenues were $0 from
inception at March 26, 1998, to September 30, 1998. That period was spent in
planning with no SMATV or set-top subscribers.

DIRECT COSTS AND SALES EXPENSES. Fiscal 1999 direct costs were $339,570 and
were primarily comprised of SMATV programming and maintenance costs. Direct
costs were 60% of net revenue in fiscal 1999. Salaries, wages, commissions and
benefits make up 35% of the sales expense. In-suite installation of set-top
boxes represents 26% of sales expense and the balance of 39% is primarily
travel, advertising, consulting and telephone expense, which includes $116,149
in non-cash stock option compensation charges (see below). There was no direct
costs or sales expense for fiscal 1998.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A")
expenses increased 1,332% to $1,401,399 in fiscal 1999, from $97,845 in fiscal
1998, due to our market expansion, as follows:

- - Advertising, promotion, travel and vehicle expenses were $128,755 or 9.2% of
total G&A and represented an increase of $84,198 over fiscal 1998.

- - Occupancy, office, telephone costs, repairs and maintenance were $178,175 or
12.7% of G&A and represented an increase of $166,998 over fiscal 1998.

- - Wages were $519,834 or 37.1% of G&A and includes non-cash stock option
compensation charges (see below) of $222,000. No wages were recorded in fiscal
1998 but $26,500 in management fees was paid to companies controlled by
officers and directors as compensation for services rendered.

- - Professional and consulting fees were $307,559 or 21.9% of G&A, which includes
non-cash stock option compensation charges (see below) of $177,445, and
represented an increase of $293,976 over fiscal 1998.

- - Other non-cash charges consisting of amortization expense were $195,260 or
13.9% of total G&A in fiscal 1999. No amortization was recognized in fiscal
1998.

- - The balance of G&A in fiscal 1999 consisted of interest and foreign exchange
losses of $71,816, or 5.1% of total G&A, and represented an increase of
$69,788 over fiscal 1998.

STOCK OPTION COMPENSATION CHARGES. We account for our stock-based employee
compensation plans under APB No. 25 whereby compensation cost is recorded for
the excess, if any, of the quoted market price of the common shares over the
exercise price at the date of the grant for all employee common stock options
issued. During fiscal 1999, compensation cost in the amount of $222,000 was
recorded for options to purchase 300,000 shares of our common stock which we
granted to directors, officers and employees at a weighted average exercise
price of US$1.00. In addition, we granted stock options to purchase 100,000
common shares at an option price of US$1.50 for consultative and other services
provided by a relative of our president. The fair value of these options in the
amount of $177,445 has been recorded as a consulting expense (see note 7(c) to
the Notes to the Consolidated Financial Statements). No stock option
compensation charges were recognized in fiscal 1998.

NET LOSS. We reported a net loss of $2,525,660 for the year ended September
30, 1999. The increase in net loss compared to the year ended September 30, 1998
period was primarily attributable to the operating cost of installing systems
and obtaining over 11,600 subscribers in over 135 properties. These operating
costs were comprised of personnel, sales, and general and administrative
expenses totaling $2,752,788. These costs also include the non-cash stock option
compensation charges discussed above. In fiscal 1998 we reported a loss of
$97,845 consisting only of general and administrative expenses for the period
from inception to September 30, 1998.

RESTATEMENT. Subsequent to the issuance of our September 30, 1999
consolidated financial statements, our management determined that the fair value
of options issued to certain non-employees for services rendered during the
period should have been reported as sales expense, rather than capitalized to
property and equipment. As a result, the accompanying consolidated financial
information as of and for the year ended September 30, 1999 has been restated
from the amounts

previously reported to give effect to an additional $116,149 of sales expense, a
reduction in amortization expense of $4,210 and a corresponding reduction in
property and equipment of $111,939. See Note 16 to the Consolidated Financial
Statements.

SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999

REVENUE. Our revenue for the six months ended March 31, 2000 of $585,789
was comprised of 39% SMATV revenue, 43% net programming revenue from Star Choice
, 17% from digital access fees and 1% from equipment and other sales. Our
revenue for the six months ended March 31, 1999 of $142,482 was comprised of 68%
SMATV revenue, 25% net programming revenue from Star Choice, 3% from digital
access fees and 4% from equipment and other sales. For the six months ended
March 31, 2000 SMATV revenue of $230,907 represented approximately 8,600
subscribers and the set-top revenue of $349,249 represented approximately 3,800
subscribers, compared to the corresponding period with SMATV revenue of $97,098
and 8,500 SMATV subscribers acquired from 4-12 Electronics Ltd. on December 31,
1998, and set-top revenue of $40,229 representing approximately 1,200
subscribers added in the latter half of the period. We also recorded interest
income of $80,241 for the six months ended March 31, 2000 due to investing
available funds from January 28, 2000 to March 31, 2000. There was no
corresponding interest income in the six months ended March 31, 1999.

DIRECT COSTS AND SALES EXPENSES. Direct costs are primarily comprised of
SMATV programming and maintenance costs plus equipment costs, and are 38% of
revenue for the six months ended March 31, 2000, compared to 55% for the same
period of the prior year, with the change reflecting a higher proportion of
set-top revenues in the current period. Salaries, wages, commissions and
benefits make up 34% of the sales expenses for the six months ended March 31,
2000, compared to 32% of the sales expenses for the six months ended March 31,
1999. The balance of 66% and 68% respectively, consisted primarily of travel,
consulting, advertising and telephone expenses, which includes $64,418 in the
six month period ended March 31, 2000, and $116,149 in the comparable period in
1999, related to non-cash stock option compensation (see below).

GENERAL AND ADMINISTRATIVE EXPENSES. G&A expenses for the six months ended
March 31, 2000 were $7,186,251 as compared to $674,342 for the corresponding
prior period. This 966% increase in G&A period over the previous period is
primarily because of non-cash charges. Excluding these non-cash charges (see
below) of $5,835,265 from the six-month period ended March 31, 2000, and
$399,445 in the six-month period ended March 31, 1999, results in an increase of
$1,076,089 or 391%, which is more representative of the increase in overall
business activity. Advertising, promotion, investor relations, travel and
vehicle costs were $181,822 for the six months ended March 31, 2000 or 3% of
G&A, compared to $67,312 for the corresponding prior period, an increase of
170%. Office, occupancy, repairs and maintenance, and telephone costs were
$337,160 for the six months ended March 31, 2000 or 5% of G&A, compared to
$40,386 for the corresponding prior period for an increase of 735%. Wages,
professional and consulting fees for the six months ended March 31, 2000 were
$2,227,410 or 31% of G&A and up from the prior period's $514,057, primarily due
to increased staff levels and non-cash stock option compensation charges of
$1,567,279 in the six months ended March 31, 2000 and $399,445 in the six months
ended March 31, 1999 (see below). Foreign exchange gains of $121,822 and
interest expense of $50,243 for the six months ended March 31, 2000 compared to
$33,064 in foreign exchange loss and to $3,988 in interest expense for the
corresponding prior period. Other non-cash charges consisted of amortization
expense of $270,014 or 4% of G&A in the six months ended March 31, 2000 compared
to only $15,535 or 2% of G&A in the six months ended March 31, 1999 and reflects
the difference in subscriber base between periods and the comparison of six full
months of operations versus three full months in the period ended March 31,
1999.

STOCK OPTION COMPENSATION CHARGES. We account for our stock based employee
compensation plans under APB No. 25 whereby compensation cost is recorded for
the excess, if any, of the quoted market price of the common stock over the
exercise price at the date of the grant for all employee and director common
stock options issued. Stock options issued to third party consultants and others
are

accounted for under Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" whereby compensation charges are
recorded based on the fair value of the options granted. In the six months ended
March 31, 2000, $1,567,279 of G&A expense was non-cash stock option compensation
and consulting charges. In the period, we granted 90,276 options to officers and
employees at a weighted average exercise price of US$1.00 for performance up to
March 31, 2000, resulting in compensation cost of $523,998. In addition, we
granted 170,000 options to consultants at US$5.00 being the market value at date
of grant and the fair value of these options, and the amount of $1,043,281, has
been recorded as consulting expense. Further, stock option compensation charges
in the amount of $64,418 were recorded as sales expense based on the fair value
of stock options issued or issuable to suppliers. For the six months ended March
31, 1999, $399,445 of the G&A expense was non-cash stock option compensation and
consulting charges. Compensation cost in the amount of $222,000 was recorded for
the six months ended March 31, 1999 for options to purchase 300,000 shares of
our common stock granted to directors, officers and employees at a weighted
average exercise price of US$1.00. In addition, we granted stock options to
purchase 100,000 shares of our common stock at an option price of US$1.50 for
consultative and other services provided by a relative of our President. The
fair value of these options in the amount of $177,445 has been recorded as a
consulting expense. Stock option compensation charges in the amount of $116,149
were recorded as sales expense for the six months ended March 31, 1999 based on
the fair value of stock options issued to suppliers, calculated on the date an
eligible supplier completes the performance required to earn the options.

OTHER NON-CASH CHARGES. Included in the six months ended March 31, 2000 is
$26,563 in consulting expenses related to 50,000 shares issued upon the
termination of our agency agreement with Canaccord Capital Corporation. Also
included in the same period are non-cash financing expenses of $4,241,424
representing the fair value of a two-year warrant granted to Gibralt Capital
Corporation. The warrant was for the purchase of 750,000 shares of common stock
at an exercise price of $2.50 per share. The fair value of the warrant was
determined using a Black Scholes option pricing model. The warrant was issued in
consideration of Gibralt Capital Corporation's termination of a financing
agreement and its agreement to negotiate in good faith a new financing agreement
with terms more favorable to us. There was no corresponding financing expense in
the prior period.

NET LOSS. We reported a net loss of $7,714,111 for the six months ended
March 31, 2000, up from a net loss of $1,018,923 for the six months ended March
31, 1999. When non-cash charges, including amortization, of $6,169,697 and
$531,129 are excluded from these periods, the increase is primarily attributable
to the increased costs to operate over 12,400 subscribers in over 160 properties
for a full six months compared to 8,700 subscribers in 140 properties for
approximately three months of the comparable prior period.

ADJUSTMENT FOR BENEFICIAL CONVERSION. During the six months ended March 31,
2000, we issued 3,637,200 shares of Series A convertible preferred stock at an
issue price of US$2.50 per share, in exchange for cash proceeds of US$7,725,000
and services in connection with the private placement with a fair value of
US$1,368,000 for total gross proceeds, prior to expenses of the issue, of
US$9,093,000. The Series A convertible preferred stock have a beneficial
conversion feature totaling $11,147,155 (US$7,725,000) measured as the
difference between the conversion price most beneficial to the investor, of
US$2.17, and the fair value of the underlying common stock at the time of
issuance, limited to the amount of cash proceeds received. In addition on
February 3, 2000, we completed a private placement consisting of 699,999 units
at US $0.75 per unit for gross proceeds of US$525,000. Each unit consists of one
common share and one common share purchase warrant exercisable for two years at
US$1.00 per share. The warrants also have a beneficial conversion feature
totaling $355,047, measured as the difference between the conversion price of
US$1.00 and the fair value of the underlying common stock at the date we had a
contractual obligation to issue the units, limited to the amount of the gross
proceeds received and allocated to the warrants. Each beneficial conversion
feature is recognized as an increase in the loss applicable to common
shareholders and in the calculation of basic loss per share for the six months
ended March 31, 2000, resulting in a net loss attributable to common
shareholders

and basic loss per common share for the six months ended March 31, 2000 in the
amounts of $19,216,333 and $1.86, respectively.

LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998

CASH POSITION. At September 30, 1999, we had cash and cash equivalents of
$43,621 compared to $19,506 at September 30, 1998.

OPERATING ACTIVITIES. Net cash of $310,643 was used in operating activities
during fiscal 1999. The primary operating use of cash was from our net loss of
$2,525,660 which was partially offset by $710,854 of non-cash charges,
represented by $195,260 in amortization and $515,594 in stock option
compensation charges. In addition, we recorded as a source of cash $1,504,163
from changes in working capital. In 1998, net cash of $83,621 was used in
operating activities primarily from our net loss less cash provided by changes
in working capital.

INVESTING ACTIVITIES. Net cash of $3,662,251 was used in investing
activities during fiscal 1999, which was mainly comprised of purchases of
telecommunications equipment used in the reception of the digital satellite
signal, and certain intangible assets less cash acquired with Alpha Beta
Holdings, Ltd. In 1998, $47,033 was expended on the purchase of furniture and
equipment.

FINANCING ACTIVITIES. We generated net cash of $3,997,009 from financing
activities during fiscal 1999. In fiscal 1998 we generated net cash of $150,160
from financing activities.

In fiscal 1999, our financing activities were:

- The exercise of options to purchase 640,000 shares of our common stock at
an exercise price of US$1.50 per share for net cash proceeds of US$960,000
or $1,474,184.

- The issuance of demand convertible notes payable for proceeds of $829,644
(the "Convertible Notes"). The Convertible Notes accrued interest at
various rates between 8.75% and 9.0%. The Convertible Notes were
convertible, as to principal and interest, at the option of the note
holder into fully paid non-assessable shares of our common stock at
original conversion prices between US$1.75 and US$2.00 (see note 6 on the
Notes to the Consolidated Financial Statements). As of September 16, 1999,
we were unable to repay the Convertible Notes upon demand by the note
holders, and the Convertible Notes were re-negotiated with extensions at
the same rates of interest to between February 28, 2000 and June 30, 2000.
The conversion prices were amended to between US$0.50 and US$0.625.

- The issuance of 5,213,835 shares of our common stock to effect the
acquisition of Alpha Beta Holdings, Ltd.

- Proceeds from the issuance of notes payable of $125,000. Our initial
funding was by way of six private demand notes totaling $275,000 bearing
interest at 7.5%. We repaid the six demand notes on December 15, 1998 from
warrant exercise proceeds.

- In May 1999, we received subscriptions for 670,000 shares of our common
stock at an issue price of US$1.75 per share for proceeds of US$1,172,500
or $1,721,361. Expenses of the offering were $176,437. These shares were
subsequently issued in November 1999.

- In August and September 1999, we received US$168,000 or $248,102 on
account of subscriptions for 420,000 units at US$0.40 per unit, each unit
consisting of one share of common stock and a two-year warrant to purchase
one share of common stock for US$0.75 per share. These shares and warrants
were subsequently issued in November 1999 as part of a total of 1,482,750
unit offering.

In fiscal 1998, our financing activities were $150,000 received from the
issuance of notes payable.

WORKING CAPITAL. At September 30, 1999 and 1998, our working capital
deficiencies were $2,304,410 and $144,718, respectively. The deficiencies,
funding to expand our business through acquisition of new subscribers and
funding for our anticipated operating deficits for the following fiscal years
caused us to pursue opportunities to raise financing through private placements
of equity.

SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999

CASH POSITION. At March 31, 2000, we had cash and cash equivalents of
$9,122,224 compared to $82,699 at March 31, 1999. The increase in our cash
position is mainly due to proceeds received from common and preferred share
private placements and convertible promissory notes. These proceeds have been
used for our operating and investing activities during the six months ended
March 31, 2000.

OPERATING ACTIVITIES. Net cash of $2,556,095 was used in operating
activities during the period ended March 31, 2000. The primary operating use of
cash was from our net loss of $7,714,111 which was partially offset by
$6,169,697 of non-cash charges, represented by $270,014 in amortization and
$5,899,683 in stock option compensation charges, shares for service and value
attributed to warrants recognized as financing fees. In addition, we recorded as
a use of cash $1,011,681 from changes in working capital mainly from reduction
of trade accounts payable. In 1999, net cash of $236,261 was used in operating
activities. The primary operating use of cash in 1999 was from our net loss of
$1,018,923, which was partially offset by $531,129 of non-cash charges,
represented by $15,535 in amortization and $515,594 in stock option compensation
charges. In addition, we recorded as a source of cash $251,533 from changes in
working capital.

INVESTING ACTIVITIES. Net cash of $871,490 was used in investing activities
during the six months ended March 31, 2000 all related to purchase of property
and equipment. In the six months ended March 31, 1999 we spent $1,074,884,
represented primarily by $149,071 on the acquisition of SMATV subscribers and
$961,035 on purchases of telecommunications equipment used in the reception of
the digital satellite signal.

FINANCING ACTIVITIES. We generated net cash of $12,506,188 from financing
activities during the six months ended March 31, 2000 as follows:

- On November 23, 1999, we completed a private placement consisting of
1,482,750 units at US$0.40 per unit, for gross proceeds of US$593,100.
Each unit was comprised of one share of common stock and a two-year
warrant to purchase one share of common stock for $0.75 per share. At
March 31, 2000, 420,000 of those units had been issued and offering
proceeds of $248,102 (US$168,000) had been received.

- On January 28, 2000, we raised US$7,725,000 (net of agency fees) through a
private placement of our Series A convertible preferred stock. In
connection with the offering, we entered into a Registration Rights
Agreement under which we agreed to have a registration statement, which
registers and qualifies the shares of common stock issuable upon
conversion of the Series A convertible preferred stock for resale,
declared effective by the Securities and Exchange Commission and the
Registration Statement of which the Prospectus is a part has been filed to
fulfill that agreement. In connection with the offering of Series A
convertible preferred stock, we entered into an agency agreement with
Haywood Securities Inc. Under that agreement, Haywood Securities Inc.
agreed to provide services in connection with the issuance and sale of the
Series A convertible preferred stock and the qualification of the common
stock issuable upon conversion, including assisting in obtaining requisite
regulatory approvals. In consideration of these services, we delivered to
Haywood Securities Inc. a commission of US$618,000, paid by issuance of
247,200 Series A convertible preferred stock, a corporate finance fee of
US$750,000, paid by issuance of 300,000 shares of the Series A convertible
preferred stock, and a warrant to acquire an underlying warrant which is
in turn exercisable into up to 309,000 shares of common stock for a period
of one year at a price of US$2.50 per share.

- On February 3, 2000, we completed two private placements, one consisting
of the issuance of 125,000 shares of common stock at US$0.80 per share,
for gross proceeds of US$100,000, and the other consisting of 699,999
units at US$0.75 per unit, for gross proceeds of US$525,000. Each unit
consisted of one share of common stock and a two-year warrant to purchase
one share of common stock at US$1.00 per share. The net cash proceeds to
us of these two private placements were $909,435 (US$625,000).

- On February 15, 2000, a former director and officer exercised 125,000
options at an exercise price of US$1.00 for total proceeds of $181,100
(US$125,000).

- On February 28, 2000 and March 8, 2000, notes payable valued at $829,644
at September 30, 1999, together with accrued interest of $51,384, were
converted to 997,736 shares of common stock. No proceeds were received
during the period.

During the six months ended March 31, 1999, we generated net cash of
$1,374,338 from the following:

- The exercise of warrants for the purchase of 640,000 shares of common
stock generated proceeds of $1,474,184.

- The issuance of 5,213,835 shares of our common stock to effect the
acquisition of Alpha Beta Holdings, Ltd.

WORKING CAPITAL. At March 31, 2000, we had working capital of $8,602,481,
and at March 31, 1999, we had a working capital deficiency of $181,977. Our
projected operating losses and capital costs to add new subscribers and grow our
business will require us to obtain further financing through private placements
of debt and equity.

MARKET RISK

We are exposed to market risk related to changes in interest and foreign
exchange rates, each of which could adversely affect the value of our current
assets and liabilities. We have not entered into any forward currency contracts
or other financial derivatives to hedge foreign exchange risk, hence, we are
subject to such risk from foreign currency transactions and translation gains
and losses. We do not currently engage in significant operating transactions
denominated in foreign currencies so any change in the CDN/US dollar exchange
rate would not have a material effect on our current operating cash flows,
however as we expand our US operations, that exchange rate may adversely affect
our business.

We do not currently have an interest-bearing investment portfolio nor
liabilities subject to variable interest rates. As a result, any change in the
prime interest rate would not have a material impact on our future operating
results or cash flows based on the terms of existing liabilities.

CAPITAL COMMITMENTS AND CONTINGENCIES

We have access agreements with the owners of MDU properties to supply our
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. See "Business--Our Strengths--Access
Agreements.

RECENT EVENTS

STRATEGIC ALLIANCES

DIRECTV AGREEMENT. In May 2000, we entered into a long-term System Operator
Agreement with DirecTV, which gives us a share of net subscriber receipts,
depending upon the number of active subscribers, from the sale of DirecTV
programming services, plus a subsidy for subscriber acquisition

costs for each net subscriber addition. See "Business--Our Strengths--Strategic
Alliance with DirecTV."

We will incur only the costs associated with the implementation of the
services that we deliver, and will not share any of DirecTV's programming or
broadcasting costs. Under the agreement, we may not solicit sales or provide
equipment for any other direct-to-home digital satellite television services in
the United States. However, we are not prohibited from contracting with other
program providers in connection with its SMATV services. Consequently, we are
totally dependent on DirecTV for its digital set-top programming in the United
States.

The agreement has an initial term of five years, with an automatic extension
of the entire agreement to coincide with the termination of the 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. Under this agreement, we will establish and maintain MDU distribution
systems in non-rural states of the United States, as defined in the agreement,
and act as a commissioned sales agent for the marketing of DirecTV programming
to residents of MDU properties.

As this agreement was recently executed, as of this date we have not derived
any revenue from our alliance with DirecTV. 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.

3COM AGREEMENT. In May 2000 we entered into a Master Purchase Sales
Agreement with 3Com Corporation ("3Com") to become part of its preferred Visitor
Based Network. Under this agreement, we will receive preferred pricing and
discounts for equipment purchased to support our high-speed Internet services.
This is not an exclusive agreement, however, a portion of our discount is based
on purchase volume. The agreement has an initial one-year term, with automatic
yearly renewals at the option of both parties with associated yearly price and
discount adjustments. See "Business--Our Strengths--Strategic Alliance with
3Com."

COMPENSATION

MANAGEMENT AGREEMENT. In May 2000 we entered into a management agreement
with Mohamed Nabile ElBaz, Vice President of Broadband Technology, which
provides for annual compensation, excluding bonuses, of approximately
US$120,000. We can terminate this agreement at any time upon reasonable notice
and the payment of an amount equal to 6 months of salary. See "Management--
Significant Employees."

OPTION GRANTS. In May 2000 we granted options to our newly appointed
independent directors and to certain employees to purchase 347,500 common shares
of common stock, of which 150,000 options have an exercise price of U.S.$2.50
per share (the "Directors' options"), being a premium to the prior day's closing
price of the common stock. The first 75,000 of the Directors' options vest
immediately at the grant date and the remaining 75,000 vest one year after the
grant date. The 197,500 options granted to certain employees have an exercise
price of U.S.$5.00 and vest quarterly over a three year period from the grant
date. All of these options expire May 11, 2005. See "Management--Stock Option
Plans."

FUTURE CAPITAL REQUIREMENTS

The net proceeds of our recent common and preferred stock offerings should
be sufficient to allow us to expand our deployment of service in Canada and to
enter the U.S. market as planned during fiscal 2000. We may require additional
capital in the future to fund (1) deployment of satellite TV services in excess
of our expectations during fiscal 2000, (2) strategic acquisitions of existing
subscriber bases or businesses, or (3) complementary services that may prove
beneficial to us. We may seek funding from a combination of sources, including
additional private placements of equity or debt. No assurance can be given that
additional funding would be available on terms acceptable to us or at all.

BUSINESS

OVERVIEW

We provide high quality digital satellite television services to residents
of multi-dwelling unit properties (MDUs). 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 have a contractual relationship with Star Choice Communications Inc.
under which we market its satellite programming to the Canadian MDU market. We
provide our services under access agreements with MDU property owners. The
access agreements give us the exclusive right to provide digital satellite
television services to the residents of the MDU properties and a right of first
refusal for all other new telecommunications services. As of May 2000, we had
installed or were in the process of deploying our systems in 190 MDU properties,
and were serving approximately 13,600 subscribers, in Canada. We had entered
into letters of intent or access agreements that will allow us to wire and
market to residents in approximately 200 additional MDU properties, providing an
additional potential customer base of over 24,000 Canadian subscribers.

Our goal is to build an infrastructure and service system throughout the
major MDU markets in North America to deliver television programming and other
services. Our strategy is to focus initially on geographical markets which have
a high concentration of MDU properties. In Canada, we have focused to date on
major metropolitan markets such as Vancouver, Toronto, Calgary, Edmonton,
Winnipeg, and Halifax.

We intend to pursue a similar strategy in the United States marketplace,
which is estimated to have over 25 million MDU television households. In May
2000, we entered into an agreement with DirecTV to market digital satellite
television programming to the U.S. market. We opened our first U.S. office in
New Jersey in June 2000 and anticipate locating two more U.S. offices in San
Francisco, California and Chicago, Illinois, before the end of calendar 2000. We
began operations and marketing to building owners in the U.S. in June 2000 and
we expect to begin adding subscribers in July 2000.

We earn our revenue through the sale of digital satellite television
programming packages to the MDU residents. We do not charge the MDU property
owners for our equipment or for installation of the infrastructure.

We believe that we can compete effectively with cable television providers,
our major competitor in the MDU marketplace, for subscribers. Advances in
communications and information technology have created a large demand for new
state-of-the-art services such as digital satellite television. In addition,
regulatory changes in Canada and United States governing digital satellite
television services has given television viewers the opportunity to choose the
provider of their television programming based on quality of signal, cost and
variety of programming. Our marketing program focuses on that choice and the
benefits of subscribing to satellite television programming instead of cable
programming.

Recently, we have begun offering security monitoring services to our
subscribers, using the existing or our installed infrastructure. We have signed
a contract with ADT Security Services Canada, Inc. to market their in-suite
monitoring security programs in Canada. We anticipate entering into a similar
arrangement with a U.S. security monitoring service in the near future. In
addition, we are in the process of negotiating relationships through which we
will be able to provide high-speed Internet access services to our MDU
residents. We are also negotiating distribution arrangements with
telecommunications carriers to resell long distance telephone services to our
MDU residents. We expect to begin offering our Internet access services in July
2000 and our long distance telephone service during the fall of 2000.

We believe that there will be opportunities to grow and enhance our
profitability and competitive position through the acquisition of complementary
companies, technologies and services. We intend to pursue acquisitions that we
believe will provide the opportunity for increased sales penetration with
existing customers and new sales to potential customers, and that will extend
and vertically integrate our products and technologies.

OUR SERVICES

We offer both digital set-top television viewing systems and satellite
master antennae television (SMATV; pronounced "smat vee") viewing systems and
services to the residents of MDUs. Both of our systems use state-of-the-art
wireless digital satellite equipment. This equipment receives scrambled
broadcast signals transmitted from our broadcasters' satellites and decodes them
for viewing, which eliminates the need for a cable television provider.
Broadcast signals are distributed to each MDU unit via cable run throughout the
property.

Currently, approximately 30% of our MDU subscribers use our digital set-top
systems and, as a result of our acquisition of a SMATV subscriber base shortly
after our formation, 70% use our SMATV systems. However, we believe that the
potential market for our digital set-top system is far larger than that for
SMATV systems. We intend to focus our marketing efforts on sale of our digital
set top services, and expect the percentages of digital set-top and SMATV system
revenues to be reversed within a year.

We employ a technical service staff who, in connection with independent
contractors, install and service the satellite and cable signal distribution
systems. Our direct marketing sales representatives install the set-top boxes in
properties equipped with our digital set-top system. We provide this equipment
and its installation to the MDU property and to subscribing residents at no
initial cost to them. Our cost to provide and install this equipment depends on
the type and age of the MDU property and the number of potential subscribers. We
generally only deploy into MDU properties where we project that our subscriber
revenue will cover our equipment, installation and marketing costs within 20 to
30 months of deployment.

DIGITAL SET-TOP SYSTEM AND SERVICE

Our digital set-top television viewing system and service can either
replace, or exist in competition with, the existing cable service in MDU
properties. Our service can be provided without disrupting existing cable
services; no MDU resident is obliged to subscribe to our programming if they
would prefer to remain with cable, regardless of whether their neighbours are
subscribers.

Our digital set-top system and service provides the following benefits to
MDU owners and residents:

- The MDU property is enhanced due to the availability of choice in
television service providers and new services.

- Subscribers do not have to sign any conditional sales or service
contracts.

- Technology upgrades are provided free of charge as they become available.

- Every subscriber receives a digital set-top receiver that provides better
picture and sound quality than analog cable television, and instant access
to pay per view movies and special events at the touch of a button. Cable
services generally only provide digital set-top receivers to their premium
pay channel subscribers for a higher monthly fee.

INFRASTRUCTURE. The required infrastructure for a digital set-top system
consists of: a single .9-meter satellite dish to receive satellite broadcast
signals and an "off air" antenna to receive local television signals, which are
mounted on the roof of the MDU property; a cable backbone distribution system

which is channeled through the building and connected to the existing or newly
installed cable distribution system to the individual suites; and a television
set-top box (with remote control) which decodes the broadcast signals on each
television in each suite. The set-top box takes the place of all of the Head End
(as defined below) equipment used in a SMATV system, except for the satellite
dish.

PROGRAMMING. The regular programming available to subscribers through our
digital set-top service provides the following features:

- Subscribers have more control over their program choices and do not have
to pay for program packages that they do not wish to subscribe to.

- Subscribers receive all their local TV stations as well as the digital
satellite services.

- Subscribers have more channel choices than they would from the majority of
cable companies.

- Subscribers receive an interactive program guide feature built into the
set-top receiver that makes finding favorite channels and programming the
VCR for taping easy.

- Subscribers have a choice of billing options including monthly billing.

CANADIAN PROGRAMMING. Star Choice provides all of the digital television
programming and performs all of the billing and collection functions on our
existing Canadian digital set-top subscriptions. In addition, Star Choice
operates a call center that is open 24 hours a day, seven days a week. Star
Choice provides our MDU customers with a variety of program packages and viewing
options. Prices for Star Choices' programs range from $14.99 per month for the
basic package to $52.99 per month for the platinum package, which includes movie
services and a selection of approximately 120 other channels.

U.S. PROGRAMMING. DirecTV provides all of the digital television
programming and performs all of their billing and collection functions for the
programming packages. DirecTV also provides and operates a 24 hour, 7 day a week
call centre. DirecTV provides our customers with a variety of program packages
and a-la-carte viewing options. Prices range from $19.99 per month for the basic
package to $80.99 per month for the premium package, which includes movie
services and a selection of approximately 155 other channels.

REVENUES.

CANADIAN REVENUES. We have two primary sources of revenue from our Canadian
digital set-top service: programming revenue and digital access fee revenue.

PROGRAMMING REVENUE. Under our contract with Star Choice, we receive
30% of the gross subscriber revenues from our sale of Star Choice
programming within our MDU properties. The average MDU subscriber currently
spends approximately $38 per month on Star Choice programming, excluding pay
per view purchases, which generates revenues to us of approximately $11.40
per month per subscriber.

DIGITAL ACCESS FEE REVENUE. We currently charge subscribers in our
Canadian MDU properties a digital access fee ranging from $5.95 to $7.95 per
month for use of our digital set-top receiver. Approximately 20% of our
subscribers have multiple set-top receivers. Star Choice includes this
amount in its monthly billing to the subscriber. Upon receipt of the
subscribers' payments, Star Choice remits 100% of the digital access fees to
us.

U.S. REVENUES. We have three revenue sources from our U.S. digital set-top
service: programming revenue, digital access fee revenue and upfront capital
reimbursement:

PROGRAMMING REVENUE. Under our contract with DirecTV, we will receive
approximately 20% share of gross subscriber revenues (excluding
pay-per-view) from the sale of the DirecTV

programming services within our MDU properties. Our average U.S. subscriber
is expected to spend approximately $40 per month on DirecTV programming,
excluding pay per view purchases. Therefore, we receive approximately $8.00
per month from the sale of programming to each subscriber. We are also
entitled to earn performance incentives.

DIGITAL ACCESS FEE REVENUE. We charge US subscribers a digital access
fee each month for the digital set-top receiver that we provide. The current
fee is $8.00 per month. It may vary in the future by geographical market and
in response to competitive pressures. We receive 100% of this digital access
fee and bill it directly to the subscriber. We control the digital access
fee rate. An average of 20% of customers take a second receiver for an
additional $8.00.

UPFRONT CAPITAL REIMBURSEMENT. We receive an upfront capital
reimbursement from DirecTV which partially offsets our costs in acquiring
subscribers.

SMATV SYSTEM AND SERVICE

SMATV is a private cable system and service that is used to replace existing
cable service in MDU properties. Our Star Choice and DirecTV agreements allow us
to purchase customized programming packages at a wholesale rate and to resell
them to our SMATV properties, much like a cable television supplier would. MDU
owners and residents benefit from our SMATV service for a number of reasons:

- Our charge for the programming package is generally less than the rate the
property owner was paying for cable service.

- The program package delivered to the residents is custom tailored to suit
their needs, and therefore people do not pay for television services they
do not want to watch.

- Our rates are guaranteed for a longer term than cable rates, which have
increased substantially over the past five years.

- Our MDU residents receive a television signal that is of superior quality
than that provided by most cable services.

INFRASTRUCTURE. The infrastructure we install for a SMATV system (called
the "Head End") consists of one or more satellite antennas, several satellite
receivers, decoders, processors, modulators and related accessories which
receive the television broadcast signals and distribute them to the residents.
The Head End is connected to the property's pre-existing cable system, which
distributes the broadcast signal received by the satellite antennas within the
property.

PROGRAMMING. Unlike our digital set-top system where each resident
subscribes to our service separately, in a SMATV system the MDU owner purchases
from us a package of television programming which is available to all of the
property's residents. We work with the property owner to custom tailor the
package of television programming to suit the needs of the residents located in
the property.

REVENUES. We do not charge the MDU owner any initial fee for our SMATV
system equipment or installation. Instead, we charge the owner a monthly rate
for the programming package, based on the total number of suites in the
property. In SMATV systems, our earnings result from the difference between the
wholesale price charged to us by program providers and the price we charge for
the programming package.

OTHER EXISTING AND FUTURE SERVICES

IN-SUITE SECURITY MONITORING SERVICES. We currently supply each of our
properties with a front door security camera system as part of our digital
set-top and SMATV systems. The camera allows residents to view the building's
front door and lobby area on their television sets. In addition, we recently
signed

an agreement with ADT Security Services Canada, Inc., Canada's leading
electronic security monitoring company, that allows us to offer monitored home
security services to residents of our MDU properties. Under the terms of that
agreement, we market ADT's services to property owners, managers and residents,
and receive a customer activation fee for each subscriber to whom we sell this
service plus a residual revenue stream. We expect to enter into a similar
agreement in the U.S. shortly.

HIGH-SPEED INTERNET ACCESS. We are in the process of developing a
high-speed Internet access service system for our hotel and residential MDU
properties. There are three elements of the high speed Internet service for the
MDU subscriber:

- the construction of an intranet system within the MDU property which we
will provide through our strategic alliance with 3Com Corporation (see "--
Our Strengths--Strategic Alliance with 3Com"),

- the value-added services and back office applications, and

- the link of our intranet system within the property to the back office
applications and the Internet.

We are currently negotiating with various North American bandwidth providers
for the provision of the last element for several properties in Canada and the
United States which are being equipped to carry our high speed Internet service.

Currently, most MDU residents access the Internet through a dial-up service.
However, dial-up access has several drawbacks including delays, frequent busy
signals and dropped calls. The demand for high-speed Internet access is growing
rapidly, as standard dial-up networks become increasingly congested with the
growing number of Internet users. The only high-speed Internet access currently
available to many Canadian MDU residents is through cable modem services. In
order to facilitate the transition of potential MDU television subscribers away
from cable programming to our digital satellite programming, we believe that we
must also provide high-speed Internet access. Once implemented, our service is
intended to deliver high-speed Internet access, plus technical and customer
support, to our subscribers over existing telephone wiring, so that our
subscribers have no further need for a cable connection. In addition, we believe
that once implemented, our system and service will deliver better, more secure
Internet access to our subscribers at pricing competitive with cable modem
services. However, there is no assurance that we will be able to realize profit
from our high-speed Internet access service.

LONG DISTANCE TELEPHONE SERVICES. We are currently negotiating a
distribution agreement with a telecommunications carrier to resell long distance
telephone services. Our goal is to begin offering this service to our MDU
subscribers during the fall of 2000. However, there is no assurance that we will
be able to negotiate such an agreement or implement this service by that time or
at all.

ACCESSORIES. Our sales representatives offer remote control units, power
bars and other television viewing accessories to our MDU subscribers under a
distribution agreement we have with Recoton Corp.

OUR STRENGTHS

In addition to the high quality of our digital television viewing
programming and the choices that our products offer to MDU residents, we believe
that our access agreements 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 grant us exclusive
rights to provide digital satellite television services at an MDU property for a
term of five years and a right of first refusal for all other new
telecommunications services. However, our access agreements generally do not
bind us to deploy our service within any particular time during the term or at
all. This gives us the flexibility to deploy only on those properties that,
after our preliminary market research, we determine meet our profitability
criteria. There is no penalty to us if we decide not to deploy a property, and
we may still decide to deploy on the property at some later point during the
agreement term if the economics become favourable.

In Canada to date we have not been required to pay access fees to MDU
owners, except in a limited number of properties. However, in the U.S. MDU
marketplace access fees are common for exclusive access agreements and generally
consist of an initial payment or residual fees, or some combination of both.
Following the U.S. trend, we anticipate that increases in competition will cause
us to pay access fees to property owners for exclusive access at some point in
the future in both Canada and the U.S.

As of May 2000, we had deployed or had access agreements or letters of
intent to service approximately 390 MDU properties. We believe the fact that we
have obtained flexible long-term exclusive access agreements will give us a
significant advantage over future competitors.

STRATEGIC ALLIANCE WITH STAR CHOICE

In August 1998, we entered into a long-term System Operation Agreement with
Star Choice. Under this agreement, we establish and maintain distribution
systems in MDUs throughout Canada, and act as a commissioned sales agent for the
marketing of Star Choice programming to the residents of our Canadian MDU
properties. We incur only the costs associated with implementation of our
services, and do not pay any of Star Choice's programming or broadcasting costs.

Under our Star Choice agreement, we may not maintain distribution systems or
market digital satellite television services for other program providers in
Canada. We are not, however, prohibited from contracting with other program
providers in connection with our SMATV services. Consequently, we are totally
dependent on Star Choice for our digital set-top programming. During the fiscal
year ended September 30, 1999, revenues from Star Choice were 31% of our total
revenues. Star Choice 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 its retail
stores, as it does to single-family television households.

Our agreement with Star Choice automatically renews at the end of the
initial ten-year term ending August 27, 2008 for successive five-year terms
unless either party gives notice of termination 60 days before the end of any
term. Either party may terminate for the other's breach, bankruptcy or
unapproved assignment of the agreement. In addition, Star Choice may terminate
the agreement at any time if (1) the terms of Star Choice's license from the
CRTC prohibit or materially impair its ability to provide programming to us, or
(2) it is determined that we do not have the authority to perform our
obligations under the agreement.

STRATEGIC ALLIANCE WITH DIRECTV

In May 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 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 services in the United
States. We are not, however, prohibited from contracting with other program
providers in connection with our SMATV services. Consequently, we are totally
dependent on DirecTV for our digital set-top programming. As this agreement was
recently executed, we have as of this date, derived no revenue from our alliance
with DirecTV. 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 at 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.

We negotiate long-term access agreements with property owners and managers
of multi-dwelling unit buildings giving the company the right to deploy digital
satellite television services to their residents. We provide, at no cost to the
property owner, all of the equipment and wiring infrastructure necessary to
deliver the DirecTV services to each resident, including a single 24-inch
satellite antenna for each property and a digital set top satellite receiver for
each DirecTV customer. Customers pay for the DirecTV programming services they
select, as well as a low monthly access fee for the set top receiver.

STRATEGIC ALLIANCE WITH 3COM CORPORATION

Also in May 2000, we entered into a non-exclusive Master Purchase Sales
Agreement with 3Com Corporation to become part of their preferred Visitor Based
Network (VBN) in order to provide broadband Internet products, systems and value
added services, through our new high-speed Internet service to our MDUs. 3Com
has selected us to participate in a direct purchasing agreement as a result of
our mutual interest in developing closer working relationships with application
service providers involved in developing emerging market opportunities. We
believe that 3Com's technology and advanced system solutions will allow us to
expand and deploy our high-speed Internet service to residents of our MDU
properties more cost effectively, but with better performance, than our
competitors.

Under our agreement with 3Com, we will receive preferred pricing and
discounts based partially on purchase volume for equipment needed to support our
new high-speed Internet services and access to strategic technology that will
allow us to deploy the latest in 3Com's high-speed broadband Internet and VBN
system solutions in our MDUs. This equipment and these systems and services are
simple to deploy as they require no special construction or wiring because
existing telephone wires in buildings are used.

Our agreement with 3Com runs for an initial term of one year with automatic
yearly renewals at the option of both parties with associated yearly price and
discount adjustments. Since this agreement was recently executed, we are
currently conducting beta trials at various MDU properties locations and have
not purchased any products or made any payments to 3Com.

THE INDUSTRY

The home entertainment and video programming industry continues to develop
competitive alternatives and consumer choices. The major choices in the industry
are: cable systems, direct-to-home satellite systems (DTH), wireless cable
systems, and broadcast television. There are other competitors, such as Internet
video providers, home video sales and rentals, and even telephone companies.
However, the cable system providers have continued to grow and dominate this
industry in terms of

subscriber penetration, the number of programming services available, audience
ratings and expenditures on programming. However, DTH providers dominate the
delivery of non-cable multi-channel video programming distribution systems.

DIRECT-TO-HOME SATELLITE SYSTEMS

Digital DTH systems provide subscribers with superior picture and sound
quality, more control over their programming choices, more channels to choose
from, and more competitive prices than offered by cable providers. DTH systems
include the digital set top and SMATV systems that we offer.

In a DTH system, video and audio programming is transmitted by a
broadcaster, such as Star Choice or DirecTV, via a satellite to a satellite dish
at the subscriber's location. DTH systems include high-power digital systems
which transmit to small (approximately one meter) receiving dish antennas, and
low-power analog systems which transmit to large receiving dish antennas. A
digital DTH system typically consists of one or more up-link centers, one or
more geostationary satellites and the subscriber's receiving equipment. The
majority of digital DTH broadcasters deliver their programming to subscribers
via commercial satellite. At the up-link center, equipment combines, compresses,
encodes and transmits or up-links the programming to transponders located on the
broadcaster's satellite. The transponders receive and amplify the digital signal
and transmit it to subscribers' receiving dishes within the footprint covered by
the satellite. The receiving dish either sends the digital signal to the
subscribers' digital set-top box or to the SMATV head end, depending on the
television viewing system in place on the property, both of which decode the
digital signal and convert it into an analog signal compatible with the
subscriber's television set.

Currently, there are only two satellite broadcasters licensed to operate in
Canada: Star Choice and ExpressVu. Star Choice is a wholly-owned subsidiary of
Canadian Satellite Communications Inc. ExpressVu is a wholly-owned subsidiary of
BCE Inc. In the last few years, these two companies have built a subscriber base
of over approximately 800,000 households, or approximately 6.8% of the
11.8 million Canadian television households. Both Star Choice and ExpressVu have
historically focused on the sale of programming to single-family dwellings
primarily through retail and commercial stores.

There are two digital DTH satellite broadcasters licensed to operate in the
U.S.: DirecTV and Echostar. In the last few years, these companies have built a
subscriber base of over approximately 14 million households, or approximately
14% of the 100 million U.S. television households. Echostar focuses exclusively
on the sale of programming to single-family dwellings and currently has no
presence in the MDU marketplace. DirecTV also focuses primarily on single-family
dwellings, however it was the first DBS provider in the U.S. to offer a full
range of entertainment programming to the MDU market. DirecTV typically does not
deploy MDU systems itself but does so by contracting with third-party MDU system
operators.

We believe that the satellite broadcasters in both Canada and the U.S. have
focused on the single family market because of the high percentage of television
households that are single-family dwellings, the minimal technical challenges in
deployment and the difficulty in effectively marketing services to MDU property
owners, managers and residents. By limiting their focus, we believe that both
the Canadian and U.S. satellite broadcasting companies have left a sizeable
niche in the marketplace for distribution of DTH systems to MDU residents.

COMPETITION

The home entertainment and video programming industry is highly competitive,
and we expect competition to intensify in the future. In both Canada and the
U.S., we face our most significant competition from hard-wire cable operators.
In addition, our competition includes other DTH providers, wireless cable,
off-air broadcasters, and the home video cassette industry.

Our competitors generally have greater financial, technical, marketing and
other resources, including brand or corporate name recognition, than we do. In
addition, a continuing trend towards business combinations and alliances in the
industry may create significant new competitors with resources far greater than
ours. These combined entities may provide bundled packages of television
services that compete directly with the services we offer. These entities may
also offer services sooner and at more competitive rates than we do. There is no
assurance that we will compete successfully with our current or future
competitors.

OTHER DTH PROVIDERS. Due to the unique characteristics required to
effectively serve the MDU digital television viewing market, we are not aware of
any other companies that provide digital satellite television viewing systems on
a national scope in either Canada or the U.S. We do face competition from local
and regional providers of DTH services, and also occasionally from Star Choice
or ExpressVu or other DirecTV operators who agree to service an MDU in their
area. In addition, ExpressVu has recently announced that it will begin actively
marketing its services directly to MDUs in the Toronto area and we expect this
deployment to expand to other metropolitan markets in the future. However, in
the U.S., Echostar currently does not service the MDU market and DirecTV only
serves it through other system operators such as us. We expect that the lack of
a national-level competitor will change over time, but believe that our direct
marketing program and our favourable agreements with Star Choice and DirecTV
will make it difficult for new entrants to the North American MDU market to
compete effectively with us, at least initially. However, we recognize that this
window of opportunity may not remain open indefinitely.

HARDWIRED 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 Canada, traditional cable
companies dominate the market, serving an estimated 70% of the 11.8 million
Canadian television households. However, within the last few years, the CRTC has
implemented a number of reforms to increase competition in the marketplace. 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, and
which permit the transmission of less than 40 channels. 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, although the use of integrated
facilities remains primarily experimental. In the meantime, we believe that 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 up to 200 video and audio channels at a comparable price to most cable
operators' current service.

OFF-AIR BROADCASTERS. The majority of North American households which are
not serviced by cable operators are either unserviced or 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

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

MARKETING

STRATEGY

Our marketing strategy is to focus on geographical markets in North America
which have a high concentration of MDU properties. The number of decision makers
in each of these dense markets is generally a relatively small group. When we
enter a new geographical market we focus on reaching those decision makers in
the shortest time possible. We believe that our marketing strategy is unique in
that, unlike any competitor of which we are aware, we not only market our
services to owners and building managers, but also to each resident of the MDU
property through our direct marketing and telemarketing teams.

IMPLEMENTATION

Our marketing strategy is implemented by our regional sales offices in the
targeted geographical market. Our regional sales managers market our SMATV and
digital set-top services to MDU property owners and managers. Our direct sales
managers focus on developing relationships with the resident managers at each of
our MDU properties. They also coordinate, train and deploy our direct marketing
sales representatives, who present our direct marketing program to residents of
our MDU properties. In addition, our telemarketing team, located in our home
office in Richmond, British Columbia, coordinates its activities with our direct
sales teams during initial system deployment. We believe that our direct
marketing and telemarketing program gives us a significant marketing advantage
over competitive service providers in MDU properties. However, there is no
assurance that this advantage would be sufficient to sustain our business if
Star Choice, ExpressVu, DirectTV or Echostar decide to actively market to MDUs.

When we first install our digital set-top service in an MDU property, the
property and resident suites are equipped with marketing materials and decals
clearly identifying the property as a building that is "MDU WIRED" and offering
residents a choice of service provider. Our sales representatives give a sales
presentation and system demonstration first to the resident manager and then to
each of the residents in the property on a one-to-one basis. In addition, they
offer each resident the opportunity to preview our digital satellite service for
free for 30 days, and describe our other products.

Following our initial marketing campaign at an MDU property, a sales
representative will visit the property periodically to work with new residents.
As part of our access agreements, resident managers of our MDU properties
provide us with monthly resident move in and move out information, and encourage
new residents to contact us for digital satellite service. We provide the
resident managers with marketing materials to assist in explaining our "digital
upgrade" process and our 30-day free service preview offer.

DIRECT MARKETING SALES FORCE

Our direct marketing sales force is currently comprised of approximately 46
direct marketing sales representatives working from six regional sales offices
in Canada and one in the U.S. We are currently recruiting our marketing teams in
the U.S. In addition to conducting sales presentations and system
demonstrations, our sales representatives install the digital set-top receivers
in the suites if that is the service which we are providing. Our sales
representatives are compensated through a combination of salary and commissions
earned on their sale of programming and other service subscriptions to the MDU
residents.

GOVERNMENT REGULATION

CANADA

REGULATION OF OUR BUSINESS. Canada's Broadcasting Act and the
Telecommunications Act (the "Broadcasting Act") is implemented by the CRTC. The
CRTC regulates all matters relating to broadcasting and telephony, whether cable
or wireless, ranging from program content, local and long distance telephony,
broadcasting delivery infrastructure and pricing, except Internet services which
are not regulated. Our program provider, Star Choice, must operate in accordance
with the Broadcasting Act as well as in accordance with CRTC-imposed "conditions
of license" to maintain its license. The current term of Star Choice's license
from the CRTC expires on August 31, 2002. Since Star Choice is our sole source
for programming, we would be adversely affected if Star Choice were to encounter
regulatory difficulties or if its license is not renewed by the CRTC.

As a programming reseller, we are not regulated by the CRTC. In addition,
under a CRTC license exemption, we can provide MDU residents with off-air
antennae for the receipt of local television broadcasting not carried by Star
Choice, so long as the distribution system inside the building is owned and
controlled by the MDU property owner. Our access agreements that provide for
local television access are designed to comply with this exemption.

POTENTIAL PRICING DEREGULATION. Over the last few years, the CRTC has
issued public notices stating that it anticipates deregulation of pricing in the
broadcasting industry once a competitive market has been achieved. The CRTC
currently defines the achievement of a competitive market as occurring when the
number of subscribers lost by an incumbent cable broadcasting distribution
undertaking exceeds 5%. To date, pricing has not been deregulated. While the
CRTC does not regulate the rates charged by Star Choice to its customer or by us
to our customers, deregulation of broadcast industry pricing generally could
affect the prices that we can charge our customers in a manner which could have
an adverse effect on our business.

PRELIMINARY REGULATION OF CABLE OWNERSHIP. Before January 1, 1998, the CRTC
required that a cable television company own all cables from the distribution
panel in an MDU to and including the "subscriber drop," which is the wall plate
in each subscriber's suite. These cable wirings are commonly called inside
wires. However, the CRTC has enacted preliminary regulations opening the use of
inside wires to all competitors for no charge, regardless of ownership of the
inside wires. The CRTC has also preliminarily ordered the incumbent cable
companies to abide by a policy of noninterference with new entrants and to
assist with the transfer of its customers to a new entrant within 24 hours of
receiving such notice. These regulatory changes have created the opportunity for
us to install and connect our new cable distribution systems to the inside wires
of each MDU subscriber's suite in order to provide Star Choice programming and
other services to our subscribers in direct competition with the incumbent cable
company.

The CRTC has not finalized regulations relating to either the ownership of
inside wires or the technical feasibility of bandwidth sharing, another open
issue. However, we have attempted to conform our current operating practices
with the current preliminary regulations as well as the anticipated final
regulations. There is no assurance, however, that the final regulations will be
favorable to us, and, if not, they would have a material adverse effect on our
business and financial results.

UNITED STATES

We are not directly subject to rate regulation or certification requirements
by the Federal Communications Commission ("FCC"), the Telecommunications Act of
1996 ("Telecom Act") or state public utility commissions because our equipment
installation and sales agent activities do not constitute the provision of
common carrier services. However, DirecTV is subject to varying degrees of
federal, state and local regulation.

FEDERAL REGULATION OF OUR DIGITAL SATELLITE TELEVISION BUSINESS. As a
resale agent for DirecTV, we will not be subject to regulation as a direct
broadcast satellite (DBS) provider, but rely upon DirecTV to procure all
necessary retransmission consents and other programming rights under the U.S.
Copyright Act. To the extent that we may also elect to provide our MDU customers
with secondary transmissions of local broadcast signals not currently available
via satellite, our offering of these services will be exempt from compulsory
copyright provisions under the Master Antenna Television Services (MATV)
provision of the Copyright Act. Our DBS and MATV systems do not use or traverse
public rights-of-way, and thus are exempt from the comprehensive regulation of
cable systems under Title VI of the U.S. Communications Act. Because we are
subject to minimal federal regulation, we enjoy have significantly more
competitive flexibility than do the franchised cable systems with which we
compete. We have fewer programming restrictions, greater pricing freedom, and
are not required to serve any customer who we do not choose to serve. In
addition, with the exception of local zoning laws and regulations, state and
local authorities generally have no jurisdiction over our activities. We believe
that these 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 digital satellite television services will be subject to state or
local franchise laws. Although we may be required to comply with state and local
property tax and environmental laws, as well as local zoning laws and applicable
covenants, conditions and restrictions when installing our antennae and other
microwave equipment, we do not anticipate that compliance with these laws will
have any material adverse impact on implementation of our business plan. The FCC
has preempted certain state, local and private restrictions on over-the-air
reception antennas placed on MDU properties, including rental properties and
properties occupied by, but not within the exclusive control of the viewer. This
limits the extent to which MDU owners and we may enforce certain aspects of our
rights of entry agreements which otherwise would prohibit, for example,
placement of DBS receive antennae in MDU areas (such as apartment balconies or
patios) under the exclusive occupancy of a renter.

STATE MANDATORY ACCESS LAWS. A number of states have enacted mandatory
access laws. Although such laws differ in some respects from state to state,
state mandatory access laws generally require that, in exchange for just
compensation, the owners of rental apartments (and, in some instances, the
owners of condominiums and manufactured housing parks) must 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 video
programming 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 video programming services to the
property. Such statutes limit the ability of cable or other video programming
providers to enter into exclusive right of entry with an owner of an MDU because
an owner usually is induced to enter an exclusive agreement through financial
incentives. These statutes have been and are being challenged on constitutional
grounds in various states. We do not currently anticipate establishing
significant operations in any mandatory access states. If we elect to operate in
mandatory access states, we will probably enter into bulk sales agreements with
MDU owners, whereby the MDU owner agrees to purchase cable television, at a
discount, for each unit in the MDU and provides the service to the MDU resident
as one of the amenities included in their rent.

PREFERENTIAL ACCESS RIGHTS. We do not generally negotiate exclusive rights
of entry in MDUs, but have negotiated exclusive rights to provide satellite
services in competition with competing cable or MMDS providers, and
"rights-of-first-refusal' to match price and terms of third-party offers to
provide telecommunications services in building where we have negotiated access
rights. We believe that these preferential rights of entry are now generally
enforceable under applicable law; however, current trends at the state and
federal level suggest that the future enforceability of these provisions may be
uncertain.

The FCC has initiated a pending rulemaking to determine whether such exclusive
contracts should be limited to a maximum period of seven years. 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 would tend to undermine the exclusivity provisions of our
rights of entry. The FCC also has issued a rule preempting certain state, local
and private restrictions on over-the-air reception antennas. There can be no
assurance that future state or federal laws or regulations will not restrict our
ability to offer revenue sharing or access payments, limit MDU owners' ability
to receive revenue sharing or prohibit MDU owners from entering into exclusive
access agreements, any of which could have a material adverse effect on our
business.

REGULATION OF OUR HIGH-SPEED INTERNET SERVICE 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 as
such. Any such change may affect demand for the Internet related services which
we intend to provide.

There also have been efforts at the federal and state level to impose taxes
and other burdens on ISPs and to regulate content provided via the Internet and
other information services. These efforts have not generally been upheld when
challenged in court. Nonetheless, we expect that proposals of this nature will
continue to be debated in Congress and state legislatures in the future. 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 us. In
addition, although there is a trend in the law away from ISP liability for
content posted or published on the Internet, there can be no assurance that our
involvement in the provision of ISP services will not subject it to liability
for acts performed by third parties using the Internet.

FUTURE GOVERNMENT REGULATION. Many aspects of regulation at the federal,
state and local levels currently are subject to judicial review or are the
subject of administrative or legislative proposals to modify, repeal, or adopt
new laws and administrative regulations and policies, the results of which we
are unable to predict. The United States Congress and the FCC have in the past,
and may in the future, adopt new laws, regulations and policies regarding a wide
variety of matters, including rulemakings to implement provisions of the Telecom
Act or the Copyright Act, that could, directly or indirectly, affect the
operation of our business. Our business prospects could be materially adversely
affected (1) by the application of current FCC rules or policies in a manner
leading to a change in the regulatory status of our private cable television and
telecommunications operations, (2) by the adoption of new laws, policies or
regulations, (3) by changes in existing laws, policies or regulations, including
changes to their interpretations or applications, that modify the present
regulatory environment, or (4) by the failure of certain rules or policies to
change in the manner anticipated by us.

EMPLOYEES AND CONTRACTORS

As of May 31, 2000, we had approximately 81 full-time employees and three
independent contractors. Of these employees, 54 were in sales and marketing, 12
were in operations, and 19 were in administration. None of our employees are
represented by a labor union. We have experienced no work stoppages and believe
that our employee relations are good.

FACILITIES

Our headquarters are in Richmond, British Columbia, where we centralize our
accounting, marketing and other administrative functions. The office is home to
the our senior management team, our subscription management system, operations
and telemarketing centre. We also maintain offices in Dartmouth, Nova Scotia to
service the Halifax, Nova Scotia area, in Mississauga, Ontario to service the
metroplitan Toronto area, and in Winnipeg, Manitoba to serve the Prairie
provinces and all of our SMATV system customers. Our Calgary and Edmonton sales
representatives work from home offices. We opened our first U.S. office in New
Jersey in June 2000.

We currently lease all of our facilities. The table below describes each of
our offices and the basic terms of our leases:

APPROXIMATE
LOCATION OFFICE TYPE SQUARE FEET LEASE EXPIRATION
- -------- ---------------------- ----------- -------------------------

Richmond, British Columbia executive offices, 6,070 December 31, 2001 (three
administration, sales leases); May 31, 2001
office (one lease)
Dartmouth, Nova Scotia sales office 400 month to month
Winnipeg, Manitoba sales office 1,900 August 31, 2002
Mississauga, Ontario sales office 1,559 July 31, 2004
Totowa, New Jersey sales and 8,327 July 30, 2002
administration office

- ------------------------

*The rental rate for the Ontario premises increases every year to a maximum
amount of $14,028 during the last term year from August 1, 2003 to July 31,
2004.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers and their ages are as follows:

NAME AGE POSITION
- ---- --- -----------------------------------------------

Sheldon B. Nelson(2)....................... 38 President, Chief Executive Officer and Director
Robert A. Biagioni(1)(3)................... 43 Chief Financial Officer, Secretary and Director
J.E. (Ted) Boyle(1)........................ 54 Director
Douglas G. Hooper(1)(2)(3)................. 39 Director
Robert Dyck(2)(3).......................... 43 Director
Gary J. Monaghan........................... 40 President of MDU Canada

- ------------------------

(1) Compensation Committee member

(2) Corporate Governance Committee member

(3) Audit Committee member

SHELDON B. NELSON. Mr. Nelson has served as President, Chief Executive
Officer and a Director 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.

ROBERT A. BIAGIONI. Mr. Biagioni, a Chartered Accountant, has been the
Chief Financial Officer and a Director since February 2000 and Secretary since
November 1999. From 1986 to present, Mr. Biagioni has been the President of
Corus Financial Group which provides financial and operational consulting in the
United States and Canada, primarily in real estate, technology and
manufacturing.

Mr. Biagioni has held senior financial roles with The HTM Group, First Merchant
Group, Telsoft Mobile Data Inc. (now Mobile Data Solutions Inc.) and Sand River
Resources Ltd. (now Rio Fortuna Explorations Corp.).

J.E. (TED) BOYLE. Mr. Boyle joined our Board of Directors as an outside
Director in May 2000. He has a 20-year executive career in the global
telecommunications industry. As founding President and CEO of ExpressVu Inc.,
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. 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.

DOUGLAS G. HOOPER. Mr. Hooper joined our Board of Directors as an outside
Director in May 2000. He is 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. Mr. Hooper was the founder and President of TelSoft Mobile Data
Inc., 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. His background also includes several senior management positions
with venture capital investment firm The Equity Group.

ROBERT DYCK. Mr. Dyck joined our Board of Directors as an outside Director
in May 2000. He has been president of WRE Development Ltd. and its Canadian and
U.S. subsidiaries 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. As
president, he has overseen the rapid expansion of a property and development
portfolio now valued at more that $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.

GARY J. MONAGHAN. Mr. Monaghan has served as President of MDU Canada since
November 1999, and from 1998 to November 1999 as Vice President, Sales and
Marketing of MDU Canada. Mr. Monaghan's experience in the cable television and
satellite communications industries started with Rogers Cable where he was
employed from 1983 to 1989. He was Regional Marketing Manager for Shaw
Cablesystems from 1989 to 1994. He ran his own satellite television company from
1994 until its bankruptcy in 1997. Mr. Monaghan joined 4-12 Electronics
Corporation as General Manager in April 1997 until December 1997.

SIGNIFICANT EMPLOYEES

Our significant employees and their ages are as follows:

NAME AGE POSITION
- ---- --- ------------------------------------------------------

Joseph M. Strang................. 39 Director of International Sales, MDU Canada
Richard W. Hazell................ 34 Director of Technical Services, MDU Canada
John W. Mattice.................. 39 Vice President, Finance and Administration, MDU Canada
Patrick J. Cunningham............ 32 Vice President, U.S. Operations
Mohamed Nabile ElBaz............. 41 Vice President of Broadband Technology

JOSEPH M. STRANG. Mr. Strang joined MDU Canada in 1999 as Vice President of
Direct Sales and Marketing. Mr. Strang was Director of Sales and Marketing for
Westcom Communications from 1996 to 1999. From 1994 to 1996 he was President of
Universal Satellite.

RICHARD W. HAZELL. Mr. Hazell has been our Director of Technical Services
since December 1998. He was a lead technical officer with Scientific Atlanta in
Atlanta, Georgia, responsible for providing marketing and technical support in
Asia, Europe and Latin America from August 1996 to December 1998. In 1991 he
founded, constructed and managed a cable television company in British Columbia
and sold the company in 1992. In addition, from 1993 to 1995 he co-founded a
cable television infomercial channel that broadcast throughout Canada and the
U.S.

JOHN W. MATTICE. Mr. Mattice joined us in February 2000 as Vice President
of Finance and Administration. Mr. Mattice is a Chartered Accountant. He was
Chief Financial Officer for Catamaran Ferries International Inc. from 1997 to
February 2000, and performed various duties with the Office of the Group
Comptroller, Corporate Services Division and Assistant Controller of B.C. Hydro
from 1992 to 1997. From 1985 to 1991, he was an Audit Senior with Manning
Jamison, Chartered Accountants.

PATRICK J. CUNNINGHAM. Mr. Cunningham joined us in March 2000 as Vice
President of U.S. Operations. Mr. Cunningham is responsible for the
implementation of our business plan and expansion of our operations in the
United States. Mr. Cunningham held various positions with SkyView World Media,
LLC and its subsidiaries from June 1995 to March 2000, and was a maintenance
team leader with Schneider International, Inc. from September 1994 until June
1995.

MOHAMED NABILE ELBAZ. Mr. ElBaz joined us in April 2000 as Vice President
of Broadband Technology. Mr. ElBaz will define, implement and drive the
strategic planning, marketing and business development for our high-speed
Internet division for the North American MDU marketplace. Prior to joining us,
Mr. ElBaz was at 3Com Corporation, one of our strategic technology providers,
since 1995, at which he played key roles in the launch and development of 3Com's
ATM network systems and Visitor-Based Networking (VBN), and in product planning
and management of 3Com's ATM LAN, MAN and WAN switching systems. Prior to
joining 3Com, Mr. ElBaz helped found LightStream Corporation (now Cisco Systems'
ATM business unit) from 1993 to 1994 and AtlasComm International from 1994 to
1995.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information regarding compensation paid
during our fiscal years ended September 30, 1998 and 1999, our only two fiscal
years, to our chief executive officer. None of our other most highly compensated
executive officers had annual salaries and bonuses exceeding $100,000 during
those fiscal years.

ANNUAL
COMPENSATION LONG-TERM COMPENSATION
------------------- ------------------------------------
FISCAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS (#) COMPENSATION
- --------------------------- -------- -------- --------------------- ------------

Sheldon B. Nelson, President and............ 1998 -0-(1) -0- -0-
Chief Executive Officer 1999 $50,000 175,000 $7,750(2)

- ------------------------

(1) Mr. Nelson became the President and Chief Executive Officer on July 27,
1998. During fiscal year 1998, we did not engage in any business activities.

(2) Auto allowance.

OPTIONS GRANTED IN FISCAL YEAR 1999

The following table provides information with respect to options granted
during fiscal 1999 to the executive officer named in the Summary Compensation
Table:

NUMBER OF SHARES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE PER
NAME GRANTED IN FISCAL YEAR SHARE (US$) EXPIRATION DATE
- ---- ------------------ -------------------- ------------------ ---------------

Sheldon B. Nelson................ 175,000 58% $1.00 11/24/03

MANAGEMENT AGREEMENTS

Mr. Nelson, Mr. Biagioni and Mr. Monaghan have each entered into a
management agreement with us. Under these agreements, they receive annual
salaries of $180,000, $162,000, and $159,000, respectively. The agreements also
grant them the right to receive bonuses as determined by the Board of Directors
and to participate in our incentive stock option plans. The agreements require
them to maintain all confidential and proprietary information relating to our
business in confidence and to not be employed or enter into contracts with
persons or entities that compete directly with us during the 12 months following
termination of their respective agreements. Mr. Nelson and Mr. Monaghan's
agreement with us are employment agreements and Mr. Biagioni's agreement is a
consulting agreement between us and his corporation, Corus Financial Corp.

Each of our significant employees listed above is also party to an
employment or management agreement with us.

COMPENSATION OF DIRECTORS

Our directors who are also employees do not receive cash compensation for
their services as directors or members of committees of the Board of Directors.
Our outside directors receive $1,000 per month and $1,000 per meeting, and stock
options under our 2000 Stock Option Plan. The outside directors appointed in May
2000 received fully-vested options to purchase 25,000 shares at $2.50 per share,
and another 25,000 options which will vest at the end of one year if they attend
75% of all Board and committee meetings. We reimburse directors for their
reasonable expenses incurred in attending meetings.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law (DGCL), we shall indemnify our directors and officers,
and may indemnify its employees and agents. Such indemnification may be made
only if the person to be indemnified acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of our
company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The Bylaws
further provide that we may enter into an indemnification agreement pursuant to
which we will indemnify a director, officer, employee or agent to the fullest
extent permitted by the DGCL. At present, there is no pending litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification is required or permitted, and we are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

STOCK OPTION PLANS

We currently have two stock option plans under which we may grant options to
purchase shares of our common stock. The plans are summarized as follows as of
May 31, 2000:

AUTHORIZED OPTIONS OPTIONS OPTIONS
PLAN NAME EFFECTIVE DATE OPTIONS GRANTED AVAILABLE EXERCISED
- --------- ----------------- ---------- --------- --------- ---------

2000 Stock Option Plan............ February 5, 2000 4,000,000 3,510,360 489,640 125,000
Supplier Stock Option Plan........ December 31, 1998 215,135 100,000 115,135 0

Both plans are administered by the board of directors who have sole
discretion and authority to determine individuals eligible for awards. The
conditions of exercise of each grant are determined by the board of directors at
the time of the grant.

2000 STOCK OPTION PLAN. Our 2000 Incentive Stock Option Plan (the "2000
Plan") authorizes the grant of options to our officers, directors, employees,
consultants and advisors. Our Directors/Officers Non-Qualified Stock Option Plan
and our Employees' Incentive Stock Option Plan were both terminated and the
265,276 options outstanding under those plans were consolidated into the 2000
Plan. Upon adopting the 2000 Plan, the board of directors granted an additional
2,785,084 options to certain of our directors, officers, employees and
consultants at an exercise price of US$5.00 per share. In May 2000, the Board of
Directors granted a total of 347,500 options to its newly-elected independent
directors and to certain officers and employees at exercise prices ranging from
US$2.50 to US$5.00. As of May 31, 2000, options to purchase 125,000 shares of
common stock had been exercised, and 3,385,360 options were outstanding. Of the
outstanding options, 1,355,908 options are presently exercisable and 2,029,452
options are unvested and vest over one- or three-year periods.

SUPPLIER PLAN. Our Supplier Stock Option Plan (the "Supplier Plan")
authorizes the grant of a specified number of five-year options to certain key
suppliers if they successfully complete specified work for us. If a supplier who
has received options ceases to be a key supplier, then that supplier's options
expire 30 days after the cessation date. As of May 31, 2000, we had granted a
total of 100,000 options under the Supplier Plan. These options were exercisable
at prices ranging from US$1.50 and US$2.00 and expire between March 2004 and
March 2005. Options for 50,000 shares will be granted to one of our current
suppliers upon completion of its specified work. As of May 31, 2000, all of the
outstanding options under the Supplier Plan were currently exercisable, and no
options issued under the Supplier

Plan had been exercised. All of the shares of common stock issuable under
these options are being offered for sale by this prospectus.

CERTAIN TRANSACTIONS

SUPPLY CONTRACT WITH 4-12 ELECTRONICS CORPORATION AND GRANT OF OPTIONS

4-12 Electronics Corporation is a Manitoba corporation owned by Chris
Nelson, who is Sheldon B. Nelson's brother. Sheldon B. Nelson served as
president of 4-12 Electronics Corporation until December 31, 1998. In December
1998, we purchased certain contracts to supply satellite television services to
MDU properties from 4-12 Electronics Corporation for $200,000. The purchase
included the related equipment leases, licenses and satellite reception
equipment located at the SMATV properties. We believe that the amount paid
represented the fair market value of the acquired assets.

CONSULTING SERVICES BY CHRIS NELSON

In December 1998, we granted Chris Nelson a five-year stand-alone option to
purchase 100,000 shares of common stock at an exercise price of US$1.50 per
share in consideration for consulting services in connection with transiting
assets we purchased from 4-12 Electronics Corporation. This

option may be exercised in whole or in part at any time until December 31, 2003.
As of March 31, 2000, none of these options had been exercised. All of the
shares of common stock issuable under this option are being offered for sale by
this prospectus.

LEGAL PROCEEDINGS

From time to time, we may be subject to legal proceedings which could have a
material adverse effect on our business. The following are summaries of
currently pending legal proceedings.

SHAW CABLESYSTEMS LTD.

Shaw Cablesystems Ltd. commenced a lawsuit against us in the Court of
Queen's Bench of Alberta, Judicial District of Edmonton, on June 25, 1999. Shaw
alleges that our opening of junction boxes constitutes trespass on their
properties and seeks interim and permanent injunctive relief, damages of
$2,000,000, interest and costs. Shaw has agreed with us that no further steps
will be taken in this legal proceeding until we have completed our negotiations
with Shaw with respect to customer connection procedures. If the negotiations
are unsuccessful and Shaw prevailed in this litigation, we would be materially
adversely affected.

WHISTLER CABLE TELEVISION LTD.

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 pre-discovery phase. We believe that an
unsuccessful defense of this lawsuit would not have a material adverse effect on
us.

PRINCIPAL STOCKHOLDERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of May 31, 2000 as to the
number of shares of our common stock and Series A convertible preferred stock
beneficially owned by (a) each person (including any group) known to own more
than 5% of the outstanding common stock or more than 5% of the outstanding
Series A convertible preferred stock, (b) each director, (c) the executive
officer named in the Summary Compensation Table, and (d) all directors and
executive officers as a group. Except as otherwise specified, each named
beneficial owner has sole voting and investment power with respect to the shares
set forth opposite its name.

SERIES A CONVERTIBLE
COMMON STOCK PREFERRED STOCK
------------------------------ ------------------------------
NAME AND ADDRESS NO. OF SHARES PERCENT NO. OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS BENEFICIALLY OWNED OF CLASS
- ------------------- ------------------ --------- ------------------ ---------

Sheldon B. Nelson, ........................ 1,137,682(1) 8.24% 0 *
President, Chief Executive Officer and
Director
1504 - 170 Hargrave Street
Winnipeg, MB R3C 3H4 CAN

Robert A. Biagioni, ....................... 389,583(2) 2.83% 0 *
Chief Financial Officer, Secretary and
Director
305 - 250 West Fourth Street
North Vancouver, BC V7M 1H7 CAN
Gary J. Monaghan, ......................... 764,583(3) 5.67% 0 *
President of MDU Canada
415 Eastbourne Road
Kelowna, BC V1X 5K7 CAN
J.E. (Ted) Boyle, ......................... 25,000(4) * 0 *
Director
2273 Malden Court
Mississauga, Ontario L5K 1W6
Douglas G. Hooper, ........................ 25,000(4) * 0 *
Director
D68
Bowen Island, B.C. V0N 1G0
Robert Dyck, .............................. 25,000(4) * 0 *
Director
2102 Henderson Highway
Winnipeg, MB R 2G 1P6
Haywood Securities Inc. ................... 938,280(5) 6.56% 629,280 15.04%
Suite 1100, 400 Burrard Street
Vancouver, BC V6C 3A6 CAN
Belvedere Consultancy Ltd. ................ 855,337 6.40% 0 *
c/o Bull Housser & Tupper
3000 - 1055 West Georgia Street
Vancouver, BC V6E 2K3 CAN
Gibralt Capital Corporation ............... 865,000(6) 6.08% 115,000 *
Suite 2000, 1177 West Hastings Street
Vancouver, BC V6E 2K3 CAN
531287 B.C. Ltd. .......................... 800,500(7) 5.63% 0 *
Suite 597, 1027 Davie Street
Vancouver, BC V6E 4L2 CAN
Douglas J. Irving ......................... 604,937(8) 5.44% 0 *
4331 Candlewood Drive
Richmond, BC V7C 4V9 CAN
Moore Stephens International .............. 574,640 5.0% 0 *
Services (BVI) Limited, in trust
for the Wistaria Trust
Abbot Building, P.O. Box 3186
Road Town Tortola,
British Virgin Islands
BPI Canadian Small Companies Fund ......... 632,500(9) * 632,500 15.12%
151 Yonge Street, Seventh Floor
Toronto, ON M5C 2W7 CAN

Lagunitas Partners LP ..................... 368,000(9) * 368,000 8.80%
c/o Gruber & McBaine
50 Osgood Place
San Francisco, CA 94133
Deans Knight Capital Management ........... 230,000(9) * 230,000 5.50%
#730, 999 West Hastings Street
Vancouver, BC V6C 2W2 CAN
All executive officers and directors as a
group (6 persons) ....................... 2,366,848(10) 16.44% 0 *

- ------------------------

* Less than 5%

(1) Includes 699,140 shares held of record or beneficially owned by 567780 BC
Ltd., a British Columbia corporation wholly owned by The Sheldon Nelson
Family Trust whose trustees are Sheldon Nelson and his sister, Nicole
Nelson, and 438,542 shares subject to options exercisable within 60 days.

(2) Includes 389,583 shares of common stock subject to options exercisable
within 60 days.

(3) Includes 644,640 shares of common stock held of record or beneficially
owned by 565423 BC Ltd., a British Columbia corporation wholly owned by
Mr. Monaghan, his spouse and trusts for minor children, and 119,943 shares
subject to options exercisable within 60 days.

(4) Consists of currently exercisable options to purchase shares of common
stock.

(5) Includes 574,200 shares of Series A convertible preferred stock convertible
into 629,280 shares of common stock within 60 days and warrants to purchase
309,000 shares of common stock exercisable within 60 days.

(6) Includes 100,000 shares of Series A convertible preferred stock convertible
into 115,000 shares of common stock within 60 days and warrants to purchase
750,000 shares of common stock exercisable within 60 days.

(7) Includes 400,250 shares of common stock and warrants to purchase 400,250
shares of common stock exercisable within 60 days.

(8) Includes 479,937 shares of common stock held of record by 571321 B.C. Ltd.,
a British Columbia corporation wholly owned by Mr. Irving, his spouse and
children, and 125,000 shares of common stock held of record by Mr. Irving.

(9) Consists of Series A convertible preferred stock convertible into the
number of shares of common stock shown in the table.

(10) Includes 1,343,780 shares of common stock and options to purchase 1,023,068
shares of common stock exercisable within 60 days and held beneficially by
the executive officers and directors.

SELLING STOCKHOLDERS

This prospectus relates to the offering by the persons listed below
(collectively, the "Selling Stockholders") for sale of shares of our common
stock acquired in private placement transactions, including those which may be
acquired upon conversion of our Series A convertible preferred stock or upon
exercise of options and warrants. Unless otherwise indicated, shares of common
stock were owned of record on May 31, 2000 by each Selling Stockholder. The
Selling Stockholders are offering

the common stock for their own accounts. No Selling Stockholder, to our
knowledge, has had a material relationship with us during the last three years,
other than as an owner of our securities, except for Haywood Securities Inc. and
Douglas J. Irving. Haywood Securities Inc.'s activities in connection with the
sale of our Series A convertible preferred stock is described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Financings." Douglas J. Irving was
a director and chief financial officer and secretary from the commencement of
our operations until January 31, 2000.

Assuming that all of the shares offered by the Selling Stockholders are
sold, none of the Selling Stockholders will beneficially own any shares of our
common stock after this offering, except for Douglas J. Irving who will continue
to beneficially own 479,937 shares, or 3.46%, of our outstanding common stock
after the offering.(1)

BENEFICIAL OWNERSHIP OF
COMMON STOCK BEFORE THE OFFERING
---------------------------------------------------
NUMBER OF SHARES OWNED AND
SELLING STOCKHOLDER OFFERED UNDER THIS PROSPECTUS PERCENT OF CLASS(1)
- ------------------- ----------------------------- -------------------

531287 B.C. Ltd.(2)................................ 800,500 5.65%
666521 Ontario Inc.(3)............................. 66,700 *
ACE Corporation(3)................................. 92,000 *
Aton Select Fund(3)................................ 92,000 *
Avenir Capital Corp.(3)............................ 85,100 *
Banque Privee Edmon De Rothschild SA(3)............ 46,000 *
Bel Cal Holdings(3)................................ 109,250 *
Belvedere Consultancy Ltd.......................... 855,337 6.01%
BPI Canadian Small Companies Fund(3)............... 632,500 4.52%
Britcomm Communications Ltd.(4).................... 60,000 *
Broadwater Capital Corp.(2)........................ 675,000 4.81%
Brunswick Limited(3)............................... 109,250 *
Canaccord Capital Corporation...................... 50,000 *
Capmax Investments Ltd.(3)......................... 29,900 *
Casurina Limited Partnership(3).................... 172,500 1.27%
CW Marketing Ltd.(3)............................... 46,000 *
Deans Knight Capital Management(3)................. 230,000 1.69%
Dunrovin Holdings Ltd.(2).......................... 500,000 3.60%
Gibralt Capital Corporation(5)..................... 865,000 6.08%
Glenarriff Investments(3).......................... 46,000 *
Global Strategy Canada Growth Fund(3).............. 115,000 *
Global Strategy Investment Funds, portfolio manager
for Investors Group Equity Fund(3)............... 103,500 *
Gruber & McBaine International ITF Lagunitas
Partners LP(3)................................... 115,000 *
Gruber, Jon D.(3).................................. 92,000 *
Haywood Securities Inc. ITF Charles Lyall(2)....... 266,666 1.96%
Haywood Securities Inc. ITF Lyall Family
Trust(2)......................................... 330,000 2.41%
Haywood Securities Inc.(6)......................... 938,280 6.56%
Haywood Securities Inc. ITF Vista Del Mar
Ltd.(2).......................................... 266,666 1.96%
Howlett, Martha(3)................................. 32,200 *
Irving, Douglas J.................................. 125,000 *
Jacobs, William(3)................................. 46,000 *
Kaimer Investment Corp.(3)......................... 34,500 *
Lagunitas Partners LP(3)........................... 368,000 2.68%

Lawrence, David.................................... 142,399 1.05%
Laxton, John Noel(3)............................... 103,500 *
M.H. Holdings Inc.(7).............................. 420,000 3.05%
Mazur, Stephen J.(3)............................... 46,000 *
Murdoch, Blair(3).................................. 32,200 *
National Bank Financial ITF John Freisen(2)........ 330,000 2.41%
Navesink Limited(3)................................ 51,750 *
Nelson, Chris(8)................................... 100,000 *
Oceanic Securities Inc. #3(2)...................... 200,000 1.47%
Oceanic Securities Inc. #5(2)...................... 200,000 1.47%
Old Canada Investment Corporation Limited(3)....... 57,500 *
Providence Securities (Bahamas) Ltd................ 125,000 *
Rozel International Holding Limited(2)............. 266,666 1.96%
Safecrest Ltd.(3).................................. 57,500 *
Sagit Investment Management Ltd.(9)................ 246,000 1.81%
Simpson, Don(3).................................... 46,000 *
Stephan, Rod(3).................................... 46,000 *
Strand Management Corporation(3)................... 46,000 *
Thomas, Gren(3).................................... 32,200 *
Tuscarora Capital Inc.(3).......................... 66,700 *
US Global Investors (Guernsey) Ltd.(3)............. 57,500 *
Vertex One Management Inc.(3)...................... 46,000 *
Winmark Capital Inc.(3)............................ 40,250 *
---------- -----
TOTAL.............................................. 11,155,014 45.48%

- ------------------------

* Less than 1%.

(1) Computed on the basis of the 13,371,820 shares of common stock outstanding
on May 31, 2000 and rights to acquire common stock within 60 days of
May 31, 2000 through conversion of preferred stock and exercise of warrants
and options.

(2) 50% of these shares are issuable upon the exercise of warrants with an
exercise price of US$0.75 or US$1.00 per share. The warrants are currently
exercisable and expire in November 2001 or February 2002.

(3) Consists of Series A convertible preferred stock currently convertible into
common stock at a 115% conversion ratio.

(4) Consists of common stock issuable upon exercise of currently exercisable
options for between US$1.50 and US$2.00 per share which expire between April
2004 and March 2005.

(5) Consists of (a) 100,000 shares of Series A convertible preferred stock which
are immediately convertible into 115,000 shares of common stock, and
(b) 750,000 shares of common stock issuable upon exercise of a currently
exercisable warrant at US$2.50 per share which expires in March 2002.

(6) Consists of (a) 547,200 shares of Series A convertible preferred stock which
are immediately convertible into 629,280 shares of common stock, and
(b) 309,000 shares of common stock issuable upon exercise of a currently
exercisable warrant at US$2.50 per share which expires in January 2001.

(7) Includes (a) 165,000 shares of common stock issuable upon exercise of a
currently exercisable warrant at US$0.75 per share which expires in November
2001, and (b) 40,000 shares of common stock issuable upon the exercise of
currently exercisable options at US$1.50 per share which will expire in
March 2004.

(8) Consists of 100,000 shares of common stock issuable upon the exercise of a
currently exercisable option at US$1.50 per share which expires in December
2003.

(9) Includes (a) 100,000 shares of common stock issuable upon the exercise of a
currently exercisable warrant at US$1.00 per share which expires in February
2002, and (b) 40,000 shares of Series A convertible preferred stock which
are immediately convertible into 46,000 shares of common stock.

PLAN OF DISTRIBUTION

The shares being offered by the Selling Stockholders will be sold from time
to time in one or more transactions (which may involve block transactions):

- on the OTC Bulletin Board or on such other market on which the common
stock may from time to time be trading,

- in privately-negotiated transactions,

- through the writing of options on the shares,

- short sales, or

- any combination of the above.

The sale price to the public may be the market price prevailing at the time
of sale, a price related to such prevailing market price, at negotiated prices
or such other price as the Selling Stockholders determine from time to time. The
shares may also be sold pursuant to Rule 144. The Selling Stockholders have the
sole and absolute discretion not to accept any purchase offer or make any sale
of shares if they deem the purchase price to be unsatisfactory at any particular
time.

The Selling Stockholders may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. There
can be no assurance that all or any of the shares offered by this prospectus
will be issued to, or sold by, the Selling Stockholders. The Selling
Stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered by this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act or the Exchange Act or the rules and
regulations thereunder.

The Selling Stockholders, alternatively, may sell all or any part of the
shares offered by this prospectus through an underwriter. No Selling Stockholder
has entered into an agreement with a prospective underwriter. If a Selling
Stockholder enters into such an agreement or agreements, the relevant details
will be set forth in a supplement or revision to this prospectus.

The Selling Stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of any of the shares by the Selling
Stockholders or any other

such person. Furthermore, under Regulation M, persons engaged in a distribution
of securities are prohibited from simultaneously engaging in market making and
certain other activities with respect to such securities for a specified period
of time prior to the commencement of such distributions, subject to specified
exceptions or exemptions. All of these limitations may affect the marketability
of the shares.

We have agreed to indemnify certain of the Selling Stockholders, against
certain liabilities, including liabilities under the Securities Act , or to
contribute to payments such Selling Stockholders may be required to make in
respect of such liabilities.

DESCRIPTION OF CAPITAL STOCK

The following description of our securities and various provisions of our
Certificate of Incorporation are summaries and are not necessarily complete.
Reference is made to the Certificate of Incorporation, a copy of which has been
filed with the SEC as an exhibit to our registration statement of which this
prospectus constitutes a part, for a more complete description.

Our authorized capital stock consists of (a) 50,000,000 shares of common
stock, par value US$0.001 per share, of which 13,371,820 shares were issued and
outstanding as of May 31, 2000 and (b) 5,000,000 shares of preferred stock, par
value US$0.001 per share. We have designated 4,100,000 shares of our preferred
stock as Series A convertible preferred stock, of which 3,637,200 were issued
and outstanding as of May 31, 2000.

COMMON STOCK

Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders, including the election of directors.
The common stock carries no preemptive rights and is not convertible, redeemable
or assessable. The holders of common stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
legally available funds. If we go into liquidation, dissolution or winding up,
the holders of common stock are entitled to ratably receive our net assets
available after payment or provision for payment of all debts and other
liabilities, subject to prior rights of holders of preferred stock then
outstanding, if any. All outstanding shares of common stock are fully paid and
nonassessable.

PREFERRED STOCK

Our Certificate of Incorporation authorizes the issuance of 5,000,000 shares
of preferred stock which may be issued in series with the powers, designations,
preferences and relative rights of each series to be provided for in resolutions
adopted by the board of directors pursuant to the authority to do so set forth
in our Certificate of Incorporation.

Our Board of Directors approved a certificate of designation creating a
series of preferred stock designated as the Series A convertible preferred
stock, and authorizing the issuance of up to 4,100,000 shares of Series A
convertible preferred stock, which was filed with the Delaware Secretary of
State effective January 26, 2000. The following is a summary of the rights and
preferences of the Series A convertible preferred stock:

- DIVIDENDS: The Series A convertible preferred stock does not bear any
dividends. However, so long as Series A convertible preferred stock is
outstanding, no dividends may be declared on the common stock or any other
subsequently designated and issued junior securities without the prior
consent of the holders of a majority of the outstanding shares Series A
convertible preferred stock.

- LIQUIDATION PREFERENCE: In the event of our bankruptcy, insolvency,
appointment of a receiver, dissolution or similar events and there are
assets and funds available for distribution to the

holders of our capital stock, the holders of the outstanding shares of
Series A convertible preferred stock will receive an amount equal to
US$2.50 per share, plus an amount equal to all declared and unpaid
dividends on the Series A convertible preferred stock, prior to any
distribution to the holders of common stock or any junior stock. Holders
of the Series A convertible preferred stock shall not be entitled to any
further distribution in the event of any liquidation, dissolution or
winding-up of our affairs. If our assets are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding Series A
convertible preferred stock, then the holders shall share equally and
ratably in the distribution of assets in proportion to the full
liquidation preference, including all declared and unpaid dividends, to
which each is entitled. Neither the sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of our property or assets nor our consolidation or
merger with or into one or more entities shall be deemed to be a
liquidation, dissolution or winding-up of our affairs.

- CONVERSION RIGHTS: The Series A convertible preferred stock is
immediately convertible, at the option of the holder, into our common
stock at a conversion ratio of one share of common stock for 1.15 shares
of Series A convertible preferred stock until the Qualification Date,
which is defined as the earlier of (a) the date we receive a receipt for a
final prospectus from the British Columbia Securities Commission and a
registration statement for sale of the common stock issuable upon
conversion of the Series A convertible preferred stock is declared
effective under the Securities Act, or (b) January 28, 2001. The British
Columbia Securities Commission has informed us that it will not approve
our prospectus unless and until we are listed on a registered exchange or
Nasdaq, which will not occur until after June 26, 2000, if at all. We have
therefore determined not to file a final prospectus with the British
Columbia Securities Commission. Since the Qualification Date will not
occurred by June 26, 2000, the conversion ratio is increased from its
original one share of common stock for each share of Series A convertible
preferred stock to 1.15 shares of common stock for each share of Series A
convertible preferred stock. The conversion ratio is also subject to
adjustment as a result of stock splits, stock dividends, merger,
consolidation or exchange of shares for periods during which the
registration statement of which this prospectus is a part is not
effective.

- AUTOMATIC CONVERSION: If any of the Series A convertible preferred stock
has not been converted by the holders during the earlier of (a) five days
after the date of this prospectus, or (b) January 28, 2001, such Series A
convertible preferred stock shall be automatically converted into common
stock without any further action on the part of the holders.

- VOTING RIGHTS: The holders of Series A convertible preferred stock will
be entitled to receive notice of and to attend all meetings of our
stockholders, to vote on all matters, including without limitation the
election of directors, and will be entitled to one vote per share. Except
as otherwise required under the Delaware General Corporate Law, the
holders of the Series A convertible preferred stock and the holders of the
common stock shall vote together and not as separate classes.

WARRANTS AND OPTIONS

WARRANTS

As of May 31, 2000, we had issued warrants to purchase 3,241,749 shares of
our common stock outstanding, including warrants to purchase 309,000 shares of
common stock issued to Haywood Securities Inc. in connection with our Series A
convertible preferred stock offering. All of the shares underlying these
warrants are being registered for sale under this prospectus. The warrants
contain exercise prices ranging from US$0.75 to US$2.50 per share, and expire
between January 2001 and March 2002.

OPTIONS

At May 31, 2000, we had outstanding options to purchase 3,585,360 shares of
our common stock, consisting of 3,385,360 options outstanding under our 2000
Plan, 100,000 options outstanding under our Supplier Plan, and 100,000 options
outstanding on a stand-alone basis. See "Management--Executive
Compensation--Benefit Plans" and "Certain Transactions". The shares of common
stock issuable upon exercise of the Supplier Plan options (plus 50,000 options
not yet issued under the Supplier Plan) and the stand-alone options are being
registered for sale under this prospectus.

REGISTRATION RIGHTS

Under a registration rights agreement with the holders of the Series A
convertible preferred stock, we agreed to register the shares of common stock
issuable upon conversion of shares of Series A convertible preferred stock. This
prospectus is part of the registration statement intended to satisfy this
obligation. The registration rights agreement requires us to file a registration
statement with respect to the shares. We must also keep the registration
statement effective until all of the common stock offered pursuant to such
registration statement has been sold. We are responsible for the payment of all
of our fees and costs associated with the registration of the common stock
covered by the registration statement. We are required to indemnify and hold
harmless each holder of such common stock and its representatives against:
(1) any untrue statement of a material fact in the registration statement;
(2) any untrue statement or alleged untrue statement contained in any
preliminary prospectus if used prior to the effective date of the registration
statement; or (3) any violation or alleged violation of the Securities Act or
the Exchange Act. Under the registration rights agreement, the holders of the
Series A convertible preferred stock also have the right to include all or a
part of their common stock in a registration filed by us for purposes of a
public offering in the event that we fail to satisfy our other obligations as to
the registration of the common stock acquired by them.

We have also agreed to register the shares underlying certain of the
warrants held by certain of the Selling Stockholders for sale under this
prospectus.

DELAWARE ANTI-TAKEOVER LAW

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

If our common stock is authorized for quotation on the Nasdaq Stock Market,
we will be subject to the provisions of Section 203 of the Delaware Corporation
Law ("Section 203") regulating corporate takeovers. Section 203 prevents certain
Delaware corporations, including those whose securities are quoted on the Nasdaq
Stock Market, from engaging, under certain circumstances, in a "business
combination" with any "interested stockholder" (a stockholder who acquired 15%
or more of a corporation's outstanding voting stock without the prior approval
of a corporation's board of directors) for three years following the date that
such stockholder became an "interested stockholder." A Delaware corporation may
"opt out" of Section 203 with an express provision in its original certificate
of incorporation, or an express provision in its bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. We have not "opted out" of the application of Section 203.

CHARTER PROVISIONS WITH ANTI-TAKEOVER EFFECTS

Our Certificate of Incorporation contains provisions that may have the
effect of discouraging certain transactions involving an actual or threatened
change in control of our company. The Certificate of Incorporation grants to the
board of directors the authority to issue shares of preferred stock in one or
more series without stockholder approval. The ability to issue such preferred
stock could have the effect of discouraging unsolicited acquisition proposals or
making it more difficult for a third party to commence such acquisition.

TRANSFER AGENT AND REGISTRAR

Corporate Stock Transfer Corp. is the transfer agent and registrar for our
common stock.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

The following changes of independent accountants have occurred:

1. Nelson, Mayoka & Company, P.C. were principal independent
accountants for Alpha Beta Holdings, Ltd. and audited its balance sheet at
September 30, 1998 and the related statements of operations, stockholders'
equity and cash flows for the fiscal year ended September 30, 1998.

2. Deloitte & Touche LLP were principal independent accountants for MDU
Communications International, Inc. and audited its balance sheet as at
September 30, 1999 and September 30, 1998 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for
the year ended September 30, 1999 and the period from inception, March 26,
1998 to September 30, 1998, and are expected to continue as our principal
independent accountants. Deloitte & Touche LLP were engaged to be our
principal independent accountants on or about August 18, 1999.

In connection with the change of principal independent accountants:

(i) Nelson, Mayoka & Company, P.C. was dismissed on or about November 2,
1998, the date Alpha Beta Holdings, Ltd. completed the acquisition of
all of the issued and outstanding stock of MDU Communications, Inc.

(ii) None of the principal accountants' reports on the financial statements
described above contained an adverse opinion or disclaimer of opinion
and none were modified as to uncertainty, audit scope, or accounting
principles.

(iii) The decision to change accountants was approved by the board of
directors.

(iv) There were no disagreements with Nelson, Mayoka & Company, P.C. on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.

LEGAL MATTERS

The validity of the issuance of common stock offered by this prospectus has
been passed upon for us by Davis Wright Tremaine LLP, Seattle, Washington.

EXPERTS

The balance sheets as of September 30, 1998 and 1999, and the statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
year ended September 30, 1999, the period from inception of the development
stage to September 30, 1999, and the period from inception, March 26, 1998 to
September 30, 1998, included in this prospectus and the related financial
statement schedules included elsewhere in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the registration statement, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission ("SEC") a
registration statement on Form SB-2. This prospectus, which is a part of the
registration statement, does not contain all of the information included in the
registration statement. Certain information is omitted and you should refer

to the registration statement and its exhibits. With respect to references made
in this prospectus to any contract, agreement or other document of MDU
Communications, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract, agreement or other document. You may review a copy of the
registration statement, including exhibits, at the SEC's public reference room
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven
World Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms.

We also file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information on file at the public reference rooms. You can also request
copies of these documents, for a copying fee, by writing to the SEC.

Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding registrants
that are filed electronically with the SEC.

INDEX TO FINANCIAL STATEMENTS

MDU COMMUNICATIONS, INC. AND SUBSIDIARIES

PAGE
--------

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as at September 30, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
September 30, 1999 and 1998............................... F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1999 and 1998............................... F-5
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended
September 30, 1999 and 1998............................... F-6
Notes to Consolidated Financial Statements.................. F-7

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets at March 31, 2000 and September
30, 1999.................................................. F-22
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the six months months ended March 31,
2000 and 1999............................................. F-23
Consolidated Statements of Cash Flows for the six months
ended March 31, 2000 and 1999............................. F-24
Consolidated Statements of Shareholders' Equity (Deficiency)
for the six months ended March 31, 2000 and 1999.......... F-26
Notes to Consolidated Financial Statements.................. F-27

F-1

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
MDU Communications International, Inc.
(A development stage company)

We have audited the accompanying consolidated balance sheets of MDU
Communications International, Inc. (a development stage company) as at
September 30, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the year ended
September 30, 1999, the period from inception of the development stage to
September 30, 1999, and the period from inception, March 26, 1998, to
September 30, 1998. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company (a development
stage company) as at September 30, 1999 and 1998 and the results of its
operations and its cash flows for the year ended September 30, 1999, the period
from inception of the development stage to September 30, 1999, and the period
from inception, March 26, 1998, to September 30, 1998 in accordance with
accounting principles generally accepted in the United States.

As discussed in Note 16, the accompanying consolidated financial statements
have been restated.

Chartered Accountants
Vancouver, British Columbia
December 3, 1999 (except for Note 16
for which the date is February 3, 2000)

COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA--U.S. REPORTING CONFLICTS

To the Shareholders of
MDU Communications International, Inc.
(A development stage company)

In the United States, reporting standards for auditors require an
explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 2 to the consolidated financial statements. Our report to the shareholders
dated December 3, 1999 (except for Note 16 for which the date is February 3,
2000) is expressed in accordance with Canadian reporting standards, which do not
permit reference to an uncertainty in the Independent Auditors' Report when the
uncertainty is adequately disclosed in the financial statements.

Chartered Accountants
Vancouver, British Columbia
December 3, 1999 (except for Note 16
for which the date is February 3, 2000)

F-2

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN CANADIAN DOLLARS)

SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(AS RESTATED--SEE NOTE 16)

ASSETS
CURRENT
Cash...................................................... $ 43,621 $ 19,506
Prepaid expenses and deposits............................. 15,407 7,593
Accounts receivable
Trade................................................... 178,607 --
Sales tax and other..................................... 79,847 --
----------- --------
TOTAL CURRENT ASSETS........................................ 317,482 27,099

PROPERTY AND EQUIPMENT, net (Note 5)........................ 3,556,386 47,033

INTANGIBLE ASSETS
(net of accumulated amortization of $22,361).............. 126,710 --
----------- --------
TOTAL ASSETS................................................ $ 4,000,578 $ 74,132
=========== ========

LIABILITIES
CURRENT
Accounts payable.......................................... $ 1,648,193 $ 15,867
Wages payable............................................. 37,451 --
Other accrued liabilities................................. 106,604 5,950
Notes payable (Note 6).................................... 829,644 150,000
----------- --------
TOTAL CURRENT LIABILITIES................................... 2,621,892 171,817
----------- --------

SHAREHOLDERS' EQUITY (DEFICIT)
Share capital (Note 7)...................................... 1,559,720 160
Share purchase options...................................... 649,445 --
Share subscriptions received (Note 8)....................... 1,793,026 --
Deficit accumulated during the development stage............ (2,623,505) (97,845)
----------- --------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........................ 1,378,686 (97,685)
----------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)........ $ 4,000,578 $ 74,132
=========== ========
CONTINUING OPERATIONS (Note 2)

COMMITMENTS AND CONTINGENCIES (Note 9)

See accompanying notes to the consolidated financial statements

F-3

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(EXPRESSED IN CANADIAN DOLLARS)

FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FROM INCEPTION
OF THE DEVELOPMENT FOR THE (MARCH 26,
STAGE TO YEAR ENDED 1998) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1998
------------------ ----------------- --------------
(AS RESTATED--SEE (AS RESTATED--SEE
NOTE 16) NOTE 16)

REVENUE........................................ $ 566,698 $ 566,698 $ --

DIRECT COSTS................................... 339,570 339,570 --
------------ ------------ ---------
GROSS PROFIT................................... 227,128 227,128 --
------------ ------------ ---------
SALES EXPENSE.................................. 1,351,389 1,351,389 --
------------ ------------ ---------

GENERAL AND ADMINISTRATIVE EXPENSES
Advertising and promotion.................... 109,172 78,014 31,158
Amortization................................. 195,260 195,260 --
Consulting................................... 177,445 177,445 --
Foreign exchange loss........................ 39,495 39,495 --
Interest..................................... 34,349 32,321 2,028
Management fees.............................. 26,500 -- 26,500
Office....................................... 57,168 54,103 3,065
Occupancy.................................... 69,829 64,429 5,400
Professional fees............................ 143,697 130,114 13,583
Repairs and maintenance...................... 11,301 11,301 --
Telephone.................................... 51,054 48,342 2,712
Travel....................................... 49,651 38,826 10,825
Vehicle...................................... 14,489 11,915 2,574
Wages........................................ 519,834 519,834 --
------------ ------------ ---------
1,499,244 1,401,399 97,845
------------ ------------ ---------
NET LOSS FOR THE PERIOD........................ $ (2,623,505) $ (2,525,660) $ (97,845)
------------ ------------ ---------
BASIC AND DILUTED LOSS PER COMMON SHARE........ $ -- $ (0.28) $ (0.02)
------------ ------------ ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..... -- 9,114,668 8,581,335
============ ============ =========

See accompanying notes to the consolidated financial statements

F-4

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN CANADIAN DOLLARS)

FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION OF FROM INCEPTION
THE DEVELOPMENT FOR THE YEAR (MARCH 26,
STAGE TO ENDED 1998) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1998
----------------- -------------- --------------
(AS RESTATED--SEE (AS RESTATED--
NOTE 16) SEE NOTE 16)

OPERATING ACTIVITIES
Net loss for the period................................... $(2,623,505) $(2,525,660) $(97,845)
Adjustment to reconcile net loss for the period to cash
utilized in operating activities
Amortization............................................ 195,260 195,260 --
Non-cash portion of wages expense (Note 7(c)(ii))....... 222,000 222,000 --
Non-cash consulting expense (Note 7(c)(iii))............ 177,445 177,445 --
Non-cash portion of sales expense (Note 7(c)(i))........ 116,149 116,149 --
Change in operating assets and liabilities:
Prepaid expenses and deposits........................... (15,407) (7,814) (7,593)
Accounts receivable..................................... (258,454) (258,454) --
Accounts payable........................................ 1,648,193 1,632,326 15,867
Wages payable........................................... 37,451 37,451 --
Other accrued liabilities............................... 106,604 100,654 5,950
----------- ----------- --------
Net cash used in operating activities....................... (394,264) (310,643) (83,621)
----------- ----------- --------
INVESTING ACTIVITIES
Cash acquired on acquisition of subsidiary (Note 4)....... 35,222 35,222 --
Purchase of property and equipment........................ (3,595,435) (3,548,402) (47,033)
Purchase of intangible assets............................. (149,071) (149,071) --
----------- ----------- --------
Net cash used in investing activities....................... (3,709,284) (3,662,251) (47,033)
----------- ----------- --------
FINANCING ACTIVITIES
Proceeds from notes payable............................... 275,000 125,000 150,000
Repayment of notes payable................................ (275,000) (275,000) --
Proceeds from convertible notes payable................... 829,644 829,644 --
Proceeds from issue of common stock....................... 50,315 50,155 160
Proceeds from exercise of warrants........................ 1,474,184 1,474,184 --
Proceeds from share subscriptions received................ 1,793,026 1,793,026 --
----------- ----------- --------
Net cash provided by financing activities................... 4,147,169 3,997,009 150,160
----------- ----------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 43,621 24,115 19,506
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 19,506 --
----------- ----------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 43,621 $ 43,621 $ 19,506
=========== =========== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid............................................. $ 32,321 $ 32,321 $ --
=========== =========== ========
Interest received......................................... $ 5,466 $ 5,466 $ --
=========== =========== ========
Income taxes paid......................................... $ -- $ -- $ --
=========== =========== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended September 30, 1999, the Company
recorded non-cash additions to property and equipment in
the amount of $133,851 representing the fair value of
share purchase options issued to suppliers. See
Note 7(c)(i).

See accompanying notes to the consolidated financial statements

F-5

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(EXPRESSED IN CANADIAN DOLLARS)

WARRANTS/OPTIONS DEFICIT
SHARE TO PURCHASE ACCUMULATED
COMMON STOCK SUBSCRIPTIONS RECEIVED SHARES DURING THE
---------------------- ------------------------- -------------------- DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT NUMBER AMOUNT STAGE
--------- ---------- ------------ ---------- --------- -------- -------------

Issued for cash at inception,
March 26, 19998.............. 160 $ 160 -- $ -- -- $ -- $ --
Net loss for the period from
inception (March 26, 1998) to
September 30, 1998........... -- -- -- -- -- -- (97,845)
--------- ---------- --------- ---------- --------- -------- -----------
Balance, September 30, 1998.... 160 160 -- -- -- -- (97,845)
Issued for cash.............. 3,367,500 50,155 -- -- -- -- --
Issued on business
acquisition (Note 7)....... 5,213,675 35,222 -- -- -- -- --
Exercise of warrants......... 640,000 1,474,183 -- -- --
Issue of employees'
options.................... -- -- -- -- 300,000 222,000 --
Suppliers' options issued and
issuable................... -- -- -- -- 73,885 250,000 --
Issue of options to
consultant................. -- -- -- -- 100,000 177,445 --
Issued for cash (net of
expenses of the issue of
$176,437).................. -- -- 670,000 1,544,924 -- -- --
Issued for cash (net of
expenses).................. -- -- 420,000 248,102 -- -- --
Net loss for the year ended
September 30, 1999 (as
restated--see Note 16)..... -- -- -- -- -- -- (2,525,660)
--------- ---------- --------- ---------- --------- -------- -----------
Balance, September 30, 1999 (as
restated--see Note 16)....... 9,221,335 $1,559,720 1,090,000 $1,793,026 473,885 $649,445 $(2,623,505)
========= ========== ========= ========== ========= ======== ===========

TOTAL
-----------

Issued for cash at inception,
March 26, 19998.............. $ 160
Net loss for the period from
inception (March 26, 1998) to
September 30, 1998........... (97,845)
-----------
Balance, September 30, 1998.... (97,685)
Issued for cash.............. 50,155
Issued on business
acquisition (Note 7)....... 35,222
Exercise of warrants......... 1,474,183
Issue of employees'
options.................... 222,000
Suppliers' options issued and
issuable................... 250,000
Issue of options to
consultant................. 177,445
Issued for cash (net of
expenses of the issue of
$176,437).................. 1,544,924
Issued for cash (net of
expenses).................. 248,102
Net loss for the year ended
September 30, 1999 (as
restated--see Note 16)..... (2,525,660)
-----------
Balance, September 30, 1999 (as
restated--see Note 16)....... $ 1,378,686
===========

See accompanying notes to the consolidated financial statements

F-6

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

1. BASIS OF PRESENTATION

Prior to the acquisition described in Note 4 below, MDU Communications
International, Inc. (formerly Alpha Beta Holdings, Ltd.) ("International" or the
"Company") was essentially inactive. On November 2, 1998 the Company acquired
all of the issued and outstanding common shares of MDU Communications, Inc.
("MDU") and on November 24, 1998, the Company changed its name from Alpha Beta
Holdings, Ltd. to MDU Communications International, Inc. MDU, a Canadian
incorporated telecommunications company and a national system operator for Star
Choice Communications, Inc., provides delivery of home entertainment and
information technology to residents of multi-dwelling units such as apartment
buildings, condominiums, gated communities, hotels and motels.

The acquisition of MDU has been accounted for as a reverse acquisition on
the basis that the former shareholders of MDU now control the affairs of the
Company. As a result, these consolidated financial statements of the Company
include the accounts of International (the accounting subsidiary) and MDU (the
accounting parent), for the period subsequent to the effective date of the
reverse acquisition described in Note 4. The comparative figures as at
September 30, 1998 and for the period from inception (March 26, 1998) to
September 30, 1998 represent the historical results of operations, cash flows
and financial position of the accounting parent, MDU.

2. CONTINUING OPERATIONS

The 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. The Company has limited
financial resources, has incurred operating losses since inception and does not
expect to generate profitable operations until fiscal 2000 or later. In
addition, on September 20, 1999, the Company received a demand for payment with
respect to outstanding notes payable with a principal value of $733,652. The
Company has negotiated an extension to the repayment terms of these notes to
June 30, 2000. The Company has also negotiated an extension to the repayment
terms of notes payable in the amount of $95,992 until February 28, 2000. The
Company's funding of its initial operating expenses, working capital needs and
capital commitments is dependent upon its ability to raise additional financing.
The Company is currently pursuing opportunities to raise financing through
private placements of both equity and debt securities and has engaged in an
investment banker to assist it in raising financing through a public equity
offering. There can be no assurance that the Company will be successful in its
efforts to raise additional financing through these offerings or, if available,
that the Company will be able to obtain it on acceptable terms and continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties. Adjustments, if any, would
affect the carrying value and classification of assets and liabilities and the
amount of the net loss and accumulated deficit.

3. SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and reflect the following
significant accounting policies.

F-7

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements are issued under the name of the
Company, being the legal parent, but are considered a continuation of
the activities and operations of MDU Communications Inc. (see Note 4).
All inter-company balances and transactions are eliminated.

(B) DEVELOPMENT STAGE ENTERPRISE

The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting
by Development Stage Enterprises." The Company's planned principal
operations have commenced, but there has been no significant revenue
therefrom. At present, the Company is devoting most of its efforts to
activities such as raising capital, research and development of bundled
technological services with its Direct To Home TV services to
multi-dwelling unit properties and developing customer markets.

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting periods. Actual results
may differ from those estimates.

(D) PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost less accumulated
amortization. Costs of connecting and disconnecting service are
expensed. Amortization of property and equipment is provided using the
declining balance method at the following rates:

Telecommunications equipment, installed..................... 14.5%
Computer equipment.......................................... 20%
Furniture and fixtures...................................... 20%

Direct costs of placing telecommunications equipment into service and
major improvements are capitalized.

Amortization of telecommunications equipment commences once the equipment
has been installed at the customer's premises.

The Company performs a review for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Under Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be

F-8

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Disposed of", an impairment loss is recognized when estimates of future
cash flows expected to result from the use of an asset and its eventual
disposition are less that its carrying amount. No impairment losses have
been identified by the Company for the year ended September 30, 1999 and
the period from inception, March 26, 1998 to September 30, 1998.

(E) INTANGIBLE ASSETS

Intangible assets consist of a customer list and related contracts which
were acquired from a relative of the president of the Company and are
being amortized on the straight-line basis over five years. Management
regularly reviews the carrying value of intangible assets based upon
future expected cash flows. To date, no impairment has been indicated.

(F) REVENUE RECOGNITION

The Company recognizes revenue on provision of satellite programming to
customers in the period the related services are provided.

(G) LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities by including other common share
equivalents, including stock options and redeemable convertible notes
payable, in the weighted average number of common shares outstanding for
a period, if dilutive. For both the year ended September 30, 1999 and
the period from inception, March 26, 1998, to September 30, 1998 basic
and diluted loss per common share are equivalent as the effect of common
shares issuable upon the exercise of options or warrants would be
anti-dilutive. As of October 19, 1999, the Company had outstanding
securities which were convertible into 1,398,157 common shares which
would be potentially dilutive in the future.

(H) FOREIGN EXCHANGE

The accounts of the Company and its foreign subsidiaries are expressed
in Canadian dollars, its functional currency. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate
in effect at the balance sheet date. Other balance sheet items and
revenues and expense are translated at the rates prevailing on the
respective transaction dates. Translation gains and losses relating to
current monetary items and revenue and expenses denominated in foreign
currencies are included in income.

(I) STOCK-BASED COMPENSATION

As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has accounted for employee and director stock
options in accordance with

F-9

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and has made the pro forma disclosures required by
SFAS No. 123 in Note 7.

Under APB No. 25, compensation charges arise from those situations where
options are granted at an exercise price lower than the fair value of the
underlying common shares. These amounts are amortized as a charge to
operations over the vesting periods of the stock options.

Stock-based compensation charges to other than employees are recorded
over the period that the related stock option or warrant is earned. The
amount of the compensation is based on the fair value of the option or
warrant at the applicable measurement date.

(J) COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the reporting and display of comprehensive income and its components
(revenue, expenses, gains and losses) in a full set of general-purpose
financial statements. The Company has no comprehensive income items,
other than the net loss, in any of the periods presented.

(K) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's cash, accounts receivable, accounts
payable, accrued liabilities at September 30, 1998 and 1999 and the
$150,000 note payable outstanding at September 30, 1998 are estimated to
approximate their carrying values due to the relative liquidity or
short-term nature of these instruments. Due to the short term maturities
of the convertible notes payable and the fact that they were issued for
the proceeds as stated in the period from April 15 to June 15, 1999, the
fair value of these convertible instruments are also estimated to
approximate the book value at September 30, 1999.

(L) CREDIT CONCENTRATION

Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable.
Accounts receivable from Star Choice Communications Inc. (Note 10) at
September 30, 1999, represented 76% of total trade accounts receivable
(September 30, 1998--Nil%). The balance of trade receivables are
dispersed across a wide customer base. The Company provides an allowance
for bad debts based on historical experience and specifically identified
risk. At September 30, 1999 and September 30, 1998 there was no
allowance for doubtful accounts.

(M) RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accounts issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities"
(SOP 98-5). Under SOP 98-5, the cost of start-up activities should be
expensed as incurred. The Company expects that the adoption of SOP 98-5
will not have a material

F-10

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impact on its financial position or results of operations. The Company
will be required to adopt SOP 98-5 in fiscal 2000.

In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. In 1999, SFAS No. 137 delayed the required implementation by the
Company of SFAS No. 133 to fiscal year 2001. The effect of implementation
of SFAS No. 133 on the Company's financial position or results of
operations has not been determined.

4. ACQUISITION OF SUBSIDIARY

On November 22, 1998, the Company completed the acquisition of all of the
issued and outstanding common shares of MDU in exchange for 5,213,835 common
shares of the Company.

The business combination of the Company and MDU has been accounted for as a
reverse acquisition whereby MDU was identified as the acquirer and the assets
and liabilities of the Company were acquired by MDU at fair value. Fair value
has been estimated as $35,222 being the amount of the sole asset, cash, of
International at the date of acquisition. In accordance with generally accepted
accounting principles for reverse acquisitions, these consolidated financial
statements reflect the historical results of MDU since its formation, and the
MDU assets and liabilities at their historic cost. The operations of the
Company, being the legal parent and accounting subsidiary, are reflected from
November 22, 1998 and its assets and liabilities are reflected at their fair
value at the date of acquisition.

Net assets of the Company at date of acquisition are as follows:

Assets
Cash...................................................... $35,222
Liabilities................................................. --
-------
Net asset acquired.......................................... $35,222
=======

F-11

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

5. PROPERTY AND EQUIPMENT

SEPTEMBER 30, SEPTEMBER 30,
1999 1998
-------------- --------------
(AS RESTATED--
SEE NOTE 16)

Telecommunications equipment, installed..................... $3,295,475 $ 8,308
Telecommunications equipment, not yet placed in service..... 320,944 --
Computer equipment.......................................... 38,020 11,308
Furniture and fixtures...................................... 74,847 27,417
---------- -------
3,729,286 47,033
Less: accumulated amortization.............................. (172,900) --
---------- -------
$3,556,386 $47,033
========== =======

6. NOTES PAYABLE

The notes payable at September 30, 1999 and September 30, 1998 are
summarized as follows:

SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------

i) Demand convertible note payable with a maturity
value of $250,000, bearing interest at 8.75%,
per annum compounded monthly and past due as of
August 15, 1999................................ $250,000 $ --

ii) Demand convertible note payable with a
maturity value of U.S. $40,000, bearing
interest at 9.00% per annum compounded monthly
and past due as of August 31, 1999............ 59,072 --

iii) Demand convertible note payable with a
maturity value of U.S. $25,000, bearing
interest at 9.00% per annum compounded
monthly and past due as of August 31,
1999......................................... 36,920 --

iv) Demand convertible note payable with a
maturity value of U.S $327,500, bearing
interest at 8.75% per annum compounded monthly
and past due as of September 15, 1999......... 483,652 --

v) Notes payable with an aggregate maturity value
of Cdn. $150,000, bearing interest at 7.5% per
annum compounded monthly and repayable on
demand......................................... -- 150,000
-------- --------
$829,644 $150,000
======== ========

F-12

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

6. NOTES PAYABLE (CONTINUED)
All or any part of the principal amount of the notes outstanding at
September 30, 1999 and any interest thereon is convertible, at the option of the
holder, on or before the due date, into fully paid and non-assessable common
shares of the Company at a conversion price of U.S. $2.00 per common share in
the case of the notes described in Notes 6 (ii) and (iii), above, and at a
conversion price of U.S. $1.75 in the case of those described in Notes 6
(i) and (iv). The notes are unsecured. The Company was unable to repay the notes
on their respective due dates and on September 16, 1999 the Company received a
demand for payment with respect to outstanding notes payable with a principal
value of $733,652 (Notes 6(i) and (iv)). The Company is in default at September
30, 1999.

On October 19, 1999, the Company negotiated an extension to the repayment
terms of the notes payable in the amount of $733,652, to June 30, 2000. The
renegotiated demand, unsecured, convertible notes bear interest at 8.75%. All or
any portion of the principal, and any interest thereon, is convertible, at the
option of the holder, on or before the due date, into fully paid and
non-assessable common shares of the Company at a conversion price of U.S. $0.625
per common share. On October 19, 1999, the Company also negotiated an extension
to the repayment terms of the notes payable in the amount of $95,992 (Notes
6(ii) and (iii), above), to February 28, 2000. The renegotiated demand,
unsecured, convertible notes bear interest at 9%. All or any portion of the
principal, and any interest thereon, is convertible, at the option of the
holder, on or before the due date, into fully paid and non-assessable common
shares of the Company at a conversion price of U.S. $0.50 per common share.

7. SHARE CAPITAL

(A) AUTHORIZED

The Company's authorized share capital consists of 50,000,000 common
shares with a par value of $0.001 per share and 5,000,000 non-voting
preferred stock also with a par value of $0.001 per share.

F-13

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

7. SHARE CAPITAL (CONTINUED)
(B) A reconciliation of issued and outstanding share capital of the Company
to amounts previously reported in Alpha Beta Holdings Ltd. at September
30, 1998 is as follows:

NUMBER OF AMOUNT
SHARES CDN. $
----------- ----------

Common shares:
Balance, September 30, 1998......................... 1,701,000 $ 1,277
Share consolidation on a 10 for 1 basis............. (1,530,900) --
----------- ----------
Balance, September 30, 1998, post share
consolidation..................................... 170,100 1,277
Issued for cash................................... 3,197,400 49,879
----------- ----------
Balance, prior to business combination.............. 3,367,500 51,156
Adjustment of stated value of common shares at
reverse acquisition to value of common shares of
MDU (Note 4)...................................... -- (841)
Issued on acquisition of the Company (Note 4)....... 5,213,835 35,222
----------- ----------
Balance subsequent to reverse acquisition........... 8,581,335 85,537
Exercise of warrants................................ 640,000 1,474,183
----------- ----------
Balance, September 30, 1999......................... 9,221,335 $1,559,720
=========== ==========

(i) Suppliers' Stock Option Plan ("Suppliers' Plan")

On December 31, 1998 the Company established a stock option plan
pursuant to which certain key suppliers of the Company will be
granted options on completion of specified activities. Under the
terms of the Suppliers' Plan, eligible suppliers can earn options to
purchase an aggregate of 215,135 common shares of the Company.
Details of options issued to date under the Suppliers' Plan are as
follows:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS U.S. $
--------- --------------

Outstanding at inception of the Company (March
26, 1998) and at September 30, 1998.......... -- $ --
Granted and fully vested....................... 73,885 1.50
Exercised...................................... -- --
------ -----
Outstanding and exercisable at September 30,
1999......................................... 73,885 $1.50
====== =====

In addition to the stock options under the Suppliers' Plan issued to
September 30, 1999, the Company is obligated to issue an additional
19,429 options to purchase common

F-14

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

7. SHARE CAPITAL (CONTINUED)
shares of the Company at an exercise price of U.S.$1.50 per share and
exercisable for five years from the date of issue. These options had
not been issued at September 30, 1999.

Under the requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") the Company has recorded stock based
compensation charges in the amount of $250,000 during the year ended
September 30, 1999 ($133,851 as additional capital costs of
telecommunications equipment and $116,149 as sales expense). These
charges are based on the fair value of the stock options issued and
issuable to suppliers calculated on the date an eligible supplier
completes the performance required to earn the options. This amount
is determined using a Black Scholes option pricing model assuming a
weighted average annualized volatility of the Company's share price
of approximately 114%. For details of the other material assumptions
used in determination of the fair value of these options see Note 7
(c)(ii).

(ii) Directors'/Officers' and Employees' Stock Option Plans ("Employee
Plans")

On November 24, 1998 the Company established Employee Plans whereby
certain employees, officers and directors will be granted options to
purchase up to an aggregate of 600,000 common shares of the Company.
Details of options issued to date under the Employee Plans are as
follows:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS U.S. $
--------- --------------

Outstanding at inception of the Company
(March 26, 1998) and at
September 30, 1998......................... -- $ --
Granted and fully vested..................... 300,000 1.00
Exercised.................................... -- --
------- -----
Outstanding and exercisable at September 30,
1999....................................... 300,000 $1.00
======= =====

The Company accounts for its stock-based employee compensation plans
under APB No. 25 whereby compensation cost is recorded for the
excess, if any, of the quoted market price of the common shares over
the exercise price at the date of grant for all employee common stock
options issued. For the year ended September 30, 1999, compensation
cost in the amount of $222,000 has been recorded under this method.

An alternative method of accounting for employee stock options is
SFAS No. 123. Under SFAS No. 123 employee stock options are valued at
the grant date using a fair value method and the estimated fair value
of the options is amortized to expense over the

F-15

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

7. SHARE CAPITAL (CONTINUED)
options' vesting period. The following pro forma financial
information presents the net loss for the period and loss per common
share had the Company adopted SFAS No. 123.

FOR THE PERIOD FROM
INCEPTION OF THE YEAR ENDED YEAR ENDED
DEVELOPMENT STAGE TO SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1999 1999 1998
-------------------- -------------- -------------
(AS RESTATED--
SEE NOTE 16)

Pro forma net loss for
the period............. $(3,006,895) $2,909,050 $(97,845)
----------- ---------- --------
Pro forma loss per common
share.................. $ -- $ (0.32) $ (0.01)
=========== ========== ========

Using the fair value method for stock-based compensation, as
described in SFAS No. 123, additional compensation costs of
approximately $383,390 would have been recorded for the year ended
September 30, 1999 (period from March 26, 1998 to September 30,
1998--$Nil). This amount is determined using a Black Scholes option
pricing model assuming no dividends are to be paid, vesting on date
of grant, an expected term of five years, a weighted average
annualized volatility of the Company's share price of 136% and a
weighted average annualized risk free interest rate of 5.50%.

(iii) Other Stock Options

At December 31, 1998 the Company granted stock options to purchase
100,000 common shares of the Company at an option price of U.S. $1.50
in recognition of consultative and other services provided by a
relative of the Company's president. These options may be exercised
in whole or in part at any time until December 31, 2003. The fair
value of these options in the amount of $177,445 at date of grant has
been recorded as consulting expense during the year ended September
30, 1999. For details of the material assumptions used in
determination of the fair value of these options see Note 7(c)(ii).

Prior to the acquisition of the Company as described in Note 4, Alpha
Beta Holdings, Ltd. had issued options to purchase 640,000 shares of
common stock of the Company at an exercise price of U.S.$1.50 and an
expiry date of November 5, 1999. In December 1998, these options were
exercised resulting in proceeds to the Company of U.S.$960,000
($1,474,184).

F-16

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

7. SHARE CAPITAL (CONTINUED)
The following table summarizes information concerning stock options
outstanding at September 30, 1999:

EXERCISE PRICE
NUMBER OF OPTIONS U.S.$. EXPIRY DATE
- ----------------- -------------- -----------------

300,000..................................... 1.00 November 24, 2003
100,000..................................... 1.50 December 31, 2003
40,000...................................... 1.50 March 1, 2004
33,885...................................... 1.50 April 1, 2004

The weighted average exercise price of all options outstanding at
September 30, 1999 is U.S. $1.18.

8. SHARE SUBSCRIPTIONS RECEIVED

9. COMMITMENTS AND CONTINGENCIES

(i) Under the terms of certain operating leases for equipment and premises,
the Company is obligated to make annual net rental payments as follows:

FISCAL YEAR ENDED
SEPTEMBER 30, 1999 AMOUNT
- ------------------ --------

2000........................................................ $ 87,698
2001........................................................ 82,217
2002........................................................ 38,048
2003........................................................ 13,644
2004 and thereafter......................................... 11,690
--------
$233,297
========

(ii) The Company has been named as the Defendant in an action by Shaw Cable
Systems Ltd. ("Shaw") in which Shaw seeks an injunction and $2 million
in damages as a result of alleged trespass and loss of business as a
result of certain activities allegedly carried out by the Company. Shaw
and the Company have jointly agreed that no further steps will be taken
in this action by either party until the parties have completed their
current negotiations with respect to customer connection procedures.
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, and the amount, if any, of such loss will be recorded in the
period in which it becomes determinable. However, if the negotiations
are unsuccessful and if Shaw were

F-17

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
successful in its claim for damages, the Company's unsuccessful defense
would have a material adverse effect on the Company's financial
condition and operations.

(iii) The Company has also been named as a Defendant in a claim by Whistler
Cable Television Ltd. claiming damages for conversion, the return of
personal property, an injunction and costs. The Company has filed a
Defense disputing the Plaintiff's legal right to bring the action, and
alleging that in any event the amount of damages suffered, if any, is
minimal. This case is still in the pre-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,
and the amount, if any, of such loss will be recorded in the period in
which it becomes determinable.

(iv) The Company has received letters from counsel for Rogers Cablesystems
("Rogers") threatening legal action based on certain activities
allegedly done by the Company. The Company's solicitors have replied to
the concerns expressed in each of those letters and there have been no
further steps taken by Rogers or its counsel with respect to any of the
matters. The Company continues to negotiate with Rogers with respect to
other matters of joint interest, including a proposed Protocol to
govern service conversion issues.

10. STRATEGIC ALLIANCE

In August 1998, the Company entered into a ten-year System Operation
Agreement, with five year renewal options, with Star Choice
Communications, Inc. ("Star Choice"). The Company is responsible for
establishing and maintaining distribution systems in multi-unit dwellings
throughout Canada and acts as a commissioned sales representative for Star
Choice to market Star Choice programming to the residents of multi-unit
dwellings in which the Company has installed systems. Residents that choose to
subscribe to the service pay a monthly access fee in addition to the program
fees charged by Star Choice for programming ordered by the customer.

The Company's contract with Star Choice gives the company a 30% share of
gross subscriber revenues from the sale of Star Choice programming services plus
100% of a digital access fee within the multi-unit dwellings for a period of 10
years, with renewal clauses.

The Company will incur only the cost associated with the implementation of
its services, and will not share any of Star Choice's programming or
broadcasting costs. Under the agreement, the Company may not maintain
distribution systems or market direct-to-home satellite broadcast services for
other satellite operators in Canada.

The Company's revenues are significantly dependent on its strategic alliance
with Star Choice. During the year ended September 30, 1999, revenues from Star
Choice accounted for 36% of total recorded revenues of the Company (period from
inception, March 26, 1998, to September 30, 1998--$Nil).

F-18

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

11. GOVERNMENT REGULATION

Satellite broadcasting and distribution of Canadian television signals to
cable operators in Canada are regulated by the Canadian Radio Television and
Telecommunications Commission (CRTC). Star Choice and Express Vu are the only
two licensees that have been approved by the CRTC to distribute television and
information services by direct-to-home digital satellite transmissions in
Canada. Both must operate in accordance with CRTC imposed "conditions of
license" to maintain their licenses. Also, they must comply with the Canadian
Broadcasting Act. Since the Company in its role as a system operator for Star
Choice is significantly dependent on Star Choice for programming, it would be
adversely affected if Star Choice encountered regulatory problems.

12. INCOME TAXES

A reconciliation of the statutory federal Canadian income tax rate and the
Company's effective income tax rate is as follows:

FOR THE PERIOD FROM PERIOD FROM
INCEPTION OF THE MARCH 26,
DEVELOPMENT STAGE YEAR ENDED 1998 TO
TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1998
------------------- ------------- -------------
(AS RESTATED--SEE NOTE 16)

Canadian statutory income tax
rate............................. 45.6% 45.6% 45.6%
Non-deductible expenses............ (9.4) (9.7) (1.0)
Tax loss carry forwards not
recognized in period of loss..... (36.2) (35.9) (44.6)
----- ----- -----
Actual tax rate.................... -- -- --
===== ===== =====

The Company had no income tax expense for the year ended September 30, 1999
or for the period from inception, March 26, 1998, to September 30, 1998 as a
result of significant incurred losses. Additionally, the Company has provided a
full valuation allowance for net deferred tax assets at September 30, 1999 and
September 30, 1998, since realization of these benefits cannot be reasonably
assured. At September 30, 1999 and September 30, 1998, deferred tax
(liabilities) assets are comprised of the following:

SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(AS RESTATED--SEE NOTE 16)

Gross deferred tax liabilities:
Amortization..................................... $ (219,845) $ (854)
Gross deferred tax assets:
Operating loss carry forwards.................... 1,023,997 44,568
---------- --------
Net deferred tax assets............................ 804,152 43,714
Less: valuation allowance.......................... (804,152) (43,714)
---------- --------
$ -- $ --
========== ========

F-19

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

12. INCOME TAXES (CONTINUED)
At September 30, 1999, the Company had loss carry forwards available to be
applied against future years' taxable income in the amount of $2,245,608 of
which $97,738 will expire on September 30, 2005 and the balance on September 30,
2006.

13. SEGMENTED 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. All of the Company's operations, assets, employees and
revenues are located in Canada.

14. RELATED PARTY TRANSACTIONS

The Company purchased equipment and satellite subscribers for $200,000 from
a relative of the Company's president. In addition, the Company granted stock
options to a relative of the Company President to purchase 100,000 common shares
of the Company at an exercise price of U.S. $1.50 until December 21, 2003, in
exchange for consultative services. See Note 7 (c)(iii).

15. SUBSEQUENT EVENTS

(a) On October 13, 1999, the Company entered into an agreement with
Cannacord Capital Corporation ("Cannacord") which will provide a basis
for Cannacord and other investors to participate in a private placement
and subsequent initial public offering ("IPO") on a Canadian stock
exchange. The agreement is subject to: the Company completing specified
reorganization activities, including a creditor arrangement plan which
will result in a deferral of payments otherwise due, an equipment lease
finance arrangement, and further due diligence by Cannacord. Cannacord
is entitled to a corporate finance fee of 200,000 shares of the Company,
100,000 payable on October 13, 1999 and 100,000 upon completion of the
private placement. As at December 3, 1999, 100,000 shares of the Company
have been issued in connection with this agreement.

(b) On November 11, 1999, the Company signed a Memorandum of Understanding
("MOU") with Antech (Hong Kong) Ltd. to enter into a joint venture by
December 31, 1999 to seek strategic relationships to capture certain
market and operational synergies for Satellite TV, High Speed Internet,
Telephony, and Security products in the geographic areas of Hong Kong
SAR, Macau, Taiwan and the People's Republic of China. The proposed 25%
joint venture interest will require an initial subscription by the
Company for 25,000 common shares in a Hong Kong corporation at
consideration of HK$25,000 ($4,720). Failure to achieve a joint venture
agreement by December 31, 1999 will allow the parties to terminate their
involvement in the MOU.

(c) On November 26, 1999, the Company completed a series of private
placements totaling 1,482,750 units, each unit consisting of one common
share and one common share purchase warrant for aggregate cash
consideration of U.S.$593,100 ($883,719). The unit price of U.S.$0.40
was based on a premium to market value of the Company's common shares
when

F-20

MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

15. SUBSEQUENT EVENTS (CONTINUED)
the subscription program was undertaken on October 21, 1999. The warrants
have a term of 2 years from the date of closing of the private placement
at an exercise price of U.S.$0.75.

(d) On November 18, 1999 the Company signed an Agreement in Principle with
MBT Capital to enter into lease financing transactions relating to
certain telecommunications equipment of the Company. Under the terms of
the proposed financing MBT Capital would initially acquire approximately
4,000 set top boxes currently in the hands of active subscribers in
exchange for $1,520,000 and then rent those boxes back to the Company.
The Agreement in Principle is subject to receipt and acceptance of a
formal commitment from MBT Capital, the appointment of two MBT Capital
nominees to the Company's Board and completion of due diligence by Star
Choice, among other conditions of closing.

16. RESTATEMENT

Subsequent to the issuance of the Company's September 30, 1999 consolidated
financial statements, the Company's management determined that the fair value of
warrants issued to certain non-employees for services rendered during the period
should have been reported as sales expense, rather than capitalized to property
and equipment. As a result, the accompanying September 30, 1999 consolidated
financial statements have been restated from the amounts previously reported to
recognize an additional $116,149 of sales expense, a reduction to amortization
expense of $4,210 and a corresponding reduction to property and equipment of
$111,939. A summary of the significant effects of the restatement is as follows:

AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------

At September 30, 1999
Property and equipment........................... $ 3,668,325 $ 3,556,386
Accumulated deficit.............................. (2,511,566) (2,623,505)
For the year ended September 30, 1999
Sales expenses................................... 1,235,240 1,351,389
Amortization expense............................. 199,470 195,260
Net loss......................................... (2,413,721) (2,525,660)
Basic and diluted loss per share................. (0.26) (0.28)
For the period from inception of the development
stage to September 30, 1999
Sales expenses................................... 1,235,240 1,351,389
Amortization expense............................. 199,470 195,260
Net loss......................................... $(2,511,566) $ 2,623,505

F-21

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN CANADIAN DOLLARS)

SEPTEMBER 30,
MARCH 31, 1999
2000 (AS RESTATED--SEE SEPTEMBER 30,
(UNAUDITED) NOTE 15) 1998
------------ ----------------- -------------

ASSETS
CURRENT
Cash and cash equivalents......................... $ 9,122,224 $ 43,621 $ 19,506
Prepaid expenses and deposits..................... 31,497 15,407 7,593
Accounts receivable
Trade........................................... 197,696 178,607 --
Sales tax and other............................. 166,358 79,847 --
TOTAL CURRENT ASSETS................................ 9,517,775 317,482 27,099
PROPERTY AND EQUIPMENT, net (Note 5)................ 4,240,286 3,556,386 47,033
INTANGIBLE ASSETS (net of accumulated amortization
of $37,268 September 30, 1999--$22,361)........... 111,803 126,710 --
TOTAL ASSETS........................................ $ 13,869,864 $ 4,000,578 $ 74,132

LIABILITIES
CURRENT
Accounts payable.................................. $ 718,820 $ 1,648,193 $ 15,867
Wages payable..................................... 98,965 37,451 --
Other accrued liabilities......................... 97,509 106,604 5,950
Notes payable (Note 6)............................ -- 829,644 150,000
TOTAL CURRENT LIABILITIES........................... 915,294 2,621,892 171,817

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS' EQUITY
Common stock (Note 7)............................... 5,588,789 1,559,720 160
Preferred stock (Note 7)............................ 8,679,973 -- --
Share purchase options.............................. 2,191,740 649,445 --
Share purchase warrants (Note 7(e))................. 6,831,684 -- --
Share subscriptions received (Note 8)............... -- 1,793,026 --
Deficit accumulated during the development stage.... (10,337,616) (2,623,505) (97,845)
TOTAL SHAREHOLDERS' EQUITY.......................... 12,954,570 1,378,686 (97,685)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $ 13,869,864 $ 4,000,578 $ 74,132

CONTINUING OPERATIONS (Note 2)

See accompanying notes to the consolidated financial statements

F-22

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(EXPRESSED IN CANADIAN DOLLARS)

FOR THE FOR THE
FOR THE PERIOD PERIOD FROM PERIOD FROM
FROM INCEPTION INCEPTION OF INCEPTION OF
OF THE FOR THE SIX FOR THE SIX THE THE
DEVELOPMENT MONTHS ENDED MONTHS ENDED DEVELOPMENT FOR THE YEAR DEVELOPMENT
STAGE TO MARCH 31, MARCH 31, STAGE TO ENDED STAGE TO
MARCH 31, 2000 2000 1999 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1999 1999 1998
--------------- ------------- ------------- -------------- -------------- --------------
(AS RESTATED--SEE NOTE 15)

REVENUE...................... $ 1,152,487 $ 585,789 $ 142,482 $ 566,698 $ 566,698 $ --
DIRECT COSTS................. 666,219 326,649 126,280 339,570 339,570 --
GROSS PROFIT................. 486,268 259,140 16,202 227,128 227,128 --
INTEREST INCOME.............. 80,241 80,241 -- -- -- --
SALES EXPENSE................ 2,218,630 867,241 360,783 1,351,389 1,351,389 --
GENERAL AND ADMINISTRATIVE
EXPENSES
Advertising and
promotion................ 47,881 7,541 3,183 40,340 9,182 31,158
Amortization............... 465,274 270,014 15,535 195,260 195,260 --
Consulting................. 1,259,092 1,081,647 177,445 177,445 177,445 --
Foreign exchange loss
(gain)................... (82,327) (121,822) 33,064 39,495 39,495 --
Interest................... 84,592 50,243 3,988 34,349 32,321 2,028
Financing (Note
7(e)(ii))................ 4,241,424 4,241,424 -- -- -- --
Investor Relations......... 179,030 110,198 36,652 68,832 68,832 --
Management Fee............. 26,500 -- -- 26,500 -- 26,500
Office..................... 232,353 175,185 15,070 57,168 54,103 3,065
Occupancy.................. 134,221 64,392 12,872 69,829 64,429 5,400
Professional fees.......... 467,737 324,040 12,086 143,697 130,114 13,583
Repairs and maintenance.... 46,569 35,268 3,141 11,301 11,301 --
Telephone.................. 113,369 62,315 9,303 51,054 48,342 2,712
Travel..................... 105,942 56,291 20,833 49,651 38,826 10,825
Vehicle.................... 22,281 7,792 6,644 14,489 11,915 2,574
Wages...................... 1,341,557 821,723 324,526 519,834 519,834 --
8,685,495 7,186,251 674,342 1,499,244 1,401,399 97,845
NET LOSS FOR THE PERIOD...... $(10,337,616) $ (7,714,111) $(1,018,923) $(2,623,505) $(2,525,660) $ (97,845)
Adjustment for beneficial
conversion feature of
convertible preference
shares (Note 7(c))......... $(11,147,175) $ -- $ -- $ -- $ --
Adjustment for beneficial
conversion feature of
warrants (Note
7(e)(iii))................. (355,047) -- -- -- --
NET LOSS FOR THE PERIOD
ATTRIBUTABLE TO COMMON
SHAREHOLDERS............. $(19,216,333) $(1,018,923) $(2,525,660) $ (97,845)
BASIC AND DILUTED LOSS PER
COMMON SHARE............... $ (1.86) $ (0.11) $ (0.28) $ (0.02)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING......... 10,341,555 9,221,335 9,114,668 8,581,335

See accompanying notes to the consolidated financial statements

F-23

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CASH FLOWS

(EXPRESSED IN CANADIAN DOLLARS)

FOR THE PERIOD
FROM INCEPTION
FOR THE PERIOD FOR THE SIX FOR THE SIX OF THE FOR THE
FROM INCEPTION MONTHS ENDED MONTHS ENDED DEVELOPMENT FOR THE YEAR PERIOD FROM
TO MARCH 31, MARCH 31, MARCH 31, STAGE TO ENDED INCEPTION TO
2000 2000 1999 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1999 1999 1998
-------------- ------------ ------------ -------------- -------------- --------------
(AS RESTATED--SEE NOTE 15)

OPERATING ACTIVITIES
Net loss for the period......... $ (10,337,616) $(7,714,111) $(1,018,923) $ (2,623,505) $ (2,525,660) $ (97,845)
Adjustments to reconcile net
loss for the period to cash
utilized in operating
activities:
Amortization.................. 465,274 270,014 15,535 195,260 195,260 --
Non-cash portion of wages
expense (Note 7 (d)(ii)).... 745,998 523,998 222,000 222,000 222,000 --
Non-cash consulting expense
(Note 7 (d)(iii))........... 1,220,726 1,043,281 177,445 177,445 177,445 --
Non-cash portion of sales
expense (Note 7 (d)(i))... 180,567 64,418 116,149 116,149 116,149 --
Non-cash portion of financing
charges (Note 7 (e)(i))..... 4,241,424 4,241,424 -- -- -- --
Consulting fee settled with
shares.................... 26,562 26,562 -- -- -- --
Change in operating assets and
liabilities:
Prepaid expenses and
deposits.................. (31,497) (16,090) (29,291) (15,407) (7,814) (7,593)
Accounts receivable......... (364,054) (105,600) (153,905) (258,454) (258,454) --
Accounts payable............ 718,822 (929,371) 387,917 1,648,193 1,632,326 15,867
Wages payable............... 98,965 61,514 17,681 37,451 37,451 --
Other accrued liabilities... 84,470 (22,134) 29,131 106,604 100,654 5,950
Net cash used in operating
activities.................... (2,950,359) (2,556,095) (236,261) (394,264) (310,643) (83,621)
INVESTING ACTIVITIES
Cash acquired on acquisition of
subsidiary (Note 4)........... 35,222 -- 35,222 35,222 35,222 --
Purchase of property and
equipment................... (4,466,925) (871,490) (961,035) (3,595,435) (3,548,402) 47,033)
Purchase of intangible
assets...................... (149,071) -- (149,071) (149,071) (149,071) --
Net cash used in investing
activities.................... (4,580,774) (871,490) (1,074,884) (3,709,284) (3,662,251) (47,033)
FINANCING ACTIVITIES
Proceeds from notes payable... 275,000 -- 125,000 275,000 125,000 150,000
Repayment of notes payable.... (275,000) -- (275,000) (275,000) (275,000) --
Proceeds from convertible
notes payable............... 829,644 -- -- 829,644 829,644 --
Proceeds from issue of common
stock....................... 1,286,271 1,235,956 50,154 50,315 50,155 160
Proceeds from issue of
preferred stock............. 10,915,185 10,915,185 -- -- -- --
Proceeds from issue of
warrants.................... 355,047 355,047 -- -- -- --
Proceeds from exercise of
warrants.................... 1,474,184 -- 1,474,184 1,474,184 1,474,184 --
Proceeds from share
subscriptions received...... 1,793,026 -- -- 1,793,026 1,793,026 --
Net cash provided by financing
activities.................... 16,653,357 12,506,188 1,374,338 4,147,169 3,997,009 150,160
NET INCREASE IN CASH AND CASH
EQUIVALENTS................... 9,122,224 9,078,603 63,193 43,621 24,115 19,506
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD........... -- 43,621 19,506 -- 19,506 --
CASH AND CASH EQUIVALENTS, END
OF PERIOD..................... $ 9,122,224 $ 9,122,224 $ 82,699 $ 43,621 $ 43,621 $ 19,506
SUPPLEMENTAL CASH FLOW
DISCLOSURE
Interest paid................. $ 10,863 $ 7,030 $ 3,833 $ 32,321 $ 32,321 $ --
SUPPLEMENTAL CASH FLOW
DISCLOSURE OF CASH AND CASH
EQUIVALENTS
Cash.......................... $ 51,452 $ 51,452 $ 82,699 $ 43,621 $ 43,621 $ 19,506
Short term investments........ 9,070,772 9,070,772 -- -- -- --
$ 9,122,224 $ 9,122,224 $ 82,699 $ 43,621 $ 43,621 $ 19,506

F-24

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

SUPPLEMENTAL CASH FLOW DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

During the six months ended March 31, 2000, the Company recorded non-cash
additions to property and equipment in the amount of $67,516 (year ended
September 30, 1999--$133,851) representing the fair value of share purchase
options issued to suppliers. See Note 7 (d)(i).

During the six months ended March 31, 2000, the Company issued 50,000 common
shares valued at $26,562, in exchange for consulting fees received (Note 7 (b)).

During the six months ended March 31, 2000, the notes payable valued at
$829,644 at September 30, 1999 were converted to 997,736 common shares (Note 6).

During the six months ended March 31, 2000, the Company issued 547,200
shares of Series A Convertible Preferred Stock with a fair value of US$1,368,000
in exchange for agent's services as described in Note 7(c).

See accompanying notes to the consolidated financial statements

F-25

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

(EXPRESSED IN CANADIAN DOLLARS)
(AMOUNTS FOR THE PERIOD SUBSEQUENT TO SEPTEMBER 30, 1999 ARE UNAUDITED)

WARRANTS/
OPTIONS &
ADDITIONAL
PAID-IN
CAPITAL TO
SHARE SUBSCRIPTIONS PURCHASE CONVERTIBLE
COMMON STOCK RECEIVED SHARES PREFERRED STOCK
----------------------- ------------------------ ------------ ----------------------
SHARES AMOUNT SHARES AMOUNT AMOUNT NUMBER AMOUNT
---------- ---------- ---------- ----------- ------------ --------- ----------

Issued for cash at inception,
March 26, 1998.................. 160 $ 160 -- $ -- $ -- -- $ --
Net loss for the period from
inception to September 30,
1998............................ -- -- -- -- -- -- --
Balance, September 30, 1998..... 160 160 -- -- -- -- --
Issued for cash................. 3,367,500 50,155 -- -- -- -- --
Issued on business acquisition
(Note 4)........................ 5,213,675 35,222 -- -- -- -- --
Exercise of warrants............ 640,000 1,474,183 -- -- -- -- --
Grant of employees' options..... -- -- -- -- 222,000 -- --
Suppliers' options issued and
issuable...................... -- -- -- -- 250,000 -- --
Grant of options to
consultant.................... -- -- -- -- 177,445 -- --
Issued for cash (net of expenses
of the issue of $176,437)....... -- -- 670,000 1,544,924 -- -- --
Issued for cash................. -- -- 420,000 248,102 -- -- --
Net loss for the year ended
September 30, 1999.............. -- -- -- -- -- -- --
Balance, September 30, 1999 (as
restated see Note 15)........... 9,221,335 1,559,720 1,090,000 1,793,026 649,445 -- --
Issued for subscriptions........ 1,090,000 1,793,026 (1,090,000) (1,793,026) -- -- --
Issued for cash................. 1,887,749 1,054,853 -- -- 355,047 -- --
Issued for services............. 100,000 53,125 -- -- -- -- --
Cancelled....................... (50,000) (26,563) -- -- -- --
Exercise of stock options....... 125,000 273,600 -- -- (92,500) -- --
Conversion of notes payable to
shares........................ 997,736 881,028 -- -- -- -- --
Grant of employee stock
options....................... -- -- -- -- 523,998 -- --
Grant of consultants' and
supplier stock options........ -- -- -- -- 1,110,797 -- --
Issue of preferred stock (net of
expenses of issue
$2,206,013)................... -- -- -- -- -- 3,637,200 8,679,973
Beneficial conversion feature
related to convertible preferred
stock and warrants issued in
connection with a private
placement....................... -- -- -- -- (11,502,222) -- --
Accretion of beneficial conversion
feature related to convertible
preferred stock and warrants.... -- -- -- -- 11,502,222 -- --
Issue of share purchase
warrants...................... -- -- -- -- 6,476,637 -- --
Net loss for the six months ended
March 31, 2000.................. -- -- -- -- -- -- --
Balance, March 31, 2000........... 13,371,820 $5,588,789 -- $ -- $ 9,023,424 3,637,200 $8,679,973

DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
------------ -----------

Issued for cash at inception,
March 26, 1998.................. $ -- $ 160
Net loss for the period from
inception to September 30,
1998............................ (97,845) (97,845)
Balance, September 30, 1998..... (97,845) 97,845)
Issued for cash................. -- 50,155
Issued on business acquisition
(Note 4)........................ -- 35,222
Exercise of warrants............ -- 1,474,183
Grant of employees' options..... -- 222,000
Suppliers' options issued and
issuable...................... -- 250,000
Grant of options to
consultant.................... -- 177,445
Issued for cash (net of expenses
of the issue of $176,437)....... -- 1,544,924
Issued for cash................. -- 248,102
Net loss for the year ended
September 30, 1999.............. (2,525,660) (2,525,660)
Balance, September 30, 1999 (as
restated see Note 15)........... (2,623,505) 1,378,686
Issued for subscriptions........ -- --
Issued for cash................. -- 1,409,900
Issued for services............. -- 53,125
Cancelled....................... -- (26,563)
Exercise of stock options....... -- 181,100
Conversion of notes payable to
shares........................ -- 881,028
Grant of employee stock
options....................... -- 523,998
Grant of consultants' and
supplier stock options........ -- 1,110,797
Issue of preferred stock (net of
expenses of issue
$2,206,013)................... -- 8,679,973
Beneficial conversion feature
related to convertible preferred
stock and warrants issued in
connection with a private
placement....................... -- (11,502,222)
Accretion of beneficial conversion
feature related to convertible
preferred stock and warrants.... -- 11,502,222
Issue of share purchase
warrants...................... -- 6,476,637
Net loss for the six months ended
March 31, 2000.................. (7,714,111) (7,714,111)
Balance, March 31, 2000........... $(10,337,616) $12,954,570

See accompanying notes to the consolidated financial statements

F-26

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

1. BASIS OF PRESENTATION

Prior to the acquisition described in Note 4 below, MDU Communications
International, Inc. (formerly Alpha Beta Holdings, Ltd.) ("International" or the
"Company") was essentially inactive. On November 2, 1998 the Company acquired
all of the issued and outstanding common shares of MDU Communications Inc.
("MDU") and on November 24, 1998, the Company changed its name from Alpha Beta
Holdings, Ltd. to MDU Communications International, Inc. MDU, a Canadian
incorporated telecommunications company is a national system operator for Star
Choice Communications, Inc. and provides delivery of home entertainment and
information technology to residents of multi-dwelling units such as apartment
buildings, condominiums, gated communities, hotels and motels.

The acquisition of MDU has been accounted for as a reverse acquisition on
the basis that the former shareholders of MDU now control the affairs of the
Company. As a result, these consolidated financial statements of the Company
include the accounts of International (the accounting subsidiary) and MDU (the
accounting parent), for the period subsequent to the effective date of the
reverse acquisition described in Note 4. The comparative figures for periods
prior to the reverse acquisition represent the historical results of operations,
cash flows and financial position of the accounting parent, MDU.

2. CONTINUING OPERATIONS

The 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. The Company has limited
financial resources, has incurred operating losses since inception and does not
expect to generate profitable operations until fiscal 2001 or later. In
addition, on September 20, 1999, the Company received a demand for payment with
respect to outstanding notes payable with a principal value of $733,652. The
Company has negotiated an extension to the repayment terms of these notes to
June 30, 2000. The Company has also negotiated an extension to the repayment
terms of notes payable in the amount of $95,992 until February 28, 2000. The
Company's funding of its initial operating expenses, working capital needs and
capital commitments is dependent upon its ability to raise additional financing.
The Company is currently pursuing opportunities to raise financing through
private placements of both equity and debt securities and has engaged an
investment banker to assist it in raising financing through a public equity
offering. As a result, on January 28, 2000 the Company issued 3,637,200
Series A Preferred Stock in exchange for cash proceeds of $10,915,186
(U.S.$7,725,000) net of share issue costs (Note 7(c)). In addition, the Company
completed private placements for cash of $909,435 as described in
Note 7(e)(iii) and on February 28, and March 8, 2000 the balance of outstanding
notes payable were converted into common shares of the Company (Note 6).

The Company's ability to continue as a going concern is dependent on its
ability to raise additional funds as required and ultimately to achieve
profitable operations. The financial statements do not include any adjustments
that might result from the outcome of the above noted uncertainties.
Adjustments, if any, would affect the carrying value and classification of
assets and liabilities and the amount of net loss and accumulated deficit.

F-27

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

3. SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and reflect the significant
accounting polices described below. In the opinion of management all adjustments
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 2000 and for all interim periods presented have been
made. Interim results are not necessarily indicative of results for a full year.

(A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements are issued under the name of the
Company, being the legal parent, but are considered a continuation of the
activities and operations of MDU Communications Inc. (see Note 4). All
inter-company balances and transactions are eliminated.

(B) DEVELOPMENT STAGE ENTERPRISE

The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standard ("SFAS") No. 7, "Accounting and Reporting
by Development Stage Enterprises." The Company's planned principal
operations have commenced, but there has been no significant revenue
therefrom. At present, the Company is devoting most of its efforts to
activities such as raising capital, research and development of bundled
technological services with its Direct To Home TV services to
multi-dwelling unit properties and developing customer markets.

The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

(D) PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost less accumulated
amortization. Costs of connecting and disconnecting service are expensed.
Amortization of property and equipment is provided using the declining
balance method at the following rates:

Telecommunications equipment, installed..................... 14.5%
Computer equipment.......................................... 20%
Furniture and fixtures...................................... 20%

Direct costs of placing telecommunications equipment into service and
major improvements are capitalized.

The Company performs a review for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be

F-28

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recoverable. Under Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", an impairment loss is recognized
when estimates of future cash flows expected to result from the use of an
asset and its eventual disposition are less than its carrying amount. No
impairment losses have been identified by the Company for the six months
ended March 31, 2000 and 1999; year ended September 30, 1999 and the
period from inception, March 26, 1998 to September 30, 1998.

(E) INTANGIBLE ASSETS

Intangible assets consist of a customer list and related contracts, which
were acquired from a relative of the president of the Company and are
being amortized on the straight-line basis over five years. Management
regularly reviews the carrying value of intangible assets based upon
future expected cash flows. To date, no impairment has been indicated.

(F) REVENUE RECOGNITION

The Company recognizes revenue on provision of satellite programming to
customers in the period the related services are provided.

(G) LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential
dilution of securities by including other common share equivalents,
including stock options and redeemable convertible notes payable, in the
weighted average number of common shares outstanding for a period, if
dilutive. For the six months ended March 31, 2000 and March 31, 1999, the
year ended September 30, 1999 and the period from inception, March 26,
1998, to September 30, 1998, basic and diluted loss per common share are
equivalent as the effect of common shares issuable upon the exercise of
options or warrants would be anti-dilutive. As of March 31, 2000 the
Company had outstanding securities which were convertible and/or
exercisable into 10,129,309 common shares which would be potentially
dilutive in the future.

(H) FOREIGN EXCHANGE

The accounts of the Company and its foreign subsidiaries are expressed in
Canadian dollars, its functional currency. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate
in effect at the balance sheet date. Other balance sheet items and
revenues and expense are translated at the rates prevailing on the
respective transaction dates. Translation gains and losses relating to
current monetary items and revenue and expenses denominated in foreign
currencies are included in income.

F-29

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) STOCK-BASED COMPENSATION

As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has accounted for employee and director stock
options in accordance with Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and has made the pro
forma disclosures required by SFAS No. 123 in Note 7.

(J) COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," established standards for
the reporting and display of comprehensive income and its components
(revenue, expenses, gains and losses) in a full set of general-purpose
financial statements. The Company has no comprehensive income items,
other than the net loss, in any of the periods presented.

(K) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities and notes payable at
September 30, 1998 and 1999 and March 31, 2000 are estimated to
approximate their carrying values due to the relative liquidity or short-
term nature of these instruments.

(L) CREDIT CONCENTRATION

Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable.
Accounts receivable from Star Choice Communications, Inc. (Note 10) at
March 31, 2000, represented 70% of total trade accounts receivable
(September 30, 1999--76%; September 30, 1998--Nil%). The Company provides
an allowance for bad debts based on historical experience and
specifically identified risk. At March 31, 2000 there was an allowance
for doubtful accounts of $20,000 (September 30, 1999 and 1998--$Nil).

(M) RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accounts issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities"
(SOP 98-5). Under SOP 98-5, the cost of start-up activities are expensed
as incurred. The Company believes that the adoption of SOP 98-5 does not
have a material impact on its financial position or results of
operations.

F-30

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. In 1999, SFAS No. 137 delayed the required implementation by the
Company of SFAS No. 133 to fiscal year 2001. The effect of implementation
of SFAS No. 133 on the Company's financial position or results of
operations has not been determined.

4. ACQUISITION OF SUBSIDIARY

On November 22, 1998, the Company completed the acquisition of all of the
issued and outstanding common shares of MDU in exchange for 5,213,835 common
shares of the Company.

The business combination of the Company and MDU has been accounted for as a
reverse acquisition whereby MDU was identified as the acquirer and the assets
and liabilities of the Company were acquired by MDU at fair value. Fair value
has been estimated as $35,222 being the amount of the sole asset, cash, of
International at the date of acquisition. In accordance with generally accepted
accounting principles for reverse acquisitions these consolidated financial
statements reflect the historical results of MDU since its formation, and the
MDU assets and liabilities at their historic cost. The operations of the
Company, being the legal parent and accounting subsidiary, are reflected from
November 22, 1998 and its assets and liabilities are reflected at their fair
value at the date of acquisition.

Net assets of the Company at the date of acquisition are as follows:

5. PROPERTY AND EQUIPMENT

MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 1998
----------- ------------- -------------
(UNAUDITED) (AS RESTATED
SEE NOTE 15)

Telecommunications equipment, $3,911,191 $3,295,475 $ 8,308
installed.............................
Telecommunications equipment, not yet
placed in service..................... 498,352 320,944 --
Computer equipment...................... 157,955 38,020 11,308
Furniture and fixtures.................. 100,794 74,847 27,417
---------- ---------- -------
4,668,292 3,729,286 47,033
Less: accumulated amortization.......... (428,006) (172,900) --
---------- ---------- -------
$4,240,286 $3,556,386 $47,033
========== ========== =======

F-31

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

6. NOTES PAYABLE

The notes payable are summerized as follows:

MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1998
----------- ------------- -------------
(UNAUDITED)

i) Demand convertible note payable
with a maturity value of
Cdn. $250,000, bearing interest at
8.75%, per annum compounded monthly
and due June 30, 2000
(September 30, 1999--past due as of
August 16, 1999)................... $ -- $250,000 $ --

ii) Demand convertible note payable --
with a maturity value of
U.S. $327,500 bearing interest at
8.75% per annum compounded monthly
and due June 30, 2000
(September 30, 1999--past due as of
September 15, 1999)................ 483,652 --

iii) Demand convertible note payable --
with a maturity value of
U.S. $40,000, bearing interest at
9.00% per annum compounded monthly
and past due as of August 31,
1999............................... 59,072 --

iv) Demand convertible note payable
with a maturity value of
U.S. $25,000, bearing interest at
9.00% per annum compounded monthly
and past due as of August 31,
1999............................... -- 36,920 --

v) Notes payable with an aggregate
maturity value of Cdn. $150,000,
bearing interest at 7.5% per annum
compounded monthly and repayable on
demand............................. -- -- 150,000
-------- -------- --------

$ -- $829,644 $150,000
======== ======== ========

All or any part of the principal amount of the notes and any interest
thereon was convertible, at the option of the holder, on or before the due date,
into fully paid and non-assessable common shares of the Company at a conversion
price of US$2.00 per common share in the case of the notes described in
Notes 6(iii) and (iv), above, and at a conversion price of US$1.75 in the case
of those described in Notes 6(i) and (ii). The notes are unsecured. The Company
was unable to repay the notes on their respective due dates and on
September 16, 1999 the Company received a demand for payment with

F-32

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

6. NOTES PAYABLE (CONTINUED)
respect to outstanding notes payable with a principal value of $733,652
(Notes 6(i) and (ii)). The Company was in default at September 30, 1999.

On October 19, 1999, the Company negotiated an extension to the original
repayment terms of notes payable in the amount of $732,571 to June 30, 2000
(Notes 6 (i) and (ii), above). The renegotiated demand, unsecured, convertible
notes bear interest at 8.75%. All or any portion of the principal, and any
interest thereon, is convertible, at the option of the holder, on or before the
due date, into fully paid and non-assessable common shares of the Company at a
conversion price of US$0.625 per common share. On October 19, 1999 the Company
also negotiated an extension to the original repayment terms of notes payable in
the amount of $95,992 (Notes 6 (iii) and (iv) above), to February 28, 2000. The
renegotiated demand, unsecured, convertible note bears interest at 9%. All or
any portion of the principal, and any interest thereon, is convertible, at the
option of the holder, on or before the due date, into fully paid and
non-assessable common shares of the Company at a conversion price US$0.50 per
common share.

On February 28, 2000, the note payable in the amount of $95,992 plus accrued
interest was converted to 142,399 fully paid and non-assessable common shares of
the Company at a conversion price of US$0.50 per common share. On March 8, 2000,
notes payable totalling $732,571 plus accrued interest were converted to 855,337
fully paid and non-assessable common shares of the Company at a conversion price
of US$0.625 per common share. At March 31, 2000 there were no further notes
outstanding.

7. SHARE CAPITAL

(A) AUTHORIZED

The Company's authorized share capital consists of 50,000,000 common
shares with a par value of $0.001 per share and 5,000,000 preferred stock
also with a par value of $0.001 per share.

F-33

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
(B) Details of common shares issued to March 31, 2000 including a
reconciliation of the issued and outstanding share capital of the Company
to amounts previously reported in Alpha Beta Holdings Ltd. at
September 30, 1998 is as follows:

Common shares:

NUMBER OF
SHARES AMOUNT
----------- ----------

Balance, September 30, 1998................. 1,701,000 $ 1,277
Share consolidation on a 10 for 1 basis..... (1,530,900) --
----------- ----------
Balance, September 30, 1998, post share
consolidation............................. 170,100 1,277
Issued for cash............................. 3,197,400 49,879
----------- ----------
Balance prior to business combination....... 3,367,500 51,156
Adjustment of stated value of common shares
at reverse acquisition to value of common
shares of MDU (Note 4).................... -- (841)
Issued on acquisition of the Company
(Note 4).................................. 5,213,835 35,222
----------- ----------
Balance subsequent to reverse acquisition... 8,581,335 85,537
Exercise of warrants........................ 640,000 1,474,183
----------- ----------
Balance, September 30, 1999................. 9,221,335 1,559,720
----------- ----------
Issued for subscriptions.................... 1,090,000 1,793,026
Issued for cash............................. 1,062,750 500,465
Issued for services......................... 100,000 53,125
Cancellation of shares issued for
services.................................. (50,000) (26,563)
Issued on the exercise of stock options..... 125,000 273,600
Issued for cash on private placements
(Note 7(e)(iii)).......................... 824,999 554,388
Conversion of notes (Note 6)................ 997,736 881,028
----------- ----------
Balance, March 31, 2000..................... 13,371,820 $5,588,789
=========== ==========

On January 28, 2000, the Company issued 3,637,200 shares of Series A
Convertible Preferred stock (the "Preferred Shares"), at an issue price
of US$2.50 per share, in exchange for cash proceeds of US$7,725,000 and
services in connection with the private placement with a fair value of
US$1,368,000 for total gross proceeds, prior to expenses of the issue, of
US$9,093,000. The Preferred Shares are immediately convertible, at the
option of the holder, at a conversion ratio of one common share for one
Series A Convertible Preferred share, until the "Qualification date",
which is the earlier of: (i) the fifth business day following (a) the
date the Company receives a receipt for its final prospectus from the
last of the British

F-34

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
Columbia Securities Commission, the Alberta Securities Commission and the
Ontario Securities Commission (the "Commissions") and (b) the date the
Company has filed with the United States Securities and Exchange
Commission and obtained effectiveness of a registration statement
qualifying the shares and (ii) January 28, 2001. However, if the final
receipt of each of the Commissions is not issued before June 26, 2000,
then the shares convert at a ratio of 1.15 common shares for each
Preferred Share. Any Preferred Shares that have not been converted by the
holder by the Qualification date will automatically convert at a ratio of
one common share to one Preferred Share. In connection with the issuance
of the Preferred Shares, the Company issued 309,000 share purchase
warrants to an agent that provide the right to purchase one Series A
Convertible Preferred Share at the issue price of US$2.50 per share. The
warrants were assigned a value of US$1,549,004.

The Preferred Shares have a beneficial conversion feature totalling
$11,147,175 (US$7,725,000), measured as the difference between the
conversion price most beneficial to the investor, of US$2.17, and the
fair value of the underlying common stock at the time of issuance,
limited to the amount of the cash proceeds received. The beneficial
conversion feature is recognized at issuance as an increase in the loss
applicable to common shareholders in the calculation of the basic loss
per share for the six months ended March 31, 2000. As the Preferred
Shares are immediately convertible, the company recorded accretion of
$11,147,175 to additional paid-in capital. In addition, the company
recorded a preferred stock dividend, representing the value of the
beneficial conversion feature, for a corresponding amount.

(D) STOCK OPTION PLANS

(i) Suppliers' Stock Option Plan ("Suppliers' Plan")

In addition to the stock options under the Suppliers' Plan issued to
September 30, 1999, the Company was also obligated to issue an
additional 19,429 options to purchase common shares of the Company at
September 30, 1999 at exercise prices of US$1.75 to US$2.00 per share
and exercisable for five years from the date of issue. On March 13,
2000, the Company granted an additional 26,115 options (19,429 of
which were earned and recorded at September 30, 1999) to a supplier
under the Plan described above.

F-35

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
Under the requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") the Company has recorded stock based
compensation charges in connection with the Suppliers' Plan as
follows:

FOR THE SIX MONTHS ENDED FOR THE
------------------------- YEAR ENDED
MARCH 31, MARCH 31, SEPTEMBER 30,
2000 1999 1999
----------- ----------- -------------

Additional capital costs of
telecommunications equipment...... $ 67,516 $ 66,926 $133,851
Sales expense....................... 64,418 116,149 116,149
$131,934 $183,075 $250,000

These charges are based on the fair value of the stock options issued
and issuable to suppliers calculated on the date an eligible supplier
completes the performance required to earn the options. This amount
is determined using a Black Scholes option pricing model assuming a
weighted average annualized volatility of the Company's share price
of approximately 114%. For details of the other material assumptions
used in determination of the fair value of these options see
Note 7 (d)(ii).

(ii) Directors'/Officers' and Employees' Stock Option Plans ("Employee
Plans")

On February 5, 2000 the Company approved the 2000 Incentive Stock
Option Plan ("2000 Option Plan") whereby certain employees, officers
and directors of the Company and its affiliates were granted options
to purchase 2,705,360 common shares of the Company, of which
2,615,084 have an option price of US$5.00, being the closing price of
the Company's stock on February 4, 2000. The options have vesting
periods ranging from grant date to three years after the grant date,
and an expiry date of February 4, 2005. The remaining 90,276 options
granted were originally authorized as part of the November 24, 1998
Employee Plans and were redesignated to be included in the 2000
Option Plan. These options are exercisable at US$1.00, are fully
vested and have an expiry date of February 4, 2005.

The Company accounts for its stock-based employee compensation plans
under APB No. 25 whereby compensation cost is recorded for the
excess, if any, of the quoted market price of the common shares over
the exercise price at the date of grant for all employee stock
options issued. For the six months ended March 31, 2000 compensation
cost in the amount of $523,998 (six months ended March 31,
1999--$222,000; year ended September 30, 1999--$222,000; period from
inception, March 26, 1998 to September 30, 1998--$Nil;) has been
recorded under this method.

F-36

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
An alternative method of accounting for employee stock options is
SFAS No. 123. Under SFAS No. 123 employee stock options are valued at
the grant date using a fair value method and the estimated fair value
of the options is amortized to expense over the options' vesting
period. The following pro forma financial information present the net
loss for the period and loss per common share had the Company adopted
SFAS No. 123:

FOR THE PERIOD FROM SIX MONTHS ENDED
INCEPTION OF THE --------------------------
DEVELOPMENT STAGE TO MARCH 31, MARCH 31,
MARCH 31, 2000 2000 1999
-------------------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

Pro forma net loss for the period.... $(14,507,463) $(11,500,568) $(1,402,312)
Pro forma loss per common share...... $ -- $ (2.42) $ (0.15)

FOR THE
PERIOD FROM
YEAR ENDED INCEPTION,
FOR THE PERIOD FROM SEPTEMBER 30, MARCH 26,
INCEPTION OF THE 1999 1998 TO
DEVELOPMENT STAGE TO (AS RESTATED-- SEPTEMBER 30,
SEPTEMBER 30, 1999 SEE NOTE 15) 1998
-------------------- -------------- --------------

Pro forma net loss for the period..... $(3,006,895) $(2,909,050) $(97,845)
Pro forma loss per common share....... $ -- $ (0.32) $ (0.01)

Using the fair value method for stock-based compensation, as
described in SFAS No. 123, additional compensation costs of
approximately $3,786,457 would have been recorded for the six months
ended March 31, 2000 (six months ended March 31, 1999--$383,390; year
ended September 30, 1999--$383,390; period from inception, March 26,
1998, to September 30, 1998--$Nil). The unrecognized value of all
remaining outstanding employee stock options as of March 31, 2000 is
$10,114,166 and will be charged to pro forma net earnings in future
years according to the vesting terms of the options. This amount is
determined using a Black Scholes options pricing model assuming no
dividends are to be paid, vesting on date of grant, an expected term
of five years, a weighted average annualized volatility of the
Company's share price of 136% and a weighted average annualized risk
free interest rate of 5.50%.

(iii) Other stock options

At December 31, 1998 the Company granted stock options to purchase
100,000 common shares of the Company at an option price of US$1.50 in
recognition of consultative and other services provided by a relative
of the Company's President. These options may be exercised in whole
or in part at anytime until December 31, 2003. The fair value of
these options in the amount of $177,445 at date of grant has been
recorded as consulting expense during the six months ended March 31,
1999 (year ended September 30, 1999--$177,445). For details of the
material assumptions used in determination of the fair value of these
options see Note 7(d)(ii).

F-37

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
On February 5, 2000 the Company granted an aggregate of 170,000 stock
options for provision of consulting services by third parties. The
options are exercisable at US$5.00, expire February 4, 2005 and were
also granted under the terms of the 2000 Option Plan. The Company
recorded a stock based compensation charge in the amount of
$1,043,281 during the period ended March 31, 2000 based on the fair
value of the options granted. The aggregate fair value of the options
at the date of grant was determined using the Black Scholes model as
described in Note 7(d)(i), assuming an annualized volatility of the
Company's share price of approximately 214%.

Prior to the acquisition of the Company as described in Note 4, Alpha
Beta Holdings Ltd. had granted options to purchase 640,000 shares of
common stock of the Company at an exercise price of US$1.50 and an
expiry date of November 5, 1999. In December 1998, these options were
exercised resulting in proceeds to the Company of US$960,000
($1,474,184).

(iv) Details of changes in options to date under all Plans are as
follows:

WEIGHTED
AVERAGE FOR THE YEAR WEIGHTED
EXERCISE ENDED AVERAGE
MARCH 31, PRICE SEPTEMBER 30, EXERCISE
2000 US$ 1999 PRICE
--------- -------- ------------- --------

Balance outstanding, beginning of
period............................... 473,885 $1.18 -- $ --
Activity during the period
Options granted...................... 2,901,475 4.85 473,885 1.18
Options exercised.................... (125,000) 1.00 -- --
--------- ----- ------- -----
Balance outstanding, end of period..... 3,250,360 $4.46 473,885 $1.18
========= ===== ======= =====

There was no stock option activity for the period from inception,
March 26, 1998 to September 30, 1998.

As at March 31, 2000, the following stock options were outstanding:

EXERCISE
NUMBER OF PRICE
SHARES US$ EXPIRY DATE
- --------- -------- -----------

265,276 $1.00 November 24, 2003 to February 4, 2005
173,885 1.50 December 31, 2003 to April 1, 2004
12,375 1.75 March 12, 2005
13,740 2.00 March 12, 2005
2,785,084 5.00 February 4, 2005
- ---------
3,250,360
=========

Of the outstanding options, 1,393,609 options, as at March 31, 2000,
are presently exercisable and 1,856,751 options are unvested and vest
over a three year period.

F-38

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
(E) WARRANTS

(i) Details of changes in warrants to date are as follows:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
WARRANTS US$ EXPIRY DATE
--------- -------------- -----------------

Outstanding at September 30, 1999 and
1998............................... -- $ --
Issued
Agents' warrants (Note 7(c))....... 309,000 2.50 January 28, 2001
Gibralt Capital Corporation
(Note 7(e)(ii)).................. 750,000 2.50 March 1, 2002
Private placement units
(Note 7(e)(iii))................. 699,999 1.00 February 3, 2002
Private placement units
(Note 7(e)(iii))................. 1,482,750 0.75 November 25, 2001
--------- -----
Outstanding at March 31, 2000........ 3,241,749 $1.22
========= =====

(ii) Gibralt Capital Corporation ("Gibralt")

On March 1, 2000, the Company issued a warrant to purchase 750,000
shares of common stock of the Company for a period of two years, at
an exercise price of US$2.50 per share to Gibralt Capital
Corporation. As described in Note 7(d)(i), under the requirements of
SFAS No. 123, the Company has recorded stock based compensation
charges in the amount of $4,241,424 (US$2,925,927) based on the fair
value of the warrants issued to Gibralt at March 1, 2000, determined
using a Black Scholes option pricing model in consideration of
Gibralt's termination of a financing arrangement and an agreement to
negotiate in good faith a new financing agreement with terms more
favorable to the Company.

(iii) Private placements

In November 1999 the Company sold 1,482,750 units comprised of one
share of common stock and a warrant to purchase one share of common
stock for US$0.75 per share, for a period of two years, for US$0.40
per unit. 420,000 of these units had been subscribed for on September
15, 1999 (Note 8).

On February 3, 2000 the Company completed several private placements
subscribed for in December 1999 and January 2000. One private
placement consisted of 125,000 common shares of US$0.80 per share for
gross proceeds of $147,350 (US$100,000). The other private placements
consisted of 699,999 units at US$0.75 per unit for gross proceeds of
$766,450 (US$525,000). Each unit consists of one common share and one
common share purchase warrant exercisable for two years at US$1.00
per share. The gross proceeds were allocated between the shares and
warrants based on the relative fair value of the unit components at
the date the Company had a contractual liability to issue the units.

F-39

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

7. SHARE CAPITAL (CONTINUED)
Accordingly, the common shares were assigned a value of $407,038, net
of issue costs, and the warrants a value of $355,047.

The warrants have a beneficial conversion feature totalling $355,047,
measured as the difference between the conversion price of US$1.00
and the fair value of the underlying common stock at the date the
Company had a contractual liability to issue the units, limited to
the amount of the gross proceeds received and allocated to the
convertible warrants. The beneficial conversion feature is recognized
as an increase in the loss applicable to common shareholders in the
calculation of the basic loss per share for the six months ended
March 31, 2000.

8. SHARE SUBSCRIPTIONS RECEIVED

On May 28, 1999 the Company received subscriptions to purchase 670,000
shares for net proceeds after expenses of the issue of $1,544,924. These shares
were issued on November 19, 1999. On September 15, 1999 the Company received
additional subscriptions to purchase 420,000 units comprised of one share of
common stock and a two-year warrant to purchase one share of common stock for
US$0.75 per share, for US$0.40 per unit, for net proceeds of $248,102. These
units were also issued in November 1999.

9. COMMITMENTS AND CONTINGENCIES

(i) Under the terms of certain operating lease for equipment and premises,
the Company is obligated to make annual net rental payments as follows:

FISCAL YEAR ENDED
SEPTEMBER 30, 1999 AMOUNT
- ------------------ --------

2000...................................................... $ 87,698
2001...................................................... 82,217
2002...................................................... 38,048
2003...................................................... 13,644
2004 and thereafter....................................... 11,690
--------
$233,297
========

F-40

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
successful in its claim for damages, the Company's unsuccessful defence
would have a material adverse effect on the Company's financial
condition and operations.

(iii) The Company has also been named as a Defendant in a claim by Whistler
Cable Television Ltd. claiming damages for conversion, the return of
personal property, an injunction and costs. The Company has filed a
Defence disputing that the Plaintiff's has any legal right to bring the
action, and alleging that in any event the amount of damages suffered,
if any, is minimal. This case is still in the pre-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, and the amount, if any, of such loss will be recorded in the
period in which it becomes determinable.

(v) The Company has entered into management agreements with certain senior
executives which provide for annual compensation, excluding bonuses,
aggregating approximately $500,000. The Company can terminate these
agreements at any time upon reasonable notice and the payment of an
amount equal to 24 months of salary. In the event of a change in
control, either party may, during a period of 12 months from the change
of control, terminate the agreement upon reasonable notice and the
payment of an amount equal to 36 months of salary.

10. STRATEGIC ALLIANCE

In August 1998, the Company entered in a ten-year System Operation Agreement
with two five year renewal options, with Star Choice Communications, Inc. ("Star
Choice"). The Company is responsible for establishing and maintaining
distribution systems in multi-unit dwellings throughout Canada and acts as a
commissioned sales representative for Star Choice to market Star Choice
programming to the residents of multi-unit dwellings in which the Company has
installed systems. Residents that choose to subscribe to the service pay a
monthly access fee in addition to the program fees charged by Star Choice for
programming ordered by the customer.

F-41

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)

(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

10. STRATEGIC ALLIANCE (CONTINUED)
The Company's revenues are significantly dependent on its strategic alliance
with Star Choice. During the six months ended March 31, 2000, revenue from Star
Choice accounted for 43% of total recorded revenues of the Company (six months
ended March 31, 1999--10%; year ended September 30, 1999--36%; period from
inception, March 26, 1998, to September 30, 1998--%Nil).

11. GOVERNMENT REGULATIONS

Satellite broadcasting and distribution of Canadian television signals to
cable operators in Canada are regulated by the Canadian Radio-television and
Telecommunications Commission (CRTC). Star Choice and Express Vu are the only
two licensees that have been approved by the CRTC to distribute television and
information services by direct-to-home digital satellite transmissions in
Canada. Both must operate in accordance with CRTC imposed "conditions of
license" to maintain their licences. Also, they must comply with the Canadian
Broadcasting Act. Since the Company in its role as a system operator for Star
Choice is significantly depended on Star Choice for programming, it would be
adversely affected if Star Choice encountered regulatory problems. In addition,
preliminary CRTC regulations that allow the Company to obtain competitive access
to MDU's internal wiring may not be adopted in a final form that is favourable
to the Company, which would have a material adverse effect on the Company's
business.

12. INCOME TAXES

A reconciliation of the statutory federal Canadian income tax rate and the
Company's effective income tax rate is as follows:

FOR THE PERIOD FROM SIX MONTHS
INCEPTION OF THE ENDED
DEVELOPMENT STAGE TO MARCH 31, MARCH 31,
MARCH 31, 2000 2000 1999
-------------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

Canadian statutory income tax
rate.............................. 45.6% 45.6% 45.6%
Non-deductible expenses............. (28.45) (35.0) (23.6)
Tax loss carry forwards not
recognized in period of loss...... (17.15) (10.6) (22.0)
Actual tax rate..................... -- -- --

FOR THE PERIOD FROM PERIOD FROM
INCEPTION OF THE YEAR ENDED MARCH 26, 1998
DEVELOPMENT STAGE TO SEPTEMBER 30, TO SEPTEMBER 30,
SEPTEMBER 30, 1999 1999 1998
-------------------- -------------- -----------------

F-42

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

12. INCOME TAXES (CONTINUED)

The Company had no income tax expense for the six months ended March 31,
2000 and 1999, for the year ended September 30, 1999 or for the period from
inception, March 26, 1998 to September 30, 1998 as a result of significant
incurred losses. Additionally, the Company has provided a full valuation
allowance for net deferred tax assets at March 31, 2000 and September 30, 1999
and 1998, since realization of these benefits cannot be reasonably assured. At
March 31, 2000 and September 30, 1999 and 1998, deferred tax (liabilities)
assets are comprised of the following:

MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 1998
----------- -------------- --------------
(UNAUDITED) (AS RESTATED--
SEE NOTE 15)

Gross deferred tax liabilities:
Amortization........................ $ (226,206) $ (219,845) $ (854)
Gross deferred tax assets:
Operating loss carry forwards....... 1,800,657 1,023,997 44,568
----------- ----------- ---------
Net deferred tax assets............... 1,574,451 804,152 43,714
Less: valuation allowance............. (1,574,451) (804,152) (43,714)
----------- ----------- ---------
$ -- $ -- $ --
=========== =========== =========

At September 30, 1999 the Company's fiscal year end, the Company had loss
carry forwards available to be applied against future years' taxable income in
the amount of $2,245,608 of which $97,738 will expire on September 30, 2005 and
the balance on September 30, 2006.

13. SEGMENTED INFORMATION

14. RELATED PARTY TRANSACTIONS

The Company purchased equipment and satellite subscribers on December 31,
1998 for $157,689 from a relative of the Company's President. In addition, the
Company granted stock options to a relative of the Company's President to
purchase 100,000 common shares of the Company at an exercise price of US$1.50
until December 31, 2003, in exchange for consultative services. See
Note 7 (d)(iii).

15. RESTATEMENT

F-43

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

15. RESTATEMENT (CONTINUED)
an additional $116,149 of sales expense, a reduction to amortization expense of
$4,210 and a corresponding reduction to property and equipment of $111,939. A
summary of the significant effects of the restatement is as follows:

AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------

16. SUBSEQUENT EVENTS

(a) In May 2000, the Company entered into a long-term System Operator
Agreement with DirecTV, Inc. ("DirecTV"), a California company. The
Company's contract with DirecTV gives the Company a share of net
subscriber receipts, depending upon the number of active subscribers,
from the sale of DirecTV programming services, plus a subsidy for
subscriber acquisition costs for each net subscriber addition.

The Company will incur only the costs associated with the implementation
of its services, and will not share any of DirecTV's programming or
broadcasting costs. Under the agreement, the Company may not solicit
sales or provide equipment for any other direct-to-home digital satellite
television services in the United States. However, the Company is not
prohibited from contracting with other program providers in connection
with its SMATV services. Consequently, the Company is totally dependent
on DirecTV for its digital set-top programming in the United States.

The agreement has an initial term of five years, with an automatic
extension of the entire agreement to coincide with the termination of the
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. Under this agreement, the Company
will establish and maintain MDU distribution systems in non-rural states
of the United States, as defined in the agreement, and act as a
commissioned sales agent for the marketing of DirecTV programming to
residents of MDU properties.

F-44

MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999 IS
UNAUDITED)

16. SUBSEQUENT EVENTS (CONTINUED)
As this agreement was recently executed, as of this date the Company has
not derived any revenue from its alliance with DirecTV. DirecTV is not
required to use the Company 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.

(b) In May 2000 the Company entered into a Master Purchase Sales Agreement
with 3Com Corporation ("3Com") to become part of its preferred Visitor
Based Network. Under this agreement, the Company will receive preferred
pricing and discounts for equipment purchased to support the Company's
high-speed Internet services.

This is not an exclusive agreement, however, a portion of the Company's
discount is based on purchase volume. The agreement has an initial
one-year term, with automatic yearly renewals at the option of both
parties with associated yearly price and discount adjustments.

(c) In May 2000 the Company entered into a management agreement with a
senior executive which provides for annual compensation, excluding
bonuses, of approximately US$120,000. The Company can terminate this
agreement at any time upon reasonable notice and the payment of an amount
equal to 6 months of salary.

(d) On May 12, 2000 the Company granted options to its newly appointed
directors and to certain employees to purchase 347,500 common shares of
the Company, of which 150,000 have an exercise price of U.S.$2.50 per
share (the "Directors' options"), being a premium to the prior day's
closing price of the Company's stock. The first 75,000 of the Directors'
options vest immediately at the grant date and the remaining 75,000 vest
one year after the grant date. The 197,500 options granted to certain
employees have an exercise price of U.S.$5.00 and vest quarterly over a
three year period from the grant date. All of the options granted at
May 12, 2000 expire May 11, 2005.

(e) In May 2000, the Company determined that it would not be receiving a
receipt for its final prospectus from each of the Commissions, prior to
June 26, 2000, as specified in Note 7(c), in connection with its issue of
3,637,200 Preferred Shares. As a result, effective June 26, 2000, each
such preferred share will be convertible into common shares of the
Company at a ratio of 1.15 common shares for each Preferred Share.

F-45