MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

August 11, 2005 11:03 ET

MDU Communications Announces Fiscal Third Quarter 2005 Results

TOTOWA, NEW JERSEY--(CCNMatthews - Aug. 11, 2005) - MDU Communications International, Inc. (OTCBB:MDTV) -

- Nine Month Revenue up 113% over Prior Period to $6.4M

- Positive Earnings for Third Quarter

- Increase in Subscriber Base by 68% over Prior Period to 33,506 Subscribers

- New Single-Line Technology to Accelerate Deployment

MDU Communications International, Inc. (OTCBB:MDTV), a leading end-to-end provider of DIRECTV® digital satellite television programming, high-speed Internet and other premium communication and information services to the residential multi-dwelling unit ("MDU") market, today reports its third fiscal quarter results for the period ended June 30, 2005.

The Company reports revenue for the nine months ended of $6,389,189, an increase of 113% over the prior period, and $2,414,566 for the quarter ended June 30, 2005, an increase of 16% over the quarter ended March 31, 2005. The Company reports net income of $213,467. Highlights of the Company's Income Statement are as follows:




---------------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $2,414,566 $1,193,746 $ 6,389,189 $3,005,565
---------------------------------------------------------------------
Operating
Expenses ($2,904,378) ($2,115,002) ($10,463,885) ($7,745,775)
---------------------------------------------------------------------
Operating Loss ($ 489,812) ($ 921,256) ($ 4,074,696) ($4,740,210)
---------------------------------------------------------------------
Net Income/Loss $ 213,467 ($1,540,565) ($ 3,207,429) ($6,651,267)
---------------------------------------------------------------------
Net Income/Loss
per Share $ 0.00 ($ 0.04) ($ 0.07) ($ 0.18)
---------------------------------------------------------------------


"Our third quarter results evidence that MDU Communications is on an upward trend of realizing long-term revenue streams from subscribers in properties covered by our long-term access agreements. We are pleased with the increase in revenue quarter over quarter and year over year. In addition, our average revenue per user/subscriber ("ARPU") during the quarter has also increased to $23.74," said Sheldon Nelson, Chief Executive Officer of MDU Communications. "We added 3,820 billable subscribers during the quarter, which was reduced to 3,354 due to the sale of certain subscribers in May, for which we received approximately $2,500 per subscriber. Additionally, we have concentrated on obtaining the appropriate mix of subscribers to increase long-term value, particularly the number of Direct-to-Home ("DTH") (DIRECTV and Bulk Choice Advantage) subscribers, which are the highest revenue producing subscribers and which have increased 140% over the nine months. As important, high margin subscribers to the Company's high-speed Internet service have increased 65% over the same period." commented Nelson. "And, as expected, bundling our DIRECTV offering with broadband produces penetration rates that are greater than the sum of the individual services." A breakdown of the Company's subscriber base and quarterly increases during fiscal year 2005 is set forth below:



---------------------------------------------------------------------
Sub- Sub- Sub- Sub- Sub-
scribers scribers scribers scribers scribers
as of as of as of as of as of
Sept. 30, Dec. 31, March 31, June 30, June 30,
2004 2004 2005 2005 Sale 2005
(net of
Service Type sale)
---------------------------------------------------------------------
Bulk DTH 2,563 3,229 3,418 3,963 3,963
---------------------------------------------------------------------
DTH Choice /
Exclusive 4,895 5,001 5,576 5,998 (165) 5,833
---------------------------------------------------------------------
Bulk PC 13,705 13,802 15,589 16,869 16,869
---------------------------------------------------------------------
PC Choice /
Exclusive 1,576 1,583 1,688 1,652 (282) 1,370
---------------------------------------------------------------------
Bulk Choice
Advantage - 351 984 2,175 2,175
---------------------------------------------------------------------
Bulk ISP 1,415 1,489 1,511 1,771 1,771
---------------------------------------------------------------------
ISP Choice /
Exclusive 584 642 1,386 1,525 1,525
---------------------------------------------------------------------
Total
Subscribers 24,738 26,097 30,152 33,953 (447) 33,506
---------------------------------------------------------------------


Additionally, the Company had 11,543 "under contract" subscribers currently in work-in-progress ("WIP") that the Company expects will become "billable" subscribers in the next few quarters. The under contract subscribers are an important component of the Company's subscriber base evaluation in that they represent the number of subscribers in the Company's WIP properties simply awaiting (i) completion of a DIRECTV/Internet system installation, (ii) maturity of a subscriber phase-in or resident move-in schedule, or (iii) launch or completion of a marketing campaign. A preliminary breakdown of these "under contract" subscribers (already reduced to reflect appropriate property type and penetration rate) shows that 4,991 are from bulk properties, 1,446 are from exclusive properties and 5,106 are from choice properties.

The Company has been devoting additional resources to reduce the amount of time properties spend in WIP and has had reasonable success in that the number of units that were added to WIP during the quarter was 9,280 and the number of units that became fully constructed, marketed to and moved out of WIP was 9,496. This is an increase from the 4,746 units that moved out of WIP during the quarter ended March 30, 2005. As of June 30, 2005, the Company's current number of units in WIP was 34,045, a 154% increase from June 30, 2004 when the Company had only 13,387 units in WIP. Of the current WIP, approximately 10,000 units are in new construction properties. The Company's breakdown of WIP units by type of service is as follows: (i) DIRECTV (bulk) 1,516; (ii) DIRECTV (choice/exclusive) 13,551; (iii) Private Cable (bulk) 1,989; (iv) Private Cable (choice/exclusive) 1,452; (v) DIRECTV BCA Program (bulk/choice) 3,658; (vi) Internet (bulk) 984; and (vii) Internet (choice/exclusive) 10,895.

Because the Company has concentrated efforts on decreasing the time properties spend in WIP and thus decreasing the time in the backlog, the Company's backlog remained fairly constant from last quarter at 145,225 units; however, this is a 69% increase over the 86,000 units in backlog as of June 30, 2004. The Company's approximate breakdown of backlog units by type of service is as follows: (i) Bulk "BCA" DIRECTV (bulk) 14%; (ii) DIRECTV or Private Cable (choice) 40%; (iii) DIRECTV or Private Cable (exclusive) 6%; DIRECTV or Private Cable (bulk) 22%; (iv) Broadband (choice) 12%; (v) Broadband (exclusive) 1%; and (vi) Broadband (bulk) 5%.

The Company reports a strong balance sheet as of June 30, 2005 with $11,874,491 in cash and cash equivalents and total assets of $29,258,631. As of June 30, 2005, the Company reports total liabilities of $2,122,557, of which $606,363 is deferred revenue from activation fees received by the Company but not yet recognized as revenue. The Company has no material long-term debt obligations and is maintaining tight financial controls over the use of capital.

From an operational expense standpoint, direct costs for the quarter were $958,347, a slight increase from the previous quarter as a result of serving a larger subscriber base, however, direct costs as a percentage of revenue are expected to decline as a result of adding more DIRECTV type subscribers as compared to private cable subscribers. Sales, marketing and customer services expenses increased approximately 8% during the quarter from the previous quarter, however, as a percentage of revenue these expenses declined 4%. General and administrative expenses for the quarter were $563,177 (net of non-cash charges), a 22% reduction from the previous quarter. The Company's net cash utilization in the third quarter was approximately $2.1M, a substantial reduction from the second fiscal quarter when approximately $3.4M in cash was utilized.

Cash flow from operating activities was negative $365,885 for the third fiscal quarter, which is, however, a sharp improvement from negative cash flow of $1,020,608 realized during the second fiscal quarter. Cash flow was positively impacted by activation fees earned from DIRECTV during the quarter and by the gain on sale of certain non-core subscribers. The Company experienced positive EBITDA of $394,581 for the quarter ended June 30, 2005 (excluding non-cash charges associated with options and warrants) (See Non-GAAP Financial Reconciliation Schedule, below).

A very important development during the quarter was that the Company participated in a beta test of new technology that essentially allows condominium owners and apartment renters to have unlimited access to the full DIRECTV television experience due to a dramatically simplified process of delivering programming and services to customers living in multi-family housing. A new advanced multi-satellite distribution system was developed by DIRECTV and first installed by MDU Communications in a new luxury apartment complex in New York City. This new technology is capable of receiving and distributing programming - more than 225 channels of sports, news and family entertainment - from each of DIRECTV's existing satellites via a single wire to the MDU customer's home, whereas multiple wires, which in many cases did not exist in most properties, were previously required. This new solution more efficiently supports the use of multiple receivers, has the ability to deliver other national, local and high-definition programming services and provides for a more efficient installation and maintenance of satellite distribution equipment. This will allow the Company to realize greater efficiencies in deployment, an overall decrease in installation costs, increased property penetration rates with the advent of additional DIRECTV services and a more consistent approach to marketing. This new system technology is also currently supporting the Company's high-speed Internet offering and will support Voice over Internet Protocol (VoIP) in the future.

The Company's business strategy remains focused on providing an end-to-end solution for the delivery of DIRECTV® programming, private cable video and high-speed Internet services to the residential multi-dwelling unit market. The Company continues to expand with an emphasis on adding resources in the areas of direct sales and system/customer installations.

The Company expects to file its quarterly report on Form 10-QSB for the quarter ended June 30, 2005 with the Securities and Exchange Commission today, August 11, 2005.

The following table reconciles the comparative EBITDA of the Company to our consolidated net income (loss) as computed under accounting principles generally accepted in the United States of America:





Nine Months Ended Three Months Ended
June 30, June 30,
------------------------- ------------------------
2005 2004 2005 2004
------------------------- ------------------------

EBITDA $ (349,733) $ (227,676) $ 394,581 $ 16,479
Interest Expense (5,418) (1,933,260) (1,817) (648,611)
Depreciation and
Amortization (2,129,246) (1,071,967) (807,998) (423,080)
Effects of shares
and warrants issued
for professional
services (270,200) (75,200) (117,700) -
Effect of cancellation
of shares and
warrants issued
for professional
services 426,041 -- 206,250 -
Effect of Variable
Accounting for
Option Plans (423,999) (2,844,484) 632,937 (239,187)
Amortization of
Unearned
Compensation (454,874) (498,680) (92,786) (246,166)
------------------------- ------------------------
Net Income (Loss) $(3,207,429) $(6,651,267) $ 213,467 $(1,540,565)
------------------------- ------------------------
------------------------- ------------------------



MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
June 30, 2005 (Unaudited) and September 30, 2004

June 30, September 30,
2005 2004
------------ -------------
ASSETS

CURRENT
Cash and cash equivalents $11,874,491 $ 4,705,722
Accounts receivable- trade, net of an
allowance of $77,118 and $76,319 1,257,105 938,652
Prepaid expenses and deposits 153,782 98,834
------------ -------------
TOTAL CURRENT ASSETS 13,285,378 5,743,208


Telecommunications equipment inventory 1,035,915 325,218
Property and equipment, net of accumulated
depreciation of $4,246,524 and $2,771,311 12,190,372 6,401,833
Intangible assets, net of accumulated
amortization of $2,061,654 and $1,407,621 2,746,966 3,226,217
------------ -------------
TOTAL ASSETS $29,258,631 $15,696,476
------------ -------------
------------ -------------

LIABILITIES and STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 700,545 $ 609,115
Other accrued liabilities 721,086 548,907
Current portion of deferred revenue 599,661 615,995
Current portion of capital lease obligation 57,924 58,280
------------ -------------
TOTAL CURRENT LIABILITIES 2,079,216 1,832,297
------------ -------------

Deferred revenue , net of current portion 6,702 43,700
Capital lease obligation, net of
current portion 36,639 49,615
------------ -------------
TOTAL LIABILITIES 2,122,557 1,925,612
------------ -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001;
5,000,000 shares authorized - -
Common stock, par value $0.001;
70,000,000 shares authorized,
49,555,912 and 42,672,671 shares
issued and outstanding 49,557 42,673
Additional paid-in capital 57,253,318 42,122,896
Unearned compensation (694,511) (2,129,844)
Accumulated deficit (29,472,290) (26,264,861)
TOTAL STOCKHOLDERS' EQUITY 27,136,074 13,770,864
------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $29,258,631 $15,696,476
------------ -------------
------------ -------------



MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Nine and Three Months Ended June 30, 2005 and 2004
(Unaudited)

Nine Months Three Months
Ended June 30, Ended June 30,
------------------------- ------------------------
2005 2004 2005 2004
------------------------- ------------------------

REVENUE $ 6,389,189 $ 3,005,565 $ 2,414,566 $ 1,193,746
------------------------- ------------------------

OPERATING EXPENSES
Direct costs 2,538,449 868,879 958,347 345,200
Sales expenses 1,428,988 459,646 486,303 228,304
Customer service
expenses 1,898,569 839,193 711,859 301,279
General and
administrative
expenses (including
non-cash charge
(credit) of $724,455,
$3,426,385, ($623,306)
and $485,353) 2,468,633 4,506,090 (60,129) 817,139
Depreciation and
amortization 2,129,246 1,071,967 807,998 423,080
------------------------- ------------------------
TOTALS 10,463,885 7,745,775 2,904,378 2,115,002
------------------------- ------------------------

OPERATING LOSS (4,074,696) (4,740,210) (489,812) (921,256)


Other income (expense)
Gain on sale of
customers and property
and equipment 715,696 - 634,380 -
Gain on settlement of
accounts payable - 22,432 - 12,935
Interest income 156,989 31,953 70,716 16,367
Interest expense
(including noncash
interest of
$1,916,360 and
$645,560 in 2004) (5,418) (1,933,260) (1,817) (648,611)
Other - (32,182) - -
------------------------- ------------------------
NET INCOME (LOSS) $(3,207,429) $(6,651,267) $ 213,467 $(1,540,565)
------------------------- ------------------------
------------------------- ------------------------
BASIC AND DILUTED
INCOME (LOSS) PER
COMMON SHARE $ (0.07) $ (0.18) $ 0.00 $ (0.04)
------------------------- ------------------------
------------------------- ------------------------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 48,080,873 35,996,140 49,610,854 39,746,478
------------------------- ------------------------
------------------------- ------------------------




MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2005 and 2004
(Unaudited)

For the Nine Months Ended
June 30,
------------ -------------
2005 2004
------------ -------------
OPERATING ACTIVITIES
Net loss $(3,207,429) $(6,651,267)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for doubtful accounts 1,423 8,021
Depreciation and amortization 2,129,246 1,071,967
Amortization of unearned compensation 454,874 498,680
Effect of variable accounting for
stock options 423,999 2,844,484
Effect of issuance of common stock in
exchange for termination of agreement
and warrants issued for services 270,200 75,200
Effect of cancellation of common stock and
warrants in exchange for termination
of agreement (426,041) -
Charge to interest expense for amortization
of deferred finance costs and debt discount - 14,645
Charge to interest expense from cashless
exercise of warrants by lenders - 1,901,715
Gain on settlement of accounts payable - (22,432)
Gain on sale of customers, property
and equipment (715,696) -
Changes in operating assets and liabilities:
Accounts receivable (319,876) (443,579)
Prepaid expenses and deposits (54,948) 343,252
Accounts payable 91,430 2,935
Other accrued liabilities 200,388 (533,257)
Deferred revenue (53,332) 46,890
------------ -------------
Net cash used in operating activities (1,205,762) (842,746)
------------ -------------

INVESTING ACTIVITIES
Purchase of property and equipment (8,452,300) (1,199,980)
Proceeds from sale of customers,
property and equipment 1,232,648 -
Acquisition of other assets (178,515) (2,549,602)
------------ -------------
Net cash used in investing activities (7,398,167) (3,749,582)
------------ -------------

FINANCING ACTIVITIES
Payments of notes payable - (83,108)
Proceeds from private placements of
common stock and warrants 15,045,444 8,349,614
Proceeds from options exercised 401,246 606,100
Proceeds from warrants exercised 374,708 2,548,205
Payments of capital lease obligations (48,700) (114,845)
------------ -------------
Net cash provided by financing activities 15,772,698 11,305,966
------------ -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS 7,168,769 6,713,638
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,705,722 507,775
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $11,874,491 $ 7,221,413
------------ -------------
------------ -------------


About MDU: MDU Communications International, Inc. (OTCBB:MDTV) is a leading provider of premium communication/information services, including digital satellite television and high-speed (broadband) Internet services, exclusively to the United States multi-dwelling unit (MDU) marketplace - estimated to include 26 million residences. Through its wholly owned subsidiary, MDU Communications (USA) Inc., MDU Communications delivers DIRECTV® digital satellite television services and high-speed (broadband) Internet systems and is committed to delivering the next generation of interactive communication services to MDU residents. For additional information, please see www.mduc.com or contact Investor Relations.

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements relating to subscriber growth, success rate of new technology and implementation of new programs and developments of the Company. Such statements involve risks and uncertainties which may cause results to differ materially from those set forth in these statements, including, but not limited to, efforts on behalf of the Company to finalize and deploy such programs and technology, bring to fruition strategic alliances, fluctuations in operating results and operating plans, deployment of new subscribers, closing of certain acquisitions, market forces, supplier negotiations and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Company's 10-KSB for year ended September 30, 2004, filed on or about December 24, 2004.

The Company's filings, including current financial reports, can be accessed through the EDGAR database at www.sec.gov.

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