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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                                  ANNUAL REPORT

        Under Section 13 or 15(d) of the Securities Exchange Act of 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                           Commission File No. 0-30124


                       SONUS COMMUNICATION HOLDINGS, INC.
                             A Delaware corporation
                   IRS Employer Identification No. 54-1939577
                        55 John Street, New York NY 10038
                           Telephone - (212) 285- 4300


           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
                              Title of each class:
                         Common Stock, $.0001 par value


Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]


Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ].


Issuer's revenues for its most recent fiscal year were $7,198,881.


As of April 12, 2001 the aggregate market value of the Company's voting Common
Stock held by non-affiliates of the Company was approximately $120,923 (based on
a closing price of $.01 per share on that date).


As of April 12, 2001 there were 12,092,285 shares of the Registrant's Common
Stock, $.0001 par value outstanding.



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                                TABLE OF CONTENTS

<TABLE>
<S>       <C>                                                                    <C>
Part I

Item  1.  Description of Business................................................ 3

Item  2.  Property...............................................................13

Item  3.  Legal Proceeding.......................................................13

Item  4.  Submission of Matters to a Vote of Security Holders....................13

Part II

Item  5.  Market for the Registrant's Common Equity and Related Matters..........13

Item  6.  Management's Discussion and Analysis of Financial Condition and Results
            of Operation.........................................................15

Item  7.  Financial Statements...................................................21

Item  8.  Changes and Disagreements with Accountants on Accounting and Financial
            Disclosure...........................................................21

Part III

Item  9.  Directors and Executive Officers of the Registrant.....................21

Item 10.  Executive Compensation.................................................23

Item 11.  Security Ownership of Certain Beneficial Owners and Management.........25

Item 12.  Certain Relationships and Related Transactions.........................28

Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......29

</TABLE>


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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

On April 2, 2001, each of the Company's wholly owned subsidiaries (Empire One
Telecommunications Inc. ("EOT"), Sonus Communications Inc. ("Sonus), EOT
Telecommunications of Canada Inc., and Empire One Power Inc.), filed a Petition
for Relief under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York. The Company has no
material assets other than the issued and outstanding stock of each of its
subsidiaries.

The Company's subsidiaries continue to operate their respective businesses as
debtors in possession under the Bankruptcy. The value of the Company's common
stock is highly speculative due to the fact that the Company's only material
asset is the common stock of its wholly owned subsidiaries. The common stock of
the Company's subsidiaries may be cancelled in bankruptcy, leaving the Company
without any material assets. See Item 3 Legal Proceedings for more information.
The Company's common stock may have no value.

At present, the Company is, through its wholly owned subsidiary, Empire One
Telecommunications, Inc., as debtor in possession, a full service,
facilities-based retail telecommunications provider combining local and long
distance voice services and dial-up and dedicated Internet access services in a
single point of contact for sales and service to both businesses and consumers
in targeted ethnic niches throughout the United States.

Through EOT, the Company currently offers a diverse and increasing range of
integrated communication services, including standard voice telecommunications
(local and long distance), dial-up and dedicated Internet access and specialized
data services (for commercial users). In addition, EOT maintains Web portals in
Chinese, Russian and English. All of the EOT's marketing, sales, and customer
services are provided in the languages of the target markets. Currently, EOT's
Customer Service Representatives ("CSR") speak Cantonese, Mandarin, Russian and
Spanish as well as English. At December 31 2000, the EOT served approximately
30,000 customers.

EOT derives most of its telecommunications revenue from customers located in the
United States. EOT currently offers long distance service to customers in
various states where it is licensed to operate, including New York, New Jersey,
New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, Pennsylvania,
Delaware, Maryland and Washington DC. EOT also provides local phone service in
New York and New Jersey on a resale basis from the incumbent local exchange
carrier, and is licensed to provide local service in California. Long distance
revenues from customers located outside the United States were less than 8% and
10% of revenues in year 2000 and 1999 respectively, and derived from the Sonus
network, which is now decommissioned.

The Company's acquisition subsidiary merged with EOT on March 29, 2000. Prior to
the acquisition of EOT, the Company operated its business through Sonus
Communications Inc. ("Sonus"), a wholly owned subsidiary. Sonus was a wholesale
provider of low-cost, high-quality international telephone and Internet
services. The company offered Internet connectivity, voice, facsimile, Internet,
and e-commerce services to US and foreign telephone and Internet Service
Providers. In general, destinations were in developing countries characterized
by high international telephone rates, poor Internet connectivity and little
access to U.S. e-commerce or business-to-business services. Subsequent to the
merger with EOT, the Company de-emphasized the Sonus wholesale business platform
in favor of EOT's facilities based retail business platform, and as of December
31, 2000, Sonus was inactive.

The Company was incorporated in the State of Delaware in April 1999 and Sonus
was incorporated in the Commonwealth of Virginia in May 1995. EOT was originally
incorporated in New York in 1994, and merged into EOT Acquisition Corp., a
wholly owned Delaware subsidiary of the Company formed for the purpose of the
merger. Coincident with the merger, EOT Acquisitions Corp. changed its name to
Empire One



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Telecommunications. Subsequent to the merger, EOT Telecommunications of Canada
Inc. and Empire One Power Inc. were formed as wholly owned subsidiaries of EOT,
and each company is currently inactive, and have no assets or liabilities.

On April 2, 2001, each of the Company's subsidiaries filed a voluntary petition
(the "Petition") under Chapter 11 of the Bankruptcy Code. The Company intends to
operate its business in Chapter 11 in the ordinary course and to seek to obtain
the necessary relief from the Bankruptcy Court to pay its employees, trade and
certain other creditors. To fund its operations during the bankruptcy
proceeding, the Company is working to obtain Debtor-In-Possession ("DIP")
financing. As of the date of this report, such financing has not yet been
obtained. The DIP financing, if obtained, will be used to fund operations and
working capital throughout the bankruptcy proceeding. The Company can provide no
assurance that the DIP financing or any other financing, will be obtained.

Each of the Company's operating subsidiaries intends to continue to manage and
operate its assets and business pending the confirmation of a reorganization
plan and subject to the supervision and orders of the Bankruptcy Court. The
operating subsidiaries are currently developing the reorganization plan and
intend to submit the reorganization plans for confirmation prior to the due
date.

At this time, it is not possible to predict the outcome of the Company's Chapter
11 case or the effect on the Company's business. Although management intends
that the subsidiaries will emerge from bankruptcy in a prompt and expeditious
manner, there can be no assurance that a reorganization will be successful or
that the Company will continue to own the stock of the subsidiaries after the
bankruptcy.

BUSINESS STRATEGY

The Company's goal is to deliver compelling value by broadening its
facilities-based footprint and provide a competitive service bundle based on a
cost-efficient facilities-based infrastructure that will be deployed in densely
populated ethnic areas. The Company, through EOT, seeks to capitalize on the
significant growth of Chinese and Russian households in North America, of which
the Company estimates it currently has less than .5% penetration. Market
opportunities in other ethnic segments have been identified including Korean and
Polish households in North America, two ethnic segments the Company has
identified as future market targets. The Company believes it can leverage its
core competency in ethnic marketing to rapidly gain greater market share in our
current ethnic markets, as well as target newly identified segments. The Company
also plans to augment the current bundled service offering by expanding local
service capability and adding wireless voice service in our key markets when the
Company's financial condition permits. These actions should serve to increase
revenue per customer. Finally, EOT has also developed an enhanced and
cost-effective platform to deliver high-bandwidth data and voice services to
small and medium sized businesses. This service offering provides an opportunity
to acquire commercial customers that generate significantly higher monthly
revenue and substantially higher gross margins, versus residential customers,
while diversifying the customer mix. These three strategies (expansion of
current ethnic market share, consistent delivery of enhanced bundled services in
all key markets, and broadband voice/data services to business customers) serve
as the catalyst for growth, although there is no assurance the Company or EOT
will be successful in this regard.

The Company believes that its recent success in acquiring customers for EOT
services validates the value proposition to the customer of our bundled service
offering, as well as our core competency in ethnic marketing and servicing
ethnic customers. Management also believes that its commitment to ethnic or
"in-culture" marketing and customer service is an important differentiating
factor in an increasingly commoditized telecommunications services market.

OUR SERVICES

The following represents current offerings available to both residential and
business customers:

        -       Local telephone


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        -       Long Distance (domestic and international)

        -       Dial-up & Dedicated Internet Service

        -       Dedicated data

As part of Company's strategy to generate more revenue per customer subscribing
to EOT's services, it intends to continue to develop and introduce new billable
services when and if its financial condition improves. The Company plans to
introduce a wireless "bypass" service to EOT's customers in year 2001, provided
EOT successfully reorganizes as a subsidiary of the Company. This product
permits an existing customer that owns a cell phone to make domestic and
international long distance calls. To access this service, the customer dials an
800 number to obtain dial tone, and then dials the destination number to place
their call. By leveraging existing network elements, EOT can provide this
service at very low cost, and offer attractive international rates per minute.
This service enhancement is a logical extension of providing vertical service
offerings to our customers, and represents a more cost effective compromise than
obtaining costly licensing as a wireless services provider.

As important as the offering of new services is the strategy of penetrating
existing markets with our full service offering. To that end, the Company has
plans to penetrate the California market with a local resale product to be
offered by EOT in year 2001, subject to successful reorganization, and to offer
that service to our current LD customers, if the Company's financial condition
permits. While local resale provides thin gross margins (approximately 15% after
customer discount), the product does generate greater monthly revenue per
customer, is more fixed in nature, and generally promotes greater customer
retention (reduced churn). The proliferation of our total service offering in
all our markets is important in strengthening our relationship with our
customers, as well as a way to maintain the strength of our brand. The Company,
through EOT, may also launch local resale in other markets in year 2001,
depending on capital requirements of each market.

EOT is positioned to execute interconnection agreements with ILEC's in the
states we are currently serving, in order to take advantage of higher gross
margins under the Unbundled Network Elements Platform ("UNEP") than currently
available under Total Service Resale ("TSR"), and expects to execute such
agreements in 2001. As this will primarily benefit EOT's small concentration of
existing business customers (relative to the large concentration of residential
customers), this is not expected to have a materially favorable impact on the
Company's consolidated gross margins. If the Company's financial condition
permits funding the carrying cost of a direct sales force, aggressive sales of
local service to business customers is contemplated.

If EOT's and the Company's financial condition improves sufficiently, an
enhanced voice and broadband data solution for business customers may be
launched in year 2001, and this is more fully described in the section dealing
with Network Architecture.

OUR MARKETS

The Company, through EOT, targets particular ethnic markets based on a variety
of characteristics: significant existing size and significantly
higher-than-average annual growth; relatively well-educated and well-paid
population; geographic density; retention of strong ties to country of origin;
underserved by traditional US carriers. Once a market is targeted, EOT creates
an in-language customer service function within our existing multi-lingual
customer service department. This function is staffed with representatives who
speak at least the language of their function and English; many are tri-lingual.
Simultaneously market research and analysis is conducted to assist the designers
in crafting the proper ethnic images and copy for our integrated marketing
campaigns. Through our marketing department, the EOT forges bonds with community
organizations, ethnic journalists and other opinion makers within each target
market to provide the Company with the opportunities to significantly raise
awareness of our brand within each such community. Examples of such efforts
include fundraising for Chinese community retirement homes, aiding newly arrived
Russian immigrants and sponsoring conferences within target communities that aid
those communities. All marketing materials--electronic, print, spoken--are
in-language and culturally sensitive.

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EOT's major focus recently has been on the Chinese and Russian markets. For each
cultural group, the Company has typically run an integrated marketing plan that
includes full-page newspaper ads, full-page magazine ads, direct mail, and
outbound telemarketing. Given the current financial condition of EOT and the
Company, substantially all marketing programs have been suspended until our
financial condition improves.

We believe the Company's understanding of the cultures served promotes more
effective marketing. Our approach is not merely to translate the marketing
message into another language, but to create a new message that will be best
received given the ethnic mentality of our customers. We believe our
"in-culture" approach to marketing sets us apart from many of our competitors.
Additionally, from a cost standpoint, our analysis indicates that Tier 1
carriers such as AT&T, MCI Worldcom and Sprint are less cost efficient in
marketing in the same niches served by EOT. We estimate that the cost per
customer acquired for the Tier 1 competitor's averages $200+, while EOT's cost
averages less than $40 per customer, thus resulting in significantly better
cost/revenue performance as well as accelerated payback. As a result of these
factors, we believe that our marketing approach provides us with a competitive
advantage.

EOT derives most of its telecommunications revenue from customers located in the
United States. We currently offer long distance service to customers in various
states where it is licensed to operate, including New York, New Jersey, New
Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, Pennsylvania,
Delaware, Maryland and Washington DC. We also provide local phone service in New
York and New Jersey on a resale basis from the incumbent local exchange carrier,
and are licensed to provide local service in California.

NETWORK

EOT's network is comprised of state-of-the-art, redundant, carrier-grade
switching and routing equipment installed in New York City. Based on stable
industry standards, this network enables us to provide high-quality
telecommunications services within our marketing footprint delivered with "five
nines" reliability--99.999% uptime. The core of the network is comprised of two
circuit switches located in our central office at 60 Hudson Street in New York
City. Manufactured by DTI--well known for providing service-critical solutions
to industry leaders such as AT&T and many of the Bell operating companies--one
switch manages our long distance traffic, the other our local services.

This network interconnects with some of the leaders in the industry--Global
Crossing, TeleDanmark, Swisscom, Stentor, GTS, Cogent, ACC, UUNet, MFS\Worldcom,
Total-Tel, Telstra, SNET and Verizon as well as Level (3) and others. These
arrangements permit us to least-cost route its traffic around the world over
best-in-class fiber optic and satellite transmission networks. In conjunction
with the Level (3) Corporation and Cogent (a pending service provider), the
Company provides high-speed Internet access services on both a dial-up and
dedicated basis. Level (3) provides the Company with access to its modem pools
via dial-up numbers dedicated to EOT. These modems are programmed to route all
in-bound calls to EOT's Internet infrastructure that is built on Cisco, Bay
Networks (Nortel) and Compaq equipment. Cogent will provide the Internet
backbone for dedicated commercial subscribers on its 100% fiber Internet
backbone network. All of EOT's in-language Internet portals and content
services, as well as our in-language e-mail servers, are hosted on Company-owned
and managed servers.

EOT currently leases its transport capacity from a limited number of suppliers
and is dependent upon the availability of transmission facilities owned by the
suppliers. EOT is vulnerable to the risk of being unable to renew favorable
supplier contracts, and the supplier not timely processing orders for the
Company's customers. The Company is at risk with respect to regulatory
agreements that govern rates charged by the suppliers.

The above describes the current network configuration. The build-out of the
network, however, is an on-going process driven by growing customer demand, the
need to realize economies of scale, and the need to maintain and increase our
network efficiencies by integrating advances in technology as they are made
available and


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proven stable. To this end, EOT is working with Cisco on an advanced wireline
"last mile" solution using a mix of IP over ATM and Frame Relay technologies to
deliver voice, video and high-speed data to commercial and potentially
residential subscribers. In this configuration, we would deploy Cisco equipment
to split and separate the packet voice and data traffic generated by a
commercial user that is transmitted over the same dedicated facility. The voice
traffic will be routed to EOT's switch for termination into the public network
or back to the customer, and the data would be routed to the Internet through
Cogent. Using ATM and Frame technologies Empire intends to provide the Quality
Of Service (QOS) that commercial subscribers demand. Deployment of this
configuration will occur as soon as the Company and EOT's financial condition
permits.

This service is still under development, but nearing finalization for rollout to
potential customers. Once this enhancement of the network is on-line, EOT will
market this service to existing customers, agents, switchless resellers,
multiple-dwelling and multiple-tenant units, and commercial buildings. The
Company expects to obtain a small number of customers through these delivery
channels. In the future, when the financial position of the Company and EOT can
support the carrying cost of an internal sales force, this service can be
aggressively sold through that distribution channel. By building-out these new
"edge" networks in New York City and in the neighborhoods where our target
markets live and work, EOT will provide most of its services over company-owned
networks, keeping as much of the voice and data traffic "on net" as possible
and, thereby, generating higher operating margins than currently realized. Gross
margin on local service could potentially increase significantly from, and this
is an important source of gross margin enhancement needed to offset expected
gradual erosion of margins from the residential customer base, although there is
no assurance that we will be successful in this regard.

COMPETITION

The Company faces, and expects to continue to face, competition in all of its
business lines. Generally, the Company's largest competitors in the long
distance business are the same in both the Russian and Chinese niches. Besides
AT&T and MCI, these companies include Startec, Primus, and Destia (Econophone)
as well as several of the "dial-around" providers (services reached by dialing a
prefix typically starting with 10-10). In addition, we compete with numerous
smaller providers some of which are facilities-based. The Company competes
primarily on the concept of superior service and simplicity, and secondarily
with competitive rates. The Company does not position itself as the "lowest
cost" provider as this type of marketing is viewed as a "race to the bottom" of
the margin curve. Rather, by focusing on the quality of service (customer
service as well as signal quality) the Company is not forced to focus
exclusively on a comparison of our rates versus those of our competitors.

The Company faces significant competition from the Incumbent Local Exchange
Carriers ("ILEC's"), which currently dominate their local telecommunications
markets as a result of their historic monopoly position. The Company has been
providing local voice services (dial tone as well as vertical services such as
voice mail, caller ID, call waiting and 3-way calling) in New York since the
first quarter of 1999 and in New Jersey since the fourth quarter of 1999. In New
York and New Jersey, we compete with Verizon (formerly known as Bell Atlantic).
If we enter the California market as planned, we expect to compete against
Pacific Bell. We currently offer our local customers a savings of 5% (under the
Total Service Resale model, or "TSR") compared to the same services from their
ILEC. In addition, we offer subscribers that take both local and long distance
services free dial-up Internet service as a loss leader. While margins on the
TSR model are relatively small (approximately 14%), the Company views local
service as a customer retention tool, as well as a vehicle to increase total
revenue realized from each customer.

A continuing trend toward consolidation of communications companies, and the
formation of strategic alliances with the industry, as well as the development
of new technologies, could give rise to significant new competitors, which could
put the Company at a competitive disadvantage. Additionally, incumbent carriers
are aggressively seeking to be able to offer long distance service in their
territories, and once enabled (by meeting the test of opening competition), will
be in a position to offer a single source of service to customers. We believe
the incumbent carriers expect to offset losses of market share in their local
markets by attempting to


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capture a large percentage of the long distance market in their market areas,
especially among residential users where their strong regional brand names and
extensive advertising campaigns may be very successful. The Company believes
that while competition will be formidable, our targeted ethnic niches will
continue to be underserved or poorly penetrated by inadequate competitor
marketing programs. We believe that our core competencies in ethnic marketing
and customer service will enable the Company to grow market share. While the
Company does not expect to achieve a significant market share for any of our
services, we do expect to exploit a small share of a significant market
opportunity, although there is no assurance the Company will be successful in
this regard.

MAJOR CUSTOMERS

The Company, through EOT, conducts business with a large base of customers.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the EOT's customer base, and these
customers are predominately U.S. based customers.

PATENTS

We do not possess any patents, and we do not believe that our business is
dependent upon any patents.

REGULATORY ENVIRONMENT

The following summary of regulatory developments and legislation describes the
primary present and proposed federal, state, and local regulations and
legislation that is related to the telecommunications and Internet service
industries that would have a material effect on our business. Existing federal
and state regulations are currently subject to judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which our industries operate. We cannot predict the outcome of these
proceedings or their impact upon the telecommunications and Internet service
industries or upon us.

OVERVIEW

Our telecommunications services are subject to federal, state and local
regulation. The FCC exercises jurisdiction over all facilities and services of
telecommunications common carriers to the extent those facilities are used to
provide, originate, or terminate interstate or international communications.
State regulatory commissions exercise jurisdiction over facilities and services
to the extent those facilities are used to provide, originate or terminate
intrastate communications. In addition, as a result of the passage of the
Telecommunications Act of 1996, state and federal regulators share
responsibility for implementing and enforcing the domestic pro-competitive
policies of the Telecommunications Act. In particular, state regulatory
commissions have substantial oversight over the provision of interconnection and
non-discriminatory network access to established telephone companies. Local
governments often regulate public rights-of-way necessary to install and operate
networks.

FEDERAL REGULATION

We are regulated at the federal level as a non-dominant common carrier subject
to minimal regulation under Title II of the Communications Act of 1934.
Legislation amending the Communications Act provides for comprehensive reform of
the nation's telecommunications laws and is designed to enhance competition in
the local telecommunications marketplace by requiring established telephone
companies to provide us with access and interconnection to their facilities and
open their local markets to competition.

One of our current market advantages is our ability to offer both local and long
distance service, while the largest established telephone companies can only
offer local service in their region. Under the Telecommunications Act, regional
Bell operating companies have the opportunity to provide long distance services
in the same region in which they offer local service if they comply with
market-opening conditions. Established telephone companies are no longer
prohibited from providing specified cable TV services. In addition, the
Telecommunications Act


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eliminates particular restrictions on utility holding companies, thus clearing
the way for them to diversify into telecommunications services.

Before a regional Bell operating company can provide in-region long distance
services, it must obtain FCC approval upon showing that it has entered into
interconnection agreements with competitive local exchange carriers in the
states where it seeks authority, that the interconnection agreements satisfy a
14-point "checklist" of competitive requirements and that such entry is in the
public interest. To date, Verizon has been granted such authority in New York,
and Southwestern Bell has been granted such authority in Texas, Kansas and
Oklahoma. Several additional requests for such authority either have or soon
will be filed. The provision of in-region long distance services by the regional
Bell operating companies could permit them to offer "one-stop shopping" of
bundled local and long distance services, thereby eliminating our current
marketing advantage.

FCC Rules Implementing the Local Competition Provisions of the
Telecommunications Act

The FCC has established a framework of national rules enabling local
competition. Some of those rules have important bearing on our business,
particularly:

Interconnection. Established telephone companies are required to provide
interconnection for telephone exchange or exchange access service, or both, to
any requesting telecommunications carrier at any technically feasible point. The
interconnection must be at least equal in quality to that provided by the
company to itself or subsidiaries, affiliates or any other party to which it
provides interconnection, and must be provided on rates, terms and conditions
that are just, reasonable and nondiscriminatory.

We may obtain agreements with some established telephone companies. These
agreements must be renegotiated periodically. Renewal terms may be less
favorable and could affect our overall costs.

Access to Unbundled Elements. Established telephone companies are required to
lease portions of their networks to requesting telecommunications carriers by
providing them with nondiscriminatory access to network elements on an unbundled
basis at any technically feasible point, on rates, terms, and conditions that
are just, reasonable, and nondiscriminatory. This is important, because it
minimizes the need to make major investments in building out a network. At a
minimum, established telephone companies must provide competitors with access to
various network elements used to originate and terminate telephone calls, call
routing database facilities, and computerized operations support systems.

Collocation. Established telephone companies are required to provide space in
their switching offices so that requesting telecommunications carriers can
physically "collocate" equipment necessary for interconnection or access to
unbundled network elements at the company's premises, except that the
established telephone company may provide off-site "virtual" collocation, if it
demonstrates to the state regulatory commission that physical collocation is not
practical for technical reasons, or because of space limitations.

OTHER REGULATIONS

In general, the FCC has a policy of encouraging new competitors in the
telecommunications industry and preventing anti-competitive practices.
Therefore, the FCC has established different levels of regulation of dominant
carriers, the established telephone companies, and non-dominant carriers,
integrated communications providers and competitive local exchange carriers.

Tariffs. As a non-dominant carrier, we may install and operate facilities for
the transmission of domestic interstate communications without the time and
expense of obtaining prior FCC authorization. Our primary regulation obligations
are to file schedules of rates and terms of service, called tariffs, and make
periodic reports. A filed tariff benefits us because it relieves us from
negotiating contracts with each customer.



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In October 1996, the FCC adopted its de-tariffing order, which eliminated the
requirement that non-dominant interstate carriers like us maintain tariffs on
file with the FCC for domestic interstate services, and provided that, after a
nine-month transition period, relationships between interstate carriers and
their clients would be set by contract, not tariff. Although the effectiveness
of these rules was stayed for more than three years, they were ultimately
upheld. The de-tariffing order is now scheduled to become effective in early
2001, after which time non-dominant interstate services providers will no longer
be able to rely on the simple filing of tariffs with the FCC as a means of
providing notice to clients of prices, terms and conditions under which they
offer their interstate services. If we cancel our FCC tariffs as a result of the
de-tariffing order, we will need to implement replacement contracts with each
customer, which could result in substantial administrative and selling expenses.

International Services. Non-dominant carriers such as us also are required to
obtain FCC authorization pursuant to Section 214 of the Communications Act and
file tariffs before providing international communications services. We have
obtained such authority. The FCC has adopted rules for a multi-year transition
to lower international settlement payments by U.S. common carriers. We believe
that these rules are likely to lead to lower rates for some international
services and increased demand for these services, including capacity on the U.S.
facilities, like ours, that provide these services.

Established Telephone Company Pricing Regulation Reform. The FCC has adopted a
number of proposals to significantly reduce its regulation of established
telephone company pricing which would greatly enhance the ability of established
telephone companies to compete against companies like us, particularly by
targeting price cuts to particular clients, which could have a material adverse
effect on any company's ability to compete based on price. Review of these FCC
decisions is currently pending in Federal Court in the District of Columbia.

Access Charges. The FCC has also made various reforms to the existing rate
structure for charges assessed on long distance carriers for allowing them to
connect to local networks. These changes will reduce access charges and will
shift charges, which had historically been based on minutes-of-use, to flat
rate, monthly per line charges on end-user clients rather than long distance
carriers. As a result, the aggregate amount of access charges paid by long
distance carriers to access providers may decrease.

At the same time, the FCC, noting the proliferation of fixed monthly charges on
the bills of long distance customers, has initiated a public inquiry on the
impact of these charges on consumers.

Moreover, major long distance carriers are attempting to undermine smaller
competitors' ability to set access charges. In October 1998, AT&T initiated a
proceeding in which it sought a declaration from the FCC that AT&T may avoid
competitive local exchange carrier access charges by declining to direct calls
to the clients of those competitive local exchange carriers. In addition, AT&T
and Sprint have sent letters to virtually every competitive local exchange
carrier stating that competitive local exchange carriers access charges for
in-bound long distance calls are unreasonable, and demanding a reduction in
rates to a "competitive" level. If competitive local exchange carriers are
unwilling to comply, AT&T and Sprint threaten to no longer deliver those calls.
The FCC has instituted a proceeding to investigate the issues surrounding
competitive local exchange carriers' access charges, including whether
regulation of competitive local exchange carriers' rates is warranted. If long
distance providers may in fact refuse to purchase competitive telecommunications
providers' switched assess services, or if such services are ultimately
regulated, competitive telecommunications providers may be adversely affected.

Universal Service Reform. Universal telephone service is a long-standing policy
initiative designed to assure that as many people as possible have access to
quality telephone service at affordable rates, particularly in rural and
high-cost areas, as well as providing advanced telecommunications services for
schools, health care providers and libraries. All telecommunications carriers
providing interstate telecommunications services, including us, must contribute
to the universal service support fund.



                                       10
<PAGE>   11

In October 1999, the FCC issued an order changing the way that universal service
contributions are calculated to eliminate revenues from intrastate services from
the calculation. In November 1999, the FCC issued an order revising its rules
for calculating the size of the universal service fund, which shifts more of the
costs of universal service to the federal program. The changes resulting from
these orders are likely to increase the overall burden of the federal universal
service program on carriers providing interstate services, such as long
distance. Various states also are in the process of implementing their own
universal service programs, which also may increase our overall costs.

Slamming. The FCC has adopted rules to govern the process by which end users
choose their carriers. Under their rules, a user may change service providers at
any time, but specific client authentication procedures must be followed. When
they are not, particularly if the change is unauthorized or fraudulent, the
change in service providers is referred to as "slamming." Slamming is such a
significant problem that it was addressed in detail in the Telecommunications
Act and by the FCC in recent orders. The FCC has levied significant fines for
slamming. The risk of financial damage and harm to business reputation from
slamming is significant. Even one slamming complaint could cause extensive
litigation expenses for us. The FCC recently decided to apply its slamming
rules, which originally covered only long distance, to local service.

State Regulation. We believe that most, if not all, states in which we propose
to operate will require a registration, certification or other authorization to
offer intrastate services. Many of the states in which we operate or intend to
operate are in the process of addressing issues relating to the regulation of
competitive local exchange carriers. We will also be subject to tariff filing
requirements. In most states, we are required to file tariffs setting forth the
terms, conditions and prices for services that are classified as intrastate.

We have received, through our operating subsidiaries, certificates of authority
to provide local exchange and/or interexchange telecommunications services in
California, New York, New Jersey, New Hampshire, Vermont, Massachusetts,
Connecticut, Rhode Island, Pennsylvania, Delaware, Maryland and Washington D.C.

In addition to tariff filing requirements, some states also impose reporting,
client service and quality requirements, as well as unbundling and universal
service requirements. In addition, we will be subject to the outcome of generic
proceedings held by state utility commissions to determine new state regulatory
policies. Some states, including some of our target states, have adopted or have
pending proceedings to adopt specific universal service funding obligations.
These state proceedings may result in obligations that are equal to or more
burdensome than the federal universal service obligations.

We believe that, as the degree of intrastate competition increases, the states
will offer the established telephone companies increasing pricing flexibility.
This flexibility may present the established telephone companies with an
opportunity to subsidize services that compete with our services with revenue
generated from non-competitive services, thereby allowing established telephone
companies to offer competitive services at lower prices. This could have a
material adverse effect on our revenue.

We are also subject to requirements in some states to obtain prior approval for,
or notify the state commission of, specified events such as transfers of
control, sales of assets, corporate reorganizations, issuances of stock or debt
instruments and related transactions.

Internet. Our Internet operations are not currently subject to direct regulation
by the FCC or any other telecommunications regulatory agency, although they are
subject to regulations applicable to businesses generally. However, the future
Internet service provider regulatory status continues to be uncertain. In an
April 1998 report, the FCC concluded that while some Internet service providers
should not be treated as telecommunications carriers, some services offered over
the Internet, such as phone-to-phone telephony, may be functionally
indistinguishable from traditional telecommunications service offerings, and
that their non-regulated status may have to be re-examined. Moreover, although
the FCC has decided not to

                                       11
<PAGE>   12

allow local telephone companies to impose per-minute access charges on Internet
service providers, and that decision has been upheld by the reviewing court,
further regulatory and legislative consideration of this issue is likely. The
imposition of access charges would affect our costs of serving dial-up clients
and could have a material adverse effect on our business, financial condition
and results of operations. In addition, Congress and other federal entities have
adopted or are considering other legislative and regulatory proposals that would
further regulate the Internet. Various states have adopted and are considering
Internet-related legislation. Increased U.S. regulation of the Internet may slow
its growth or reduce potential revenue, particularly if other governments follow
suit, which may increase the cost of doing business over the Internet.

EMPLOYEES

As of December 31, 2000, we had 57 employees, of which 2 were part-time. Some of
our employees have entered into employment and other agreements with us. The
Company believes its relations with its employees is good.

HISTORY

THE MERGER OF SONUS COMMUNICATIONS, INC. WITH SONUS PARK ACQUISITION, INC.

In January 1999, Sonus Communications, Inc. entered into merger discussions with
The Park Group, Limited, a dormant public corporation. In anticipation of the
merger, The Park Group, Limited formed Sonus Park Acquisition, Inc., a Virginia
corporation, as a wholly-owned subsidiary of The Park Group, Limited, which
merged with and into Sonus Communications, Inc. on March 4, 1999, leaving Sonus
Communications, Inc. as the surviving corporation and a wholly owned subsidiary
of The Park Group, Limited. The former shareholders of Sonus Communications,
Inc. received approximately 92% of the capital stock of The Park Group, Limited
in the merger.

THE MERGER OF SONUS COMMUNICATION HOLDINGS, INC. WITH THE PARK GROUP, LIMITED.

On April 7, 1999, The Park Group, Limited organized Sonus Communication
Holdings, Inc. as a Delaware corporation and wholly-owned subsidiary of The Park
Group Limited. On April 16, 1999, Sonus Communication Holdings, Inc. merged with
and into The Park Group, Limited, leaving Sonus Communication Holdings, Inc. as
the surviving corporation following the merger. As a consequence of the merger,
Sonus Communications, Inc. became a wholly-owned subsidiary of Sonus
Communication Holdings, Inc. Shares of The Park Group, Limited were exchanged
for shares of Sonus Communication Holdings, Inc. on a one-for-one basis in the
merger. The sole purpose of the merger was to reincorporate in the State of
Delaware.

HISTORY OF THE COMPANY'S PREDECESSOR.

The Park Group, Limited was originally incorporated as American Ventures, Inc.
on January 24, 1986 under the laws of the State of Colorado. American Ventures,
Inc. was formed as a "blind pool," in which investors entrusted management to
apply the offering proceeds to acquire or merge with a suitable operating
company. In August 1986, American Ventures, Inc. closed an initial public
offering of it stock. In February 1987, American Ventures, Inc. acquired The
Park Group, Ltd., a mortgage company, as a wholly owned subsidiary. American
Ventures, Inc. then changed The Park Group, Ltd.'s name to "Park Group Mortgage
Company, Ltd.," and changed its own name to "The Park Group, Ltd." The Park
Group, Limited had been dormant for at least three years prior to the merger
with Sonus Communication Holdings, Inc.

MERGER WITH EMPIRE ONE TELECOMMUNICATIONS

On March 29, 2000, the Company's wholly owned subsidiary merged with Empire One
Telecommunications Inc. The Company exchanged 1,065,857 shares of common stock
plus warrants in exchange for all the outstanding common shares of EOT. The
shares were valued at $3.00 per share. The acquisition was accounted for as a
purchase. The operations of EOT are included with those of the Company
prospectively, effective April 1, 2000. The value of consideration from the
shares exchanged was $3,197,571. Additional costs of the merger included legal
and investment-banking fees paid of


                                       12
<PAGE>   13

$122,174, warrants issued to EOT founders with an estimated fair value of
$507,600, and in-the-money warrants issued to investment bankers with an
estimated fair value of $481,887. The net liabilities assumed in connection with
the EOT merger, which approximated fair value, was $1,228,210. As a result, the
Company recorded $5,537,442 in goodwill related to the merger, which is being
amortized over 15 years.


ITEM 2.  PROPERTY

We lease and maintain our corporate headquarters in 6,500 square feet of office
space located at 55 John St., New York, New York 10038. Previously, the
corporate headquarters was located at 1600 Wilson Blvd., Suite 1008, Arlington,
Virginia 22209, until relocated to the New York location in June 2000. At
December 31, 2000, the Company and its subsidiaries leased or owned
telecommunications equipment located in New York City. As more fully described
in Item 6, the Sonus recorded a fair value adjustment of approximately $570,000
to write-down the value of redundant network equipment. The value of the
equipment we currently own is approximately $479,000.


ITEM 3.  LEGAL PROCEEDINGS

On March 29, 2001, the Board of Directors of Sonus Communication Holdings, Inc.
(the "Company"), acting as the sole stockholder and board of directors of each
of its wholly owned subsidiaries (Empire One Telecommunications Inc., Sonus
Communications Inc., EOT Telecommunications of Canada Inc., and Empire One Power
Inc.), authorized and approved the filing, on behalf of each of its
subsidiaries, of a Petition for Relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Southern District of New York. The
Petitions for Relief were filed on April 2, 2001.

Each of the Company's operating subsidiaries intends to continue to manage and
operate its assets and business pending the confirmation of a reorganization
plan and subject to the supervision and orders of the Bankruptcy Court. The
operating subsidiaries are currently developing the reorganization plan and
intend to submit the reorganization plans for confirmation prior to the due
date. There can be no assurance the plans will be accepted by creditors, and/or
confirmed by the court.

At this time, it is not possible to predict the outcome of the Company's Chapter
11 case or the effect on the Company's business. Although management intends
that the subsidiaries will emerge from bankruptcy in a prompt and expeditious
manner, there can be no assurance that a reorganization will be successful or
that the Company will continue to own the stock of the subsidiaries after the
bankruptcy.

The value of the Company's common stock is highly speculative due to the fact
that the Company's only material asset is the common stock of its wholly owned
subsidiaries. The common stock of the Company's subsidiaries may be cancelled in
bankruptcy, leaving the Company without any material assets. The Company's
common stock may have no value.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

Our common stock is traded over-the-counter and quoted on the OTC Electronic
Bulletin Board maintained by NASDAQ under the symbol "SNHD.OB". Quoting began in
August of 1999. The following table sets forth, for the calendar quarters
indicated, the range of high and low bid prices for the common stock. These
quotations have been obtained from CSI Inc., and reflect the inter-dealer prices
(in dollars),



                                       13
<PAGE>   14

without any retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions. As of March 30, 2001, there were
approximately 275 stockholders of record of the common stock.

<TABLE>
<CAPTION>

                                  High                  Low
                                 -------              -------
<S>                              <C>                 <C>
1999:

Third Quarter                     $3.125              $2.500
Fourth Quarter                     4.375               2.500

2000:

First Quarter                     $6.875              $2.250
Second Quarter                     5.875               1.438
Third Quarter                      1.813                .375
Fourth Quarter                      .469                .063

</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

In conjunction with the acquisition of Empire One Telecommunications, the
Company completed the sale of 1,851,504 shares of common stock at $1.35 per
share. The aggregate offering price was $2.5 million with the Company realizing
$2,246,000 in cash proceeds. The offering was completed in three pieces with the
first closing occurring on November 22, 1999 for 418,140 shares resulting in
gross proceeds of $564,000 and net proceeds to the Company of $502,000, the
second closing occurring on January 5, 2000 for 1,088,939 shares resulting in
gross proceeds of $1,470,000 and net proceeds to the Company of $1,327,000, and
the final closing occurring on January 27, 2000 for 344,425 shares resulting in
gross proceeds of $465,000 and net proceeds to the Company of $417,157. The
difference between gross proceeds and net proceeds reflect expenses of
approximately $11,000 with the remaining difference being the cash portion of
the investment banking fees.

In June 2000, the Company sold (and received proceeds of) $300,000 in
subordinated 8% convertible debentures. In addition, each 8% debenture holder
received one share of common stock for each $1 principal amount of debenture
purchased. The 300,000 shares of common stock have been recorded as common stock
to be issued at September 30, 2000, and were subsequently issued in November
2000. Each debenture, principal and accrued interest, is convertible, at the
holder's option, into one share of the Company's common stock at the Exercise
Price. If the holder elects not to convert, the Company is obligated to redeem
the debenture plus accrued interest at the rate of 8% per annum at the maturity
date, which the earlier of one year from the issue date or upon the completion
of an equity financing of $500,000 or more. If converted at the time of
completion of an equity financing of $500,000 or more, the holder is entitled to
convert the outstanding principal and interest into common shares based on the
price of the common stock sold in the equity financing. If converted at the time
of maturity, the holder is entitled to convert the outstanding principal and
interest into common shares based on a per share price of $1.35.

As of March 31, 2001, holders of $110,000 in original principal amount of these
debentures have elected to convert their debentures into common stock, leaving a
total of $190,000 in original principal amount of these debentures outstanding,
plus approximately $2,310 in accrued but unpaid interest. The debentures contain
a provision stating that if the Company or any of its subsidiaries commence any
proceeding or other action relating to it in bankruptcy, such as the proceedings
filed by each of the Company's subsidiaries on April 2, 2001, then the
debentures are in default and the holder(s) of the outstanding debentures may,
by written notice, declare the outstanding principal, plus accrued but unpaid
interest thereon, to be immediately due and payable. Although the 8% debentures
are presently in default, as of April 15, 2001, no holder has provided any such
written notice.

In September 2000, the Company completed its latest unit offering. The Company
was seeking to provide net proceeds of $2.7 million after banking, legal and
accounting fees. The offering was for 5,000,000 units, with each unit consisting
of two shares of the Company's common stock and one common stock purchase
warrant, with an


                                       14
<PAGE>   15

exercise price of $.60. The purchase price per Unit was $.60. The offering was
completed in various installments between July 1 and September 30, 2000, and the
total gross proceeds received were $1,263,898. After legal and investment
banking fees paid of $78,393, net proceeds were $1,185,505. Additionally,
warrants were issued as consideration for placement fees, and the fair value of
these warrants was $23,285.

On January 2, 2001, the Company sold $80,000 in original principal amount of its
15% Secured Subordinated Convertible Debentures, convertible into common stock
at $.05 per share, to Quadrant Management Inc. The 15% debentures were
guaranteed by Empire One Telecommunications, and secured by all of the accounts
(now and after acquired) of the Company and Empire One Telecommunications. The
15% debentures became due on April 2, 2001 and are currently in default. The
Company has not paid either principal or interest on the 15% debentures, and
owes approximately $82,893 of principal and accrued interest on the 15%
debentures as of March 31, 2001. As part of the 15% debenture purchase, the
Company also issued Quadrant Management Inc. a warrant to purchase up to
1,000,000 shares of common stock at $.02 per share. The warrant contained
"piggy-back" registration rights covering the shares underlying the warrant.

We relied on Section 4(2) of the Act, and on Rule 506 of Regulation D
promulgated thereunder, in issuing the shares in the above mentioned offerings
without registering the offering under the Act. We relied upon representations
and warranties of the investors contained in the subscription agreements entered
into with the private placement investors, to the effect that such investors
were accredited investors and on investor questionnaires completed by such
investors.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion of the financial condition and results of operations of
our company should be read in conjunction with the financial statements and the
notes to those statements and the other financial information included elsewhere
in this Form 10-KSB. The Private Securities Litigation Reform Act provides a
"safe harbor" for forward-looking statements. Certain statements included in
this Form 10-KSB are forward-looking and are based on the Company's current
expectations and are subject to a number of risks and uncertainties that could
cause actual results to differ materially from results expressed or implied in
any forward-looking statements made by, or on behalf of, the Company. The
Company assumes no obligation to update any forward-looking statements contained
herein or that may be made from time to time by, or on behalf of, the Company.

OVERVIEW

On April 2, 2001, each of the Company's wholly owned subsidiaries (Empire One
Telecommunications Inc., Sonus Communications Inc., EOT Telecommunications of
Canada Inc., and Empire One Power Inc.), filed a Petition for Relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York. The Company has no material tangible assets other
than the issued and outstanding stock of each of its subsidiaries. The Company's
subsidiaries continue to operate their respective businesses as debtors in
possession under the Bankruptcy. The value of the Company's common stock is
highly speculative due to the fact that the Company's only material asset is the
stock of its wholly owned subsidiaries, each of which has filed for bankruptcy
under Chapter 11. The common stock of the Company may have no value.

Empire One Telecommunications is attempting to reorganize its business under
Chapter 11, and intends to continue to be a full service, facilities-based
retail telecommunications provider combining local and long distance voice
services and dial-up and dedicated Internet access services in a single point of
contact for sales and service to both businesses and consumers in targeted
ethnic niches throughout the United States, provided it successfully
reorganizes. The Company can provide no assurance that EOT will continue as a
wholly owned subsidiary, or that the Company will continue to own any interest
in EOT, following the bankruptcy.

Through our wholly owned operating subsidiary, Empire One Telecommunications, we
currently offer a diverse and range of integrated communication services,
including

                                       15
<PAGE>   16

standard voice telecommunications (local and long distance), dial-up
and dedicated Internet access and specialized data services (for commercial
users). In addition, the Company maintains Web portals in Chinese, Russian and
English. All of the Company's marketing, sales, and customer services are
provided in the languages of the target markets. Currently, the Company's
Customer Service Representatives ("CSRs") speak Cantonese, Mandarin, Russian and
Spanish as well as English.

The Company merged with Empire One Telecommunications on March 29, 2000. Prior
to the acquisition of EOT, the Company operated its business through Sonus
Communications Inc., another wholly owned subsidiary. Sonus was a wholesale
provider of low-cost, high-quality international telephone and Internet
services. The company offered Internet connectivity, voice, facsimile, Internet,
and e-commerce services to US and foreign telephone and Internet Service
Providers. The strategy underlying this business model was to establish routes
into underserved geographic markets such as countries that were formerly part of
the Soviet Union (e.g. Republic of Georgia) and developing countries in Asia,
the Pacific Rim and the Caribbean. This strategy involved establishing a
relationship with a local organization in the destination country that would own
all necessary equipment in that country as well as establish any necessary
working relationships with the local phone company or other companies.
Substantial operating losses were incurred under this model due to several
factors, including existence of several agreements with foreign service
providers in politically unstable countries, and at unfavorable terms,
significant price erosion in wholesale pricing structure, lack of broad customer
acceptance for the Voice Over IP technology, and inability to launch the sales
effort needed to attain a critical mass of customers. Subsequent to the merger
with EOT, the Company de-emphasized the Sonus wholesale business platform in
favor of EOT's facilities based retail business platform, and as of December 31,
2000, Sonus was inactive.

As a result of the change in business model during 2000, comparisons of results
to 1999 are not necessarily meaningful. Also, as the merger of EOT, which
occurred on March 29, 2000, was accounted for as a purchase, results of
operations of EOT are included prospectively from April 1, 2000. Thus, 2000
results reflect results of operations of Sonus for 12 months and EOT for 9
months, while 1999 reflects results of operations for Sonus only.

Since we began offering local and long distance telecommunications services, we
have incurred net operating losses and expect to incur additional losses for the
foreseeable future, primarily as a result of increased sales and marketing
efforts. As of December 31, 2000, the Company had consolidated accumulated net
losses of approximately $9,198,000.

FACTORS AFFECTING RESULTS OF OPERATIONS - 2000

REVENUES

The Company (Sonus Communications Holdings, Inc.) has no revenue generating
operations, and all revenue-generating operations are conducted through its
subsidiaries, of which only EOT remains currently active. As all of the
operating subsidiaries are under Chapter 11, as discussed in Item 3, the
subsidiaries may not distribute revenue or other funds to the Company while
under Chapter 11.

Through EOT, we generate revenue from the following categories of service:

-    local calling services, which consist of monthly recurring charges for
     basic service, usage charges for local calls and service charges for
     features such as call waiting and call forwarding;

-    long distance services, which include a full range of retail long distance
     services, including traditional switched and dedicated long distance,
     800/888 calling, international, calling card and operator services;

-    other data services, which consist primarily of monthly recurring charges
     for connections from the end-user to our facilities;

-    wholesale revenue from other carriers in connection with leasing portions
     of, or placing traffic through, our network.


                                       16
<PAGE>   17


The market for local and long distance services is well established and we
expect to achieve revenue growth principally from taking market share away from
other service providers. The market for local, long distance voice and data
services is intensely competitive. While many of our competitors enjoy
advantages over us, we are pursuing significant market niches that, we believe,
are currently underserved, and where we have demonstrated competencies in
marketing and customer service. See "Our Markets." While we anticipate that
competitive pressures will drive pricing for communications services lower, we
expect our aggregate revenue to grow as we are able to grow our customer base.

We price our services competitively in relation to those of the established
telephone companies. We market superior service and simplicity as well as highly
competitive rates. Although pricing will be an important part of our strategy,
we believe that direct relationships with our clients and consistent, high
quality service and client support will be essential to generating customer
loyalty.

Our customer base is predominately comprised of residential customers. At
December 31, 2000 we had 30,149 customers, of which 28,563 were residential
customers, and 1,586 were small business customers.

DIRECT OPERATING EXPENSES

Our direct operating expenses are comprised of costs to deliver communications
services, and include:

- costs to maintain the switch and other network elements;

- costs for domestic origination and termination;

- transport costs in routing international traffic for completion overseas;

- cost of lease internet facilities for our internet services;

- cost of providing local exchange services, currently on a total resale basis.

We currently utilize the network of one major vendor (Global Crossing, Inc.) for
all of our domestic origination and termination. Global Crossing passes all
internationally terminating traffic to our long distance switch. We then route
traffic to several international terminating carriers for completion overseas
based upon the lowest cost structure and the best quality for particular areas
of the world.

GENERAL AND ADMINISTRATIVE

Our selling, general and administrative expenses include costs associated with
sales and marketing, customer service, billing, corporate administration and
personnel. We will incur significant selling and marketing costs if we continue
to expand our operations. We may offer sales promotions to win customers,
especially during the next several years as we continue to establish our market
presence.

Because our business strategy stresses the importance of personalized customer
care, we expect our customer department to become a significant part of our
ongoing administrative expenses. We also expect billing costs to increase as our
number of clients and call volume increase. Bill processing costs are also
expected to be a significant part of our ongoing administrative expenses.

We will incur other costs and expenses, administrative overhead, office lease
expense and bad debt expense. We expect that these costs and expenses will grow
as we expand our operations. However, we expect these costs and expenses to
become a smaller percentage of our revenue as we build our customer base.

IMPAIRMENT CHARGES

A non-recurring charge to write down, to fair value, redundant network elements
from the decommissioned Sonus business was recorded in the fourth quarter of
2000 of approximately $573,000. Also, a non-recurring charge to write down, to
fair value, goodwill was recorded in the fourth quarter of 2000 of approximately
$1,745,000.



                                       17
<PAGE>   18



GOODWILL AMORTIZATION

Goodwill amortization relates to the goodwill recorded coincident with the
merger with EOT. Goodwill is amortized over 15 years.

INTEREST INCOME (EXPENSE)

Interest income is comprised of finance charge income received from customer
accounts. Interest expense includes interest expense paid/accrued on capitalized
lease obligations and convertible debentures, and also includes non-cash
expenses from amortization of debt discounts.

RESULTS OF OPERATIONS - 2000 COMPARED TO 1999

REVENUE

Revenue of approximately $7,199,000 was realized in 2000, versus $1,704,000 in
1999. Revenue in 2000 included approximately $6,602,000 of revenue realized from
EOT for the 9-month period April 1, 2000 through December 31, 2000, and $597,000
from Sonus for the full year, while revenue in 1999 was entirely realized from
Sonus. As noted earlier, the Sonus network was eventually decommissioned, which
accounts for the 65% decline in Sonus 2000 revenue versus 1999.

EOT revenue grew dramatically in 2000, owing to implementation of certain
targeted marketing campaigns, particularly the new entry into the Russian
market, which generated significant growth in customers. Customers at December
31, 2000 totaled 30,149 versus 14,938 at March 31, 2000, representing a 102%
increase in 9 months.

The 2000 consolidated revenue of $7,199,000 was comprised of EOT long distance
revenue of approximately $5,053,000, EOT local and other revenue of $1,528,000,
EOT wholesale revenue of $21,000 and Sonus wholesale revenue of $597,000.

DIRECT OPERATING EXPENSES

Direct operating expenses of approximately $5,611,000 were incurred in 2000,
versus $1,952,000 in 1999. Direct operating expenses in 2000 included
approximately $4,426,000 of expenses from EOT for the 9 month period April 1,
2000 through December 31, 2000, and $1,185,000 from Sonus for the full year,
while direct operating expenses in 1999 were entirely incurred in Sonus.

Gross margin for EOT for the 9-month period April 1, 2000 through December 31,
2000 was approximately 33%. Gross margin for Sonus for the 12-month period
ending December 31, 2000 was (67)%, and reflects the costs of rationalizing the
network, which ultimately was decommissioned by December 31, 2000.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")

SG&A expenses of approximately $5,693,000 were incurred in 2000, versus
$1,237,000 in 1999. SG&A expenses in 2000 included approximately $4,478,000 of
expenses from EOT for the 9-month period April 1, 2000, and $1,215,000 from
Sonus for the full year, while SG&A expenses in 1999 were entirely incurred in
Sonus.

SG&A expenses for EOT for the 9 month period April 1, 2000 through December 31,
2000 of $4,478,000 (67% of EOT revenue) was comprised of $1,564,000 personnel
costs (24% of EOT revenue), $1,086,000 marketing expenses (16% of EOT revenue),
$328,000 bad debt expense (5% of EOT revenue), $224,000 billing and collection
expense (3% of EOT revenue), and other corporate and administrative costs of
$1,276,000 (19% of EOT revenue).

SG&A expenses for the 12-month period ending December 31, 2000 of approximately
$1,215,000 were incurred in Sonus, and were comprised of $361,000 personnel
costs, $197,000 bad debt costs (which included $185,000 provision against
uncollectible installment sale receivable of $185,000), and $654,000 of
consulting, investor relations and other corporate and administrative costs. By
the end of December 2000, much of the cost structure of Sonus has been
rationalized, and minimal ongoing costs are expected to be incurred in the
future.




                                       18
<PAGE>   19

ASSET IMPAIRMENT CHARGE

Certain redundant network equipment installed by Sonus to support their business
model has been decommissioned and idled, and no alternative uses for the
equipment have been determined, nor are any contemplated. Accordingly, a charge
of approximately $573,000 was recorded to write down these assets to fair value
as of December 31, 2000.

GOODWILL IMPAIRMENT CHARGE

During the fourth quarter ended December 31, 2000, the Company performed an
 impairment assessment of the enterprise level goodwill recorded upon the
 acquisition for stock of EOT, which the Company completed on March 29, 2000.
The Company's assessment was performed primarily due to the inability of EOT to
achieve positive cash flow, the uncertainty of obtaining needed financing, the
subsequent filing for bankruptcy protection, the volatility in the
communications industry, and the significant decline in the Company's stock
price since the date the shares issued in the acquisition were valued. Goodwill
significantly exceeded its market capitalization prior to the impairment charge.
As a result of the review, the Company recorded approximately $1,745,000 as an
impairment charge to reduce its enterprise level goodwill. The charge was
determined based upon the market capitalization of the Company as of December
31, 2000. The remaining goodwill of approximately $3,515,000 will be amortized
over the remaining useful life of approximately 15 years, which the Company
considers appropriate. Given the circumstances noted above, it is at least
reasonably possible that the Company's estimate of the recoverability of
goodwill will change in the near term.

GOODWILL AMORTIZATION

Amortization of goodwill, recognized coincident with the merger of EOT on March
29, 2000 was approximately $277,000 for the 9 month period April 1, 2000 through
December 31, 2000. Goodwill is amortized over an estimated life of 15 years.

INTEREST INCOME (EXPENSE), AND OTHER EXPENSE

Net interest expense of approximately $254,000 was incurred in 2000, versus
$5,000 in 1999. Net interest expense in 2000 included approximately $198,000 of
expenses from EOT for the 9 month period April 1, 2000, through December 31,
2000, and $56,000 from Sonus for the full year.

Net interest expense for EOT for the 9 month period April 1, 2000 through
December 31, 2000 was comprised of interest expense paid or accrued on
capitalized lease obligations and convertible debentures of approximately
$110,000, and amortization of discounts on convertible debentures of $120,000,
offset by finance charge income from customer accounts of $32,000. Net interest
expense for Sonus for the 12 months ended December 31, 2000 of approximately
$56,000 was comprised of interest paid or accrued on capitalized lease
obligations, and these lease obligations were generally executed at the end of
1999 and beginning of 2000.

Other expense of approximately $45,000 in 2000 is comprised of a settlement by
Sonus of a disputed obligation with ATC Teleports regarding a cancelled service
agreement. This settlement was reached in December 2000.

NET LOSS

Net loss applicable to common shareholders for the year ended December 31, 2000
was approximately $6,999,000 or $.80 per common share, compared to $1,751,000 or
$.44 per common share for 1999. Net loss attributable to EOT for the 9-month
period April 1, 2000 through December 31, 2000 was approximately $2,500,000,
while the loss attributable to Sonus for the 12-month period ending December 31,
2000 was $2,476,000, and the loss applicable to Sonus Communications Holdings
(comprised of goodwill amortization) was $2,023,000. Net loss applicable to
common shareholders for the year ended December 31, 1999 was approximately
$1,751,000 or $.44 per common share, and substantially incurred by Sonus.



                                       19
<PAGE>   20



LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

As noted earlier, the Company has no revenue generating operations outside of
its wholly owned subsidiaries, and as the subsidiaries are currently under
Chapter 11 and unable to transfer funds to the Company, the Company is
completely dependent on its ability to raise outside financing to fund its
operating costs. The Company intends to seek financing, coincident with the
subsidiaries attempts to obtain DIP financing, to fund its operating costs,
however there is no assurance that the Company or its subsidiaries will be
successful in this regard.

At December 31, 2000 we had approximately $33,000 in cash and cash equivalents,
and negative working capital of approximately $3,178,000. As noted earlier, the
Company placed its operating subsidiaries in Chapter 11 on April 2, 2001.
Efforts to obtain the financing needed to resolve the working capital shortfall
have failed, and led to the decision to seek relief under Chapter 11.

CASH FLOWS

We have incurred significant operating and net losses since the inception of EOT
and Sonus. We expect to continue to experience operating losses and negative
EBITDA until we build our customer base to critical mass, rationalize the
expense structure of the Company, and reengineer the balance sheet under Chapter
11. We cannot provide any assurance that we will be successful in doing so. As
of December 31, 2000, we had an accumulated deficit of approximately $9,198,000.

Net cash used in operating activities was approximately $2,590,000 and
$1,323,000 for the years ended December 31, 2000 and 1999, respectively. Net
cash used for operating activities for the year ended December 31, 2000 was
primarily due to net losses and an increase in accounts receivable due to
substantial growth in customers and billed revenue. Net cash used for operating
activities for the year ended December 31, 1999 was due primarily to net loss.

Net cash provided by financing activities was approximately $2,753,000 and
$2,105,000 for the years ended December 31, 2000 and 1999, respectively. Net
cash provided by financing activities for the year ended December 31, 2000 was
related to approximately $2,795,000 of net proceeds from private placements of
common stock, and $300,000 issuance of convertible debentures, offset by
$342,000 debt service and reductions of other liabilities. Net cash provided by
financing activities for the year ended December 31, 1999 was related to
approximately $2,230,000 of net proceeds from private placements of common
stock, offset by $125,000 of debt service and reductions of other liabilities

Net cash used in investing activities was approximately $365,000 and $548,000
for the years ended December 31, 2000 and 1999, respectively, and related
primarily to purchases of equipment and expenditures for security deposits for
equipment and facilities vendors.

As noted earlier, the Company has placed its operating subsidiaries into Chapter
11. A restructuring plan is being developed that will be submitted to the Court
within the prescribed time period. To restructure and expand our business, we
will need a significant amount of cash for working capital and growth purposes,
as well as restructure the balance sheet. The actual amount and timing of our
future capital requirements may differ materially from our estimates as a result
of the demand for our services and regulatory, technological and competitive
developments, including additional market developments and new opportunities in
the industry and other factors. We may require additional financing, or require
financing sooner than anticipated, if our development plans or projections
change or prove to be inaccurate. We may also require additional financing in
order to take advantage of unanticipated opportunities, to effect acquisitions
of businesses, to develop new services or to otherwise respond to changing
business conditions or unanticipated competitive pressures. Sources of
additional financing may include commercial bank borrowings, vendor financing,
asset based financing, or the private or public sale of equity or debt
securities. Our ability to obtain additional financing is uncertain.


                                       20
<PAGE>   21


ITEM 7.  FINANCIAL STATEMENTS

SEE "CONSOLIDATED FINANCIAL STATEMENTS" ON PAGES F-3 THROUGH F-18 OF THIS ANNUAL
REPORT ON FORM 10-KSB, INCORPORATED HEREIN BY REFERENCE.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On August 14, 2000, the Company dismissed Lazar Levine & Felix LLP ("Lazar") as
its independent auditing firm. The audit reports of Lazar on the consolidated
financial statements of the Company for each of the past two years ended
December 31, 1999 and December 31, 1998 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. The decision to dismiss the independent
auditing firm has been approved and ratified by the Board of Directors.


During the two fiscal years ended December 31, 1999, and the subsequent interim
period through August 14, 2000, there were no disagreements with Lazar on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which, if not resolved to Lazar's satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with its reports on the consolidated financial
statements for such years and the subsequent interim period through August 14,
2000.


Lazar furnished the Company with a letter addressed to the Securities and
Exchange Commission (the "Commission") stating that it agreed with the
statements above. A copy of such letter was filed by the Company with the
Commission as Exhibit 16 to a Current Report on Form 8-K/A filed August 14,
2000.

The Company engaged M.R. Weiser & Co. LLP ("M.R. Weiser"), as our new
independent accountants as of September 19, 2000.


                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information concerning our executive officers and
other key personnel, including their ages, as of December 31, 2000.

<TABLE>
<CAPTION>

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

<S>                   <C>          <C>
Dan Gomez  (1)          43          Chairman
Sherry Shen             36          Chief Executive Officer, Director
John Friedman  (1)      36          President, Chief Operating Officer, Director
Frank C. Szabo (2)      48          Executive Vice President and Chief Financial
                                      Officer
Paul Butler             39          Executive Vice President Carrier Services
Bradley Lewis  (1)      33          Executive Vice President Retail Services
Todd Sunko              34          Vice President Operations
Michael Lakshin         38          Vice President Ethnic Sales and Marketing
Alan G. Quasha          50          Director
John Theodoracopulos    35          Director
</TABLE>

        (1)     Resigned position with the Company in February 2001.

        (2)     Appointed Acting Chief Operating Officer in February 2001,
                appointed as Corporate Secretary in March 2001, and elected as a
                Director in March 2001.

Each director is elected to hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualified. Each
officer serves at the discretion of the Board of Directors, subject to any
applicable employment agreements.


                                       21
<PAGE>   22


Dan Gomez, Chairman, joined the Board in April 2000. Prior to joining the Board,
he served as Chief Executive Officer of Howard W. Sams, a Bell Atlantic company
for 1 year. Prior to Bell Atlantic, he was President of Bell Atlantic Directory
Graphics for 6 years. Prior to that, he was the Executive Director of Business
Development for Bell Atlantic for 1 year. Prior to that, he was Manager of
Strategic Analysis and then Group Controller for Textron, a diversified
manufacturer and service provider for 4 years. Prior to that, he served GTE
Telenet Communications Corporation in several capacities including
Director--Business Development, Director--Quality Management Systems,
Manager--Marketing Financial Analysis and Manager-Budgets & Forecast for 8
years.

Sherry Shen, Chief Executive Officer and Director. Ms. Shen joined the Company
as CEO on December 21, 2000. Prior to joining the Company, she was, and
currently remains employed by Quadrant Management Inc., a private investment
company, as Portfolio Manager, and has served in the capacity for 1 year. Prior
to Quadrant, Ms. Shen was Senior Vice President and Chief Lending Officer of
Grand Pacific Finance Corp. for 7 years. Prior to this, Ms. Shen served as
Manager of Special Lending with Grand Pacific for 3 years, then was promoted to
Chief Lending Officer. Prior to joining Grand Pacific, Ms. Shen worked for
C.Itoh Co. as Market Planner and Project Manager.

John Friedman, President and Chief Operating Officer, was a co-founder of EOT,
and has worked in the telecommunications industry for 18 years. Prior to
co-founding EOT, he pursued his law degree with a concentration in
telecommunications. He received a JD degree from Yeshiva University/Benjamin N.
Cardozo School of Law in 1994. Prior to enrolling in law school, he was employed
by Century Communications, a large multiple systems cable television operator
where he became one of two people responsible for that company's office
automation and automated billing systems, for 3 years. Prior to that, he served
the Assembly Office of Management and Budget as data communications analyst for
the Assembly's state-wide voice and data network for 1 year. Prior to that, Mr.
Friedman served the Office of the Majority Leader in the New York State Assembly
where he worked on numerous data communication and networking projects for 2
years. Prior to that, he worked as a cable television plant installer for 4
years. Mr. Friedman is a Senior Affiliated Research Fellow with the Columbia
Institute for Tele-Information at the Graduate School of Business at Columbia
University. He serves on the Telecommunications Law Committee of the Association
of the Bar of the City of New York. Mr. Friedman also serves as the secretary
and treasurer of the board of directors of the Targeted Accessibility Fund of
New York, which oversees that state's implementation of the universal telephone
service program.

Frank C. Szabo, Chief Financial Officer, joined the Company in October 2000, and
has worked in the telecommunications industry for 4 years. Immediately prior to
joining the Company, he was Vice President and Controller for Mpower
Communications, a nation-wide communications company. Prior to Mpower, he was
Vice President and Controller of ACC Corp., a multinational communications
company and a division of AT&T local services. Prior to ACC, Mr. Szabo spent 17
years in banking as Vice President and Controller of First Federal Savings and
Loan, a regional financial institution based in Rochester NY.

Paul Butler, Executive Vice President Carrier Services, is a co-founder of EOT,
and has worked in the telecommunications industry for 10 years. Immediately
prior to co-founding EOT in late 1995, he was a Sales Representative at U.S.
Fibercom for 4 years. Prior to that, he was Senior Account Executive for
Metromedia Communications for 2 years.

Bradley Lewis, Executive Vice President Retail Services, is a co-founder of EOT,
and has worked in the telecommunications industry for 6 years. Immediately prior
to co-founding EOT in late 1995, he was an Account Executive and Knight Ridder
Financial, and prior to that, an Account Executive at Federal Express. Prior to
his experience at Federal Express, he was a Sales Representative at Metromedia
Communications for 2 years.

Todd Sunko, Vice President Operations, joined the Company in 1997. Prior to
joining EOT, he served in various financial and operations capacities with a
number of companies, primarily in the artistic production industry.



                                       22
<PAGE>   23

Michael Lakshin, Vice of President Ethnic Sales and Marketing joined the Company
in June 2000. Prior to joining the Company, Mr. Lakshin was Vice President of
Business Development for Spinnet Inc. for 2 years. Prior to that, he served as
Chief Operating Officer and Vice President of Marketing for 9NetAvenue, Inc.
Prior to that, Mr. Lakshin spent 8 years with a number of service-based
companies located in the U.S., Italy and Russia, serving in managerial marketing
roles.

Alan G. Quasha, Director, is President of Quadrant Management Inc. Quadrant is a
diversified, private investment company that invests in, and manages, several
companies, primarily in the technology and services sector. Previous to his
tenure at Quadrant, Mr. Quasha served on the Board of Governors of the American
Stock Exchange for 3 years.

John H. Theodoracopulos, Director, joined Sonus Communication Holdings, Inc. in
April, 1999. Since 1989, Mr. Theodoracopulos has worked for National Shipping &
Trading Corp., a tanker and bulk carrier operator. Based in New York, New York,
he oversees the fleet's worldwide commercial operations. He also advises their
overseas affiliates on investments in real estate, tourism and agriculture.


ITEM 10. EXECUTIVE COMPENSATION.

CASH COMPENSATION OF EXECUTIVE OFFICERS

The following table shows, for the fiscal years ended December 31, 2000, and
1999 (the periods the Company has been in existence), the cash compensation paid
by us, as well as certain other compensation paid or accrued for such year, for
our chief executive officer and other most highly compensated executive officers
other than the chief executive officer, employed by us as of December 31, 2000.

<TABLE>
<CAPTION>

                                                                            Annual Compensation

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

                                                                                            Securities                Other
                                                                                            Underlying                Annual
      Name and Principal Position          Fiscal Year        Salary         Bonus       Options/Warrants          Compensation
-------------------------------------     ------------      ----------    -----------    ----------------      ------------------

<S>                                           <C>           <C>           <C>            <C>                   <C>
Sherry Shen, Chief Executive                  2000              -               -                -
  Officer  (1)                                1999              -               -                -

John Friedman, President and Chief            2000            $86,250           -              150,000
  Operating Officer  (2)                      1999              -               -                -

Frank C. Szabo, Executive Vice President      2000            $37,500           -              200,000
  And Chief Financial Officer  (3)            1999              -               -                -

W. Todd Coffin, Chief                         2000              -               -                -                   $50,000
  Executive officer  (4)                      1999              -             $37,500            -                   $80,000

</TABLE>


        (1)     Ms. Shen was elected as Chief Executive Officer on December 21,
                2000, and received no compensation in 2000 for her service as
                CEO.

        (2)     Salary reflected represents compensation received from March 29,
                2000 pursuant to employment agreement negotiated coincident with
                merger with EOT. Mr. Friedman resigned his position as President
                and Chief Operating Officer effective February 15, 2001. He
                served effectively as acting Chief Executive Officer from June
                2000 until December 21, 2000.

        (3)     Reflects compensation received from October 1, 2000, the date
                Mr. Szabo joined the Company, through December 31, 2000. In
                February 2001, Mr. Szabo was appointed Acting Chief Operating
                Officer.

        (4)     Mr. Coffin served as Chief Executive Officer of the Company from
                April, 1999 through June 2000, at which time he resigned. Mr.
                Coffin received his compensation through a consulting agreement.

OPTION AND WARRANT GRANTS IN LAST FISCAL YEAR



                                       23
<PAGE>   24

The following table presents information relating to option and warrant grants
made during 2000 to our named Executive Officers.


<TABLE>
<CAPTION>
                                                              Individual Grants
                         --------------------------------------------------------------------------------------------
                            Number of Shares      Percentage of Options
                           Underlying Options      Granted to Employees        Exercise or Base
           Name                 Granted             in Fiscal Year (1)          Price Per Share     Expiration Date
-----------------------  ----------------------   -----------------------     ------------------   ------------------
<S>                      <C>                      <C>                         <C>                  <C>
Sherry Shen                        -                      -                         -                        -

John Friedman                    150,000 (2)             19.48%                      $3.00                3/29/07

Frank C. Szabo                   200,000                 25.97%                      $ .47               10/03/10

W. Todd Coffin                     -                      -                          -                       -

</TABLE>


(1)    Percentages calculated based on aggregate of 220,000 employee stock
       options granted and 550,000 warrants issued to employees.

(2)    Represents common stock purchase warrants issued in connection with EOT
       acquisition, none of which are vested and presently exercisable as of
       December 31, 2000.

EMPLOYMENT AGREEMENTS

The Company entered into a three-year employment agreement with John Friedman on
March 29, 2000. The agreement provides that he will serve as Chief Operating
Officer for Sonus Communication Holdings, Inc. The agreement provides for an
annual salary of $115,000, and certain other benefits. The agreement also grants
warrants to purchase 150,000 shares of common stock at an exercise price of
$3.00. Such warrants vest in three years from grant date, and the warrants
expire seven years from issue date. Mr. Friedman resigned his positions with the
Company on February 15, 2001. In connection with his resignation, the Company
and Mr. Friedman agreed to a modification of terms under his employment
agreement. This modified agreement provided Mr. Friedman with three months
severance, accrued vacation pay and certain additional benefits.

The Company entered into a three-year employment agreement with Paul Butler on
March 29, 2000. The agreement provides that he will serve as Senior Vice
President Carrier Services for Sonus Communication Holdings, Inc. The agreement
provides for an annual salary of $115,000, and certain other benefits. The
agreement also grants warrants to purchase 150,000 shares of common stock at an
exercise price of $3.00. Such warrants vest in three years from grant date, and
the warrants expire seven years from issue date.

The Company entered into a three-year employment agreement with Bradley Lewis on
March 29, 2000. The agreement provides that he will serve as Senior Vice
President Retail Services for Sonus Communication Holdings, Inc. The agreement
provides for an annual salary of $115,000, and certain other benefits. The
agreement also grants warrants to purchase 150,000 shares of common stock at an
exercise price of $3.00. Such warrants vest in three years from grant date, and
the warrants expire seven years from issue date. Mr. Lewis resigned his position
with the Company on January 26, 2001. In connection with his resignation, the
Company and Mr. Bradley agreed to a modification of terms under his employment
agreement. This modified agreement provided Mr. Lewis with two months severance
and certain additional benefits.

The Company entered into a three-year employment agreement with Michael Lakshin
on June 15, 2000. The agreement provides that he will serve as Vice President of
Ethnic Sales and Marketing for Sonus Communication Holdings, Inc. The agreement
provides for an annual salary of $110,000, bonus plan based on customers
acquired, and certain other benefits. The agreement also grants options to
purchase 20,000 shares of common stock at an exercise price of $3.00. Such
options vest in three years from grant date, and the options expire seven years
from issue date.

The Company entered into a three-year employment agreement with Frank C. Szabo
on October 1, 2000. The agreement provides that he will serve as Chief Financial
Officer for Sonus Communication Holdings, Inc. The agreement provides for an
annual


                                       24
<PAGE>   25

salary of $150,000, minimum and performance based bonus, and certain other
benefits. The agreement also grants options to purchase 200,000 shares of common
stock at an exercise price of $.47. Such options vest in three years from grant
date, and the options expire ten years from issue date.

DIRECTORS' COMPENSATION

The directors do not receive any fees for their services in such capacity.
However, each Director is reimbursed for all reasonable and necessary costs and
expenses incurred as a result of being a Director.

On June 10, 1999, we adopted the 1999 Director Stock Incentive Plan, which was
approved by a majority of the stockholders on July 12, 1999. Under the terms of
the 1999 Director Stock Incentive Plan, which expires on June 10, 2009, our
non-employee directors may be granted non-statutory stock options at an exercise
price equal to 100% of the fair market value on the date of grant. No option
will be exercisable more than ten years from the date of grant. We have reserved
350,000 shares for issuance under the 1999 Director Stock Incentive Plan.

EMPLOYEE STOCK INCENTIVE PLAN

On June 10, 1999, we adopted the 1999 Stock Incentive Plan, which was approved
by a majority of the stockholders on July 12, 1999. Under the terms of the 1999
Stock Incentive Plan, which expires on June 10, 2009, employees may be granted
incentive stock options, non-statutory stock options and restricted stock
awards. The option price of shares of common stock generally will not be less
than 100% of the fair market value on the date of grant or 110% of fair market
value in the case of a grant to a 10% or greater shareholder. No option will be
exercisable more than ten years from the date of grant. We have reserved 500,000
shares for issuance under the 1999 Stock Incentive Plan. As of the date of this
prospectus, employees had been granted 306,000 shares. Options typically vest
over a three-year period unless the Board of Directors in its discretion
provides otherwise. Options shall become fully vested upon a "change of control"
as defined in the 1999 Stock Incentive Plan. The Board of Directors has
discretion to set the terms and conditions of options; including the term,
exercise price, and vesting conditions, if any; to determine whether the option
is an incentive stock option or a non-qualified stock option; to select the
persons who receive such grants; and to interpret and administer the 1999 Stock
Incentive Plan.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The table below sets forth certain information regarding the beneficial
ownership of the common stock, the only class of capital stock authorized, as of
December 31, 2000, by:

       (i) each person we know to be the beneficial owner of more than 5% of the
outstanding shares of common stock,

       (ii) each of our directors, and

       (iii) all directors and executive officers as a group. Unless otherwise
indicated, each of the stockholders listed below has sole voting and investment
power with respect to the shares beneficially owned.







                        BENEFICIAL OWNERS OF MORE THAN 5%
                               OF OUR COMMON STOCK

<TABLE>
<S>                                      <C>

             NAME AND ADDRESS                  AMOUNT AND NATURE
</TABLE>


                                       25
<PAGE>   26
<TABLE>
<CAPTION>
           OF BENEFICIAL OWNER              OF BENEFICIAL OWNERSHIP         PERCENT OF CLASS
           -------------------              -----------------------         ----------------

<S>                                                   <C>                           <C>
Hudson River Investments                              1,685,815 (1)                 9.5%
PO Box 3136
Road Town
Tortolla, British Virgin Islands

Linkside Investments NV                               1,650,000 (2)                9.3%
C/O Curacao INTL TR CO NV
Curacao NI

Herbard Limited                                       1,200,000 (3)                6.7%
PO Box 438
Road Town
Tortolla, British Virgin Islands

L. Flomenhaft & Co., Inc.                             1,130,502 (4)                6.3%
225 West 34th Street
Suite 2008
New York, NY 10122

Quadrant Management Inc.                              1,116,000 (5)                6.3%
720 Fifth Ave.
New York, NY 10019

Charles W. Albo                                       1,000,000 (6)                5.6%
C/O Albo Limited Partnership
6005 Greely Blvd.
Springfield VA
22152

Nana Maraneli                                           950,000 (7)                5.3%
C/O Marineli Limited Partnership
111 Culpepper Road
Richmond VA 23229

</TABLE>

        (1)     Includes 1,185,815 shares of outstanding common stock and fully
                vested common stock purchase warrants issued September 30, 2000
                to purchase 500,000 shares of common stock at an exercise price
                of $.60 per share.

        (2)     Includes 1,100,000 shares of outstanding common stock and fully
                vested common stock purchase warrants issued September 30, 2000
                to purchase 550,000 shares of common stock at an exercise price
                of $.60 per share.

        (3)     Includes 800,000 shares of outstanding common stock and fully
                vested common stock purchase warrants issued September 30, 2000
                to purchase 400,000 shares of common stock at an exercise price
                of $.60 per share.

        (4)     Includes 199,247 shares of outstanding common stock and fully
                vested common stock purchase warrants (i) issued January 21,
                1999 to purchase 78,750 shares of common stock at an exercise
                price of $1.00 per share, (ii) issued January 21, 1999 to
                purchase 487,500 shares of common stock at an exercise price of
                $.92 per share, (iii) issued August 3, 1999 to purchase 86,250
                shares of common stock at an exercise price of $1.00 per share,
                (iv) issued August 3, 1999 to purchase 25,500 shares of common
                stock issuable at an exercise price of $3.00 per share, (v)
                issued August 3, 1999 to purchase 32,812 shares of common stock
                at an exercise price of $2.00 per share, and (vi) issued
                November 22, 1999, January 5, 2000 and January 27, 2000 to
                purchase 220,443 shares of common stock at an exercise price of
                $1.35 per share.

        (5)     Includes fully vested common stock purchase warrants issued
                September 30, 2000 to purchase 1,116,000 shares of common stock
                at an exercise price of $.60 per share.

        (6)     Includes 1,000,000 shares owned of record by Albo Limited
                Partners, a Virginia limited partnership, of which Mr. Albo is
                general partner.

        (7)     Includes 950,000 shares owned of record by Maraneli Limited
                Partners, a Virginia limited partnership, of which Ms. Maraneli
                is general partner.


                                       26
<PAGE>   27


       The following table sets forth the beneficial ownership of common stock
of the Directors and named Executive Officers based on 12,092,285 shares of
common stock outstanding as of December 31, 2000.

                        BENEFICIAL OWNERSHIP OF DIRECTORS
                             AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS                                 AMOUNT AND NATURE
OF BENEFICIAL OWNER                         OF BENEFICIAL OWNERSHIP               PERCENT OF CLASS
-------------------                         -----------------------               ----------------
<S>                                        <C>                                    <C>
Sherry Shen - Chief Executive Officer
  and Director                                        -                                   -
720 5th Avenue
New York, NY 10019

John Friedman - President, Chief                    270,288 (1)                         1.5%
  Operating Officer, and Director
165 W. 4th Street, #22
New York, NY 10014

Frank C. Szabo                                       66,667 (2)                          .4%
35 Mount Liberty Drive
Penfield, NY 14526

W. Todd Coffin - Chief                              242,007 (3)                         1.3%
Executive Officer, President and
Director
1600 Wilson Blvd.
Suite 1008
Arlington, VA 22209

Alan G. Quasha - Director                             -                                   -
729 5th Avenue
New York, NY 10019

John Theodoracopulos  Director                      175,160 (4)                         1.0%
545 Madison Avenue
6th Floor
New York, NY 10022

Dan Gomez                                            33,333 (5)                          .2%
1 Gate View Road
Wayne, PA 19087

Directors and Executive Officers as a Group       3,807,757 (6)                        21.2%

</TABLE>

        (1)     Includes 220,288 common shares outstanding and warrants to
                purchase 50,000 shares of common stock at an exercise price of
                $.47 per share that will vest by June 15, 2001.

        (2)     Includes warrants to purchase 66,667 shares of common stock at
                an exercise price of $3.00 per share that will vest by June 15,
                2001.

        (3)     Includes warrants to purchase 4,688 shares of common stock at an
                exercise price of $2.00 per share, warrants to purchase 37,319
                shares of common stock at an exercise price of $1.35 per share,
                and warrants to purchase 200,000 shares of common stock at an
                exercise price of $3.00 per share, all of which are vested and
                owned beneficially and of record by Hudson Allen & Co. Mr.
                Coffin is an equity holder in Hudson Allen & Co.

        (4)     Comprised of 175,160 common shares outstanding.

        (5)     Comprised of vested warrants to purchase 12,500 shares of common
                stock, and warrants that will vest by June 15, 2001 to purchase
                20,833 shares of common stock at an exercise price of $.375.

        (6)     Includes 2,627,007 of common shares outstanding and warrants
                vested warrants to purchase common stock at various prices for
                former officers and directors.

CONDITIONAL RIGHT TO ACQUIRE CERTAIN SECURITIES

In addition to the shares set forth in the table above, Charles Albo and



                                       27
<PAGE>   28

Nana Maraneli also each own warrants to purchase 125,000 shares of common stock
at $1.50 per share, which vest when the shares of common stock issued in the
unit placement are registered for resale or otherwise are exempt from
registration under the Securities Act and the stock price per share has closed
at or above $3.00 bid for 20 consecutive trading days within the eighteen month
period following the closing of such private placement. The warrants were issued
on April 20, 1999 and expire on April 20, 2004.

Also in addition to the 292,007 shares of common stock shown above, Mr. Coffin,
through Hudson Allen & Co., has been granted warrants to purchase an additional
300,000 shares of common stock which are not currently vested, but vest in
100,000 warrant increments for each $2,000,000 worth of financing obtained for
us by Hudson Allen. Mr. Todd Coffin is an equity owner of Hudson Allen & Co.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In May 1999, in conjunction with the agreement noted above, the Company agreed
to redeem from each of Mr. Albo and Ms Maranelli (the "Founders") 75,000 shares
of common stock at $1.50 per share (the Redemption Price"). The Founders agreed
that payment of the Redemption Price would be deferred until the closing of a
private placement resulting in gross proceeds to the Company of at least $1
million. In exchange for the deferral of the Company's payment obligations, the
Company agreed to advance each of the Founders $7,000 per month not to exceed
the total Redemption Price. All amounts advanced would be deducted from the
Redemption Price when paid. Although the repayment was required to be made at
the time of the Unit Equity sale in August 1999, the Founders have continued to
accept advances from the Company in lieu of full payment until the Company's
cash position is better able to support the remaining amounts due. At December
31, 1999, $112,000 had been paid leaving a balance due for the redemption of
$113,000. As of December 31, 2000, $57,000 remains unpaid

In October 1999, we entered into a letter agreement with the investment banking
firm of Hudson Allen & Co. Under the terms of the agreement, Hudson Allen agreed
to render investment banking services for one year in exchange for a signing fee
of 500,000 common stock purchase warrants, 100,000 vesting upon signing, with
the remainder vesting in 100,000 warrant increments for each $2,000,000 worth of
financing obtained for us by Hudson Allen. The agreement also provided for
placement fees contingent on successful financings, and monthly management fees.
This agreement expired and was cancelled in October 2000.

On August 18, 2000, the Company entered into a consulting agreement with L.
Flomenhaft & Co, for merger and acquisition consulting services. The term of
this agreement is 1 year, and provides for a consulting fee of $115,000 plus
out-of-pocket expenses, to be paid monthly over the term of the agreement. In
September 2000, the Company completed its latest unit offering. The Company was
seeking to provide net proceeds of $2.7 million after banking, legal and
accounting fees. In connection with this transaction, warrants were issued to
Quadrant Management Inc. as consideration for placement fees, and the fair value
of these warrants was $21,437.

In December 2000, Alan G. Quasha, President of Quadrant Management Inc., was
elected to the Board of Directors.

In December 2000, Sherry Shen, who is an employee of Quadrant Management Inc.,
was elected Chief Executive Officer and also elected to the Board of Directors.
Among her other duties as C.E.O., Ms. Shen's role will include obtaining
financing for the Company. Ms. Shen draws no salary, and no compensation expense
has been imputed for financial reporting purposes in 2000, as her election
occurred in late December 2000.

On January 2, 2001, the Company sold $80,000 in original principal amount of its
15% Secured Subordinated Convertible Debentures, convertible into common stock
at $.05 per share, to Quadrant Management Inc. The 15% debentures were
guaranteed by Empire One Telecommunications, and secured by all of the accounts
(now and after acquired) of the Company and Empire One Telecommunications. As
part of the 15% debenture purchase, the Company also issued Quadrant Management
Inc. a warrant to purchase up


                                       28
<PAGE>   29

to 1,000,000 shares of common stock at $.02 per share. The warrant contained
"piggy-back" registration rights covering the shares underlying the warrant.


ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

  (a)  Financial Statements

       Included in Part II of this report:

       Independent Auditors' Reports

       Consolidated Balance Sheet as of December 31, 2000

       Consolidated Statements of Operations for each of the two years in the
       period ended December 31, 2000

       Consolidated Statement of Changes in Stockholders' Equity for each of the
       two years in the period ended December 31, 2000

       Consolidated Statements of Cash Flows for each of the two years in the
       period ended December 31, 2000

       Notes to Consolidated Financial Statements for the years ended December
       31, 2000 and 1999

  Exhibits

  The exhibits are set forth on the attached Exhibit Index which is incorporated
  by reference.

  Reports on Form 8-K

  No reports on Form 8-K were filed during the last quarter of the period
  covered by this report.

                                EXHIBIT INDEX (a)

Exhibit
No.            DESCRIPTIOM OF EXHIBIT

10             Contract between Sonus Communications Holdings, Inc. and L.
               Flomenhaft & Co.

                                EXHIBIT INDEX (b)

The following exhibits are incorporated by reference as indicated.
<TABLE>
<CAPTION>
Exhibit
No.            DESCRIPTION OF EXHIBIT
<S>            <C>
2.1            Plan of Merger between Sonus Park Acquisition, Inc. and Sonus
               Communications, Inc. dated February 26, 1999, contained in the
               Agreement of Merger previously filed as Exhibit 3.1(f) to Form
               10-SB filed May 14, 1999 (the "Form 10-SB"), hereby incorporated
               by reference.

2.2            Agreement and Plan of Merger dated April 12, 1999, contained in
               the Articles of Merger previously filed as Exhibit 3.1(g) to
               Form 10-SB, hereby incorporated by reference.

2.3            Merger Agreement dated as of November 15, 1999 among the Company,
               Empire One Acquisition Corporation, Empire One
               Telecommunications, Inc., John K. Friedman, Paul A. Butler, and
               Bradley D. Lewis previously filed as Exhibit 2.3 to Form SB-2
               filed December 7, 1999 ("Form SB-2"), hereby incorporated by
               reference.
</TABLE>

                                       29
<PAGE>   30

<TABLE>
<S>            <C>
2.4            Agreement and Plan of Merger by and among the
               Company, Empire One Telecommunications, Inc. and EOT
               Acquisition Corporation dated November 27, 1999,
               previously filed as Exhibit 2.3 to the registration
               statement on Form SB-2 filed on December 7, 1999, as
               amended by Amendment No. 1 filed on March 22, 2000,
               incorporated herein by reference.

3.1            Certificate of Incorporation of the Company, previously filed as
               Exhibit 2.1 of Form 10-SB, hereby incorporated by reference.

3.2            By-laws of the Company, previously filed as Exhibit 2.2 of Form
               10-SB, hereby incorporated by reference.

3.3            Certificate of Merger of Empire One Telecommunications into EOT
               Acquisition Corporation filed with the Secretary of State of the
               State of Delaware on March 29, 2000, previously filed as Exhibit
               3.1 of Form 10-QSB filed on May 17, 2000, hereby incorporated by
               reference.

3.4            Certificate of Merger of Empire One
               Telecommunications, Inc. with and into EOT
               Acquisition Corporation filed with the Department of
               State of the State of New York on March 29, 2000, previously
               filed as Exhibit 3.2 of Form-10-QSB filed on May 17, 2000, hereby
               incorporated by reference.

4.1            Stock Subscription Agreement dated January 14, 1999, previously
               filed as Exhibit 3.1(a) of Form 10-SB, hereby incorporated by
               reference.

4.2            Placement Agent Agreement dated January 14, 1999, previously
               filed as Exhibit 3.1(b) of Form 10-SB, hereby incorporated by
               reference.

4.3            Shareholders Agreement dated as of January 21, 1999, previously
               filed as Exhibit 3.1(c) of Form 10-SB, hereby incorporated by
               reference.

4.4            10% Convertible Debentures dated May 5, 1999, previously filed as
               Exhibit 3.1(d) of Form 10-SB, hereby incorporated by reference.

4.5            Debenture Purchase Agreement dated May 5, 1999, previously filed
               as Exhibit 3.1(e) of Form 10-SB, incorporated herein by
               reference.

4.6            Articles of Merger dated February 26, 1999, previously filed as
               Exhibit 3.1(f) of Form 10-SB, hereby incorporated by reference.

4.7            Articles of Merger dated April 12, 1999, previously filed as
               Exhibit 3.1(g) of Form 10-SB, hereby incorporated by reference.

4.8            Certificate of Merger dated April 12, 1999, previously filed as
               Exhibit 3.1(h) of Form 10-SB, hereby incorporated by reference.

4.9            78,750 Placement Agent Warrants issued to L. Flomenhaft & Co.,
               Inc. dated January 21, 1999, previously filed as Exhibit 4.9 to
               Form SB-2, incorporated herein by reference.

4.10           11,250 Warrants issued to Lawrence Kaplan dated January 21, 1999,
               previously filed as Exhibit 4.10 to Form SB-2, incorporated
               herein by reference.

4.11           487,500 Consulting Warrants issued to L. Flomenhaft & Co., Inc.
               dated January 21, 1999, previously filed as Exhibit 4.11 to Form
               SB-2, incorporated herein by reference.
</TABLE>

                                       30
<PAGE>   31


<TABLE>
<S>            <C>
4.12           86,250 Debenture Placement Agent Warrants issued to L. Flomenhaft
               & Co., Inc. dated August 3, 1999, previously filed as Exhibit
               4.12 to Form SB-2, incorporated herein by reference.

4.13           Form of Unit Warrant issued to various purchasers dated August 3,
               1999, previously filed as Exhibit 4.13 to Form SB-2, incorporated
               herein by reference.

4.14           32,812 Unit Placement Agent Warrants issued to L. Flomenhaft
               dated August 3, 1999, previously filed as Exhibit 4.14 to Form
               SB-2, incorporated herein by reference.

4.15           4,688 Unit Placement Agent Warrant issued to Tanner Unman
               Securities, Inc. on August 3, 1999, previously filed as Exhibit
               4.15 to Form SB-2, incorporated herein by reference.

4.16           4,444 Placement Agent Warrants issued to Coffin & Sons, Inc.
               dated November 22, 1999, previously filed as Exhibit 4.16 to Form
               SB-2, incorporated herein by reference.

4.17           58,276 Placement Agent Warrants issued to L. Flomenhaft & Co.,
               Inc. dated November 22, 1999, previously filed as Exhibit 4.17 to
               Form SB-2, hereby incorporated by reference.

4.18           Placement Agent Warrants issued to L. Flomenhaft &
               Co., Inc. dated January 5, 2000, previously filed as Exhibit 4.1 to
               Form 10-QSB filed on May 17, 2000, hereby incorporated by reference.
4.19           Placement Agent Warrants issued to Hudson Allen &
               Co. dated January 5, 2000, previously filed as Exhibit 4.2 to Form
               10-QSB filed on May 17, 2000, hereby incorporated by reference.

4.20           Placement Agent Warrants issued to L. Flomenhaft &
               Co., Inc. dated January 27, 2000, previously filed as Exhibit 4.3 to
               Form 10-QSB filed on May 17, 2000, hereby incorporated by reference.

4.21           Warrants issued to Ferris Baker Watts, Inc. dated
               March 29, 2000, previously filed as Exhibit 4.4 to Form 10-QSB filed
               on May 17, 2000, hereby incorporated by reference.

4.22           Registration Rights Agreement between the Company and
               certain shareholders of Empire One Telecommunications, Inc.,
               previously filed as Exhibit 4.5 to Form 10-QSB filed on May 17, 2000,
               hereby incorporated by reference.

4.23           Form of Convertible Debenture, previously filed as Exhibit 4 to
               Form 10-QSB filed on August 14, 2000, hereby incorporated by
               reference.

4.24           Form of Subscription Agreement for the purchase of equity units of
               The Company, each equity unit consisting of two shares of common
               stock and one common stock purchase warrant (the "Unit
               Placement"), previously filed as Exhibit 4.1 of Form 10-QSB
               filed on November 20, 2000, hereby incorporated by reference.

4.25           Form of Warrant issued in Unit Placement, previously filed as
               Exhibit 4.2 of Form 10-QSB filed November 20, 2000, hereby
               incorporated by reference.

10.1           Employment Agreement dated as of April 15, 1999 between the
               Company and Charles W. Albo, previously filed as Exhibit 10.1 to
               Form SB-2, incorporated herein by reference.

10.2           Employment Agreement dated as of April 15, 1999 between the
               Company and Nana Maraneli, previously filed as Exhibit 10.2 to
               Form SB-2, incorporated herein by reference

10.3           Consulting Agreement between Sonus Communications, Inc. and L.
</TABLE>


                                       31
<PAGE>   32

<TABLE>
<S>            <C>
               Flomenhaft & Co., Inc. dated January 14, 1999, previously filed
               as Exhibit 6.1(a) of Form 10-SB, hereby incorporated by
               reference.

10.4           Placement Agent Agreement between Sonus Communications, Inc. and
               L. Flomenhaft & Co., Inc. dated January 14, 1999, previously
               filed as Exhibit 3.1(b) of Form 10-SB, hereby incorporated by
               reference.

10.5           Employment Agreement with Richard D. Rose dated April 15, 1999,
               previously filed as Exhibit 6.1(c) of Form 10-SB, hereby
               incorporated by reference.

10.6           Consulting Agreement with Raleigh Coffin dated as of April 15,
               1999, previously filed as Exhibit 6.1(d) of Form 10-SB, hereby
               incorporated by reference.

10.7           10% Convertible Debentures dated May 5, 1999, previously filed as
               Exhibit 3.1(d) of Form 10-SB, hereby incorporated by reference.

10.8           Consulting Agreement dated April 15, 1999 between the Company and
               Coffin & Sons, Inc., previously filed as Exhibit 6.1(f) of Form
               10-SB, hereby incorporated by reference.

10.9           Hudson Allen Letter Agreement, previously filed as Exhibit 10.9
               of Form SB-2, hereby incorporated by reference.

10.10          Collateral Note made as of March 29, 2000 by the Company in favor
               of Citizens Telecommunications Company, previously filed as
               Exhibit 10.1 of Form 10-QSB filed on May 17, 2000, hereby
               incorporated by reference.

10.11          Security Agreement dated March 29, 2000 among the
               Company, Empire One Telecommunications, Inc. and Citizens
               Telecommunications Company, previously filed as Exhibit 10.2 of Form
               10-QSB filed on May 17, 2000, hereby incorporated by reference.

10.12          Consent and Release Agreement dated March 29, 2000
               among the Company, EOT Acquisition Corporation,
               Empire One Telecommunications, Inc., Citizens Telecommunications
               Company, W. Todd Coffin and John K. Friedman, previously filed as
                Exhibit 10.3 of Form 10-QSB filed on May 17, 2000, hereby
                incorporated by reference.

21             Subsidiaries of the Company: Sonus Communication, Inc., a
               Virginia corporation, and Empire One Acquisition Corporation, a
               Delaware corporation.

</TABLE>


                                       32
<PAGE>   33



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

Dated:  April 27, 2001                     SONUS COMMUNICATION HOLDINGS, INC.


                                           BY:/s/ Sherry Shen
                                           -------------------------------------
                                           Sherry Shen
                                           Chief Executive Officer

In accordance with the Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.





/s/ Sherry Shen                                     April 27, 2001
----------------------------------
President and Chief Executive
Officer, and Director


/s/ Frank C. Szabo                                  April 27, 2001
----------------------------------
Executive Vice President, Chief
Financial Officer and Director

/s/ Alan G. Quasha                                  April 27, 2001
----------------------------------
Director

/s/ John Theodoracopulus                            April 27, 2001
----------------------------------
Director








                                       33





<PAGE>   34
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<S>                                                                            <C>
Independent Auditors' Report...................................................F-2
Independent Auditors' Report...................................................F-3
Financial Statements
            Consolidated Balance Sheets........................................F-4
            Consolidated Statements of Operations..............................F-5
            Statement of Changes in Stockholders' Equity.......................F-6
            Consolidated Statements of Cash Flows..............................F-7
Notes to Financial Statements..................................................F-8

</TABLE>




                                      F-1
<PAGE>   35




                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Sonus Communication Holdings, Inc.
And Subsidiaries (Debtor-in-Possession)

We have audited the accompanying consolidated balance sheet of Sonus
Communication Holdings, Inc. and Subsidiaries as of December 31, 2000 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sonus Communication
Holdings, Inc. and Subsidiaries as of December 31, 2000 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
Sonus Communications Holdings, Inc. and Subsidiaries will continue as a going
concern. As more fully described in Note 1, the Company has incurred recurring
operating losses, has a working capital deficiency, has defaulted on certain
convertible debentures, has insufficient funds available for operations, and the
subsidiaries have filed for protection under Chapter 11 of the Federal
Bankruptcy Court. The Company's operating plans require additional funds, which
may take the form of debt or equity security issuances or borrowings. Efforts to
obtain financing have failed. Recovery of the Company's assets is dependent on
the Company's ability to receive further funding and implement its operating
plans. These conditions and the uncertainty over the Company's ability to obtain
such additional financing or execute its operating plans raise substantial doubt
about the ability of the Company to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might result should the Company be unable to continue as a going concern.



M.R. Weiser & Co. LLP
New York, New York
April 2, 2001










                                       F-2

<PAGE>   36

                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Shareholders
Sonus Communication Holdings, Inc.

We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Sonus Communication Holdings, Inc. and subsidiary for the year
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated results of operations and
consolidated cash flows of Sonus Communication Holdings, Inc. and subsidiary for
the year ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.




                                             LAZAR LEVINE & FELIX LLP

New York, New York
February 10, 2000




















                                         F-3

<PAGE>   37



               SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARIES
                        (DEBTOR-IN-POSSESSION see Note 1)
                           CONSOLIDATED BALANCE SHEET

                                   - ASSETS -
<TABLE>
<CAPTION>

                                                                   December 31,
                                                                       2000
                                                                    -----------
<S>                                                               <C>
CURRENT ASSETS:
   Cash and cash equivalents                                            $32,884
   Accounts receivable, net of allowance for doubtful
   accounts of $125,020                                               1,524,168
   Prepaid expenses and other                                            53,188
                                                                    -----------
TOTAL CURRENT ASSETS                                                  1,610,240

PROPERTY AND EQUIPMENT, NET                                             479,124

GOODWILL, NET                                                         3,515,352

SECURITY DEPOSITS                                                       446,756
                                                                    -----------

TOTAL ASSETS                                                         $6,051,472
                                                                    ===========



                   - LIABILITIES AND STOCKHOLDERS' EQUITY -

CURRENT LIABILITIES:
   Accounts payable                                                  $4,117,250
   Current portion of capitalized lease obligations
     and debentures                                                     311,422
   Due to shareholders                                                   57,000
   Accrued taxes                                                        277,305
   Accrued expenses, other                                               25,035
                                                                    -----------
TOTAL CURRENT LIABILITIES                                             4,788,012


LONG-TERM LIABILITIES:
   Convertible debentures, net of discount and current portion           93,614
   Capitalized lease obligations, net of current portion                370,032
   Other non-current liabilities                                         38,000
                                                                    -----------
TOTAL LIABILITIES                                                     5,289,658
                                                                    -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Common stock, $.0001 par value; 100,000,000 shares
     authorized; 12,092,285 shares issued and outstanding                 1,209
   Additional paid-in capital                                         9,958,922
   Accumulated deficit                                               (9,198,317)
                                                                    -----------
TOTAL STOCKHOLDERS' EQUITY                                              761,814
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $6,051,472
                                                                    ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements







                                         F-4



<PAGE>   38




               SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARIES
                        (DEBTOR-IN-POSSESSION see Note 1)
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                         Years ended December 31,
                                                        --------------------------
                                                           2000           1999
                                                        ----------   ------------
<S>                                                 <C>              <C>
OPERATING REVENUE:
   Telecommunication services                         $ 7,198,881    $ 1,704,056
                                                       ----------     ----------

OPERATING EXPENSES:
   Direct expenses                                      5,611,423      1,951,519
   Selling, general & administrative                    5,692,709      1,237,092
   Merger related costs                                     -            261,611
   Asset impairment charge                                572,564          -
   Goodwill impairment charge                           1,745,218          -
   Goodwill amortization                                  276,872          -
                                                       ----------     ----------

                                                       13,898,786      3,450,222
                                                       ----------     ----------

LOSS FROM OPERATIONS                                   (6,699,905)    (1,746,166)

OTHER INCOME (EXPENSE):
   Interest expense, net of interest
      income of $32,300 in 2000                        (  254,182)    (    5,100)
   Other expense                                          (44,705)          -
                                                       ----------     ----------
                                                       (  298,887)    (    5,100)
                                                       ----------     ----------

LOSS BEFORE INCOME TAXES                               (6,998,792)    (1,751,266)

   Provision for income taxes                               -              -
                                                       ----------     ----------

NET LOSS                                              $(6,998,792)   $(1,751,266)
                                                       ==========     ==========


Basic and diluted loss per common share               $(      .80)   $(      .44)
                                                       ==========     ==========

Basic and diluted weighted average shares
  outstanding                                           8,703,243      3,965,071
                                                       ==========     ==========
</TABLE>





The accompanying notes are an integral part of these consolidated financial
statements














                                         F-5



<PAGE>   39





               SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARIES
                        (DEBTOR-IN-POSSESSION see Note 1)
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>

                                             Common Stock            Additional
                                     --------------------------       Paid-in       Subscription      Accumulated
                                        Shares         Amount         Capital         Received          Deficit           Total
                                     ----------     -----------     -----------       ---------       -----------     -----------

<S>                                   <C>           <C>             <C>               <C>            <C>             <C>
Balance, January 1, 1999              3,597,954     $       360     $   267,334       $    -         $  (448,259)    $  (180,565)

Sale of common shares                   750,000              75         626,559                                          626,634
Shares issued for merger related
     consulting fees                    150,000              15          89,985                                           90,000
Shares returned by founders          (1,100,000)           (110)            110                                               -
Shares issued to consultant              50,000               5          37,495                                           37,500
Conversion on shareholder note           44,431               4          99,965                                           99,969
Repurchase from shareholders           (150,000)            (15)       (224,985)                                        (225,000)

Sale of common shares in Unit
     equity offering                    250,000              25         434,914                                          434,939
Conversion of convertible
     debentures                         588,325              59         530,766                                          530,825
Sale of common shares                   418,140              42         502,345                                          502,387

Waiver of compensation payable                                          112,000                                          112,000
Received for January 2000
     financing                                                                          135,000                          135,000
Net loss                                  -               -               -               -           (1,751,266)     (1,751,266)
                                     ----------     -----------     -----------       ---------       -----------     -----------
Balance, December 31, 1999            4,598,850     $       460     $ 2,476,488       $ 135,000      $(2,199,525)    $   412,423

Sale of common shares                 5,646,357             564       2,929,098        (135,000)                       2,794,662
Shares issued to acquire EOT          1,065,857             107       3,197,464                                        3,197,571
Waiver of compensation payable                                           56,000                                           56,000
Fair value of warrants issued
  in acquisition                                                        989,487                                          989,487
Common shares issued with
  convertible debentures                300,000              30         188,363                                          188,393
Beneficial conversion feature
  on convertible debentures                                              75,111                                           75,111
Conversion of convertible
  debentures                            481,221              48         113,520                                          113,568
Retire unamortized discount on
  convertible debentures                                                (66,609)                                         (66,609)
Net loss                                                                                              (6,998,792)     (6,998,792)
                                     ----------     -----------     -----------       ---------       -----------     -----------
Balance, December 31, 2000           12,092,285     $     1,209     $ 9,958,922       $   -          $(9,198,317)     $  761,814
                                     ==========     ===========     ===========       =========       ===========     ===========
</TABLE>







The accompanying notes are an integral part of these consolidated financial
statements















                                         F-6


<PAGE>   40


               SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARIES
                       (DEBTOR-IN-POSSESSION see Note 1)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                        Years ended December 31,
                                                                        ------------------------
                                                                           2000         1999
                                                                        ----------   ----------
<S>                                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                            $(6,998,792) $(1,751,266)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
      Depreciation and amortization                                        555,632       98,529
      Provisions for uncollectible receivables                             524,916       58,265
      Amortization of debt discounts                                       120,507        -
      Asset impairment charge                                              572,561        -
      Goodwill impairment charge                                         1,745,218        -
      Common shares issued for services rendered                             -          127,500
      Time contributed in lieu of salary                                    56,000      112,000
   Changes in assets and liabilities:
      Increase in accounts receivable                                   (1,334,248)     (48,957)
      Decrease in installment sales receivable                             187,430       43,660
      Decrease (increase) in prepaid expenses                              142,480     (166,572)
      Increase in accounts payable                                       1,896,986      170,006
      Increase in vendor equipment payable                                   -            8,393
      (Decrease) Increase in accrued expenses                              (58,355)      25,014
                                                                       -----------   ----------
NET CASH USED IN OPERATING ACTIVITIES                                   (2,589,665)  (1,323,428)
                                                                       -----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of equipment                                                (79,381)    (379,417)
      Investment in purchased business, net of cash acquired              ( 50,096)       -
      Loans to Empire One                                                    -         (150,000)
      Deposits for equipment and circuits                                 (235,745)     (19,062)
                                                                       -----------   ----------
NET CASH (USED) IN INVESTING ACTIVITIES                                   (365,222)    (548,479)
                                                                       -----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Private placement of common shares, net                            2,794,662    2,094,785
      Subscriptions received                                                 -          135,000
      Repurchase of founder shares                                         (56,000)    (112,000)
      Payment of lease obligation for network equipment                   (280,579)     (12,453)
      Issuance of convertible debentures and common stock                  300,000        -
      Reduction of non-current liabilities                                  (5,000)       -
                                                                       -----------   ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                2,753,083    2,105,332
                                                                       -----------   ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                      (201,804)     233,425

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR                     234,688        1,263
                                                                       -----------   ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR                       $    32,884   $  234,688
                                                                       ===========   ==========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES:
     Common stock issued to acquire Empire One                         $ 3,197,571        -
                                                                       -----------   ----------
     Warrants issued to owners in connection
       with Empire One acquisition                                     $   989,487        -
                                                                       -----------   ----------
     Net liabilities assumed in connection
       with Empire One acquisition                                     $ 1,228,210        -
                                                                       -----------   ----------

     Common stock issued with convertible debentures                   $   188,393        -
                                                                       -----------   ----------
     Beneficial conversion discount recorded                           $    75,111        -
                                                                       -----------   ----------
     Debentures converted into common stock, net of
       unamortized discounts                                           $    46,959        -
                                                                       -----------   ----------
OTHER INFORMATION:
   Cash payments for interest                                          $   171,732   $   13,289
                                                                       -----------   ----------
   Cash payments for taxes                                             $     -       $    -
                                                                       -----------   ----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements

                                         F-7


<PAGE>   41

             SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              DECEMBER 31, 2000

NOTE 1 - THE COMPANY

DESCRIPTION OF BUSINESS

The accompanying consolidated financial statements include the accounts of Sonus
Communication Holdings, Inc. (the "Company" or "Holdings") and the Company's
wholly owned subsidiaries Sonus Communications, Inc. ("Sonus"), and Empire One
Telecom ("EOT"). The Company was incorporated in April 1999 as part of the
merger between Sonus Communications Inc. and The Park Group ("Park") and
re-incorporation of The Park Group in Delaware. In March 2000, EOT merged with
the Company. EOT is the primary operating subsidiary, while Sonus is currently
inactive.

Prior to the merger with EOT, Sonus was a wholesale provider of low-cost,
high-quality international telephone and Internet services. The Company offered
Internet connectivity, voice, facsimile, Internet, and e-commerce services to US
and foreign telephone and Internet Service Providers. In general, destinations
were in developing countries characterized by high international telephone
rates, poor Internet connectivity and little access to U.S. e-commerce or
business-to-business services. Subsequent to the merger with EOT, the Company
de-emphasized the Sonus wholesale business platform in favor of EOT's facilities
based retail business platform. Currently the Company offers, through EOT, a
diverse and increasing range of integrated communication services, including
standard voice telecommunications (local and long distance), dial-up and
dedicated Internet access and specialized data services (for commercial users).
In addition, EOT maintains Web portals in Chinese, Russian and English. All of
EOT's marketing, sales, and customer services are provided in the languages of
the target markets. Currently, EOT's Customer Service Representatives ("CSR")
speak Cantonese, Mandarin, Russian and Spanish as well as English.

The Company, through EOT, derives most of its telecommunications revenue from
customers located in the United States. EOT currently offers long distance
service to customers in various states where it is licensed to operate,
including New York, New Jersey, New Hampshire, Vermont, Massachusetts,
Connecticut, Rhode Island, Pennsylvania, Delaware, Maryland and Washington DC.
EOT also provides local phone service in New York and New Jersey on a resale
basis from the incumbent local exchange carrier, and is licensed to provide
local service in California. Long distance revenues from customers located
outside the United States were less than 8% and 10% of revenues in year 2000 and
1999 respectively, and derived from the Sonus network, which is now
decommissioned.

FINANCIAL CONDITION, LIQUIDITY AND FILING OF CHAPTER 11

On April 2, 2001, each of the Company's wholly owned subsidiaries (Empire One
Telecommunications Inc. ("EOT"), Sonus Communications Inc. ("Sonus), EOT
Telecommunications of Canada Inc., and Empire One Power Inc.), filed a Petition
for Relief under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York. The Company intends to
operate its business in Chapter 11 in the ordinary course and to seek to obtain
the necessary relief from the Bankruptcy Court to pay its employees, trade and
certain other creditor post-petition obligations in full and on time. To fund
its operations during the bankruptcy proceeding, the Company is working to
obtain Debtor-In-Possession ("DIP") financing. As of the date of this 10-KSB
report, such financing has not yet been obtained. The DIP financing, if
obtained, will be used to fund operations and working capital throughout the
bankruptcy proceeding.

Each of the Company's subsidiaries will continue to manage and operate its
assets and business pending the confirmation of a reorganization plan and
subject to the supervision and orders of the Bankruptcy Court. Each of the
Company's subsidiaries is currently developing the reorganization plan and
intends to submit the reorganization plan for confirmation prior to the due
date.

                                         F-8

<PAGE>   42


At this time, it is not possible to predict the outcome of the subsidiaries
Chapter 11 cases or the effect on the Company's business. Although management
intends that the Company's subsidiaries will emerge from bankruptcy in a prompt
and expeditious manner, there can be no assurance that a reorganization will be
successful.

The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Company has incurred recurring losses from operations, has a
working capital deficiency of $3,200,000, the Company has defaulted on certain
convertible debentures, has insufficient funds available for operations, and the
subsidiaries have filed for protection under Chapter 11 of the Federal
Bankruptcy Court. The Company has taken steps to reduce the cost structure of
the business, but the Company expects expenses to continue to exceed revenues
for the foreseeable future and the lack of funds will inhibit the Company's
ability to acquire new customers, thus limiting revenue growth. Efforts to
obtain financing have failed. These conditions raise substantial doubt about our
ability to continue as a going concern. The appropriateness of reporting on the
going concern basis is dependent upon, among other things, confirmation of a
plan of reorganization for the subsidiaries, future operations, and the ability
to generate sufficient cash from operations and financing sources to meet
obligations. The consolidated financial statements included herein do not
include any adjustments relating to the commencement of the Company's bankruptcy
case or to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of the uncertainty of the Company's ability to
continue as a going concern.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Sonus and EOT. All significant intercompany
balances and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

The Company recognizes operating revenue from the sale of communication services
including local, long distance, internet access and data services. Revenue from
telecommunications services is recognized as the service is provided. Accounts
receivable includes both billed and unbilled amounts, and is reduced by an
estimate for uncollectible amounts.

DIRECT OPERATING EXPENSES

The Company has interconnection agreements with several international long
distance carriers, a major domestic long distance carrier and an incumbent local
exchange carrier ("ILEC"). These service providers, together with our local and
long distance switch based in New York City, comprises the Company's network.
Direct operating expenses consist primarily of the cost to access, connect with
and transport voice and data traffic through these service providers. Direct
operating expenses are recognized as incurred.

STOCK BASED COMPENSATION

The Company applies Statement of Financial Accounting Standard ("SFAS") No. 123
"Accounting for Stock Based Compensation" for disclosure of its stock based
compensation plan and other stock based compensation arrangements. As permitted
by SFAS 123, the Company applies Accounting Principles Board Opinion No. 25 and
related interpretations for expense recognition.





                                         F-9



<PAGE>   43

NET LOSS PER SHARE

Basic earnings (loss) per share exclude dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period.

Diluted earnings (loss) per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period, adjusted to reflect potentially dilutive securities. Due to a
loss in 1999 and 2000, the options, warrants and convertible debentures are not
included in the computation of diluted loss per share because the effect would
be to reduce the loss per share.

ADVERTISING AND PROMOTION

Costs of advertising are expensed as incurred. Advertising and promotion expense
for the years ended December 31, 2000 and 1999 amounted to $1,085,746 and
$31,228, respectively.

INCOME TAXES

The Company uses the asset and liability method to calculate deferred tax assets
and liabilities. Deferred taxes are recognized based on the differences between
financial reporting and income tax bases of assets and liabilities using
enacted income tax rates. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

CONCENTRATION OF CREDIT RISK

The Company conducts business with a large base of customers. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base, and these customers
are predominately U.S. based customers. In 1999, the Company had two customers
that provided approximately 71% of the Company's revenue. At December 31, 2000
the Company had approximately $662,000 of unbilled accounts receivable.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
are carried at cost, which approximates market value. The Company maintains its
cash balances primarily in two financial institutions. These balances are
insured by the Federal Deposit Insurance Corporation up to $100,000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's financial instruments including accounts
receivable, accounts payable, accrued expenses, convertible debentures, and due
to shareholders approximate their fair values due to their relatively short
maturities.

ACCOUNTING FOR DERIVATIVES AND FINANCIAL INSTRUMENTS

SFAS 133 No. establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 137, "Deferral of the Effective Date of
SFAS 133", which amends SFAS No. 133 by deferring the effective date to fiscal
years beginning after June 15, 2000. The adoption of SFAS No. 133 will not have
a material impact on the Company's reported results of operations, financial
position or cash flows.




                                        F-10

<PAGE>   44

PROPERTY AND EQUIPMENT

Network equipment and furniture and fixtures are recorded at cost, and
depreciated using the following estimated useful lives:

                        Computers and other              2 - 7 years
                        Network equipment                  5   years

Depreciation is computed using the straight-line method over the estimated
useful lives beginning in the month an asset is placed into service.

GOODWILL

Goodwill is attributable to the acquisition of EOT in March 2000. This
transaction was accounted for as a purchase and is stated at fair value as of
the acquisition date, less accumulated amortization and an impairment charge.
The excess of purchase price over the fair value of the net assets acquired
(goodwill) is amortized using the straight-line method over 15 years.

The Company assesses the impairment of enterprise level goodwill periodically in
 accordance with the provisions of Accounting Principles Board (APB) Opinion No.
 17, Intangible Assets. An impairment review is performed whenever events or
 changes in circumstances indicate that the carrying value may not be
 recoverable. Factors the Company considers important which could trigger an
 impairment review include, but are not limited to, significant underperformance
 relative to expected historical or projected future operating results,
 significant changes in the manner of use of the acquired assets or the strategy
 for the overall business, significant negative industry or economic trends, a
 significant decline in stock price for a sustained period, and market
 capitalization relative to net book value. When the Company determines that the
 carrying value of goodwill may not be recoverable based upon the existence of
 one or more of the above indicators of impairment, any impairment is measured
 based on the market value method. The market value method compares the
 enterprise's net book value to the value indicated by the market price of its
 equity securities; if net book value exceeds the market capitalization, the
 excess is applied as a reduction of the carrying amount of the goodwill.

LONG-LIVED ASSETS

Management periodically evaluates the carrying value of its long-lived assets,
including property and equipment, and goodwill, whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. If the
estimated future cash inflows attributable to the asset, less estimated future
cash outflows, is less than the carrying amount, an impairment loss is
recognized by writing down the asset's carrying value to its fair value based on
the present value of the undiscounted cash flows of the asset or other relevant
measures. As more fully described in Note 7, the Company did record a fair value
adjustment of approximately $573,000 in December 2000 related to certain network
equipment.

CONCENTRATION OF SUPPLIERS

The Company currently leases its transport capacity from a limited number of
suppliers and is dependent upon the availability of transmission facilities
owned by the suppliers. The Company is vulnerable to the risk of being unable to
renew favorable supplier contracts, and the supplier not timely processing
orders for the Company's customers. The Company is at risk with respect to
regulatory agreements that govern rates charged by the suppliers.

As of the end of December 31, 2000, three vendors (Global Crossing, Teleglobe
and Verizon) provided approximately 69% of international and domestic long
distance transport and termination services, and local services, amounting to
approximately $3,700,000 of annual total direct expenses. Except for the local
phone services, which are provided to our customers on a resale basis and are
provided by the incumbent local exchange carrier (Verizon), other carriers are
available and provide similar services.


                                        F-11

<PAGE>   45

Four vendors, including the three noted above, had an aggregate balance of
approximately $2,400,000 or 58% of accounts payable as of December 31, 2000.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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 revenue and expenses during the reporting period. Actual results
could differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications, which have no effect on net income, have been made in
the prior period financial statements to conform to the current presentation.

NEW PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The adoption of SAB 101 did not have a material effect on the Company's reported
results of operations, financial position or cash flow.

NOTE 3 - MERGER & ACQUISITION

In January 1999, Sonus entered into merger discussions with Park. In
anticipation of the merger, Park formed Sonus Park Acquisition, Inc. as a wholly
owned subsidiary of Park. On March 4, 1999, Park Acquisition merged with and
into Sonus leaving Sonus as the surviving corporation and a wholly owned
subsidiary of Park. The former shareholders of Sonus received 92% of the capital
stock of Park. The merger was accomplished via a reverse acquisition accounted
for as a pooling of interests.

On April 7, 1999, Park organized Sonus Communication Holdings, Inc. as a
Delaware corporation and wholly owned subsidiary of Park. On April 16, 1999,
Holdings merged with and into Park leaving Holdings as the surviving
corporation. As a consequence of the merger, Sonus became a wholly owned
subsidiary of Holdings. Shares of Park were exchanged for shares of Holdings on
a one-for-one basis in the merger. The sole purpose of the merger was to
re-incorporate in the state of Delaware.

On March 29, 2000, the Company merged with EOT. The Company exchanged 1,065,857
shares of common stock in exchange for all the outstanding common shares of EOT
plus assumption of debt. The shares were valued at $3.00 per share, as
determined on November 15, 1999, the date the definitive merger agreement was
executed. The acquisition was accounted for as a purchase. The operations of EOT
are included with those of the Company prospectively, effective April 1, 2000.
The value of consideration from the shares exchanged was $3,197,571. Additional
costs of the merger included legal and investment-banking fees paid of $122,174,
warrants issued to EOT founders with an estimated fair value of $507,600, and
in-the-money warrants issued to investment bankers with an estimated fair value
of $481,887. The net liabilities assumed in connection with the EOT merger,
which approximated fair value, was $1,228,210. As a result, the Company recorded
$5,537,442 in goodwill related to the merger, which is being amortized over 15
years. The following unaudited pro forma information for the years ended
December 31, 2000 and 1999 combines the results of operations of the Company and
EOT as if the acquisition had occurred on January 1, 1999. The unaudited pro
forma information does not purport to represent what the actual results of
operations would have been for the Company had the merger been consummated at
the beginning of the earliest period presented, is not indicative of actual
results and does not purport to represent what the results of operations of the
combined entity may be in the future.





                                              F-12

<PAGE>   46

<TABLE>
<CAPTION>
                                                                            Unaudited
                                                                            Pro forma
                                                                            Year ended
                                                                           December 31,
                                                                     ------------------------
                                                                        2000          1999
                                                                     ----------    ----------

<S>                                                                  <C>          <C>
     Revenue                                                         $8,425,093    $6,414,280
     Direct Expenses                                                  6,577,807     5,074,411
     Other operating expenses                                         8,790,770     3,646,710
     Goodwill amortization                                              369,163       369,163
     Interest and other income (expense)                               (302,958)     (207,341)
     Net loss                                                       $(7,615,605)  $(2,883,345)
     Net loss per basic and diluted share                                 $(.85)        $(.57)
</TABLE>

NOTE 4 - INSTALLMENT SALES

During 1998, The Company purchased, through Sonus, telecommunications equipment
from a vendor at a cost of $231,090, which was sold to Egrisi Joint Stock
Company, Ltd., an entity in the Republic of Georgia for $362,430. The payment
terms were based on the usage of the equipment. As a result, the Company
recorded this sale under the installment method. Each payment collected was
allocated to cost and profit in the same ratio that these two elements existed
at the time of the sale. No installment sales were recorded in 1998. During
1999, the Company recorded installment sales of $69,014 with a margin of $
25,206. At December 31, 1999, the remaining receivable on the installment sale
was $187,430 net of unearned profit of $106,134. During 2000, the Company
recorded $1,844 of installment sales. Shortly after the merger with EOT, the
service agreement with Egrisi was cancelled, and payments on the equipment
ceased. A dispute exists between the Company and Egrisi regarding the
termination of the service agreement and the amount of liabilities the Company
has recorded under the agreement. Egrisi has indicated that they believe the
Company's liability to them is approximately $485,000, and is largely comprised
of a liability incurred between Egrisi and another service provider that is not
a direct party to the original contract between Egrisi and the Company.
Management believes that the Company bears no responsibility for this other
agreement, and thus disputes Egrisi's claim. Regarding the equipment sold and
delivered to Egrisi, such equipment has not been returned, and recovery is
deemed not likely. The Company has fully provided for the net installment sale
receivable related to this equipment sale of $185,496 through a provision for
bad debt expense in the year ended December 2000. Considering the value of the
equipment not returned, and the Company's recorded outstanding trade payable of
approximately $3,000 to Egrisi for past services, it is estimated that a net
receivable is due the Company from Egrisi of approximately $140,000, which has
not been recorded at December 31, 2000. No further communication has been
received from Egrisi on this matter since December 2000.


NOTE 5 - IMPAIRMENT OF GOODWILL

During the fourth quarter ended December 31, 2000, the Company performed an
 impairment assessment of the enterprise level goodwill recorded upon the
 acquisition for stock of EOT, which the Company completed on March 29, 2000.
The Company's assessment was performed primarily due to the inability of EOT to
achieve positive cash flow, the uncertainty of obtaining needed financing, the
subsequent filing for bankruptcy protection, the volatility in the
communications industry, and the significant decline in the Company's stock
price since the date the shares issued in the acquisition were valued. Goodwill
significantly exceeded its market capitalization prior to the impairment charge.
As a result of the review, the Company recorded approximately $1,745,000 as an
impairment charge to reduce its enterprise level goodwill. The charge was
determined based upon the market capitalization of the Company as of December
31, 2000. The remaining goodwill of approximately $3,515,000 will be amortized
over the remaining useful life of approximately 15 years, which the Company
considers appropriate. Given the circumstances noted above, it is at least
reasonably possible that the Company's estimate of the recoverability of
goodwill will change in the near term.




                                        F-13

<PAGE>   47


NOTE 6 - FOURTH QUARTER ADJUSTMENT

During the fourth quarter of 2000, the Company recorded an impairment charge to
 unamortized goodwill in the amount of approximately $1,745,000 (See Note 5).
 The Company is unable to reasonably estimate the effect, if any, of this
 adjustment on prior quarters in 2000.


NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 consists of the following:
<TABLE>
<S>                                                      <C>
                    Network equipment                     $  33,364
                    Computers & other office equipment      197,115
                    Assets held under capital lease         416,733
                                                          ---------
                                                            647,212
                    Accumulated depreciation               (168,088)
                                                          ---------
                    Property and equipment, net           $ 479,124
                                                          =========
</TABLE>

Depreciation expense was $278,761 and $98,529 for the years ending December 31,
2000 and 1999.

Subsequent to the merger with EOT, the wholesale carrier business platform of
Sonus has been de-emphasized, and currently, no revenue is derived from the
Sonus network. Some wholesale carrier business is realized through EOT's
network. As a result, much of the redundant network equipment installed to
support that business has been decommissioned and idled, and no alternative uses
for the equipment have been determined, nor are any contemplated. Coincident
with the decommissioning of this network equipment, several service agreements
with various carriers, both foreign and domestic, were cancelled. A substantial
amount of this equipment, including equipment acquired under capitalized leases,
was deployed with carriers in foreign countries including the Republic of
Georgia, Pakistan and China. The equipment remains in the possession of these
foreign vendors, and management believes that some of this equipment is being
held in response to non-payment of past-due trade payable balances. Management
believes the likelihood of recovery of the equipment is doubtful, and
accordingly has recorded a write-down of approximately $540,000 against the
carrying value of this equipment. Additionally, approximately $33,000 has been
accrued representing estimated loss that will be incurred upon return of leased
equipment to the lessor.


NOTE 8 - DEBT

Long-term borrowings at December 31, 2000 consists of the following:

<TABLE>
<S>                                                   <C>
   8% Convertible debentures, due 2001                   $ 20,000
   8% Convertible debentures, due 2002, net
     of unamortized discount of $76,386                    93,614
   Capitalized lease obligation, due 2002                 112,915
   Capitalized lease obligation, due 2003                 218,585
   Capitalized lease obligation, due 2004                 329,954
                                                          -------
                                                          775,068
   Less current portion                                   311,422
                                                          -------
                                                         $463,646
                                                         ========
</TABLE>

Long-term borrowings maturing in each of the four years from December 31, 2000
are as follows:


                                        F-14

<PAGE>   48

<TABLE>
<CAPTION>

                      Fiscal year            Amount
                      -----------           --------
<S>                                        <C>
                        2001                $311,422
                        2002                 281,931
                        2003                  83,450
                        2004                  98,265
                                            --------
                                            $775,068
                                            ========
</TABLE>


NOTE 9 - FINANCING

On January 20, 1999, in connection with the merger with Park, the shareholders
of the Company approved a 1 for 262.154216 reverse stock split of the Company's
common stock. Additional shares were issued to round up each shareholder's
fractional shares, and as a result of this split, 347,954 shares became
outstanding immediately after the reverse split. The financial statements were
retroactively adjusted to account for this transaction.

On January 21, 1999, Sonus completed the sale of 750,000 shares of common stock
at $1.00 per share in a private placement to accredited investors. The aggregate
offering price was $750,000 with Sonus netting cash proceeds of $627,000. L.
Flomenhaft & Co.("Flomenhaft"), acting as investment banker, received $75,000 in
cash and a five-year common stock purchase warrant for 112,500 shares for its
services. The investors in the private placement received piggyback registration
rights in connection with the sale.

In May 1999, the Company issued an aggregate principal amount of $575,000 of its
10% convertible debentures ("Debentures"). The Debentures were automatically
converted under the terms of the agreement to common stock with the sale of the
Equity Unit offering in August 1999 as described below. Debenture holders were
also entitled to an "equity kicker" equal to one-half the number of shares of
common stock into which the Debentures were converted. The Company converted the
Debentures into common stock at $1.50 per share and, in accordance with the
terms of the Debentures, provided the additional shares as part of the equity
kicker thereby effectively making the price of the common shares $1.00 per
share. Flomenhaft provided the investment banking services for this offering. By
the terms of the Debentures, all investment-banking fees were deferred until the
Debentures were converted. In August, with the conversion of the Debentures into
shares of common stock, the cash fees of $57,500 and the five-year warrants were
issued to Flomenhaft.

In August 1999, the Company sold $500,000 of its equity Units, consisting of an
aggregate of 250,000 shares of common stock and 250,000 common stock purchase
warrants. Each warrant is exercisable at $3.00 per share of common stock. The
sale resulted in net proceeds to the Company of $435,000 after investment
banking fees and other expenses. The investment banking fees resulted in a cash
payment to Flomenhaft of $50,000 and the issuance to Flomenhaft and a nominee of
Flomenhaft five-year common stock purchase warrants.

In the third quarter of 1999, the Company entered into an equipment leasing
arrangement with its network equipment supplier. Under the arrangement, the
Company leased $209,000 of network equipment in the third quarter recording the
transaction as a capital lease. Subsequent to December 31, 1999, the Company
converted the outstanding vendor equipment payable of $365,000 into a lease
under this leasing agreement.

In conjunction with the acquisition of Empire One Telecommunications, the
Company completed the sale of 1,851,504 shares of common stock at $1.35 per
share. The aggregate offering price was $2.5 million with the Company realizing
$2,246,000 in cash proceeds. The offering was completed in three pieces with the
first closing occurring on November 22, 1999 for 418,140 shares resulting in
gross proceeds of $564,000 and net proceeds to the Company of $502,000, the
second closing occurring on January 5, 2000 for 1,088,939 shares resulting in
gross proceeds of $1,470,000 and net proceeds to the Company of $1,327,000, and
the final closing occurring on January 27, 2000 for 344,425 shares resulting in
gross proceeds of $465,000 and net

                                        F-15

<PAGE>   49


proceeds to the Company of $417,157. The difference between gross proceeds and
net proceeds reflect expenses of approximately $11,000 with the remaining
difference being the cash portion of the investment banking fees. The closing
that occurred on November 22, 1999 is included in the issued and outstanding
common stock of the Company at December 31, 1999. At December 31, 1999, the
Company had received $135,000 from investors in anticipation of the closing that
occurred on January 5, 2000. These proceeds are shown as Subscriptions Received
on the accompanying Statement of Changes in Stockholders' Equity at December 31,
1999.

L. Flomenhaft & Co. ("Flomenhaft") acted as the Company's investment banker for
this financing. For the services rendered, Flomenhaft and a nominee of
Flomenhaft received cash fees of approximately $180,000 plus five-year common
stock purchase warrants to acquire a total of 257,762 shares of the Company's
common stock at an exercise price of $1.35 per share. The per share exercise
price of the warrants was set at the same value as the common shares sold in the
offering.

In June 2000, the Company sold (and received proceeds of) $300,000 in
subordinated 8% convertible debentures. Each debenture holder received one share
of common stock for each dollar of debt. The debentures will mature at the
earlier of one year from the issue date or upon the completion of an equity
financing of $500,000 or more. If the holder elects not to convert, the Company
is obligated to redeem the debenture plus accrued interest at the rate of 8% per
annum. If converted at the time of completion of an equity financing of $500,000
or more, the holder is entitled to convert the outstanding principal and
interest into common shares based on the price of the common stock sold in the
equity financing. If converted at the time of maturity, the holder is entitled
to convert the outstanding principal and interest into common shares based on a
per share price of $1.35.

As the debentures included one share of common stock for each dollar of
debentures, an allocation of fair value between debt and equity was recorded
based on their relative fair values on issue date. As a result, a discount on
the debentures of $188,393 was recorded, and this value was ascribed to the
common stock, based on the then market price of $1.688. This discount on the
debentures is being amortized over the term of the loan. Additionally, in
accordance with EITF 98-5, an additional discount to the debentures was
recognized to account for an embedded beneficial conversion feature present at
the time of issuance. This beneficial conversion component was measured as the
difference between the market price of the common stock at issue date of $1.688
and the conversion price of the debentures at $1.35. The resulting intrinsic
value of $75,111 has also been recorded as a discount at issue date, and is
being amortized over the term of the loan as interest expense.

The Company completed an equity financing of at least $500,000 on September 30,
2000, and holders were eligible to convert their notes into common shares. As of
November 13, 2000, debenture holders comprising $110,000 of notes elected to
convert their notes. On that date, $110,000 of notes payable, related accrued
interest of $3,520 and the unamortized discount was converted into 481,221
common shares, which were issued on that date at a conversion price of $.236 per
share. Remaining debenture holders comprising $170,000 of notes elected not to
convert to common shares, but at the request of the Company, agreed to extend
the maturity of their notes for 22 months from December 2000. All other terms of
their original notes remained unchanged. Finally, one debenture holder
comprising $20,000 elected to redeem his note for cash, and this note has not
been paid by December 31, 2000 and is in default.

In September 2000, the Company completed its latest offering. The Company was
seeking to provide net proceeds of $2.7 million after banking, legal and
accounting fees. The offering was for 5,000,000 units, with each unit consisting
of two shares of the Company's common stock and one common stock purchase
warrant, with an exercise price of $.60. The purchase price per Unit was $.60.
The offering was completed in various installments between July 1 and September
30, 2000, and the total gross proceeds received were $1,263,898. After legal and
investment banking fees paid of $78,393, net proceeds were $1,185,505.
Additionally, warrants were issued as consideration for placement fees to
certain advisors including related parties (Quadrant Management Inc.), and the
fair value of these warrants was $23,285.

                                        F-16

<PAGE>   50


NOTE 10 - WARRANTS AND OPTIONS

FINANCING WARRANTS: In conjunction with the financing completed on January 21,
1999, Flomenhaft received 112,500 stock purchase warrants as a portion of the
fees for acting as Sonus' investment banker. The exercise price was set at $1.00
per share, the per share sales price of the related private placement. Of the
112,500 warrants, Sonus issued 90,000 warrants to Flomenhaft and a warrant for
the remaining 22,500 shares to a nominee of Flomenhaft. The warrants have
piggyback registration rights associated with them. The warrants had a fair
value of $48,000.

In May 1999, Flomenhaft acted as investment banker for the Company's 10%
Convertible Debentures. As part of the fees for managing this offering,
Flomenhaft earned common stock purchase warrants to acquire shares of the
Company equal to 15% of the shares into which the Debentures converted at the
effective conversion price of the Debentures. Under the terms of the Debenture
Agreement, the Company had the right to either pay off the Debentures or to
convert the Debentures to common shares, therefore the number of warrants and
the exercise price of such warrants could only be determined upon conversion.
Consequently, by agreement, the issuance to Flomenhaft of the warrants
associated with the Debentures was deferred until the actual date of conversion.
The Company chose to convert the entire Debenture to common shares and therefore
Flomenhaft received the maximum number of warrants when the Debentures converted
in August 1999. The exercise price was equal to the effective offering price of
$1.00 per share.

As part of the investment banking fees in conjunction with the Company's Unit
Equity offering in August 1999, Flomenhaft earned a common stock purchase
warrant for 37,500 shares at an exercise price of $2.00 per share, the price of
each Unit in the offering. Of the shares earned, 32,812 were issued to
Flomenhaft with the remaining 4,688 issued to a nominee of Flomenhaft. The
warrants had a fair value of $15,000.

In conjunction with the completion of its offering of 1,851,504 shares of common
stock at $1.35 in January 2000, Flomenhaft and a nominee of Flomenhaft (Hudson
Allen) received five-year common stock purchase warrants to acquire a total of
220,443 shares and 37,319 shares, respectively, of the Company's common stock at
an exercise price of $1.35 per share, the price of the common stock in the
offering, as consideration for investment banking services for this financing.

In connection with the merger of EOT, the Company issued warrants to each of
John Friedman, Paul Butler and Bradley Lewis, to purchase up to 150,000 shares
of common stock at an exercise price of $3.00 per share, which was equal to the
determined value per share at the date of grant. The warrants will vest over 3
years, and expire 7 years from issue date. The warrants had a fair value of
$507,600 and were included in the purchase price of EOT. Also, in connection
with the merger of EOT, the Company issued warrants to investment bankers, to
purchase 353,500 shares of common stock at an exercise price of $2.00 per share.
These warrants vested immediately, and expire 5 years from issue date, and had
an estimated fair value of $481,887.

In September 2000, the Company completed its latest offering. In connection with
this offering, the Company issued 2,106,497 warrants with each unit.
Additionally, warrants to purchase 116,000 shares of common stock were issued to
Quadrant Management Inc., and warrants to purchase 10,000 shares were issued to
GV Capital Corp., as consideration for placement fees. The exercise price of
each of these warrants is $0.60, the price of the unit in the offering, and
expire 5 years from issue date. The fair value of the warrants was $23,285.

CONSULTING WARRANTS: On January 14, 1999, Sonus Communications entered into a
two year consulting arrangement with L. Flomenhaft & Co. ("Consultant") whereby
the Consultant is to provide strategic financial, business planning and business
development services. The Agreement became effective January 21, 1999 when the
first private placement was completed. To compensate the consultant for his
efforts, Sonus issued a five-year warrant for 487,500 shares of common stock of
the Company with an exercise price of $1.00 per share, which was equal to the
offering price.



                                        F-17

<PAGE>   51


Effective April 1, 1999, the Company entered into a consulting agreement with
Coffin & Sons, Inc., a consulting firm owned by Mr. W. Todd Coffin, the
Company's President and CEO. The agreement provided that Mr. Coffin serve as CEO
for a term of six months and 15 days and that Mr. Coffin serve on the Board of
Directors of the Company during the consulting period. For the services of Mr.
Coffin, Coffin & Sons received cash compensation of $10,000 per month of which
$2,000 per month was deferred until after the successful completion of the next
private placement completed after the effective date of the agreement. The
private placement was completed and the deferred payment was subsequently paid.
In addition to the cash compensation, Coffin & Sons, Inc was issued 50,000
shares of common stock in May 1999 and is entitled to receive (i) 50,000 shares
upon the successful completion of the private placement of common shares at a
per share price of at least $1.50 and gross proceeds of at least $1 million;
(ii) 50,000 shares following the registration of shares issued in the private
placement and the shares trade at or above $3.00 per share for 20 consecutive
trading days; and (iii) 50,000 shares following the installation of a new chief
executive officer identified by Coffin & Sons, Inc and acceptable to the
Company. The agreement expired October 15, 1999. Mr. Coffin and the Company
agreed to extend the Agreement on a month-to-month basis until a new CEO can be
found. No additional shares have been issued in connection with this agreement.
This agreement was effectively cancelled, by mutual agreement in early 2000.

On April 20, 1999, the Company entered into a three-month consulting agreement
with Hudson Capital, a consulting firm owned by Mr. Raleigh Coffin, a director
of the Company and the father of Mr. W. Todd Coffin. The agreement provided for
Mr. R. Coffin to help the Company develop a comprehensive business plan along
with an institutional investor presentation. Compensation to Hudson Capital
consisted of $10,000 per month of which $5,000 per month was deferred until
after the successful completion of the next private placement and a five-year
warrant for 100,000 shares with an exercise price of $1.00 per share, which was
the value of the underlying common stock. The remaining balance of $10,000
remaining at December 31, 1999 was paid in January 2000. The warrant vests as
to: (i) 25,000 shares upon the signing of the agreement; (ii) 25,000 shares upon
the completion of the business plan; (iii) 25,000 shares upon successful
completion of the private placement noted above and (iv) 25,000 shares when the
stock publicly trades at $3.00 per share for at least 20 consecutive days.

OTHER WARRANTS: In April 1999, Mr. Charles Albo, Chairman, and Ms. Maraneli,
Executive Vice President each transferred 550,000 shares of common stock to the
Company for cancellation by the Company. In exchange for the shares, the Company
issued Mr. Albo and Ms Maraneli each a five year warrant to purchase 125,000
shares of the Company's common stock at an exercise price of $1.50 per share.
Mr. Albo and Ms. Maraneli are the original founders of Sonus Communications,
Inc.

Additionally, the Company in May 1999 redeemed from each of Mr. Albo and Ms
Maraneli 75,000 shares at $1.50 per share (the "Redemption Price"). Mr. Albo and
Ms. Maraneli agreed that payment of the Redemption Price be deferred until the
closing of a private placement resulting in gross proceeds to the Company of at
least $1 million. In exchange for the deferral of the Company's payment
obligations, the Company agreed to advance each of Mr. Albo and Ms. Maraneli up
to $7,000 per month not to exceed the total Redemption Price. All amounts
advanced will be deducted from the redemption price when paid. Although the
repayment was required to be made at the time of the Unit Equity sale in August,
Mr. Albo and Ms Maraneli have continued to accept advances from the Company in
lieu of full payment until the Company's cash position is better able to support
the remaining amounts due. As of December 31, 1999, $112,000 had been paid
leaving a balance due for the redemption of $113,000. As of December 31, 2000,
$57,000 remained unpaid.

Pursuant to employment contracts, the Company has issued warrants to Mr. Stephen
Albo, the Company's Chief Technical Officer and to Mr. Richard Rose, the
Company's Chief Financial Officer. Initially, Mr. Albo received in lieu of a
salary, a five-year warrant to acquire 75,000 shares of common stock that was
fully vested at the time of issuance. At the time Mr. Albo became a full time
employee, a second five year warrant to purchase 75,000 shares of common stock
of the Company was issued which vests over three years. Mr. Rose received upon
execution of an employment

                                        F-18

<PAGE>   52


agreement, a five-year warrant to purchase 75,000 shares of common stock of the
Company which vests over three years. All of the above employment warrants were
issued with an exercise price of $1.00 per share, the price at which the last
shares of common stock had been sold prior to the issuance of the warrants.

In September 1999, in conjunction with the hiring of an investment relations
firm, the Company issued a five year warrant to purchase 150,000 shares of
common stock of the Company at $2.50 per share, the market value on the date of
the agreement as determined based on the closing price of the Company's common
stock on the NASDAQ Bulletin board on the day prior to the date of the
agreement. This warrant expires 5 years from issue date.

In June 2000, the Company cancelled an existing stock option agreement and
replaced it with a warrant agreement for an officer. The warrants entitle the
holder to purchase 100,000 common shares with an exercise price of $1.91, vested
immediately upon issuance, and have a 5-year term from issue date. In accordance
with FASB Interpretation No. 44 "Accounting for Certain Transactions Involving
Stock Compensation", which became effective July 1, 2000, this effective
modification results in a variable award, which results in the recognition of
compensation expense during the life of the award, measured as the difference
between the closing market price at each measurement date and the closing common
stock price at July 1, 2000, times the number of outstanding warrants. As of
December 31, 2000, no compensation expense was recognized under these warrants,
as the market price was below the July 1, 2000 market price.

EMPLOYEE STOCK OPTION PLAN: On June 10, 1999, the Company adopted the 1999 Stock
Incentive Plan (the "1999 Plan") which was approved by a majority of the
stockholders on July 12, 1999. Under the terms of the 1999 Plan, which expires
on June 10, 2009, employees of the Company and its subsidiaries may be granted
incentive stock options, non-statutory stock options and restricted stock
awards. The option price of shares of common stock generally will not be less
than 100% of the fair market value on the date of grant or 110% of fair market
value in the case of a grant to a 10% shareholder. No option will be exercisable
more than ten years from the date of grant. The Company has reserved 500,000
shares for issuance under the 1999 Plan. Options typically vest over a
three-year period unless the Board of Directors in its discretion provides
otherwise. Options issued during 2000 were issued with provisions for the option
to vest over three years from the date of grant. Options shall become fully
vested upon a "change of control" as defined in the 1999 Plan.

DIRECTORS OPTION PLAN: On June 10, 1999, the Company adopted the 1999 Director
Stock Incentive Plan (the "Director Plan"), which was approved by a majority of
the stockholders on July 12, 1999. Under the terms of the Director Plan, which
expires on June 10, 2009, non-employee directors of the Company may be granted
non-statutory stock options at an exercise price equal to 100% of the fair
market value on the date of grant. No option will be exercisable more than ten
years from the date of grant. The Company has reserved 350,000 shares for
issuance under the 1999 Plan.

A summary of stock option transactions from the beginning of the plans through
December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                 Employees' Plan        Directors' Plan    Employee Warrants
                                             ---------------------   --------------------  ------------------
                                             Number       Average    Number      Average   Number    Average
                                               of        Price Per     of       Price Per    of     Price Per
                                             Shares        Share     Shares       Share    Shares    Share
                                             -------     --------    ------     --------   -------  ---------
<S>                                         <C>          <C>        <C>         <C>       <C>       <C>
Outstanding January 1, 1999                     -        $    -                 $    -
Granted                                      306,000         1.42    50,000         2.00   475,000  $  1.38
Exercised                                       -             -        -             -       -         -
Canceled                                        -             -        -             -       -         -
                                             -------     --------    ------     --------   -------  -------
Outstanding December 31, 1999                306,000         1.42    50,000         2.00   475,000     1.38

Granted                                      220,000          .70   100,000         1.44   100,000     1.91
Cancelled                                   (306,000)        1.42   (50,000)        2.00     -         -
                                             -------     --------   -------      -------   -------  -------
Outstanding December 31, 2000                220,000     $    .70   100,000     $   1.44   575,000  $  1.47
                                             =======     ========   =======     ========   =======  =======
</TABLE>

                                      F-19

<PAGE>   53


<TABLE>
<S>                                         <C>          <C>        <C>         <C>       <C>       <C>
Exercisable Options at December 31, 2000        -         $   -      62,500     $   1.44   575,000  $  1.38
                                             =======     ========   =======     ========   =======  =======
</TABLE>


The following table summarizes information about options and warrants
outstanding and exercisable at December 31, 2000:

<TABLE>
<CAPTION>
                                 Options/warrants outstanding                   Options/warrants exercisable
                    -------------------------------------------------------    -------------------------------
                                                       Weighted
                                                       average     Weighted                         Weighted
                    Range of                          remaining    average                          average
                    exercise     Options/warrants    contractual   exercise   Options/warrants      exercise
                      price         outstanding         life        price        exercisable         price
                    --------     ----------------    -----------   --------   ----------------    -----------
<S>                 <C>           <C>                <C>            <C>       <C>                 <C>
Employees' Plan
---------------
                    $   .47          200,000         9.75 years    $  .47            -               -
                       3.00           20,000         9.50 years      3.00            -               -
                                     -------                                      --------
                                     220,000         9.73 years    $  .70            -               -
                                     -------                       ------         --------         ------
Directors Plan
--------------
                    $   .38           50,000         9.75 years    $  .38           12,500         $  .38
                       2.50           50,000         8.75 years      2.50           50,000           2.50
                                     -------                                      --------
                                     100,000         9.25 years    $ 1.44           62,500         $ 1.44
                                     -------                       ------         --------         ------

Employee Warrants
-----------------
                    $1.00 - $1.50    475,000         3.67 years    $ 1.04          225,000         $ 1.00
                    $  1.91          100,000         4.50 years      1.91          100,000           1.91
                                     -------                                       -------
                                     575,000         3.81 years    $ 1.38          325,000         $ 1.28
                                     -------                       ------          -------         ------
</TABLE>

The Company accounts for stock options under APB 25, under which no compensation
cost has been recognized. Had compensation cost for these options been
determined consistent with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FASB 123), net loss in 2000 would have
increased to $5,626,265 ($0.65 per share) compared to $5,374,490 ($0.62 per
share), and net loss in 1999 would have increased to $1,828,640 ($0.46 per
share) compared to $1,751,266 ($0.44 per share).

For purposes of calculating the above required disclosure, the fair value of
each option is estimated on the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
2000: risk-free interest rate of 5.50%, no expected dividend yield, a volatility
factor of 58% and an expected life of 5 years. The weighted-averages assumptions
used for grants in 1999: risk-free interest rate of 6.84%, no expected dividend
yield, a volatility factor of 75% and an expected life of 7 years.


NOTE 11 - INCOME TAXES

No provision for federal and state income taxes has been recorded since the
Company has incurred losses through December 31, 2000 aggregating $9,198,317.
Deferred tax assets at December 31, 2000 and 1999, which consist primarily of
the tax effect of the net operating loss carryforwards noted above, amount to
approximately $3,000,000 and $750,000, respectively. The Company has provided a
valuation reserve to reduce this asset to zero at both December 31, 2000 and
1999 since there is no assurance the Company will generate future taxable income
to utilize the asset. The Company has available net operating loss carryforwards
of approximately $7,000,000 expiring through 2020. The availability of the net
operating loss carryforwards to offset income in future years, if any, may be
limited by Internal Revenue Code Section 382 as a result of certain changes in
ownership that have occurred. The Company has not filed all income tax returns
for Sonus Communications and Sonus Holdings for the 1999 tax year. The Company
does intend to file these returns as soon as practicable.




                                        F-20

<PAGE>   54


NOTE 12 - TRANSACTIONS WITH THE FOUNDERS

At December 31, 1998, the Company had a note to a shareholder with a principal
balance of $99,969 plus accrued interest. Interest accrued at an annual rate of
7%. In conjunction with an agreement made with the shareholder effective April
16, 1999, the principal was converted into 44,431 shares of common stock of the
Company. Accrued interest, which totaled $19,509 at the time of the principal
conversion, remains unpaid at December 31, 2000 and is included in other accrued
expenses.

In May 1999, in conjunction with the agreement noted above, the Company agreed
to redeem from each of Mr. Albo and Ms Maranelli (the "Founders") 75,000 shares
of common stock at $1.50 per share (the Redemption Price"). The Founders agreed
that payment of the Redemption Price would be deferred until the closing of a
private placement resulting in gross proceeds to the Company of at least $1
million. In exchange for the deferral of the Company's payment obligations, the
Company agreed to advance each of the Founders $7,000 per month not to exceed
the total Redemption Price. All amounts advanced would be deducted from the
Redemption Price when paid. Although the repayment was required to be made at
the time of the Unit Equity sale in August 1999, the Founders have continued to
accept advances from the Company in lieu of full payment until the Company's
cash position is better able to support the remaining amounts due. At December
31, 1999, $112,000 had been paid leaving a balance due for the redemption of
$113,000. As of December 31, 2000, $57,000 remains unpaid.

The Founders have asserted a claim of $247,000 against the Company in connection
with a loan. The Company denies the existence of such a loan. Should the
founders seek to recover any amount allegedly owed under this loan, the Company
intends to defend the claim through trial.

The Agreement further called for the Founders beginning on May 1, 1999 to devote
all their time to the Company and to take no compensation for one year.
Beginning May 1, 2000, the Founders were to be paid an annual salary
commensurate with that paid to similarly situated members of senior management
of the Company. As a result of this agreement, the Company has recorded $56,000
in 2000, and $112,000 in 1999, as salary expense with a corresponding
contribution to capital for the fair value of the time devoted by the Founders
to the Company. During 2000, the founders terminated their employment from the
Company.


NOTE 13 - RELATED PARTY TRANSACTIONS

On August 18, 2000, the Company entered into a consulting agreement with L.
Flomenhaft & Co, for merger and acquisition consulting services. The term of
this agreement is 1 year, and provides for a consulting fee of $115,000 plus
out-of-pocket expenses, to be paid monthly over the term of the agreement.

In December 2000, Sherry Shen, who is an employee of Quadrant Management Inc.,
was elected Chief Executive Officer and also elected to the Board of Directors.
Among her other duties as C.E.O., Ms. Shen's role will include obtaining
financing for the Company. Ms. Shen draws no salary, and no compensation expense
has been imputed for financial reporting purposes in 2000, as her election
occurred in late December 2000.

(See notes 9, 10, and 12 for other related party transactions).


NOTE 14 - RETIREMENT PLAN

The Company's original retirement Plan (the "Plan"), which was established in
1999, is a defined contribution plan including provisions of section 401(k) of
the Internal Revenue Code. Employees of Holdings who have completed 30 days of
service ("Participants") are eligible to participate in the Plan. The Plan
permits, but does not require, the Company to match employee contributions. In
addition, Holdings may make discretionary contributions to the Plan, which will
be allocated to each participant based on the ratio of such Participant's
eligible compensation to the

                                        F-21


<PAGE>   55


total of all Participants' eligible compensation. Amounts contributed by
Holdings vest evenly over three years based on years of service. Participants
may elect to direct the investment of their contributions in accordance with the
provisions of the Plan. The Company discontinued this plan in 2000, and made no
contributions to the Plan during 2000 or 1999.

The Company's current plan, originated by EOT was established in 1999, is a
defined contribution plan including provisions of section 401 (k) of the
Internal Revenue Service Code. Employees of the Company who have completed 90
days of service ("Participant") are eligible to enroll in the plan on
semi-annual open enrollment dates January 1 and July 1. The plan provides for
the Company to match 50 percent of Participant's contributions. The Company does
not make matching contributions in excess of 4 percent of a Participant's
compensation. Amounts contributed by the company vest over a 5-year period.
Participants direct the investment of their contributions in accordance with the
provisions of the Plan. The Company's contributions to the plan were $16,122 in
2000 and $9,073 in 1999.


NOTE 15 - COMMITMENTS AND CONTINGENCIES

LEASED FACILITIES: The Company leases office space, certain equipment and
co-location space under lease agreements certain of which are renewable at the
Company's option and/or provide for increase in rent over the life of the lease.
Rent expense for 2000 was $316,359, and $44,749 for 1999.

Approximate aggregate future minimum rentals applicable to operating leases in
effect at December 31, 2000 are as follows:
<TABLE>
<CAPTION>
                        Year Ending December 31,

<S>                                                                    <C>
                                    2001                                 $  395,872
                                    2002                                    367,930
                                    2003                                    338,663
                                    2004                                    266,678
                                    2005                                    262,800
                              After 2005                                  1,182,600
                                                                      -------------
                        Total minimum rental                             $2,814,543
                                                                      =============
</TABLE>

EMPLOYMENT CONTRACTS:

During 2000, the Company entered into employment agreements with each member of
management. These agreements, which were entered into at various times during
the year, provide for specific annual salaries, certain bonus provisions, and
certain additional benefits. The agreements also provide for options or warrants
to purchase common stock. The expected minimum annual salary commitments for the
remainder of the contract terms as of December 31, 2000 are summarized as
follows:
<TABLE>

<S>                          <C>          <C>          <C>
                                 2001         2002         2003
                              --------     --------     --------
Minimum salary                $605,000     $605,000     $271,000
                              --------     --------     --------
</TABLE>

In February and March of 2001, the Senior Vice President of Retail Services and
the Chief Operating Officer resigned their respective positions. In connection
with their exit terms from the Company, they both offered, and the Company
accepted, reduced severance terms. As a result of these resignations and reduced
severance obligations, the expected minimum salary commitments for each of 2001,
2002 and 2003 are reduced by approximately $149,000, $230,000 and $57,000,
respectively.

During 2000, both Mr. Albo and Ms. Maraneli terminated their employment with the
Company. A dispute arose regarding the remaining obligation under their
employment agreements. Litigation ensued, and an action was brought in the State
of Virginia, where the action was dismissed.

                                        F-22

<PAGE>   56
NOTE 16 - SUBSEQUENT EVENTS

On January 2, 2001, the Company sold $80,000 in original principal amount of its
15% Secured Subordinated Convertible Debentures, convertible into common stock
at $.05 per share, to Quadrant Management Inc. The 15% debentures were
guaranteed by Empire One Telecommunications, and secured by all of the accounts
(now and after acquired) of the Company and Empire One Telecommunications. The
15% debentures became due on April 2, 2001 and are in default. The Company has
not paid either principal or interest on the 15% debentures, and owes
approximately $82,893 of principal and accrued interest on the 15% debentures as
of March 31, 2001. As part of the 15% debenture purchase, the Company also
issued Quadrant Management Inc. a warrant to purchase up to 1,000,000 shares of
common stock at $.02 per share. The warrant contained "piggy-back" registration
rights covering the shares underlying the warrant.

On March 29, 2001, the Board of Directors of Sonus Communication Holdings, Inc.
(the "Company"), acting as the sole stockholder and board of directors of each
of its wholly owned subsidiaries (Empire One Telecommunications Inc., Sonus
Communications Inc., EOT Telecommunications of Canada Inc., and Empire One Power
Inc.), authorized and approved the filing, on behalf of each of its
subsidiaries, of a Petition for Relief under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Southern District of New York. The
Petition for Relief was filed on April 2, 2001.

As of March 31, 2001, holders of $110,000 in original principal amount of
convertible debentures had elected to convert their debentures into common
stock, leaving a total of $190,000 in original principal amount of these
debentures outstanding, plus approximately $2,310 in accrued but unpaid
interest. The debentures contain a provision stating that if the Company or any
of its subsidiaries commence any proceeding or other action relating to it in
bankruptcy, such as the proceedings filed by each of the Company's subsidiaries
on April 2, 2001, then the debentures are in default and the holder(s) of the
outstanding debentures may, by written notice, declare the outstanding
principal, plus accrued but unpaid interest thereon, to be immediately due and
payable.
































                                        F-23