UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934
         For the fiscal year ended: December 31, 2000

|_|      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
         For the transition period from _______________________ to _____________

Commission file number: 000-31213

                             TEK DigiTel Corporation
                 (Name of Small Business Issuer in its charter)

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<S>                                                    <C>
                   Wyoming                                        84-1465503
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(State or other jurisdiction of incorporation or      (IRS Employer Identification No.)
               organization)
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         20030 Century Blvd. Suite 201
              Germantown, Maryland                               20874
--------------------------------------------------    --------------------------
    (Address of principal executive offices)                   (Zip Code)

Issuer's telephone number: (301) 916-7600
                           --------------

Securities to be registered pursuant to Section 12(b) of the Act:

           (Title of Class)           Name of each exchange on which registered
     ----------------------------     -----------------------------------------
                None                                    None

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

        (Title of Class)              Name of each exchange on which registered
   -------------------------------    -----------------------------------------
     Common shares, no par value                        None

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

Check if there is no 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 definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

The issuer had revenues of $890,260 for its most recent fiscal year.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates was approximately $5,101,777 as of February 28, 2001 (based on
the closing price of such common equity).

The issuer has not been involved in a bankruptcy proceeding during the past five
years.

<PAGE>

As of February 28, 2001 there were 24,956,500 shares of the registrant's common
stock, no par value per share outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits to Registrant's Registration Statement on Form 10-SB,
Registration No. 000-31213, filed with the Securities and Exchange Commission on
August 2, 2000, and as amended by Amendment No. 1 on October 18, 2000, Amendment
No. 2 on November 15, 2000, and Amendment No. 3 on December 21, 2000, are
incorporated by reference herein, as stated under Part III, Item 13(a).

Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]

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                                TABLE OF CONTENTS

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PART I
<S>               <C>                                                                  <C>
Item 1.           Description of Business                                               5
Item 2.           Description of Property                                               22
Item 3.           Legal Proceedings                                                     22
Item 4.           Submission of Matters To a Vote of Security Holders                   22

PART II

Item 5.           Market for Common Equity and Related Shareholder Matters              23
Item 6.           Management's Discussion and Analysis of Financial Condition
                       and Results of Operations                                        25
Item 7.           Financial Statements                                                  40
Item 8.           Changes In and Disagreements with Accountants on Accounting
                       and Financial Disclosure                                         55

PART III

Item 9.           Directors, Executive Officers, Promoters, and Control Persons;
                    Compliance with Section 16(a) of the Exchange Act                   55
Item 10.          Executive Compensation                                                58
Item 11.          Security Ownership of Certain Beneficial Owners and Management        61
Item 12.          Certain Relationships and Related Transactions                        65
Item 13.          Exhibits and Reports on Form 8-K                                      66

SIGNATURES                                                                              68
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<PAGE>

                           FORWARD-LOOKING STATEMENTS

         Certain statements made in this annual report are not based on
historical facts, but are intended to be forward-looking statements. These
statements can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "will", "should", or "anticipates" or similar
terminology, or by discussions of strategy. These statements reflect the
reasonable judgment of our management with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. We cannot guarantee
that our forward-looking statements will turn out to be correct or that our
beliefs or goals will not change. Our actual results could be very different
from, and worse than, our expectations for various reasons, including factors
that may affect future results discussed in Management's Discussion and Analysis
or Plan of Operations. Under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, an SEC-reporting company that
identifies forward-looking statements and warns investors that actual results
could differ materially from those in the forward-looking statements, will not
be liable for any private action arising under the Securities Act of 1933 based
on such forward-looking statements.

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<PAGE>

                                     PART I

Item 1. DESCRIPTION OF BUSINESS

Our Organization

         TEK DigiTel Corporation is a Wyoming business corporation. Our
principal executive office is located at 20030 Century Boulevard, Suite 201,
Germantown, Maryland 20874, and our telephone number is (301) 916-7600. Our
stock is currently quoted on the National Association of Securities Dealers,
Inc.'s (NASD) Over-the-Counter Electronic Bulletin Board (OTC BB) under the
trading symbol TEKI.

         We were originally formed in Maryland in 1995 as ATC Group L.L.C. (ATC
LLC) to develop, manufacture and market a line of communications access products
for networks. On July 6, 1998, we merged into ATC Inc., a Maryland corporation
that was formed by its parent Diversified Technologies, Inc. solely to
facilitate this merger transaction. Prior to the merger, Diversified
Technologies, Inc. was a non-reporting OTC BB-listed company, with no
substantial assets or liabilities and no operations. We merged with Diversified
Technologies, Inc. in order to obtain that listing. As a result of the merger,
all of the assets, liabilities and operations of ATC LLC were merged into ATC
Inc., and Diversified Technologies, Inc. changed its name to TEK DigiTel
Corporation. For accounting purposes, the merger of ATC LLC with Diversified
Technologies, Inc. was accounted for as a recapitalization of ATC LLC, with ATC
LLC being treated as the acquiror (reverse acquisition). We recorded the assets
of ATC LLC, which at the time of the merger consisted primarily of cash,
totaling $145,339 and liabilities totaling $14,473, at their historical book
value.

         Also, pursuant to the merger agreement, the members of ATC LLC became
our officers, directors and majority stockholders. On July 6, 1998, we issued
6,200,000 shares of common stock and 2,066,667 shares of Series A Voting
Convertible Preferred Stock to the members of ATC LLC in exchange for 100% of
their ownership interest in ATC LLC. Our business development, as described
below, essentially commenced on July 6, 1998.

         Glocom, Inc., Enghe Chimood, Si Tsong Chang, Thomas W. Yang and Ke-ou
Chao formed ATC LLC. Since our inception, we have developed and marketed
proprietary products and technologies known as the V-Server family of products.
These products incorporate both software and hardware technologies originally
designed and developed by ATC LLC, as more fully described later in this annual
report.

Our Business

         We develop equipment for use by individuals and small businesses that
converts analog voice data to a digital format suitable for network transmission
using standard Internet Protocols (IP). The equipment, known as a "gateway,"
consists of proprietary computer hardware and software that connects a standard
telephone to the Internet or other digital network. This Voice over IP (VoIP)
technology allows users to transmit all of their voice and fax communications
using the Internet, instead of the conventional telephone network.

         Most Internet telephony system suppliers focus on developing large
carrier grade IP gateway systems because their inherent business model assumes
that the existing analog telephone infrastructure, the Public Switched Telephone
Network (PSTN), will remain the primary network to the home/small business.
While these other Internet telephony providers continue to develop large
centralized VoIP solutions that rely on the PSTN, we believe that the
accelerating growth of high speed, higher bandwidth Internet connections to
homes and small businesses and of wireless telephones will lead to a
decentralized communications model. Permanent Internet connections to homes and
small businesses will be as ubiquitous as the telephone is today. As a result,
we focus on developing customer premise equipment (CPE) located at the home or
office. Our solutions currently eliminate some regulatory issues, and simplify
network management.

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<PAGE>

         We target our products to a new breed of telecommunications companies
that base their telecommunications structure on the Internet by offering
Internet connectivity and VoIP as their primary solutions, as opposed to
traditional service providers that base delivery on the conventional telephone
network. We believe that many of today's Internet service providers (ISPs),
which provide Internet access to business and residential customers, will evolve
into this type of telecommunications company. Our products will allow these new
telecommunications companies to provide a full suite of Internet and telephony
services quickly and economically.

Industry Background

         Since the inception of VoIP technology in 1995, the whole industry has
gone through a growth pattern that started from the hobbyist stage, price
arbitrage stage, infrastructure building stage and into the recent IP-based
application development stage.

         When IP telephony was first introduced in 1995, voice quality was poor
and it was only available in the form of PC-to-PC connections. To make a call,
both the sender and the recipient needed to be on-line. To eliminate these
inconveniences, PC to phone communication was introduced in 1996. While this
eliminated the need for both users to be on-line, voice quality improvement was
minimal. It was not until 1997, with the introduction of PSTN-to-IP gateways,
that users were able to make calls from phone-to-phone using IP networks with
high voice quality. Allowing users to make long-distance calls over the
Internet, without either party having to be connected to a PC, launched the IP
telephony industry and led to the consensus among industry experts that IP
telephony had finally achieved widespread viability.

         At the same time, the impact of deregulation, competition and the
Internet has created a turbulent revolution in the telecommunications industry.
Fueled by the allure of free or inexpensive long-distance communications, IP
telephony sits at the heart of the turbulence. It is seen as an attractive and
relatively easily penetrable, rapidly growing market. Many countries, facing the
growth of Internet, are seriously considering legalizing the Internet telephony
services, such as China and India.

         Starting in 1998, a number of large corporations or carriers started
the deployment of large VoIP gateways along with the bandwidth providers
building high-speed IP based backbone network. During this time, the application
of VoIP was centered around the large gateway system based applications, for
instance, the pre-paid calling card telephone service utilizing IP backbone
connections. Carriers or backbone bandwidth providers have also invested in the
pavement of high-speed fiber optics based network connections. This
infrastructure building further stimulated the acceptance of VoIP. The end-user
gateway equipment situated at the customer site were more or less neglected or
under-served.

         To date, market growth in IP telephony equipment has primarily been
focused in central office gateway equipment for use by:

         o        Competitive access providers, which provide exchange access
                  services in competition with established local exchange
                  carriers; and

         o        Internet service providers, which provide residential
                  customers and businesses access to the Internet.

         This trend led to the establishment of networks with managed quality of
service standards, known as Managed IP Telephony Networks. These standards
assure that sufficient bandwidth is available to transfer time-sensitive data in
an efficient manner, thereby resulting in better voice quality. Voice data
requires this type of quality assurance because it must be transmitted
continuously and in order. Companies such as Cisco Systems, Northern Telecom,
and Lucent Technologies are the leading companies in the industry and have been
targeting the larger carriers.

                                       6
<PAGE>

         However, as the central office type VoIP infrastructure building effort
matures, a clear indication exists that the focus is shifting to the CPE
gateways or Integrated Access Devices (IAD) for both data and voice
transmission.

         A significant challenge facing service providers as they build their
managed IP telephony network infrastructure is being able to provide seamless
services to consumers. Using the carrier grade gateways located remotely at the
network operator's site, subscribers originating voice calls on IP telephony
networks must dial a local access number, enter a personal identification
number, wait for authorization, and finally enter their destination telephone
number. This process is inefficient and has limited the widespread adoption of
VoIP technology. Consequently, service providers are seeking to make their
networks transparent to the user and/or indistinguishable between placing calls
over conventional phone lines (PSTN) and VoIP calls. To achieve the requisite
level of transparency, it is necessary to extend the IP telephony access point
to customers' sites, rather than requiring consumers to use conventional phone
lines to obtain access. The customer premise VoIP gateway is the tool that
achieves this level of transparency. We believe it represents a growth area
within the VoIP gateway market.

         We also believe that for ISPs to successfully offer IP telephony
services, they must convert voice to data right at the customer's premise. This
is primarily due to the ISP's lack of expertise of managing a telephone
infrastructure. By converting voice traffic to data at the customer's premise,
the ISP can continue to offer the same service they offer today with minimal
additional resources, equipment and expertise.

         For instance, the CPE gateway will allow service providers to deliver
IP telephony access to commercial customers via dedicated VoIP lines that
connect directly to a customer's private branch exchange (PBX) system. A private
branch exchange is a private telephone system, usually located on a customer's
premises, connected to a common group of lines from one or more central offices
to provide service to a number of individual phones, such as in a hotel,
business or government office. The CPE gateway will route PBX traffic across a
wide area network connection to a router at the service provider's site. From
there, the traffic proceeds to the backbone VoIP network.

         Certain carriers utilize wireless communication devices together with
the VoIP CPE devices to implement VoIP network in order to serve multi-tenant
buildings for cost saving and fast to market purposes. Other Internet Service
Providers or Competitive Local Exchange Carriers (CLEC) are rolling out high
speed access services based on ADSL, ISDN or cable modem connections. On top of
that, new services based on VoIP such as Virtual PBX, unified messaging and
Internet FAX are being offered. VSAT or leased line based Virtual Private
Network (VPN) users are also interested in the VoIP CPE devices so that they can
further reduce their internal telephony cost. All together, they are stimulating
the demands for VoIP CPE devices.

Our Strategy

         Our strategy is to become the leading supplier of Internet access
devices, including CPE gateways, capable of supporting telephony and data
services to small and medium-sized enterprise users and small office and home
office (SOHO) users. A key element of this strategy is to partner with Internet
telephony service providers (ITSPs) who wish to provide a full suite of services
similar to services provided by conventional telecommunications companies, and
to deliver a comprehensive telecommunications solution to these companies.
(ITSPs are Internet service providers that have added telephony services to
their service portfolio.)

                                        7

<PAGE>

     o    Strategic Relationships with Telephony Service Providers

          Rather than developing our own PSTN-to-IP gateway services, we develop
          business relationships with telephony service providers like Centrecom
          to enable them to sell 1-800 access, unified messaging, conferencing
          and global long distance services using our VoIP platform.

     o    Strategic Relationship with OEM partners

          We work closely with companies whose businesses are highly related to
          VoIP communication industries in the form of Original Equipment
          Manufacturer (OEM) arrangements. These companies can normally provide
          their worldwide distribution channels for our product.

     o    Provisioning and Management Server

          Provisioning is the process of preparing the VoIP device for its
          intended operation. For instance, the device must be configured with a
          set of proper parameters tailored to the networking environment,
          before it is installed at the customer site and ready for operation.
          Provisioning and management are critical for enabling small and
          medium-sized ITSPs to deliver these integrated VoIP services without
          any additional technical and infrastructure resources. The unique
          ability of the provisioning and management server helps ITSPs to
          deploy and manage a large number of CPE VoIP gateways in a cost
          effective manner. Our server-based architecture uses a Linux based
          provisioning server. Linux is a UNIX-derived, open-source computer
          operating system normally used for servers and workstations and seen
          by many as an attractive alternative to Sun and Microsoft platforms.

     o    Expand Distribution Worldwide

          We believe the largest market for Internet telephony today is outside
          the United States due to the high cost of traditional telephony
          services in these areas. We plan to focus in particular on the Asian
          and Pacific Rim markets.

          The following table represents examples of normal phone rates using
          traditional telephony services from the United States and various
          Asian countries to various destination countries:

                                Call from the       Call From        Call From
                                United States        Japan             Taiwan
                                -------------       ---------        ---------
                 To France          $0.17             $1.93            $0.84
                 -------------  -------------       ---------        ---------
                 To Egypt            0.50              3.30             1.27
                 -------------  -------------       ---------        ---------
                 To China            0.59              1.63             0.77
                 -------------  -------------       ---------        ---------
                 To Hong Kong        0.34              1.67             0.71
                 -------------  -------------       ---------        ---------

     o    Establish Leadership in Auto Install and Activation Technology

          The single largest impediment to a broad acceptance of this technology
          is the complexity of installing and activating CPE VoIP gateways. We
          believe we have developed leading edge technology that will enable
          these devices to be as easy to install as traditional telephones. We
          will continue to enhance this technology and believe we can maintain
          market leadership in this area.

                                       8
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Our Products

         We manufacture a line of VoIP gateway devices, our V-Server(R) product
line, designed to allow ITSPs to deliver a variety of voice, data and fax
services to the small to medium-sized and SOHO user using the Internet and the
conventional telephone network. These services include local and long-distance
voice connectivity, enhanced voice features such as voice mail, unified
messaging and fax transmission, as well as basic Internet data access for
multiple users at a single site. "V-Server" is our registered trademark.

         We have also developed a number of personal computer (PC) client and
server-based provision/management tools to allow the gateway devices to be
configured and managed to support the interconnection of users across public
Internet or private corporate Intranets. We plan to continue the development of
more features for a more powerful family of servers providing long-distance
telephone service over the Internet.

         The V-Server products integrate basic voice telephony features with IP
routing and state-of-the-art VoIP technology that enables telephone and fax
calls to be made over the public Internet or any private IP infrastructure.
Although the products are designed to inter-operate with all existing central
office H.323 IP gateways and gatekeepers, the products can be deployed within a
private IP network and operate among themselves. H.323 is an International
Telecommunications Union standard that describes what protocols will be used in
VoIP communications.

         The V-Server products are designed for use with a wide variety of
Internet access services, including:

          o    Integrated Services Digital Networks (ISDNs);
          o    Wireless telephones;
          o    Digital Subscriber Loops (DSLs); and
          o    Cable modem delivery.

         An ISDN is a digital replacement for the standard analog telephone
system that uses conventional telephone lines but provides end-to-end digital
connections. DSLs are a family of local loops, or cabling between customer sites
and the service provider's offices, that provide a higher bandwidth connection.
According to a Computer Economics study, "Cable modem users will grow from 5.7
million installed systems in 2000 to 27.6 million systems in 2005. Between 2000
and 2005, the installed base of DSL lines will increase from 2.4 million to 13.8
million."

         With its rich feature set, the current V-Server line of products allows
service providers and enterprises to integrate VoIP technology with other
Internet solutions. To continue the support to our customer, we plan to enhance
our current product line with additional higher performance platforms as well as
enhanced telephony and data functionality.

Technology Deployed

While V-Server represents a number of products with platforms that differ in
terms of the capacity, performance, price levels and features supported, they
all incorporate to some degree the following key technologies:

         o        IP Routing - Connecting a single computer workstation to the
                  Internet is a fairly simple proposition for the ISP and
                  normally involves installing a stand alone or internal modem
                  card to the computer. However, when the environment changes to
                  the multiple workstations connected through the Local Area
                  Network (LAN) normally found in a small and medium-sized
                  business, a device that can provide a

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                  connection between the LAN and Internet is required. This
                  device is called a "router". The router function also enables
                  the sharing of a single IP address provided by the ISP among
                  all the LAN computers and performs traffic prioritization
                  functions in order to protect delay-sensitive traffic such as
                  voice.

         o        Voice over IP - The VoIP gateway functionality included in the
                  V-Server products provides an interface between the
                  traditional voice world and the Internet. The gateway encodes
                  the analog voice signal from attached telephone equipment,
                  converts it to a digital format and then bundles it into the
                  IP which is used to transport all traffic through the
                  Internet. Two gateways located at geographically distant
                  locations, both connected to the Internet, can be used to
                  facilitate a telephone call or fax connection without the need
                  for conventional voice lines.

         o        Voice Switching - While normally found in the switches used by
                  the service provider to construct the PSTN and Private Branch
                  Exchange (PBX), voice switching is the ability to
                  intelligently route voice/fax phone calls based upon the
                  selected destinations and the available network resources. The
                  ability for business users, in a common facility, to share a
                  set of PSTN lines to initiate and receive phone calls,
                  transfer calls, utilize voice mail, have calls screened by an
                  Interactive Voice Response (IVR) mechanism and automatically
                  select lower cost long distance services are necessary
                  efficiency tools in today's environment. An IVR is a
                  telecommunications computer that interacts with the caller and
                  provides options as varied as looking up account balances,
                  selecting long distance service providers, or playing a
                  pre-recorded announcement for the caller.

         o        Gatekeeper Support - As in any other technology area, the VoIP
                  world has a set of existing and evolving standards for
                  communication between devices created by different vendors.
                  One of the most critical areas is interaction between the VoIP
                  gateway that handles the actual traffic and the gatekeeper
                  that enables the call to occur. The gatekeeper regulates
                  access to the network. It helps VoIP gateways locate each
                  other and may be involved in setting up, managing and
                  disconnecting the call. In addition to the basic function of
                  facilitating call connections among multiple IP gateways, the
                  gatekeeper is a critical element in providing usage monitoring
                  and customer billing information. As such, interoperability
                  with the gatekeeper is an important element in any VoIP
                  gateway. V-Server supports H.323 gatekeeper that is currently
                  the most utilized in the VoIP industry. The support of other
                  VoIP gatekeeper protocols is also planned in the near future.

         o        Provisioning Tools - The large-scale deployment of CPE devices
                  presents a number of issues for a service provider. To deliver
                  a competitively priced offering, it is often necessary to
                  control the cost of installing and managing this pool of
                  distributed equipment. Key factors in reducing these costs are
                  tools that eliminate the need for the service provider to
                  actually visit the customer site. Features that enable
                  customer installation of the product, including
                  pre-configuration and self-configuration, are very important,
                  as are management solutions that enable centrally located
                  technicians to install/diagnose CPE equipment without
                  traveling to the customer's location. A number of tools,
                  including Simple Network Management Protocol (SNMP), Telnet,
                  and File Transport Protocol (FTP), are available to allow
                  devices to be monitored and controlled across the Internet by
                  a centralized computer. In addition, ease of use features such
                  as transparent dialing reduce the need for training on the
                  part of the actual users and have a positive effect on
                  reducing support costs and increasing profitability.

V-Server Products

         The V-Server Router/Gateway provides the physical connection between
Internet and the analog telephony equipment including telephone handset and the
PSTN. In addition to VoIP gateway functionality, each V-Server includes full IP
routing support to provide traffic control, including voice traffic
prioritization, and firewall

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protection. A firewall is a security program that prevents unauthorized access.
The IP router also allows more than one computer to share the IP address
provided by the ISP. The V-Server can be configured locally or remotely using a
standard touchtone telephone. These V-Server devices are listed below:

         o        V-Server iGATE and iPRO - All iGATE and iPRO devices have an
                  Ethernet Local Area Network (LAN) port to connect to the local
                  computers of an office's network. Ethernet is the most common
                  technology used today for connecting multiple computers in
                  networks. For Internet access our iGATE supports ISDN Basic
                  Rate Interface (BRI) or an external modem connection. On the
                  voice or telephony interface, it supports two (iGATE) and four
                  (iPRO) analog voice ports. Each one of the analog ports can be
                  configured for PSTN connection or for a standard analog
                  telephone. The iGATE and iPRO can also be ordered in a
                  gateway-only version (no direct Internet interface) to connect
                  telephones to a corporate LAN.

         o        V-Server Dual Ethernet - Similar to the iGATE and iPRO with
                  two and four voice ports and a local Ethernet connection, the
                  Dual Ethernet V-Server provides an additional Ethernet port.
                  It is focused on broadband services and can be directly
                  connected to DSL, wireless or cable modems via the additional
                  Ethernet port. The ability of the product to be
                  customer-installed on an existing broadband access link makes
                  the V-Server Dual Ethernet especially attractive to service
                  providers wishing to avoid the expense of a "re-installation"
                  visit to their customer sites to add voice support. Many
                  features are supported to make this Dual Ethernet product
                  attractive to the cable modem and DSL modem users for their
                  VoIP needs.

         o        V-Server OfficeBuilder - Combining advanced voice switching
                  with the IP gateway and routing functionality, the
                  OfficeBuilder allows a small office to optimize its
                  communications budget. The basic OfficeBuilder supports four
                  phone extensions, two PSTN connections and four simultaneous
                  VoIP calls. Multiple OfficeBuilders can be connected via a LAN
                  to support more phone extensions and PSTN connections. Users
                  can also utilize its advanced call handling features including
                  Call Transfer, Call Forward, Hold, Music on Hold, Unified
                  Messaging and more. We are ready to begin field beta testing
                  of this product in the second quarter of 2001.

         o        V-Server iPOTS - We are working jointly with Formosa
                  Industrial Computing Corporation (FIC) of Taiwan to develop an
                  advanced IP phone system. The iPOTS is a stand-alone internet
                  accessible telephone set. It has been designed to integrate
                  voice/data devices for the small and medium size business
                  user. We also believe that the iPOTS has residential
                  applications. Installed at the users location, the iPOTS
                  telephone set enables the user to be connected to a single
                  platform for both voice and data applications. Our
                  responsibilities are to design the software architecture,
                  leveraging our experience gained in creating our other
                  products. Formosa Industrial Computing Corporation's focus is
                  on hardware development and manufacturing. We anticipate our
                  market introduction of the iPOTS in late 2001 or early 2002.

Provisioning Tools

These are a set of software tools designed to assist V-Server product's
configuration, installation and management:

         o        Dynamic Dialing Administrator (DDA) - V-Server Gateways
                  support a unique "Dual Registration" mode enabling them to
                  selectively route VoIP calls using either a conventional H.323
                  gatekeeper or our own DDA technology on a call-by-call basis.
                  The Linux-based DDA is a software program that resides in a
                  server computer which enables the offloading of the processing
                  of V-Server-to-V-Server calls from the stand alone gatekeeper.
                  The DDA enables the service provider to deliver enhanced voice
                  services

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<PAGE>

                  not currently supported by today's H.323 gatekeepers. The DDA
                  is focused on enhancing, but not replacing H.323 gatekeepers.
                  Features of the DDA include:

                  o        Phone Directories - Allow user to register and
                           maintain a list of phone numbers with calling group
                           ID, area code, country code and name; also provide
                           usage history reports.

                  o        ISDN Wake-up - Notifies users with ISDN dialup
                           services of incoming VoIP calls. Once notified, a
                           user's iGATE device can dial up the connection and
                           receive the call.

                  o        Virtual Calling Groups - Clusters of V-Server devices
                           can be grouped into smaller calling groups that
                           restrict who can call and be called. Tiered service
                           offerings with different rate structures can be
                           constructed using calling groups of different sizes.

                  o        Free Calling Areas - With this feature service
                           providers can offer their customers free calling
                           plans to commonly called destinations as part of a
                           small business package. A group of distributed
                           V-Servers can "host" phone calls to specified
                           destinations allowing a provider to easily construct
                           and administer free calling packages to differentiate
                           their offerings from generic ISP competitors.

                  o        Service Partitioning (Virtual ITSPs) - To support
                           partnerships between the primary voice provider and
                           the ISP reseller, our DDA server provides the ability
                           to partition a block of users to be independently
                           administered by the ISP reseller.

                  o        Authentication Server - This feature enables the
                           administrator to require authentication, e.g.,
                           personal identification number and pass code, before
                           allowing an iGATE to process a call.

                  o        Call Detail Records (CDR) Collection - DDA collects
                           the call detail records from each iGATE for ultimate
                           billing process. The reports contain information on
                           IP-called addresses, phone numbers called, length of
                           time called and data packets generated/received.

                  o        Software/Configuration Management - DDA enables
                           automatic download of configuration data and
                           operating software into V-Server gateways. Many
                           revisions of software can be supported
                           simultaneously. As each iGATE registers with the DDA,
                           the pre-assigned revision of software for that user
                           is checked and automatic downloading in the
                           background commences, if necessary. Centralized
                           configuration of users prior to shipping out units
                           enables quick configuration and secure management.
                           Unauthorized changes in the configuration of iGATE
                           units will result in de-registration of the units.

         o        V-Express - V-Express is a graphical based software tool for
                  configuration, monitoring and management of the V-Server
                  products. It runs on Microsoft Windows 95, 98 and/or NT
                  platforms. V-Express is used to manage V-Server devices
                  connected locally or across the Internet via an IP connection.

TEK Virtues Private Network Solution Package

     In order to better serve and to provide a more complete VoIP solution to
our customer, we have made arrangement with several partner companies to include
their products into our current product offering. Collectively, the complete
product line is referred to as TEKVPN Solution Package.

                                       12
<PAGE>

         TEKVPN is a new "turn key" voice VPN (virtual private network) solution
for global network service provider customers. We believe that TEKVPN is the
first complete cost effective VoIP service package designed specifically to
enable Internet Service Providers (ISPs), Competitive Local Exchange Carriers
(CLECs), and any other service provider to fully outsource operations by
utilizing TEKVPN's features, including device self-provisioning, network
management, closed user groups, user directory server, customer support
functions, billing systems as well as gatekeepers for their VoIP network. We are
currently conducting service provider trials of TEKVPN services in a trial
network that consists of three global POPs located in Virginia (US), Taipei
(Taiwan) and Hong Kong. TEKVPN services are planned to be generally available in
late 2001. The major components of TEKVPN include the following:

         o        TEK Dynamic Dialing Administrator Server - providing user
                  management, network management, call management and service
                  provisioning functions.
         o        TEK Billing server - a complete on-line billing system to
                  support both pre-paid and post-paid billing functions.
         o        TEK H.323 gatekeeper - for seamless connections to other VoIP
                  networks.
         o        VPN Gateway Server - located at the entry point of the IP
                  backbone network to concentrate traffic from CPE devices onto
                  high speed network for voice quality improvement.
         o        TEK Network Management System - a standard based SNMP
                  management system.
         o        Carrier Grade Gateway - OEM arrangement to provide multiple
                  T1/E1 VoIP carrier grade gateway.
         o        V-Server product family - iGATE, iPOTS, iPRO, OfficeBuilder
                  and DualEthernet products.

We will continue to design or OEM new products to be included in the TEKVPN
Solution Package in order to improve our product offering and competitiveness.

Our Market Opportunity

The ability to route voice traffic over IP data networks is gaining widespread
acceptance due to the significant cost savings generated by bypassing long
distance and toll charges, equipment cost reduction and wire savings. Gartner
Group's Data Quest states that in 1999, 4.8 billion minutes of telephone
conversations took place through networks based on Internet protocol. Data Quest
estimates that in 2003 Internet telephony will top $50 billion in revenues.

         Within the VoIP industry, a number of companies are developing products
for service providers that enable carrier infrastructure to deliver VoIP
services, thereby allowing businesses and the general public to take advantage
of VoIP technology. In our opinion, one business segment has not been actively
targeted. This market is the small to medium enterprise (SME) market, which is
our targeted market and which we believe to be the fastest growing business
market for telecommunications and Internet services in the United States. At
present, in North America alone, this market is a $37 billion technology market.

         As the Internet and World Wide Web begin to impact all aspects of
business operations, small office consumers are realizing the need to level the
playing field with larger enterprises by supporting systems to better
communicate with customers, suppliers, and employees. These advances allow SME
users to emulate the communication systems of a large corporation at a fraction
of the cost.

         As carriers race to deliver high bandwidth services to SMEs and
telecommuters, many consumers will seek out new customer devices that integrate
voice and data. This downward proliferation of networking sophistication is in
its infancy, because, in the past, voice-over packet enabled routers and private
branch exchanges have been far too costly and complex to be used in smaller
offices. Rather, most smaller offices use a modem and several phone lines.

                                       13
<PAGE>

         We were formed to change the small office environment and launched a
family of products marketed to this segment of consumers yet to embrace advanced
communications. We believe our products will act as a VoIP market catalyst,
enabling multiple advanced functions within a single low-cost integrated device,
far surpassing the appeal of single function consumer alternatives.

         During 2000, we experienced increased demand for CPE VoIP gateways or
IADs. The CPE gateways working with the large carrier grade gateways over
managed IP networks is gaining large carriers' attention in many countries. We
believe that employing CPE devices is the most cost effective way for these
carriers to extend the edge of IP network to the large number of smaller user
sites.

Distribution Methods of Our Products and Services

We primarily distribute our products to the SME business markets through
partnerships with service providers and original equipment manufacturers. Other
distribution channels include value added resellers (VARs) who will sell to the
Internet service provider (ISP) and enterprise customer market. We maintain a
direct sales force to sign up and manage our strategic business relationships.

         Service Providers - The primary focus of our strategy is to distribute
our product in partnership with service providers needing customer premise
equipment for their offerings. By incorporating the V-Server with their service
package, they can allow their SME business customers to access their VoIP voice
services using their conventional telephony equipment. We have witnessed that a
number of ISPs are becoming Internet telephony service providers (ITSPs) by
employing both CPE and carrier grade gateways.

         In addition, we are finding that many of the remaining ISPs are
interested in forming partnerships with competitive local exchange providers
(CLECs) to deliver voice services to the ISP's customer base. These CLECs
currently serving a group of local users with conventional telephone network
access have an investment in a voice and billing infrastructure and are looking
for market opportunities to fuel their growth. The customer base and local
presence offered by the ISP present an attractive opportunity to deliver their
telephone services and advanced features (voice messaging, toll free numbers,
unified messaging, etc.) to the ISP's customers using the Internet access
connection and the V-Server at the customer site. We continue to make
partnership arrangement with CLECs and introduce them to our ITSP customers.

         Original Equipment Manufacturer - We continue to establish OEM
relationships with firms that provide solutions to service providers as well as
enterprise customers. These OEM partners will sell our devices under their own
name or will implement our technology into their own platforms. The benefit to
OEMs of including our products is that they will be positioned to provide a more
complete end-to-end solution to their customers. From these opportunities, we
will receive compensation either in the form of sales of V-Server products or
royalty payments for every device our OEM partner manufactures.

         Value Added Reseller - To address the opportunity presented by
enterprise customers looking to implement their own VoIP solution within their
own Intranet or over the Internet, we have created a channel program to
establish a network of authorized VARs who will sell and support our products.
In addition, to approach the large number of small ISPs, we will work with one
or more of the tier-two distributors addressing this environment.

Status of Our New Products and Services

         We have three additional development programs planned and in production
stage. We expect to deliver these new platforms in fiscal 2001. These platforms
are in various stages that range from concept to prototype stage. Because they
are not released, we are describing them in very general terms.

                                       14
<PAGE>

         o        Second Generation Gateway/Router - The current V-Server iGATE
                  and Dual Ethernet platforms have been redesigned to reduce
                  cost, expand functionality and enable the use of components
                  that can be acquired in higher volumes. Out of this redesign
                  process we have developed the iGATE2, a lower cost version of
                  our iGATE.

         o        OfficeBuilder - In conjunction with Centrepoint, we are
                  developing a version of the V-Server that will support full
                  private branch exchange functionality in addition to the
                  current product's routing and VoIP gateway support. Full PBX
                  integration will provide such features as Call Forward, Call
                  Transfer, Call Hold, Interactive Voice Response and Unified
                  Messaging. This program will also double the current VoIP
                  density by providing a gateway with four VoIP ports and the
                  ability to logically interconnect devices via a "stacking"
                  mechanism that will enable us to serve customers with a larger
                  number of employees. We anticipate beginning beta testing of
                  our Office Builder product in the mid-2001.

         o        V-Server iPOTS - We are working jointly with Formosa
                  Industrial Corporation of Taiwan to develop an advanced IP
                  Phone System. The iPOTS is a stand-alone Internet accessible
                  telephone set. It has been designed to integrate voice/data
                  devices for the small and medium size business user. We also
                  believe that the iPOTS has residential applications. Installed
                  at the users location, the iPOTS telephone set enables the
                  user to be connected to a single platform for both voice and
                  data applications. Our responsibilities are to design the
                  software architecture, leveraging our experience gained in
                  creating our other products. Formosa Industrial Corporation's
                  focus is on hardware development and manufacturing. We
                  anticipate our market introduction of the iPOTS in late 2001
                  or early 2002.

Our Competition

         The industry in which we compete is subject to rapid technological
developments, evolving industry standards and changing consumer needs. The
possibility of voice communications over the Internet first became a reality in
1995. Our future success will depend upon our ability to adapt to this rapidly
changing industry and to continually improve our products and services.

         The "Voice over Packet" and specifically the VoIP market is crowded
with many participants. Many of these companies are both our potential
competitors and potential partners. In particular, if another company does not
target the same market but has the same technological focus as we do, we may
have a basis for forming a strategic partnership to permit our mutual expansion.

                                       15
<PAGE>

         The following table sets forth information concerning our company and
those companies we believe to be our primary competitors. This information is
believed to be accurate as to their current products and services offerings.
However, we cannot assure you that these identified competitors (and other
companies) are or will not offer enhanced products and services superior to
ours.

<TABLE>
<CAPTION>
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                         Advanced                  Management and
                      Basic Gateway      Gateway     Integrated     Provisioning
     Company          Functionality      Features      Routing         Feature       Nature/Extent of Competition
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
<S>                      <C>              <C>          <C>              <C>          <C>
                                                                                    Priced in the $200 to $300 per
                                                                                    port range, the focus is on high
                                                                                    features and telephone company/
                                                                                    industrial level provisioning
TEK Digitel               Yes             High          Yes             Full        for business use.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $300 per port
                                                                                    range, the focus is on selling
                                                                                    services.  They do not focus on
I-Link                    Yes            Medium          No           Limited       selling hardware.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $200 to $300 per port
                                                                                    range, they do not provide an
                                                                                    industrial level product, but rather
                                                                                    it is a consumer level product
Broadmedia                Yes             None           No           Limited       targeted at telephone companies.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $500 per port range,
                                                                                    focus is on PBX functionality and
                                                                                    enterprise networks. They have
                                                                                    limited telephone company
                                                                                    provisioning services integrated
Vive                      Yes             High          Yes           Limited       into the unit.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $250 per port
                                                                                    range, this simple gateway is
                                                                                    primarily targeted at the
Ericson                   Yes             None           No           Limited       enterprise point-to-point market.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $300-$850 per port
                                                                                    range, they have established
                                                                                    distribution channels.  Their
                                                                                    products lack an integrated
Multitech                 Yes             High           No           Limited       router.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $300 per port
                                                                                    range, they are focused on
                                                                                    telephone services only and
                                                                                    offer limited integrated
                                                                                    services capability. Their
                                                      Yes, but                      provisioning tools are very
Nextone                   Yes            Medium       limited          Medium       basic.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
                                                                                    Priced in the $250-$300 per port
                                                                                    range, they are targeting the
                                                                                    high end of the basic gateway
                                                                                    market.
                                                                                    They offer no integrated
                                                                                    services support and limited
                                                                                    telephone company/industrial
Mediatrix                 Yes             None           No           Limited       level provisioning.
------------------- ----------------- ------------- ------------- ----------------- ----------------------------------
</TABLE>

         We believe the principal competitive factors affecting our market
include breadth and depth of a solution, compatibility with existing
applications and operating systems, a customer base, strategic alliances, core

                                       16
<PAGE>

technology, product quality and performance, customer service, and speed and
ease of deployment. We believe our products and solution currently compete
favorably with respect to these factors. However, our market is relatively new
and rapidly evolving.

         Some potential competitors have longer operating histories, larger
customer bases, greater brand recognition, and significantly greater financial,
marketing and other resources than we do and may enter strategic or commercial
relationships with larger, more established and well-financed companies. Some of
our competitors may be able to secure alliances with customers and affiliates on
more favorable terms, devote greater resources to marketing and promotional
campaigns and devote substantially more resources to systems development than we
do. In addition, new technologies and the expansion of existing technologies may
increase competitive pressures on us. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.

Our Principal Suppliers

         Two of our product's component pieces are only available from single
sources. We purchase these components from Texas Instruments Incorporated and
Motorola, Inc. We believe that these two component pieces, consisting of a
digital signal processor and a central processing unit, cannot be replaced with
any currently available alternative component. Additionally, we believe that
three computer chips and one interface component that we use in our products are
only available from single sources. Alternative components are available, but
they would require a design change to our products. These components are
available from Motorola, Advanced Micro Devices, Harris and Mitel. We do not
have supply agreements with any of these companies. However, we have not
experienced difficulties in purchasing component parts; and, while we have begun
to experience longer lead times for certain components, we do not anticipate any
shortages in the future.

         We rely upon direct purchases or licensing agreements with software
providers for some of the software that we use in our products. In 1998, we
entered into an agreement with RADVision, Inc., for a nonexclusive license to
use the H.323 Protocol Stack Software (H.323 protocol) in our V-Server Gateway
system products. This software functions as middleware, enabling our products to
use the H.323 protocol. Under the agreement, we pay RADVision royalties every
quarter, based upon the number of V-Server products we sell.

         We consider the RADVision license to be very important to our product.
Building our product without the H.323 protocol would require us to locate an
acceptable alternative or develop our own software, both of which we believe
would entail significant expense.

         We also entered into a nonexclusive license agreement with Telogy
Networks, Inc., a subsidiary of Texas Instruments, on March 31, 1998, which
permits us to use Telogy's Golden Gateway Voice Over Packet software in our
V-Server product line. We use the Golden Gateway Voice Over Packet software, in
part, to convert analog information to a digital format. We also consider
Telogy's product to be very important to our product.

Current Dependence on a Few Major Customers

         As part of our business plan, we enter into strategic partnerships and
alliances. We rely on these alliances to provide the necessary technology to
integrate our products into their products and services. The establishment of
these alliances is also an important component of our overall marketing
strategy. We use alliances as a direct marketing channel for our products, as we
typically sell our products to these companies who include our product in their
bundle of products and services. Further, alliances are important to help ensure
our product's compatibility with other Internet and telephony products on the
market. Our success depends, to a large extent, on the business success of our
strategic partners.

                                       17
<PAGE>

         Arelnet Ltd., an Israel-based provider of large, carrier grade VoIP
telephony solutions, along with ePHONE and CentreCom, two start-up Internet
service providers, purchase our iGATE products to include them as part of their
overall telecommunications solutions. We believe other products exist that these
customers could purchase that would provide the same basic function.

         We entered into a Memorandum of Understanding (MOU) with ePHONE
Telecom, Inc. on July 19, 1999, as amended on September 11, 1999. ePHONE's
business plan is to become a global telecommunications carrier providing a full
range of telecommunications services, including VoIP services. Our iGATE product
will enable ePHONE to offer a VoIP based fax and voice service from the user
end. The MOU provided for ePHONE's prepayment of $350,000 for 500 2-port
V-Servers, and both parties fulfilled their obligations under the MOU as of
August 2000. We subsequently cancelled the MOU, which had become obsolete, but
we intend to continue to pursue our business relationship with ePHONE. ePHONE
operates an IP network that interfaces with customers through switches and
through customer access devices such as our V-Server. Our products are one
component in this system that incorporates many inter-operating products. ePHONE
has also completed its testing of the iGATE Ethernet version and obtained
positive results. ePHONE is actively pursuing market opportunities worldwide.

         Since November 1999, we have pursued a strategic alliance with the
start-up Internet communications service provider, CentreCom Incorporated,
through both soft and firm purchase order agreements. CentreCom will incorporate
our Internet Protocol telephony gateways with other equipment in the carrier's
infrastructure to provide enhanced local, long distance and free calling-group
telephony services. CentreCom will use our iGATE product at customer locations,
enabling customers using standard telephones to send and receive calls and faxes
through the Internet. The total potential value to us of the agreement we
entered into with Centrecom was at least $5 million in gross revenues, but we
anticipate realizing only $140,000 in revenues under the agreement, based on
actual orders by CentreCom as of December 31, 2000. We have been testing our IP
gateway with CentreCom's IP gateway in order to achieve 100% interoperability.
Concurrently, CentreCom is devoting resources to improving its overall
operational issues. Although purchases from CentreCom have thus far been
minimal, we anticipate a more rigorous market penetration from CentreCom during
2001.

         On July 28, 2000, we entered into a Memorandum of Understanding with
Arelnet. The companies agreed to use best efforts to draft and execute an
agreement whereby each party will purchase products from the other and customize
those products to fit their own systems. In 2000, Arelnet also placed a
non-binding purchase order for 5,000 iGATE units to be delivered over a 12-month
period. Arelnet plans to resell our customer premise equipment under the brand
name "iTone Primo" to complement Arelnet's existing carrier grade IP gateway. We
anticipate offering Arelnet's carrier grade IP gateway under our own brand name,
integrating it with our V-Server iGate and OfficeBuilder products. The
integrated VoIP platform, combining our products with Arelnet's, will enable
telephony service providers to offer their communications services to all
business sizes.

         On March 23, 2001, we entered into a Memorandum of Understanding with
Arelnet that superseded and replaced all prior agreements. The Memorandum of
Understanding sets forth the parties' basic understanding of an agreement based
on recent negotiations, but is not a final agreement and is subject to approval
of each party's Board of Directors, and in our case, potentially by our
shareholders in order to increase the number of shares of common stock we have
authorized. An increase in authorized shares of common stock may be necessary to
ensure we have a sufficient number of shares of common stock available to issue
to Arelnet should they meet the performance milestones and exercise the warrants
described below. The key terms of this Memorandum of Understanding include a
mechanism under which gross profit on the sale of our V-Server products would be
calculated.

         A major component of the proposed agreement is that Arelnet would
receive up to seven warrants to purchase our common stock, based on purchase
order milestones, as follows:

                                       18
<PAGE>

        --------------------     -------------------      --------------
        Number of Units in
        Purchase Order               TEK Equity           Warrant Price
        --------------------     -------------------      --------------
        First 5,000 units        1.6 Million shares          $0.70
        --------------------     -------------------      --------------
        Next 10,000 units        1.6 Million shares          $0.90
        --------------------     -------------------      --------------
        Next 15,000 units        1.6 Million shares          $1.10
        --------------------     -------------------      --------------
        Next 20,000 units        2.0 Million shares          $1.20
        --------------------     -------------------      --------------
        Next 25,000 units        1.6 Million shares          $1.30
        --------------------     -------------------      --------------
        Next 25,000 units        1.6 Million shares          $1.40
        --------------------     -------------------      --------------
        Next 50,000 units        2.0 Million shares          $1.50
        --------------------     -------------------      --------------

         We would grant Arelnet each warrant on the date of its purchase order
that cumulatively exceeded the unit number indicated in Column 1 of the above
table. The warrants would become vested upon the earlier to occur of the
following:

         o        Payment of the purchase order by Arelnet; or
         o        Non-delivery by us 90 days after a scheduled delivery date.

         Each warrant could be exercised for a period of 3 years following the
vesting date. Also, in the event we are acquired or receive a controlling
investment by an outside investor or company, all unvested warrants become fully
vested.

         Upon the occurrence of certain conditions, Arelnet would also have an
option to purchase a manufacturing license for our iGATE and iPRO products for a
$200,000 fee, plus a per unit royalty fee of $40 per unit manufactured by
Arelnet under this license. Arelnet has the right to purchase the license upon
any merger or acquisition involving us, upon an investment in us by an Arelnet
competitor, or upon our default, bankruptcy or certain other events.

         Also under the proposed agreement, we would grant Arelnet a
non-exclusive license of all our intellectual property if we were unable to
deliver ordered products within 30 days of the agreed-upon delivery dates or
upon our insolvency or liquidation.

         The term of the final agreement will be for a period of 3 years
starting January 5, 2001, and can be terminated in 120 days at any time by
either company delivering written notice to the other.

         The Memorandum of Understanding expires 60 days after execution ( May
22, 2001) if a final agreement is not reached, unless the parties mutually agree
to extend the termination date. The Memorandum of Understanding is attached to
this Form 10-KSB as Exhibit 10.11.

         We are in the early stages of establishing our customer base and
strategic relationships in other parts of the world. Management devotes much of
its time and resources to the development of business relationships with other
technology companies who are potential strategic partners and customers. In
particular, we are directing much of our effort towards establishing
relationships with companies in Asia and the Pacific Rim.

                                       19
<PAGE>

        The following table presents our major customers and our sales of
V-Server products to these customers during the years ended December 31, 2000
and 1999.

<TABLE>
<CAPTION>
                                               Percent of total                       Percent of total
                            Sales during the    sales during the   Sales during the   sales during the
                               year ended          year ended         year ended         year ended
           Customers        December 31, 2000  December 31, 2000   December 31, 1999  December 31, 1999
                           ------------------ ------------------- ------------------ -------------------
<S>                            <C>                <C>                  <C>            <C>
EPHONE Telecom                    $320,001              36%            $ 30,800                  54%
CentreCom                           89,500              10%               3,500                   7%
Dial Digital                        63,080               7%                  --                  --
Arelnet                            232,068              26%                  --                  --
Other                              185,611              21%              20,699                  39%
                                  --------        --------             --------            --------
Totals                            $890,260             100%            $ 56,399                 100%
                                  ========        ========             ========            ========
</TABLE>

Intellectual Property

         We seek to protect our intellectual property through a combination of
copyright protection, patents, trademark registrations and common law trademark
protection, and trade secret laws.

         Our V-Server family of products incorporates software and programming
codes developed, designed and owned by us. Copyright law generally protects the
source code of our computer programs, as well as other documentation we create.
We also rely upon trade secret protection for any proprietary confidential
information, such as some of our software and hardware technology.

         We do not have any patents or patents pending for our current product
line, and do not intend to rely on patent protection for our current product
line. We intend to evaluate the patentability of future products and to take
appropriate action to patent any of our patentable inventions.

         We have registered our trademark V-Server with the U. S. Patent and
Trademark Office. Federal trademark registrations help to ensure an entity's
exclusive right to use a name for a product or service in the United States.
State common law generally protects any of our marks that we have used
exclusively in the marketplace, regardless of registration. A third party may
challenge our trademark rights even if our mark is registered. Additionally,
third parties may infringe upon our trademark rights that could result in legal
fees and other costs to us if we choose to take legal action against the
persons.

Government Approval

         Our products must meet the specific certification requirements for
telecommunications equipment of each country where we sell our products.

         In the United States, under the Communications Act of 1934 and
regulations of the Federal Communications Commission (FCC), our products must
comply with certain frequency emissions and other limitations. Our V-Server
iGATE products have been tested for compliance with Part 15A, and iPRO with both
Part 15A and 15B. Also, under FCC regulations, terminal equipment to the
telephone network must comply with numerous technical requirements, including
noise and hazardous voltage limitations. Labeling requirements also apply. We
have received Part 68 FCC approval for our V-Server product; and, to the best of
our knowledge, the V-Server product is in compliance with all FCC requirements.

                                       20
<PAGE>

         In addition, Underwriters Laboratories Inc. (UL) tested the V-Server
iGATE and iPRO product and found that the product met its safety standards.

         We also obtained Canadian approvals for which products that are
equivalent to the U.S. FCC approvals.

         In Europe, the S/T units and the Ethernet units have the CE mark of
approval. This CE mark includes the equivalent of the FCC and UL approvals and
enables the sale of products to all countries in the European Economic
Community.

         Further, we have obtained approval for the ISDN interface in the United
States, Canada and Europe.

         The Dual Ethernet versions are approved in the United States, Canada
and Europe.

         We are also seeking approvals and certifications for our products in
several additional countries.

Employees

         As of December 31, 2000, we employed 18 full-time and 2 part-time
employees in our Maryland office, including 3 administrative employees, 15
employees devoted to research and development (including two of our executive
officers) and 2 employees in sales and marketing. In addition, we employ a key
hardware architect located in Canada and a field support engineer in Taiwan,
R.O.C. who performs customer support in Taiwan, Hong Kong and China.

         In September 2000, we relocated our sales and marketing function from
Canada to our Maryland office, and we terminated Mr. Rocco DiCarlo and our other
three sales and marketing consultants located near Toronto, Canada. The Board of
Directors determined that it was in our and our shareholders best interests to
consolidate our Canadian operations into our Maryland headquarters.

         In connection with our sales and marketing consolidation, we negotiated
severance packages with these individuals. We did not have employment contracts
with any of these individuals and we were not obligated to provide any
additional benefits. However, we agreed to honor our verbal commitments to these
individuals that included extending option exercise periods and paying unused
vacation time. The total cost of these benefits did not exceed $12,000 in the
aggregate nor do we believe that the termination of these individuals has had
any impact on our sales and marketing efforts.

                                       21
<PAGE>

Item 2.  DESCRIPTION OF PROPERTY

         Our principal executive offices are located at 20030 Century Boulevard,
Suite 201, in Germantown, Maryland. We presently lease 7,147 square feet of
office space in the Century XXI Office Complex in Germantown, Maryland, which is
in the greater metropolitan Baltimore/Washington, D.C. area. The term of the
lease commenced on December 17, 1999, and will terminate on December 16, 2004,
subject to an option to renew.

         We terminated our month-to-month lease for shared office space in
Mississauga, Ontario, Canada in September 2000 when we reorganized our sales and
marketing functions and relocated these functions to our corporate headquarters
in Germantown, Maryland. We believe that, reorganizing our sales and marketing
function and co-locating it in our corporate offices improved communications
between our executives and our sales and marketing personnel, improved the sales
of our products, and has reduced travel and other related expenses that we had
incurred due to the geographic distance.


Item 3.  LEGAL PROCEEDINGS

         We, nor our property, are a party to any pending legal proceedings, nor
are our directors or officers. We have no knowledge of any pending legal
proceedings to which any affiliates or those parties owning 5% or more of our
common stock are a party. We are not aware of any legal proceedings contemplated
or threatened against us.


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

         None

                                       22
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         Our shares of common stock are quoted on the OTC Bulletin Board, a
service provided by the NASDAQ Stock Market, Inc., under the symbol "TEKI". As
of December 31, 2000, we had 56 shareholders of record of our common stock.
Approximately one-third of our 24,956,500 outstanding shares were held in street
name by an unknown number of beneficial owners.

          We believe the principal market area for our stock is the United
States, although we also have shareholders of record in Canada and Taiwan.

         The following table sets forth the high and low bid prices for our
common stock as reported for each quarterly period for the last two years. The
prices are inter-dealer prices, do not include retail mark up, mark down or
commission and may not necessarily represent actual transactions.

                                  Market Price

                                      High                   Low
              2000
              ----
              1st Quarter            $4.50                  $1.40
              2nd Quarter            $1.38                  $0.94
              3rd Quarter            $1.00                  $0.66
              4th Quarter            $0.76                  $0.20

              1999
              ----
              1st Quarter            $1.25                  $0.44
              2nd Quarter            $0.85                  $0.43
              3rd Quarter            $0.77                  $0.51
              4th Quarter            $2.25                  $0.49


         On, February 28, 2001, the closing quotation for our common stock as
reported on the OTC Bulletin Board was $0.47. You should obtain current market
quotations for our common stock because the market price of our stock may
fluctuate greatly. You can obtain these quotations from various websites,
including the OTC Bulletin Board website, or by calling your broker.

         We have never declared or paid a cash dividend on our common or
preferred stock, and do not intend to pay any cash dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the development and
expansion of our business. Paying dividends in the future will depend upon,
among other things, our ability to generate earnings, our need for capital and
overall financial condition.

                                       23
<PAGE>

         The following table sets forth sales of our common stock during fiscal
year 2000 without registration under the Securities Act of 1933:

<TABLE>
<CAPTION>
                        Amount Sold     Total Offering      Exemption        Persons/Class of
      Date             (# of shares)        Price          Relied Upon     Persons to Whom Sold
      ----             -------------    --------------     -----------     --------------------
<S>                     <C>               <C>               <C>             <C>
January 4, 2000             2,000           None (3)         S. 4(2)         Shiwen Gao (Employee)
                                                             Private
                                                             Offering

January 26, 2000        2,000,000         $1,000,000 (1)     Reg S           Tseng Yun Tasi

March 24, 2000              5,000               $500 (2)     S. 4(2)         Yamilet Ramirez
                                                             Private         (Employee)
                                                             Offering

June 14, 2000           2,000,000         $1,200,000 (1)     Reg S           Tseng Yun Tsai

November 22, 2000       2,000,000         $1,300,000 (1)     Reg S           Tseng Yun Tsai
</TABLE>

(1)      Mr. Tsai exercised 2,000,000 Class E warrants, 2,000,000 Class F
         warrants and 2,000,000 Class G warrants, pursuant to his private
         placement subscription agreement dated October 18, 1999.

(2)      The shares were issued upon the exercise of stock options granted
         pursuant to the 1997 Compensatory Stock Option Plan.

(3)      Issued as an employee stock award under our 1997 Employee Stock
         Compensation Plan.

                                       24
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         On the following pages we present management's discussion and analysis
of financial condition and results of operations. You should read this
information in conjunction with our consolidated financial statements and notes
included in this annual report. The following financial review is presented on a
consolidated basis and is intended to provide a comparison of our financial
performance for the years ended December 31, 2000 and 1999.

Overview

         TEK DigiTel Corporation is a Wyoming corporation with a limited
operating history. We are a hardware technology equipment developer that
provides integrated communication solutions for the small to medium size
enterprise and small office/home marketplace. By integrating traditional PBX
technology with data routing, the latest advances in VoIP technology and
sophisticated Linux based server technology, we are producing Internet access
devices used by the new generation of service providers to deploy integrated
voice, fax and data services to their customers.

         Our limited operating history makes it difficult to evaluate our
business and prospects. Similar to other companies in their early stages of
development, and particularly for companies in the rapidly evolving technology
industry, our prospects must be considered in light of the risks frequently
encountered by such companies. We set forth at the end of this section what we
believe to be the major factors and risks that may affect our future results. To
address these items, we must, among other things, successfully continue to
develop and execute our business and marketing plan, continue to expand and
otherwise improve our products, and increase our operating infrastructure. We
can provide no assurances that we will be successful in addressing these items
and other currently unknown risks, the failure of which could prevent us from
being successful.

         The following table lists in chronological order, some of the major
milestones we have accomplished during the evolution of our company and our
products. The table is not meant to be all-inclusive, but merely serves to
highlight our progress.

    Date                   Major Milestone
    ----                   ---------------

December 1995              Formed ATC LLC, the predecessor company to TEK
                           DigiTel.

February 1998              Completed the prototype of our router product.
                           Installed, for evaluation and alpha field trial
                           purposes, our first V-Server iGATE product, in
                           Mongolia.

July 1998                  ATC LLC merged with Diversified Technologies, Inc.,
                           changed its name to TEK DigiTel and became a public
                           company listed on the OTC BB.

February 1999              Completed our first prototype of the V-Server iGATE
                           product. Installed, for evaluation and field trial
                           purposes, our first V-Server iGATE product in Asia.

March 1999                 First beta test of the iGATE product initiated in
                           North America, Canada and several European countries.

May 1999                   Began sales of our V-Server products.

July 1999                  Entered into a business relationship with ePHONE in
                           which ePHONE agreed to purchase 500 of our iGATE
                           products.

                                       25
<PAGE>

October 1999               Launched the Pronto service package to help ISPs and
                           CLECs deploying iGATE massively.

November 1999              Beta test initiated in Asia including Taiwan, Hong
                           Kong, China and New Zealand.

June 2000                  Beta test completed in most of the countries
                           participating. Announced OfficeBuilder product with
                           embedded PBX function.

July 2000                  Latest software version released. Ready for mass
                           deployment of iGATE product.

August 2000                Filed SEC Form 10-SB in order to become an
                           SEC-reporting company and regained our listing on the
                           OTC BB in December 2000.

August 2000                Delivered the last of the 500 iGATES ordered by
                           ePHONE in July 1999.

September 2000             Arelnet placed an order for the future purchase of up
                           to 5,000 iGATES. As of the end of March 2001, we have
                           delivered approximately 900 iGates to Arelnet under
                           this order. We anticipate the remaining units being
                           purchased by Arelnet during 2001 and 2002.

January 2001               Introduced a new version of the V-Server product, the
                           iPRO, which is equipped with four voice ports.

January 2001               Formed a strategic alliance with Formosa Industrial
                           Computing to work together in the development of an
                           advanced IP phone.

January 2001               We received a new purchase order for 3,200
                           iGATES/iPROs from Arelnet. As of the end of March
                           2001, we have delivered approximately 2,000 of these
                           units, and anticipate delivering the remaining 1,200
                           units during 2001.

February 2001              Began beta testing of TEKVPN by Formosa Industrial
                           Computing, our "turn key" voice VPN solution.

March 2001                 Successfully completed beta testing of the iPro.

         We have incurred net operating losses in each period since our
inception; and, we expect to incur additional losses for the foreseeable future,
primarily as a result of our building the corporate infrastructure necessary for
continued product development and enhancement, for increased sales and marketing
efforts and for research activities. As of December 31, 2000, we had accumulated
a deficit of approximately $6,800,000.

         We believe that our success depends, in large part, on our ability to
create market awareness and acceptance for our products, raise additional
operating capital from the sale of our common stock to grow operations, build
technology infrastructures and continue product research and development.

         Currently, our primary source of revenues is from the sale of our
V-Server products. We are also investigating other applications for the V-Server
products and marketing channels. The principal end-users of our products and
solutions are small and medium enterprise users. We strategically partner with
Internet service providers, including traditional and new telecommunications
carriers, in order to distribute our products to the end-users. We also maintain
a direct sales organization, OEM relationships and value added resellers for
sales targets other than service providers.

                                       26
<PAGE>

         Since the introduction of our V-Server products to market, we have
generated a significant percentage of our revenues through several of our
strategic partners, including Arelnet, ePHONE and Centrecom. The reader is
referred to the table under Item 1, "Description of Business - Current
Dependence on a Few Major Customers", which details the sales of our V-Server
products to our major customers. We are currently highly dependent upon the
sales of our products to these partners.

         We believe that our current dependency on a few customers is due to the
recent introduction of our V-Server products to market. We have recently
restructured our sales force, expanded our direct sales force and are developing
an indirect sales channel, targeting VARs and OEMs. We also plan to continue to
expand our global distribution channels. We currently have strategic alliances
with Arelnet, Centrecom, ePHONE, DialDigital and Centrepoint Technologies; and,
we intend to continue to pursue additional relationships with other companies in
the future.

         The market for our products and solutions is in the early stages of
development and is characterized by rapid technological change, evolving
industry standards, changes in end-user requirements, intense competition by
more established industry participants and frequent new product introductions
and enhancements. As is typical in the case of new and rapidly emerging
technologies, demand and market acceptance are subject to a high level of
uncertainty. Broad acceptance of our products by customers and end-users is
critical to our success and ability to generate revenues.

Recent Developments

         Our primary focus in 2000 was to finalize the development of the
manufacturing methods that enable us to achieve high volume production. In
addition, we significantly expanded our marketing effort on establishing brand
awareness and reseller readiness for our V-Server product line. We anticipate
incurring increasing sales and marketing costs during the future. We have also
conducted product field trials in additional countries in Asia, Europe and South
America. This effort is time consuming, but necessary, because the local
telecommunication environment may be quite different from country to country.

         The first prototype of the PBX version of the product, OfficeBuilder, a
co-development with Centrepoint Technologies, is currently being tested in a lab
setting, and we anticipate this product will be field beta tested in the second
quarter of 2001.

         We started working jointly with Formosa Industrial Computing (FIC)
Corporation of Taiwan to develop an advanced IP phone system (iPOTS). The iPOTS
is a stand-alone Internet accessible telephone set. It has been designed to
integrate voice/data devices for the small, and medium size business user. We
also believe that the iPOTS has residential applications. Installed at the users
location, the iPOTS telephone set enables the user to be connected to a single
platform for both voice and data applications. Our responsibilities are to
design the software architecture and to leverage our experience gained in
creating our other products. Formosa Industrial Corporation's focus is on
hardware development and manufacturing. We anticipate our market introduction of
the iPOTS in late 2001 or early 2002.

Results of Operations

Year ended December 31, 2000 compared with the year ended December 31, 1999

         We recorded revenues from product sales of $890,260 for the year ended
December 31, 2000. This represented a significant increase in product sales over
the year ended December 31, 1999, the year during which we began selling our
iGATE product.

                                       27
<PAGE>

         During the year ended December 31, 2000, the majority of our product
sales were generated through our direct sales organization, with the majority of
our sales to only a few major customers, as previously described. As discussed
above, we are in the process of expanding our sales and marketing efforts and
our global distribution channels through the development of indirect sales
channels and the expansion of our direct sales force.

         Our cost of product sales for the year ended December 31, 2000 was
$770,807 compared to $67,590 for the year ended December 31, 1999. Our gross
margin improved from being negative in 1999, due to manufacturing start-up
issues, to a positive gross margin of 14%. We believe that, based on our current
manufacturing arrangements, the cost of product sales will continue to decline
on a per unit basis as the manufacturing process for our V-Server products
matures, increase the number of units produced, and recognize cost savings from
the purchase of larger quantities of component parts. In the future, we expect
our gross profit margins to be roughly 30-40%, which is in line with typical
gateway/router hardware margins. Currently, we use a local manufacturer to
produce our iGATE units and we have entered into an agreement for the
manufacture of our products in Taiwan.

         We use contract manufacturers for the assembly of our products. As
such, the focus of our employees and equipment is not on our manufacturing
process but on research and development and quality control. We have used
several manufacturers in the past and believe there are many manufacturers that
can assemble our products. We do not have any fixed or long- term agreements for
the assembly of our products. The contract manufacturer charges us on a per unit
basis for assembly and quality control functions, which we include in our costs
of sales. We expect these charges, on a per unit basis, will continue to
decrease, as the size of each manufacturing batch we have assembled increases.

         Our sales and marketing expenses for the years ended December 31, 2000
and 1999 were $904,240 and $652,817, respectively. The increase in sales and
marketing expenses in all periods was primarily due to the expansion of the
Company's sales and marketing staff related to the introduction of our products
to market. We anticipate that our sales and marketing expenses will continue to
increase in future periods as we continues to build our direct sales force and
expand our distribution channels and marketing activities. However, as
previously noted, during 2000 we closed our sales and marketing location in
Canada. This included the termination of our consultants and employees in Canada
and we relocated our sales and marketing function to our corporate headquarters
in Germantown, Maryland. We believe that, by reorganizing our sales and
marketing function and co-locating it in our corporate offices, we will improve
communications between our executives and our sales and marketing personnel,
improve sales of our products, and reduce travel and other related expenses that
we had incurred due to the geographic distance. We are currently in the process
of examining the proper staffing levels for our sales and marketing and the
opportunities to utilize outside sales and marketing professionals and
organizations to sell and market our products.

         Our general and administrative expenses for the year ended December 31,
2000 and 1999 were $1,375,033 and $651,423, respectively. The increase in
general and administrative expenses during 2000 was due to the expansion of our
corporate infrastructure primarily through the addition of personnel, as well as
increased legal and accounting fees incurred in preparation of our Form 10-SB
which we filed in order to relist our common stock on the OTC BB. While we
anticipate professional fees will decrease in the future as a percent of
revenue, we expect overall, that our general and administrative costs will
continue to increase in 2000 and beyond, as we implement our business plan,
expand our employee base and comply with reporting company requirement.

         Our research and development expenses for the year ended December 31,
2000 and 1999 were $1,318,482 and $1,012,934. We are continuing to expend
efforts on the development of our V-Server products. In early 2001, we completed
our four-port iGate, and plan to introduce this product to market during 2001.
We anticipate that research and development expenses will increase in future
periods as we expand our existing research and development programs in order to
enhance our current products and develop new products.

                                       28
<PAGE>

         We have not made any provision for federal or state income taxes since
our inception due to our operating losses. At December31, 2000, we had a net
operating loss carry forward for income tax purposes. A valuation allowance has
been established and, accordingly, no benefit has been recognized for our net
operating losses and other deferred tax assets.

Year ended December 31, 1999 compared with the year ended December 31, 1998

         We recorded revenues of $214,399 and $73,402 for the years ended
December 31, 1999 and 1998, respectively as follows.

                                     December 31,           December 31,
                                         1999                   1998
                                     ------------           ------------

               Product Sales            $  56,399              $      --
               License Revenue            150,000                     --
               Contract Revenue             8,000                 73,402
                                     ------------           ------------
                                        $ 214,399              $  73,402
                                     ============           ============

         In May 1999, we introduced our V-Server products to the market, and
recorded sales of $56,399 from the sales of our iGATE units. We had no product
sales during 1998. During 1999, we also recognized $150,000 relating to a
licensing fee for the manufacture of our V-Server products that was terminated
and under which we have no continuing obligations. This license provided
Franklin Telecom with the right to manufacture the iGATE unit under its own
brand name. We do not anticipate that, under our current business model, we will
enter into any future licensing agreement like the one we entered into with
Franklin. As such, we do not expect licensing revenue to be significant in the
future. We also recognized contract revenue of $8,000 and $73,402 for the years
ended December 31, 1999 and 1998, respectively. We stopped providing contract
services during 1999 and focused on completing our V-Server products and,
therefore, performed very little contract-type engagements for others. We
believe that we will not provide any significant contract services in the
future.

         The first shipment of our V-Server iGATE product occurred in May 1999
and, therefore, the December 31, 1999 results do not reflect a full year of
sales activities.

         During 1999, the majority of our product sales were generated through
our direct sales organization. As discussed above, we are in the process of
expanding our sales and marketing efforts and our global distribution channels
through the development of indirect sales channels and the expansion of our
direct sales force.

         Our cost of product sales for the year ended December 31, 1999 was
$67,590, which was greater than our sales revenue. This was not unexpected
because we experienced higher than expected raw material and component costs,
due to us purchasing limited quantities during the initial production of our
products. In addition, during the initial production of our products, we also
experienced inefficiencies in the manufacturing process. As was described above,
the cost of production per unit has declined during the year ended December 31,
2000; and, we anticipate that this trend will continue. This is due in part to a
cost reduction design for our current iGATE product completed in late 2000.

         Our sales and marketing expenses for the years ended December 31, 1999
and 1998 were $652,817 and $29,614, respectively. The increase in sales and
marketing expenses in all periods was primarily due to the expansion of our
sales and marketing staff related to the introduction of our products to market.
We anticipate that sales and marketing expenses will continue to increase in
future periods as we continue to build our direct sales force and expand our
distribution channels and marketing activities.

                                       29
<PAGE>

         Our general and administrative expenses for the years ended December
31, 1999 and 1998 were $651,423 and $493,033, respectively. The increase in
general and administrative expenses during 1999 was due to the expansion of our
corporate infrastructure primarily through the addition of personnel, as well as
increased legal and accounting fees incurred in preparation of our Form 10-SB.
While we anticipate professional fees will decrease in the future, we expect
that our general and administrative costs will continue to increase in 2000 and
beyond as we implement our business plan, expand our employee base, and comply
with reporting company requirements.

         Our research and development expenses for the years ended December 31,
1999 and 1998 were $1,012,934 and $611,498, respectively. During both 1999 and
1998, we concentrated our development efforts on our V-Server products. All
research and development costs have been expensed as they were incurred. We
anticipate that research and development expenses will increase in future
periods as we expand our existing research and development programs in order to
enhance our products and develop new products.

         We have not made any provision for federal or state income taxes since
our inception due to our operating losses. At December 31, 1999 and 1998, we had
a net operating loss carry forward for income tax purposes. A valuation
allowance has been established and, accordingly, no benefit has been recognized
for our net operating losses and other deferred tax assets.

Liquidity and Capital Resources

         Since our inception, we have financed our operations through the sales
of equity securities in private placements; and, since that date through
December 31, 2000, we have raised approximately $6,900,000. As of December 31,
2000, we had $885,297 in cash. We currently have no bank loans or any available
lines of credit for our use.

         Net cash used in operating activities during the years ended December
31, 2000 and 1999 was $3,034,823 and $2,048,245, respectively. The net cash used
in operating activities was related to our expansion and funding of our research
and development and sales and marketing activities as well as our corporate
infrastructure.

         Net cash used in investing activities during the years ended December
31, 2000 and 1999 was $58,062 and $67,715 for the purchase of computer and test
equipment and office furniture.

         Net cash provided by financing activities for the year ended December
31, 2000 was $3,500,500 from the sale of 4,000,000 shares of common stock
pursuant to the exercise of previously issued common stock purchase warrants,
and the exercise of stock options by an employee for the purchase of 5,000
shares of common stock for $500.

         Net cash provided by financing activities for the year ended December
31, 1999 was $2,457,263. The proceeds during this period resulted from the sale
of 125,000 shares of common stock for $48,127, net of offering costs, the
exercise of previously issued common stock purchase warrants for 2,377,024
shares of our common stock for $413,795, the sale of 2,000,000 common stock
units, each unit consisting of one share of common stock and four common stock
purchase warrants, each to purchase one share of common stock at prices ranging
from $0.50 to $0.65 per share for proceeds of $1,992,091, net of offering costs,
and the exercise of stock options by employees for the purchase of 32,500 shares
of common stock for $3,250.

         We have no material commitments other than those under office and
equipment operating leases. As a result of the expansion of our research and
development and sales and marketing activities, capital expenditures may
increase in future periods primarily due to the purchase of computer and test
related equipment. We anticipate, based on our present plans and assumptions,
that our current cash balances and projected level of 2001 operations will not
provide sufficient cash flow to enable us to sustain our current and planned
operations

                                       30
<PAGE>

for the next 12 months, and we will need to raise additional funding, either
through the sale of our common stock, or debt. This could prove to be a very
difficult task, especially in light of the current downward trend being
experienced by technology related companies quoted on the Nasdaq stock market.
We entered into a memorandum of understanding with Arelnet, described in Item 1,
"Description of Business, Current Dependence on a Few Major Customers". As part
of this agreement, Arelnet provided us with $150,000 as advance payment for
future purchases of our V-Server products. Arelnet has also agreed to provide us
with a $610,000 letter of credit. We are negotiating with a bank for a $750,000
line of credit for which we will be required to pledge the letter of credit we
received from Arelnet as partial collateral. Unfortunately, we don't believe
that the line of credit funding we are negotiating, along with the cash flow
from the sales of our V-Server products, including sales to Arelnet under the
previously mentioned memorandum of understanding, will be sufficient to fund us
for the next year. Therefore, we will be required to raise additional capital.
Additional funding, whether obtained through public or private debt or equity
financing or from strategic alliances, may not be available when needed or may
not be available on terms acceptable to us. Failure to secure additional
financing, if and when needed, may have a material adverse effect on our
business, financial condition and results of operations. Additionally, we cannot
be certain that we will be able to finalize our line of credit negotiations.

         We may, until we become financially self-sufficient, need to moderate
our activities to fit the funds we have available.

         We are currently generating positive cash flow from the sale of our
iGATE products before overhead allocation. As we expand our sales and marketing
efforts to sell our V-Server family of products and services, we have begun to
generate additional revenues and believe that our revenues will continue to
increase as we implement our business plan.

         We currently lease, and plan to continue to lease, all facilities.
During 2001, we do not anticipate any significant capital expenditure for
laboratory and diagnostic equipment, software licenses or prototypes of our
products under development.

Factors That May Affect Future Results

We have a limited operating history on which to evaluate our business and
prospects.

         As described in Item 1, "Description of Business", in December 1995 we
formed ATC LLC, which was merged with and into ATC Inc., a wholly owned
subsidiary of Diversified Technologies, Inc., in July 1998. ATC Inc. and its
parent, prior to the merger, had no substantial assets or liabilities and no
operations. Diversified, however, was listed on the OTC BB. ATC LLC was merged
with these entities in order to obtain that listing. We introduced our first
V-Server product, the iGATE, to the market in May 1999. Accordingly, we only
have a limited operating history on which you can evaluate our business and our
prospects. In addition, our prospects must be considered in light of the risks
encountered by companies like us in developing products and services in new and
rapidly evolving markets. Some of the risks we face include our ability to
attract and retain customers; hire aggressively to expand our services, sales
and marketing efforts; negotiate and maintain favorable strategic relationships;
and plan and manage our growth effectively. If we fail to manage these risks
successfully, our business could be harmed.

We have incurred losses since our inception and expect to incur losses in the
future.

         We have incurred operating losses since our inception in 1998 and
through December 31, 2000, have accumulated a deficit of $6,836,427. In 2000 and
1999, we incurred net losses of $3,447,005 and $2,162,088, respectively. We
introduced our products to market in 1999 and have had limited sales as our
product gains market acceptance and we develop our sales and marketing channels.
While we expect our sales to increase in

                                       31
<PAGE>

the future, we cannot assure you that we will experience such growth. Our future
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving industries. To
address these risks and achieve profitability and increased sales levels, we
must, among other things, establish and increase market acceptance of our
products and systems, respond effectively to competitive pressures, offer high
quality customer service and support, introduce, on a timely basis, advanced
versions and enhancements of our products and successfully market and support
such advanced versions and enhancements.

         We expect to continue to incur operating losses in 2001 and may incur
operating losses thereafter. We cannot assure you that we will achieve or
sustain significant sales or profitability in the future.

We have not been able to fund our operations from cash generated by our
business, and we may not be able to do so in the future.

         As previously mentioned, we do not currently have sufficient cash on
hand to fund our planned future operations. As such, we will need to raise
additional funding. Failure to secure needed additional financing, if and when
needed, may have a material adverse effect on our business, financial condition
and results of operations. If additional funds are raised through the issuance
of equity securities, the net tangible book value per share may decrease, the
percentage ownership of our current stockholders may be diluted and such equity
securities may have rights, preferences or privileges senior or more
advantageous to our common stockholders.

         We also can provide no assurance that additional financing will be
available on terms favorable to us, or at all. If adequate funds are unavailable
or are not available on acceptable terms, we may not be able to take advantage
of unanticipated opportunities, develop new products or otherwise respond to
competitive pressures. Such inability could have a material adverse effect on
our business, financial condition or results of operations.

Purchases and sales of our common stock are subject to the penny stock
regulations, and these regulations may limit trading in our stock.

         Our common stock has a market price of less than $5.00 per share. The
SEC adopted regulations which generally define "penny stock" to be any equity
security that has a market price (as defined) less than $5.00 per share or an
exercise price less than $5.00 per share, subject to certain exceptions. During
periods when our common stock does not qualify for inclusion on the OTC BB, our
common stock will be subject to rules that impose additional sales practice
requirements on broker-dealers who sell our securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of our securities
and have received the purchaser's written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure statement relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our common stock and may affect the ability of investors to sell our
common stock in the public market.

Internet-related stock prices are especially volatile and this volatility may
depress our stock price.

         The stock market has from time to time experienced significant price
and volume fluctuations which have particularly affected the market prices of
the stocks of high technology and Internet-related companies, including
companies like us, and which may be unrelated or disproportionate to the
operating performance of

                                       32
<PAGE>

particular companies. Factors such as quarterly variations in actual or
anticipated operating results, changes in earnings estimates by analysts, market
conditions in the industry, analysts' reports, announcements by competitors,
regulatory actions or other events or factors, including the risk factors
described in this annual report and general economic conditions may have a
significant effect on the market price of our common stock. This broad market
and industry volatility may reduce the value of our common stock, regardless of
our operating performance. Due to this volatility, the value of our common stock
could significantly decrease.

We have never paid dividends, and you should not expect to receive dividends in
the future.

         We have never paid dividends on our common stock and do not expect to
pay any dividends for the foreseeable future.

Because certain existing shareholders own a large percentage of our voting
stock, other shareholders' voting power may be limited.

         Our founders, executive officers, directors and their affiliates
beneficially own or control approximately 12% of our common stock and 48% of our
convertible preferred stock. Each share of convertible preferred Series A stock
has three votes in matters requiring the vote of our shareholders. As such, as
shown in the table under Item 11, "Security Ownership of Certain Beneficial
Owners and Management", these shareholders control approximately 19% of the
voting power. Furthermore, each share of convertible preferred Series A stock is
convertible into six shares of common stock; such conversion of preferred shares
by our executive officers and directors would result in an even greater
percentage of control. In addition, one shareholder, Tseng Yun Tsai,
beneficially owns approximately 40% of our issued and outstanding common stock
and holds total voting ownership of approximately 32%. As a result, if those
shareholders act together, they will have the ability to control all matters
submitted to our shareholders for approval, including the election and removal
of directors and the approval of any merger, consolidation or sale of all or
substantially all of our assets. These shareholders may make decisions that are
adverse to your interests. See our discussion under Item 11, "Security Ownership
of Certain Beneficial Owners and Management", for more information about the
ownership of our outstanding shares.

The market for our products is in its early stages of development and may fail
to mature into a sustainable market.

         Our products and services facilitate voice, fax and data transmission
primarily over the Internet. The market for these products and services is in
its early stages of development and is rapidly evolving and it is possible that
a viable market may fail to emerge or be sustainable. We cannot predict the
level of demand and market acceptance for our products and services. If the
market for our products and services does not continue to mature, our business
will be harmed.

If the Internet does not continue to grow as a medium for voice communications,
our business will suffer.

         The technology that allows voice communications over the Internet is
still in its early stages of development. Historically, the sound quality of
Internet calls has been poor. As the industry has grown, sound quality has
improved, but the technology requires further refinement. Additionally, the
Internet's capacity constraints may impede the acceptance of Internet telephony.
Callers could experience delays, errors in transmissions or other interruptions
in service. Making telephone calls over the Internet must also be accepted as an
alternative to traditional telephone service. Because the Internet telephony
market is new and evolving, predicting the size of this market and its growth
rate is difficult. If our market fails to develop, then we will be unable to
grow our customer base and our opportunity for profitability will be harmed.

                                       33
<PAGE>

We are completely dependent on the infrastructure of the Internet for our
success.

         The success of our products is dependent on, among other things, the
continued expansion of the Internet and its network infrastructure. We cannot
assure you that the infrastructure or complementary products necessary to make
the Internet a viable commercial network will continue to be developed. In
particular, we cannot assure you that the Internet will retain its current
pricing structure with regard to volume, distance (the physical location of any
user) and the lack of varying rates for different times of day. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use and access and quality of service)
remain unresolved and may affect the growth of Internet use. We cannot assure
you that the Internet will be able to meet additional demands or its users'
evolving requirements on a timely basis, at a commercially reasonable cost, or
at all. While we anticipate the continued evolution of the Internet and related
infrastructure, any failure to develop accordingly could have a material adverse
impact on our business, financial condition or results of operations.

         Our products can be vulnerable to computer viruses or similar
disruptive problems. Computer viruses or problems caused by third parties could
lead to interruptions, delays or termination of service. Furthermore,
inappropriate use of the Internet by third parties could potentially jeopardize
the security of confidential information, which may deter certain potential
customers from ordering and using our products. Until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential users may inhibit the growth of the Internet industry in
general and the market for our products in particular.

If we are unable to meet the rapid technological changes, our existing products
and services could become obsolete.

         We are involved in the development and introduction of new products and
applications. A number of risks are inherent in this process. The development of
new technologies and products is increasingly complex and uncertain and this can
delay the introduction of new technology and products. It further requires close
collaboration and continued technological advancement involving multiple
hardware and software design teams and outside suppliers of key components. The
failure of any one of these elements could cause new products to fail to meet
specifications or to miss time tables that we may establish. As the variety and
complexity of our product lines increase, the process of planning production and
inventory levels also becomes more difficult.

         Short product life cycles place a premium on our ability to manage the
transition from current products to new products. Our results could be adversely
affected by factors such as development or manufacturing delays, variations in
product costs, and delays in customer purchases of existing products in
anticipation of the introduction of new products and the rapidly changing
landscape of emerging standards.

         The markets for our products have only recently begun to develop, and
are rapidly evolving as characterized by an increasing number of market entrants
who have introduced or developed similar products and services. As is typical in
the case of a new and rapidly evolving industry, demand and market acceptance
for recently introduced technology products and services are subject to a high
level of uncertainty. Broad acceptance of our technology, products and systems
is critical to our success and ability to generate revenues. Acceptance of our
technology, products and services will be highly dependent on the functionality,
reliability, stability and performance of the products and systems, and
particularly of the success of the initial implementation of our products and
services. In addition, acceptance of our technology will depend on matters
beyond our control such as the introduction of competing products or
technologies into the market before our new technologies and products. We cannot
assure you that voice and audio communications over the Internet will become
widespread, that connections between IP networks and the PSTN will become
widespread or that our Internet Telephony Service Provider (ITSP) and
telecommunications oriented products will gain market acceptance. The adaptation
process can be time consuming and costly to both us and our customers and the
acceptance of the product or service may depend, to a substantial extent, on the
success of the adaptation.

                                       34
<PAGE>

         Because the market for our products is new and evolving, it is
difficult to predict its future growth rate, if any, and the size of our market.
We cannot assure you that the market for our products and services will develop
or that our products will achieve market acceptance. If the market fails to
develop, develops more slowly than expected, or if our products do not achieve
market acceptance, our business, financial condition or results of operations
will be materially adversely affected.

         Furthermore, our products may contain undetected errors or defects when
first introduced or as new versions are released. Our introduction of products
with reliability, quality or compatibility problems could result in reduced
revenues and orders, uncollectable accounts receivable, delays in collecting
accounts receivable and additional costs. We cannot assure you that, despite our
testing, errors will not be found in our products after commencement of
commercial deployment. Errors of this sort could result in product redevelopment
costs and loss of, or delay in, market acceptance. In addition, we cannot assure
you that we will not experience in the future significant product returns
through both retail and other distribution channels. Any such event could have a
material adverse effect on our business, financial condition or results of
operations.

We may not be able to increase market awareness and sales of our products and
services if we do not expand our sales and distribution capabilities.

         We need to substantially expand our sales and distribution efforts in
order to increase market awareness and sales of our V-Server solution and the
related services we offer. We are an early stage company and need to develop a
sales force. We must have a sales force with an industry and technology focused
background. Competition for qualified sales and marketing personnel is intense,
and we might not be able to hire and retain adequate numbers of these persons to
maintain our growth. New hires will require training and take time to achieve
full productivity. If we are unable to successfully grow our sales capabilities,
we may be unable to expand our relationships in this way, or at all, and our
revenues may not increase as planned.

         We cannot be certain that we can attract or retain a sufficient number
of highly qualified technical personnel and consultants. Customers that purchase
our solution typically engage our technical staff to assist with support,
design, consulting and implementation. We believe that growth in our sales
depends on our ability to provide our customers with these services, either
directly or through partners. As a result, we plan to increase the number of our
technical personnel and consultants to meet these needs. New technical personnel
will require training and education and take time to reach full productivity. To
meet our customers' implementation needs, we may be required to use costly
third-party consultants to supplement our internal resource capabilities.

        Competition for qualified personnel is intense, particularly because we
are in a new market and only a limited number of individuals have developed the
skills required to provide the services our customers require. Our business may
be harmed if we are unable to hire and retain new technical personnel and
consultants.

Our reputation and future revenue would be harmed if we experience any issues
with our V-Server technology.

         To date, we have only had limited sales of our V-Server product. We
currently expect the sale of these products and related services to account for
most of our future revenues. If any of our future customers are unable to
successfully use our products, our reputation could be damaged, which could harm
our business. In addition, factors negatively affecting the pricing of or demand
for VoIP products, such as increased competition or rapid technological change,
could cause our revenues to decline.

                                       35
<PAGE>

Competition could reduce our market share and decrease our revenue.

         Some of our competitors have longer operating histories, greater name
recognition, larger installed customer bases and significantly greater
financial, technical and marketing resources than us. The competition in the
VoIP communications market is very strong. Competition includes
telecommunications companies, data communication companies and pure voice over
IP companies as well as product and service companies. See Item 1,
"Competition", for a list of some of our competitors.

         If we are forced to lower our prices below current levels, we cannot
assure you that we will be able to successfully launch our new products or
compete successfully and effectively against other companies' product offerings.

         Various innovative voice, audio, video and other communications
alternatives, that may compete with our products are often introduced, and may
be introduced in the future. These new communication alternatives may be based
on traditional telephone lines, the Internet, cable networks or optical wires
and may be combined with other computing and broadcasting capabilities.

         We expect that additional companies will compete in the Internet voice
and audio communications market. In the future, we may also develop and
introduce other products with new or additional telecommunications capabilities
or services. As a result of any such development or introductions, we may
compete directly with telephone companies and other telecommunications
providers. Additional competitors may include companies that currently provide
computer software products and services such as telephone, media, publishing and
cable television. The ability of some of our competitors to bundle other
Internet services and other products with Internet voice products could give
those competitors an advantage over us.

We currently rely on a small number of customers for our revenue.

         We began sales of our V-Server in May 1999, with substantially all of
our revenue having been derived from sales to a relatively small number of
customers. Since our inception through December 31, 2000, sales to three
customers, ePHONE Telecom, Inc., CentreCom Incorporated and Arelnet, totaled 71%
of our product sales or $675,869. Similar or greater concentration of our net
sales among a limited number of customers may occur in the future. In this
event, any material decrease in net sales to any one of our largest customers
that is not matched by corresponding increases in net sales to new or existing
customers could have a material adverse effect on our financial condition and
results of operations. We cannot assure you that we will receive orders from any
existing customers or from new customers.

Our success and competitive position depends on our ability to protect our
proprietary technology.

         Our success depends, in part, upon our intellectual property rights. To
date, we have relied primarily on a combination of trade secret, trademark and
copyright laws, and non-disclosure and other contractual restrictions on copying
and distribution to protect our proprietary technology and our brand names. We
have not yet filed any patents related to our technology. Litigation to enforce
our intellectual property rights or protect our trade secrets could result in
substantial costs and may not be successful. Any inability to protect our
intellectual property rights could seriously harm our business, operating
results and financial condition. Our means of protecting our intellectual
property rights in the United States or abroad may not be adequate to fully
protect our intellectual property rights.

         Furthermore, the laws of some foreign countries may not protect our
intellectual property rights to the same extent as do the laws of the United
States. It may be difficult for us to enforce certain of our intellectual
property rights against third parties who may have acquired intellectual
property rights by filing unauthorized applications in foreign countries to
register the marks that we use because of their familiarity with our

                                       36
<PAGE>

worldwide operations. Because Internet-related industries such as ours are
exposed to the intellectual property laws of numerous foreign countries and
trademark rights are territorial, the enforceability and scope of protection of
our intellectual property is uncertain. The unauthorized use of our intellectual
property by third parties may damage our brand. Defending against intellectual
property infringement claims could be expensive and disruptive to our business.

We are subject to claims of intellectual property infringement, which could
divert management resources and harm our reputation.

         We cannot be certain that our products and services do not or will not
infringe upon valid patents, trademarks, copyrights or other intellectual
property rights held or claimed by third parties. Third parties may claim that
we have infringed their patent, trademark, copyright or other proprietary
rights. It is also possible that claims will be made for indemnification
resulting from allegations of infringement. Claims like these could divert
management's attention, affect our reputation and otherwise harm our business.

         In addition, intellectual property claims could be asserted against us
as a result of our use, our customers and other third parties of our products.
These claims could include claims by our consultants and employees that
intellectual property they developed does not belong to us. Any claims, with or
without merit, could be time consuming, costly, cause product shipment delays or
require that we enter into royalty or licensing agreements. These licenses might
not be available on reasonable terms, or at all. As a result, any claim like
this could harm our business. Additionally, we may incur substantial expenses in
defending against these third party infringement claims, regardless of their
merit. Successful infringement claims against us may result in substantial
monetary liability or may materially disrupt the conduct of our business.

We rely on third-party technologies, and a termination of any of our
relationships with third-party vendors could adversely affect our revenues and
business.

         We rely in part on technology that we license from third parties. We
integrate this technology with internally developed software to perform key
functions. For example, our products and services incorporate technology
licensed from RADVision and Telogy. These third party technology licenses might
not continue to be available to us on commercially reasonable terms, or at all.
This technology may contain defects that we cannot control. The loss of any of
these technology licenses could cause delays in introducing our products or
services until equivalent technology, if available, is identified, licensed and
integrated. Delays in introducing our products and services could harm our
business.

Our executive officers and certain key personnel are critical to our business
and these officers and key personnel may not remain with us in the future.

         Our future success depends upon the continued service of our executive
officers and other key personnel. If we lose the services of one or more of our
executive officers or key employees, or if one or more of them decide to join a
competitor or otherwise compete directly or indirectly with us, our business,
operating results and financial condition could be harmed. In particular, our
founders, Enghe Chimood, our Co-Chairman of the Board and Chief Executive
Officer, Thomas Yang, our Co-Chairman of the Board and Chief Operating Officer
and Ke-ou Chao, our Chief Technology Officer, would be particularly difficult to
replace. The loss of any of these individuals, or other future key employees,
would have a material adverse effect on us.

Our business and growth will suffer if we are unable to successfully hire and
retain key personnel.

         We believe that our future success depends in large part on our ability
to attract, train, motivate and retain highly skilled employees. We may be
unable to retain our key employees or retain other highly qualified employees in
the future. The failure to attract and retain the necessary managerial,
marketing, merchandising,

                                       37
<PAGE>

operational, customer service, technical, financial or administrative personnel
could harm our business. In addition, as we grow and add additional product and
service offerings, we anticipate a need to further develop and expand our
products. Competition for highly skilled and qualified technical people is
intense. We cannot be certain we will be able to attract and retain a sufficient
number of qualified technical people or outside consultants.

Our business could suffer if we are unable to fully develop our marketing and
sales division following the reorganization of our sales and marketing
functions.

         In September 2000, the board of directors decided to reorganize our
sales and marketing functions. This action included the termination of 4
full-time sales and marketing consultants and employees in Canada, including our
former President, Rocco DiCarlo.

         We plan to relocate our sales and marketing division to our corporate
headquarters in Germantown, Maryland. Although we believe this reorganization
will improve communications between our executives and our sales and marketing
personnel, improve sales of our products, and reduce travel and other related
expenses that we incurred due to geographic distance, it also means that we will
need to hire new sales and marketing personnel. Alternatively, our current staff
may be required to perform some of these functions. Although we hired a person
to serve as Vice President of Business Development to lead sales in the Asia
Pacific region, we may not be able to hire and retain additional new sales and
marketing personnel that we need, and our current staff may not be able to
effectively perform these types of duties. As a result, our business and growth
could suffer.

Our articles of incorporation provide our officers and directors with certain
indemnifications.

         Our Articles of Incorporation provide that our directors and officers
will not be personally liable to the company or its shareholders for monetary
damages for breach of the fiduciary duty of care as a director or officer.
Conversely, directors and officers are liable for:

         o        any breach of duty of loyalty to the company or its
                  shareholders,

         o        facts and omissions not in good faith or those which involve
                  intentional misconduct or a knowing violation of law,

         o        willful or negligent violation of Wyoming law with respect to
                  payments of dividends, and

         o        any transaction from which a director involved derived an
                  improper personal benefit.

         Thus, under certain circumstances, neither the company nor the
shareholders would be able to recover damages even if directors take actions
that harm the company.

Government regulations are still evolving and significant legal uncertainties
could affect us.

         Currently, in the United States, few laws or regulations are directly
applicable to voice and audio communications over the Internet or Internet
commerce generally. However, changes in the regulatory environment, particularly
in regulations relating to the telecommunications industry, could have an
adverse effect on our business. The increased acceptance of voice and audio
communications over the Internet could result in intervention by governmental
regulatory agencies in the United States or elsewhere in the world under
existing or newly enacted legislation and in the imposition of fees or charges
on users and providers of products and services in this area. For example, until
now, the FCC has prohibited local telephone companies from

                                       38
<PAGE>

charging Internet service providers the type of "access charges" that apply to
long distance telephone carriers. In April 1998, however, the FCC submitted a
report to Congress in which it stated that Phone-to-Phone IP telephony bears the
characteristics of telecommunications services, which would subject providers of
such services to access charge and universal support obligations, and other
common carrier regulations. The FCC for now has decided to defer a definitive
resolution of this issue to specific cases as they are brought before it.
Although members of Congress, the Administration, and the public have strongly
supported the forbearance of telecommunications regulations on services provided
through the Internet, it is uncertain at this time what action the FCC will take
when a case is brought before it. From time to time members of Congress have
considered bills that would variously either impose new restrictions or
regulations on IP telephony or restrict agencies from imposing such restrictions
or regulations. Bills regarding the Internet are expected to remain the subject
of Congressional interest into the foreseeable future. It is not possible to
determine whether any such bills will become law and what effect future
legislation would have on our business.

         Additionally, the European Commission has requested comments on the
regulatory status of voice on the Internet. There can be no assurance that such
intervention or imposition of fees or charges would not have a material adverse
impact upon the acceptance and attractiveness of Internet voice communications.
Legislative proposals from international, federal and state government bodies
could also impose additional regulations and obligations upon on-line service
providers. The growing popularity and use of the Internet, generally, has
increased public focus and could lead to increased pressure on legislatures to
impose regulations with respect to, among other things, user privacy, pricing
and the characteristics and quality of products and services. We are unable to
predict the impact, if any, that future legislation, legal decisions or
regulations concerning the Internet may have on our business, financial
condition or results of operations. While we are not aware of any proposed
federal regulation directly affecting our business, we cannot predict the
likelihood that any future legislation will be enacted, nor the financial
impact, if any, of such resulting regulation. In the future, we may also develop
and introduce other products with new or additional telecommunications
capabilities or services, which could be subject to existing federal government
regulations or result in the imposition of new government regulations, either in
the United States or elsewhere.

         If one or more of these risks or uncertainties occurs or if our
underlying assumptions prove incorrect, our actual results, performance or
achievements in 2000 and beyond could differ materially from those expressed in,
or implied by, the forward-looking statements.

The exercise of warrants and stock options and the conversion of Series A
preferred stock into common stock could dilute or depress the value of our
common stock.

         We have granted employee stock options and are negotiating a final
agreement to grant Arelnet Ltd. warrants to purchase a substantial number of our
shares of common stock, contingent upon Arelnet placing purchase orders in
certain amounts. See Item 1, "Description of Business, Current Dependence on a
Few Major Customers," and see Note 10, "Stock Based Compensation", to our
Consolidated Financial Statements for the 2000 fiscal year under Item 7.

         Our issuance of additional shares of common stock would dilute the book
value of our stock and could negatively affect the market price of our stock.
The issuance of additional shares could also dilute the percentage ownership
interest and corresponding voting power of the prior stockholders.

         The conversion of Series A preferred stock into common stock, at the
ratio of 6 shares of common stock for each share of preferred stock, could also
dilute or depress the value of our common stock. See Item 11, "Security
Ownership of Certain Beneficial Owners and Management."

                                       39
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

                          INDEPENDENT AUDITORS' REPORT


To the Stockholders and Board of Directors
   of TEK DigiTel Corporation

We have audited the accompanying consolidated balance sheets of TEK DigiTel
Corporation and subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the years then ended December 31, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of TEK DigiTel Corporation and subsidiary as of
December 31, 2000, and 1999, and the results of their operations and their cash
flows for the years ended December 31, 2000 and 1999 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company incurred a net loss of $3,447,005 during the
year ended December 31, 2000 and has incurred net losses since its inception. In
addition, the Company's working capital requirement to sustain its business for
a period of one year far exceeds the available working capital resources.
Management's plans regarding those matters also are described in Note 3. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


/s/ Grant Thornton, LLP
Vienna, Virginia
February 8, 2001 (Except for Note 15, as to which the date is March 23, 2001)

                                       40
<PAGE>

                             TEK DIGITEL CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                   -------------------------
                                                                      2000           1999
                                                                   ----------     ----------
<S>                                                                   <C>            <C>
Current Assets:
    Cash                                                           $  885,297     $  477,682
    Accounts receivable,net                                            42,032         34,385
    Inventory                                                         508,118        371,432
    Prepaid expenses and other current assets                          88,417        171,563
                                                                   ----------     ----------

                  Total Current Assets                              1,523,864      1,055,062

Property and equipment, net                                            93,361         66,877

Other assets                                                          144,783        102,973
                                                                   ----------     ----------

                                                                   $1,762,008     $1,224,912
                                                                   ==========     ==========

Liabilities and Stockholders' Equity

Current Liabilities:
    Accounts payable                                               $  352,154     $  169,873
    Accrued expenses                                                  239,440         89,223
    Unearned revenue                                                   92,229        269,200
                                                                   ----------     ----------
              Total Current Liabilities                               683,823        528,296


Commitments and contingencies                                              --             --


Stockholders' Equity:
    Preferred Stock, no par value, 20,000,000 shares
      authorized, of which 2,100,000 has been designated as
      convertible Series A voting preferred stock. At December
      31, 2000 and 1999, 2,066,664 shares of convertible Series
      A voting preferred stock were issued and outstanding.           435,798        435,798
    Common stock no par value, 50,000,000 shares authorized,
      24,956,500 and 18,949,500 shares issued and outstanding
      at December 31, 2000 and 1999, respectively.                  6,908,788      3,362,353
    Other - stock options                                             715,583        631,325
    Deferred compensation                                            (145,557)      (343,438)
    Accumulated deficit                                            (6,836,427)    (3,389,422)
                                                                   ----------     ----------
              Total Stockholders' Equity                            1,078,185        696,616
                                                                   ----------     ----------

                                                                   $1,762,008     $1,224,912
                                                                   ==========     ==========
</TABLE>

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

                                       41
<PAGE>

                             TEK DIGITEL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                              December 31,
                                       ---------------------------
                                           2000            1999
                                       -----------     -----------

Revenues:
     Product sales                     $   890,260     $    56,399
     License revenue                            --         150,000
     Contract sales                             --           8,000
                                       -----------     -----------
          Total Revenue                    890,260         214,399
                                       -----------     -----------

Operating expenses:
     Cost of product sales                 770,807          67,590
     Sales and marketing                   904,240         652,817
     General and administrative          1,375,033         651,423
     Research and development            1,318,482       1,012,934
                                       -----------     -----------
          Total operating expenses       4,368,562       2,384,764
                                       -----------     -----------

Loss from operations                     3,478,302       2,170,365

Other income                                31,297           8,277
                                       -----------     -----------
Net loss                               $ 3,447,005     $ 2,162,088
                                       ===========     ===========

Net loss per share:
     Basic and diluted                 $     (0.16)    $     (0.14)
     Weighted average common shares     22,127,949      15,383,154
     Outstanding

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

                                       42
<PAGE>

                             TEK DIGITEL CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                Preferred Stock         Common Stock
                                                             ---------------------  ----------------------

                                                                         No Par                  No Par    Other-Stock
                                                               Shares     Value       Shares      Value      Option
                                                             --------- -----------  ----------  ---------- -----------
<S>                                                          <C>           <C>      <C>            <C>        <C>
Balance, January 1, 1999                                     2,066,664     435,798  12,377,976     874,600    347,850
    Issuance of common stock pursuant to the exercise of
        stock purchase warrants                                     --          --   2,377,024     413,795         --
    Issuance of common stock units in private placement-net
        of offering costs                                           --          --   4,000,000   1,992,091         --
    Issuance of common stock in private placement-net of
       offering costs                                               --          --     125,000      48,127         --
    Common stock issued to employees                                --          --      37,000      30,490         --
    Exercise of stock options                                       --          --      32,500      17,875    (14,625)
    Recognition of deferred compensation on stock options           --          --          --          --    283,475
    Amortization of deferred compensation                           --          --          --          --         --
    Net loss                                                        --          --          --          --         --
                                                             ---------  ----------  ----------  ----------  ---------

Balance, December 31, 1999                                   2,066,664     435,798  18,949,500   3,376,978    616,700
    Exercise of common stock purchase warrants                      --          --   6,000,000   3,500,000         --
    Exercise of stock options                                       --          --       5,000       2,750     (2,250)
    Common stock issued to employee                                 --          --       2,000       2,800         --
    Shareholder contribution                                        --          --          --      26,260         --
    Recognition of deferred compensation on stock options           --          --          --          --    101,133
    Amortization of deferred compensation                           --          --          --          --         --
    Net loss                                                        --          --          --          --         --
                                                             ---------  ----------  ----------  ----------  ---------

Balance, December 31, 2000                                   2,066,664  $  435,789  24,956,500  $6,908,788  $ 715,583
                                                             =========  ==========  ==========  ==========  =========
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
                                                                                             Total
                                                              Accumulated      Deferred   Stockholders'
                                                                Deficit      Compensation    Equity
                                                              ------------   ------------ -------------
<S>                                                           <C>             <C>            <C>
Balance, January 1, 1999                                      (1,227,334)     (309,200)      121,714
    Issuance of common stock pursuant to the exercise of
        stock purchase warrants                                       --            --       413,795
    Issuance of common stock units in private placement-net
        of offering costs                                             --            --     1,992,091
    Issuance of common stock in private placement-net of
       offering costs                                                 --            --        48,127
    Common stock issued to employees                                  --       (27,340)        3,150
    Exercise of stock options                                         --            --         3,250
    Recognition of deferred compensation on stock options             --      (283,475)           --
    Amortization of deferred compensation                             --       276,577       276,577
    Net loss                                                  (2,162,088)           --    (2,162,088)
                                                             -----------   -----------   -----------

Balance, December 31, 1999                                    (3,389,422)     (343,438)      696,616
    Exercise of common stock purchase warrants                        --            --     3,500,000
    Exercise of stock options                                         --            --           500
    Common stock issued to employee                                   --            --         2,800
    Shareholder contribution                                          --            --        26,260
    Recognition of deferred compensation on stock options             --      (101,133)           --
    Amortization of deferred compensation                             --       299,014       299,014
    Net loss                                                  (3,447,005)           --    (3,447,005)
                                                             -----------   -----------   -----------

Balance, December 31, 2000                                   $(6,836,427)  $  (145,557)  $ 1,078,185
                                                             ===========   ===========   ===========

</TABLE>

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

                                       43
<PAGE>

                             TEK DIGITEL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                     ------------------------
                                                                        2000         1999
                                                                    -----------  -----------
<S>                                                                  <C>          <C>
Cash Flows From Operating Activities
Net loss                                                            $(3,447,005) $(2,162,088)
Adjustments to reconcile net loss to net cash provided by
     operating activities:
   Depreciation                                                          31,578       25,916
   Amortization of deferred compensation                                299,014      276,577
   Allowance for uncollectible accounts                                  41,344           --
   Issuance of common stock to employees for services                     2,800        3,150
   Donated services from a shareholder                                   26,260           --
   Changes in operating assets and liabilities
        Increase in accounts receivables                                (48,991)     (34,385)
        Increase in inventory                                          (136,686)    (371,432)
        (Decrease) increase in prepaids and other current assets         83,146     (149,030)
        Increase in other assets                                        (41,810)      14,552
        Increase in accounts payable                                    182,281       87,349
        (Decrease) increase in accrued expenses                         150,217       (8,054)
        (Decrease) Increase in unearned revenue                        (176,971)     269,200
                                                                    -----------  -----------

Net cash used in operating activities                                (3,034,823)  (2,048,245)
                                                                    -----------  -----------

Cash Flows From Investing Activities
Purchases of property and equipment                                     (58,062)     (67,715)
                                                                    -----------  -----------

Cash Flows From Financing Activities
Proceeds from issuance of common stock units                                 --    1,040,218
Proceeds from the exercise of stock purchase warrants                 3,500,000    1,413,795
Proceeds from exercise of stock options                                     500        3,250
                                                                    -----------  -----------

Net cash provided by financing activities                             3,500,500    2,457,263
                                                                    -----------  -----------

Net change in cash and cash equivalents                                 407,615      341,303

Cash at beginning of year                                               477,682      136,379
                                                                    -----------  -----------

Cash at end of year                                                 $   885,297  $   477,682
                                                                    ===========  ===========
</TABLE>

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

                                       44
<PAGE>

                             TEK DIGITEL CORPORATION
                   Notes to Consolidated Financial Statements

Note 1 - Organization and Description of the Business

         TEK DigiTel Corporation (the "Company") was incorporated in Wyoming in
December 1995. In July 1998, the Company merged with and into ATC Group, Inc., a
wholly owned subsidiary of Diversified Technologies, Inc. ("Diversified"). The
merger was in effect a reverse acquisition, and was accounted for as a
recapitalization as more fully described in Note 4 below.

         The Company is a state-of-the-art technology company that develops and
manufactures Internet access devices used by service providers to offer
integrated voice/data services to the small and medium business. In addition,
the Company has developed the software and services necessary to help them
deploy and manage these devices and offer sophisticated voice services to its
customers.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

         The consolidated financial statements include the accounts of the
Company and ATC Group, Inc (ATC Inc.). Intercompany accounts and transactions
have been eliminated in consolidation.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

         The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents.

Supplemental Cash Flow Information

         For the years ended December 31, 2000 and 1999, the Company paid no
income taxes or interest.

Inventory

         Inventories are stated at the lower of cost, utilizing the first-in,
first-out method, or market. Inventory consists primarily of hardware components
used in the assembly of iGATE servers and iGATE produced for sale. Management
reviews inventory at regular intervals for obsolescence, and at December 31,
2000 believes no material obsolescence exists.

                                       45
<PAGE>

Property and Equipment

         Property and equipment are stated at original cost and are depreciated
using an accelerated depreciation method over the estimated useful lives of the
assets, ranging from three to five years. Routine repairs and maintenance are
expensed as incurred.

Revenue Recognition

         Product sales revenue is generally recognized upon product shipment.
Contract services revenue is recognized when the services are performed. During
the year ended December 31, 1999, the Company recognized license revenue related
to a nonexclusive license to manufacture the Company's products which was
terminated and under which the Company has no continuing obligation. Cash
received prior to product shipment is recorded as unearned revenue.

License and Royalties

         The Company amortizes the cost of licenses it has entered into over the
life of the license as a general and administrative cost. Royalty costs are
charged to cost of sales as units are sold.

Stock-Based Compensation

         The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
the grant, between the fair value of the Company's stock and the exercise price.

         The Company accounts for non-employee stock-based awards in which
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measured.

Net Loss per Share

         The Company reports basic and diluted earnings per share. Basic
earnings per share excludes dilution and is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share is computed by dividing net income (loss),
adjusted by the assumed conversion of any potential common share equivalents,
including stock options, stock purchase warrants and convertible Series A
Preferred Stock, by the weighted number of common shares and common share
equivalents (unless their effect is anti-dilutive) outstanding. Common stock
equivalents totaling 13,815,000 and 17,825,000 at December 31, 2000 and 1999,
respectively, were not included in the computation of diluted loss per share,
because to do so would have been anti-dilutive.

Income Taxes

         Deferred income taxes result primarily from temporary differences
between financial and tax reporting. Deferred tax assets and liabilities are
determined based on the differences between the financial statement bases and
tax bases of assets and liabilities using enacted tax rates. A valuation
allowance is recorded to reduce a deferred tax asset to that portion that is
expected more likely than not to be realized.

                                       46
<PAGE>

Recently Issued Accounting Standards

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
statement requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value and gains or losses depends on the intended use of the
derivative and its resulting designation. The statement was originally effective
for fiscal years beginning after June 15, 1999. In July 1999, FASB delayed
implementation of this standard for one year, to June 30, 2000. The Company will
adopt SFAS 133 in the first quarter of 2001. The Company does not expect the
adoption of SFAS No. 133 will have a material effect on its consolidated
financial statements.

Note 3 - Going Concern

         The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate continuation of
the company as a going concern. However, the company has sustained substantial
losses from operations since its inception, and such losses have continued
through the year ended December 31, 2000. As shown in the financial statements,
the Company has an accumulated deficit of $6,836,427 at December 31, 2000.

         The Company's continuation as a going concern is dependent upon several
factors, the most significant of which are its ability to successfully introduce
its products to market and generate sales revenue and obtain additional
financing. Should the Company not be successful in introducing its products to
market and generating sales, it will need to raise additional financing. The
Company has been highly dependent on a single investor who has since 1999
invested $5,500,000 that provided substantially all working capital requirements
for fiscal years 2000 and 1999.

         The Company is developing its sales and marketing strategies, and is
actively pursuing additional equity and debt financing to provide the necessary
funds for working capital until sales levels are sufficient to provide adequate
cash flow. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability of assets and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.

Note 4 - Merger with Diversified Technologies, Inc.

         On June 18, 1998, ATC Group, LLC, (ATC LLC) and ATC Inc. were merged,
with ATC Inc. being the surviving corporation. ATC Inc. was formed solely to
facilitate this merger, and is a wholly owned subsidiary of Diversified
Technologies, Inc. (Diversified). Diversified name was changed to TEK DigiTel
upon consummation of the merger. The members of ATC LLC received, in exchange
for 100% of their ownership interest in ATC LLC, 6,200,000 shares common stock
and 2,066,667 shares of Series A, Voting Convertible Preferred Stock. Each share
of convertible Series A, Voting Convertible Preferred Stock is convertible,
subject to certain terms and conditions described in Note 6, into six shares of
Company common stock. The effective date of the merger was July 6, 1998. Prior
to the merger, Diversified was a non-reporting OTC BB listed company with no
significant assets or liabilities, and no operations.

                                       47
<PAGE>

         For accounting purposes, the acquisition has been treated as a
recapitalization of ATC LLC, with ATC LLC as the acquirer (reverse acquisition).
The historical financial statements prior to July 6, 1998 are those of ATC LLC.
ATC LLC, ATC Inc, and Diversified executed the merger transaction believed by
management to be a tax-free reorganization. Neither ATC LLC, any of its members,
ATC Inc. or Diversified recognized any gain or loss as a result of the merger.

Note 5 - Accounts Receivable

         Accounts receivable consisted of the following at December 31:

                                                          2000        1999
                                                        -------     -------

         Customer receivable                            $83,376     $34,385
         Less: allowance for uncollectible accounts      41,344          --
                                                        -------     -------
                                                        $42,032     $34,385
                                                        =======     =======

Note 6 - Inventory

         Inventory consisted of the following at December 31:

                                                          2000         1999
                                                        -------      -------

         Raw materials                                 $163,514     $103,126
         Work in process                                213,300      257,135
         Finished goods                                 131,304       11,171
                                                       --------     --------
                                                       $508,118     $371,432
                                                       ========     ========

Note 7 - Property and Equipment

         Property and equipment consisted of the following at December 31:

                                                         2000         1999
                                                       -------      -------

         Computer and test equipment                  $123,879     $ 79,921
         Furniture, fixtures and office equipment       47,837       33,732
                                                      --------     --------
                                                       171,716      113,654
         Less:  Accumulated depreciation                78,355       46,777
                                                       -------     --------
                                                      $ 93,361     $ 66,877
                                                      ========     ========

                                       48
<PAGE>

Note 8 - Other Assets

         Other assets consisted of the following at December 31,

                            2000         1999
                          -------      -------
         Deposits        $ 16,509      $ 19,248
         License Fee      128,274        83,725
                         --------      --------
                         $144,783      $102,973
                         ========      ========

Note 9 - Stockholders' Equity

         Pursuant to an Agreement and Plan of Merger entered into in 1998 with
Diversified, the Company agreed to sell 1,600,000 units at a price of $0.10 per
unit. Each unit consisted of one share of common stock; one Class A common stock
purchase warrant exercisable until April 30, 1999 to purchase one share of
Company common stock for $0.12 per share; one Class B common stock purchase
warrant exercisable until April 30, 1999 to purchase one share of Company common
stock for $0.16 per share; and one Class C common stock purchase warrant
exercisable until April 30, 1999 to purchase one share of Company common stock
for $0.22 per share. The Company sold, on July 24, 1998, all the units to an
individual who was an officer of Diversified. All the warrants were exercised
during 1998 and 1999.


Series A, Voting Convertible Preferred Stock

         The Company has authorized 20,000,000 shares of preferred stock, no par
value, of which the Company has designated a total of 2,100,000 shares as Series
A, Voting Convertible Preferred Stock (the Series A preferred stock).

         The shares of Series A preferred stock are not subject to redemption.
Each share of Series A preferred stock may, subject to certain terms and
conditions as outlined below, may be converted, at the option of the holder,
into six shares of Company common stock.

         On March 8, 1999, since the Company had not met certain conditions
related to the conversion of the Series A Preferred Stock, its was subject to
the automatic conversion into six shares of common stock. However, by unanimous
written agreement, on April 24, 2000, all of the Series A preferred stockholders
waived their right to immediately convert their Series A preferred stock and
agreed to be bound by the conversion rates and the conversion conditions as set
forth in the table below. These conversion conditions need not be satisfied in
any particular order, nor is the satisfaction of any conversion condition
dependent upon the prior satisfaction of any other conversion condition.

         As of December 31, 2000, the first conversion provision has been met,
however as of December 31, 2000 no Series A preferred stock shares has been
converted into shares of common stock as of that date.

                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                               Conversion
                        Conversion Conditions                      Rate                Status
                        ---------------------                  ----------              ------
<S>      <C>                                                     <C>           <C>
(i)      1/4 of the shares of Series A preferred                    6:1        Condition achieved in
         stock held may be converted when the                                  May 1999
         Company's two-port Voice Server has
         successfully completed beta testing by a
         customer.

(ii)     1/4 of the shares of Series A preferred                    6:1        Condition achieved in
         stock held may be converted when the                                  January 2001
         company's four-port Voice Server, has
         successfully completed original beta testing
         by a customer

(iii)    1/4 of the shares of Series A preferred                    6:1        Condition not yet
         stock held may be converted when the company                          achieved
         has recorded an aggregate of $5,000,000 in
         sales

(iv)     1/4 of the shares of Series A preferred                    6:1        Condition not yet
         stock held may be converted when the Company                          achieved
         has recorded an aggregate of $10,000,000 in sales.
</TABLE>

         Series A preferred stockholders are entitled to vote in elections of
directors and on other matters generally as to which the company's stockholders
may vote. Each share of Series A preferred stock is entitled to cast three votes
on every matter placed before stockholders. The shares of Series A preferred
stock vote with the common shares and not as a separate class.

         The Series A preferred stockholders are not entitled to receive any
dividends. However, if a dividend is declared on the Company's common stock or
on any series of preferred stock ranking equal or junior to the Series A
preferred stock then Series A preferred stockholders are entitled to receive a
proportional share of the dividend.

Private Placement Offerings

         On October 18, 1999, the Company entered into an Private Placement
Agreement for the sale of 2,000,000 units under an exemption for registration
provided by Regulation S with an individual for $0.50 per unit. Each unit
consists of one share of the Company's common stock, and four warrants, Class D,
E, F and G, exercisable at various dates through August 31, 2001. The Class D
and Class E warrants are exercisable at $0.50 per share, the Class F warrant is
exercisable at $0.60 per share, and the Class G warrant is exercisable at $0.65
per share.

         During the year ended December 31, 1999, this individual exercised the
Class D warrant, investing an additional $1,000,000 for the purchase of
2,000,000 shares. During the year ended December 31, 2000, this individual
exercised the Class E, F, and G warrants investing an additional $3,500,000 for
the purchase of 6,000,000 shares.

         During 1999, the Company also sold 125,000 shares of common stock to an
individual for a total investment of $50,000. The Company incurred $1,873 of
legal fees related to this investment, and has correctly recorded these fees as
an offset to the investment.

                                       50
<PAGE>

Note 10 - Stock Based Compensation

1997 Employee Stock Compensation Plan

         The Company adopted the 1997 Employee Stock Compensation Plan (the ESC
Plan) for employees, officers, directors and advisors of the company in January
1997. The Company has reserved 1,000,000 shares of common stock for issuance
under the ESC Plan. The ESC Plan expires on January 17, 2002. Awards of ESC Plan
shares may be made as compensation for services rendered, directly or in lieu of
other compensation payable, as a bonus in recognition of past service or
performance, or may be sold to eligible employees.

         The Company also adopted the 1997 Compensatory Stock Option Plan (the
CSO Plan) for employees on January 18, 1997. The Company has reserved 1,500,000
shares of common stock for issuance upon the exercise of options granted under
the CSO Plan. The CSO Plan provides only for the issuance of non-statutory stock
options which are not intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. The
CSO Plan expires on January 17, 2007. CSO Plan options will be granted at
exercise prices determined by the Board of Directors or other CSO Plan
administrator, but the exercise price may not be less than 85% of the fair
market value of the common stock on the date of the grant of the option. Stock
options granted under the CSO Plan generally vest ratably over a three-year
period and expire 10 years from the date of the grant.

         During the years ended December 31, 2000 and 1999, the Company granted
2,000 and 37,000 shares of common stock, respectively, to employees. The shares
issued during these periods were fully vested at the time of issuance. The
Company has recorded compensation expense of $2,800 and $3,150 related to these
stock grants for the years ended December 31, 2000 and 1999, respectively.

         The following table summarizes stock option transactions:

                                                              Weighted
                                                               Average
                                             Number of        Exercise
                                               Shares           Price
                                             ----------       --------

      Outstanding at January 1, 1999         1,073,000           .10
      Options granted                        1,209,250           .10
      Options exercised                        (32,500)          .10
                                             ---------
      Outstanding at December 31, 1999       2,249,750           .10

      Options granted                           66,333          1.88
      Options exercised                         (5,000)          .10
      Options canceled                        (896,334)          .73
                                             ---------
      Outstanding at December 31, 1999       1,414,749           .40

      Exercisable at December 31, 1999         965,139           .13

                                       51
<PAGE>

         The following table summarizes information about stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                                          Options Outstanding         Options Exercisable
                                                        ------------------------   -------------------------
                                                        Weighted       Weighted                    Weighted
                                                        Average        Average                     Average
                                       Number of        Exercise       Contract    Number of       Exercise
                                         Shares           Price       Life (Yrs)    Shares          Price
                                         ------           -----       ----------    ------          -----
     <S>                                <C>               <C>           <C>         <C>              <C>
     $0.10 Exercise price               1,041,750         0.10          0.77        782,000          0.10
     $0.50-$2.16 Exercise price           372,999         1.03          1.86        183,139          0.63
</TABLE>

         The Company accounts for stock options granted to employees in
accordance with APB 25. Under APB 25, when the exercise price of the Company's
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. The Company recorded compensation
expense of approximately $302,000 and $299,000 related to options which were
granted with the exercise price less than market price in the years ended
December 31, 2000 and 1999, respectively. The Company has provided additional
pro forma disclosures as required by SFAS No. 123, "Accounting for Stock-Based
Compensation."

         For disclosure purposes, the fair value of each stock option is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for stock options and rights to
receive stock in 2000 and 1999; no annual dividends, expected volatility of 150%
and 149%, respectively, risk-free interest rate of approximately 5.00%, and
expected life of three years. The weighted-average fair values of the stock
options granted to employees in 2000 and 1999 were $1.55 and $0.93,
respectively.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of normal publicly traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options.

         Had compensation cost been based upon the fair value of the option on
the date of grant, as prescribed by SFAS No. 123, the Company's pro forma net
loss and net loss per share for the years ended December 31, 2000 and 1999 using
the Black-Scholes option pricing model would have been approximately $3,700,000
and $0.17, and $2,333,000 and $0.15, respectively.

                                       52
<PAGE>

Note 11 - Income Taxes

         No provision for US federal or state income taxes have been recorded in
any period, as the Company has incurred operating losses since its inception.

         Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows as of December 31,

                                              2000              1999
                                          -----------       -----------
Net operating loss tax carryforwards        2,230,000         1,074,000
Deferred compensation                          45,000            45,000
 Other                                        146,000            23,000
                                          -----------       -----------
                                            2,421,000         1,142,000
Less: valuation allowance                  (2,421,000)       (1,142,000)
                                          -----------       -----------
  Deferred tax assets                     $        --       $        --
                                          ===========       ===========

         Realization of deferred tax assets is dependent upon future earnings,
if any. The Company has recorded a full valuation allowance against its deferred
tax assets since management believes it is more likely than not that these
assets will not be realized. No income tax benefit has been recorded for all
periods presented because of the valuation allowance.

         The Company has available, for U.S. income tax purposes, net operating
loss carryforwards of approximately $5,900,000 at December 31, 2000, which can
be used to offset future taxable income through 2020 and a credit for research
and development costs of approximately $45,000. There can be no assurance that
the Company will realize the benefit of the net operating loss or research and
development credit carryforwards. In addition, the Company's utilization of its
net operating loss carryforward may be limited pursuant to Internal Revenue Code
Section 382, due to cumulative changes in ownership in excess of 50% within a
three year period.

         The primary difference in the Company's federal statutory income tax
rate and the Company's effective rate is primarily attributed to the impact of
state income taxes and the recording of a full valuation allowance.

Note 12 - Related Party Transactions

         During the year ended December 31, 1999, the Company rented office
space, purchased consulting services, and acted as a subcontractor from one of
its shareholders. During the year ended December 31, 1999 the Company paid this
shareholder amounts totaling $30,250. In January 2000, the Company relocated its
offices and no longer leases office space from this party.

         During the year ended December 31, 2000, a shareholder of the Company
provided iGATE assembly services at no cost to the Company. The fair market
value of such services was approximately $26,000, which has been recorded as
shareholder contribution in the accompanying financial statements.

                                       53
<PAGE>

Note 13 - Commitments and Contingencies

Operating Leases

         The Company leases office space in Maryland and equipment under
non-cancelable operating leases expiring in various years through 2005. Total
rent expense for all operating leases was $146,173 and $50,361 in 2000 and 1999,
respectively. Future minimum lease payments under non-cancelable operating
leases as of December 31, 1999 are as follows:

                    Year ending December 31,            Amount
                    ------------------------           --------
                              2001                     $136,873
                              2002                      136,333
                              2003                      130,419
                              2004                      122,364
                              2005                          210
                                                       --------
                                                       $526,199
                                                       ========

Licensing Agreement

         As part of the license Agreement with Telogy, the Company has agreed to
pay $378,000 for software license royalties through September 2002. As of
December 31, 2000, the Company has made payments of $25,700. The amount has been
recorded as a prepaid expense and is being amortized as units are sold.

Note 14 - Major Customers

         A limited number of customers have historically accounted for a
significant portion of the Company's net revenues. Customers that represented in
excess of 10% of the Company's product sales are as follows:

                                       December 31, 2000      December 31 1999
                                       -----------------      ----------------
           Customer A                         36%                     54%
           Customer B                         26%                     --
           Customer C                         10%                     --

All of the license revenue recognized by the Company during the year ended
December 31, 1999 was received from one company, as described in Note 1.

Note 15 - Subsequent Events

         On March 23, 2001, the Company signed a non-binding Memorandum of
Agreement (MOU) with Arelnet Ltd. (Arelnet) to entered into an Original
Equipment Manufacturer (OEM) arrangement whereby Arelnet may purchase up to
150,000 units of the Company's V-Server products at a predetermined fixed price
per unit. As an incentive for Arelnet to purchase the Company's V-Server
products, the MOU also grants to Arelnet warrants to purchase the Company common
stock based on performance milestones as follows:

                                       54
<PAGE>

 Number of Units                   Number of Warrants           Warrant Price
---------------------            ---------------------       ------------------

First 5,000 units                  1.6 Million shares              $0.70
Next 10,000 units                  1.6 Million shares              $0.90
Next 15,000 units                  1.6 Million shares              $1.10
Next 20,000 units                  2.0 Million shares              $1.20
Next 25,000 units                  1.6 Million shares              $1.30
Next 25,000 units                  1.6 Million shares              $1.40
Next 50,000 units                  2.0 Million shares              $1.50

Warrants are granted when each performance milestone is achieved and vest on the
earlier of receipt of payment in full for all units under each milestone
achieved or non-delivery by the Company of V-Server products ordered by Arelnet
within 90 days of the scheduled delivery date.

This MOU is subject to the approval of each party's board of directors and
execution of the final agreement within 60 days of the date of the MOU. As of
March 23, 2001, Arelnet has provided the Company advance payment of $150,000 for
future purchases under this MOU. As part of this MOU, Arelnet has also agreed to
provide the Company a $610,000 letter of credit.

As of March 23, 2001, Arelnet has not achieved any of the above performance
milestones.

The Company is currently negotiating with a bank for a $750,000 line of credit
for which it will be required to pledge the letter of credit received from
Arelnet as partial collateral. Should the Company be successful in negotiating
this line of credit, it plans to utilize the proceeds to fund current
operations.


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

         None.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Management

         Our bylaws provide for a Board of Directors consisting of one to five
directors. Currently, our Board consists of three directors. Each director is
elected to serve for a one-year term, until the next annual meeting of
stockholders and until his successor has been duly elected and qualified. The
Board of Directors elects officers annually. Generally, officers serve at the
Board's discretion, except that Messrs. Chimood, Yang and Chao each have an
employment agreement to serve as officers until June 30, 2002. Also, we may
enter into employment agreements with other officers.

         Pursuant to the merger agreement, Messrs. Thomas Yang, Enghe Chimood
and Ke-Ou Chao are serving as directors and executive officers until July 6,
2001. In the merger agreement, the former ATC

                                       55
<PAGE>

LLC members also agreed to vote all of their shares in favor of electing the
above-mentioned persons to the Board of Directors through July 2001. The merger
agreement also provided for the selection of a fourth director to serve for this
three-year period following the merger. Mr. Robert Clarke originally served as
the fourth director but resigned effective September 7, 1999, and has not been
replaced.

         In addition, under the private placement subscription agreement with
Tseng Yun Tsai, Mr. Tsai has the right to appoint one director to our Board of
Directors annually and the right to appoint two directors to our Board of
Directors annually upon the exercise of all of the warrants purchased by Mr.
Tsai, subject to shareholders' approval. Because Mr. Tsai has not yet exercised
all of his warrants, at the 2001 annual meeting, he will have the right to
appoint two directors, subject to the approval of the stockholders.

Directors and Executive Officers

         The following table sets forth the names, ages and positions of our
directors and executive officers.

                          Age as of
        Name           December 31, 2000                    Position
------------------    ------------------     ----------------------------------
Enghe Chimood                47              Co-Chairman of the Board, Chief
                                             Executive Officer and President
------------------    ------------------     ----------------------------------
Thomas Yang                  49              Co-Chairman of the Board, Chief
                                             Operating Officer
------------------    ------------------     ----------------------------------
Ke-Ou Chao                   43              Director, Chief Technical Officer,
                                             and Corporate Secretary
------------------    ------------------     ----------------------------------

         The following descriptions set forth the length of service of each of
our directors and executive officers and the principal occupations of these
individuals during the past five years.

Enghe Chimood, Chief Executive Officer; President and Co-Chairman of the Board

         Mr. Chimood, one of our founders, has served as an executive officer of
ours since ATC LLC's inception in December 1995. He currently serves as our
Chief Executive Officer and president and is responsible for the overall
management of the company. Mr. Chimood has extensive experience in the design
and development of telecommunications products based on embedded distributed
microprocessors. Prior to founding our company, Mr. Chimood spent more than 13
years in related senior management and technical management positions with
Hughes Network Systems, GTE Telenet Communications Corporation, Pilot Research
Associates and, most recently, Orbital Communications Corporation, where he was
employed from 1992 to 1995 as a principal engineer.

         Mr. Chimood holds a B.S. degree in Electrical Engineering from National
Taiwan University and a M.S. degree in Computer Science from the Georgia
Institute of Technology. He also completed all the course work necessary to earn
his Ph.D. in Engineering Administration from George Washington University, but
has yet to prepare his doctoral dissertation.

Thomas Yang, Chief Operating Officer; Co-Chairman of the Board

         Mr. Yang, one of our founders, currently serves as our Chief Operating
Officer and has served our company and its predecessor, ATC LLC, in various
executive capacities since ATC LLC's formation. Mr. Yang is responsible for our
day to day management and customer support. Mr. Yang also provides

                                       56
<PAGE>

marketing/sales support to the Pacific Rim countries of China, Taiwan, and Hong
Kong due to his relationships with key individuals in these regions. Mr. Yang
has extensive experience in the management, design, development and network
integration of large-scale networking products, including digital and hybrid
switching systems for packet-based wide area networks. Prior to founding our
company, Mr. Yang amassed nearly 20 years of experience in voice and data
communications, holding key management positions for industry leaders including
Bell Atlantic, IBM, GTE Telenet Communications Corporation and Data General. Mr.
Yang was the Director of Engineering at I-NET from January1995 to February1996
and a Network Project Manager for Bell Atlantic from February 1996 to April
1996. He also recently served as Program Manager for Glocom, Inc. from 1996 to
1998.

         Mr. Yang received a B.S. Electrical Engineering degree from the
University of Illinois and an M.S. Electrical Engineering degree from George
Washington University.

Ke-Ou Chao, Vice President, Engineering; Chief Technical Officer; Director;
Corporate Secretary

         Mr. Chao, one of our founders, currently serves as our Vice President
of Engineering, Chief Technical Officer, and Corporate Secretary and is
responsible for leading the development of all hardware and software for our
products. He has served in various executive positions at our company and its
predecessor, ATC LLC, since ATC LLC's formation in December 1995. Mr. Chao has
extensive experience in the design, implementation and testing of
telecommunication products based on embedded distributed microprocessors. In
addition, Mr. Chao has extensive related experience, having spent more than 15
years in senior development and management positions at leading networking
companies such as GTE Telenet Communications Corporation, Hughes Network
Systems, Data General and Pulsecom. Mr. Chao served as Principal Software
Engineer at Pulsecom from January 1991 to May 1996. Major accomplishments
include developing TCP/IP, SONET, and ATM product lines.

         Mr. Chao received his M.S. Electrical Engineering degree from George
Washington University.

Advisory Board

         On October 1, 1999, our Board of Directors authorized the establishment
of a five member advisory board to assist our management team in shaping our
business, technology, and product strategies. The role of the advisory board
includes the following:

         o        provide strategic guidance to our management team;

         o        solicit and present an objective "outside view" from peers in
                  and out of the advisory board members' respective industries;

         o        counsel management on a regular basis on issues such as
                  organizational structure, infrastructure, governance, growth
                  opportunities, market position and other issues vital to the
                  success of the company; and

         o        provide our management with leads on talented individuals
                  needed to fill key positions.

         We anticipate that this group will be comprised of industry leaders and
notable industry consultants who can lend their extensive industry and business
experience to our management team. On November 29, 1999, the Board of Directors
appointed Joseph A. Crupi as the first member of our advisory board. Mr. Crupi
is the President and CEO of Telogy Networks, Inc., a Texas Instrument company.
As compensation for his board membership, Mr. Crupi was granted an option to
purchase 30,000 shares of our common

                                       57
<PAGE>

stock with an exercise price of $.50 per share. Twenty-five percent, or 7,500,
of the total number of options granted vest every three months beginning on
November 29, 1999. Mr. Crupi also receives a $300 per diem for each advisory
board meeting attended at our offices. Further, Mr. Crupi will be reimbursed for
his travel expenses incurred in furtherance of our business.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934 requires each of
our directors, executive officers and shareholders owning in excess of 10% of
our outstanding equity stock to file initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the company
with the Securities and Exchange Commission (SEC). SEC regulations require that
these reporting persons furnish us with copies of all Section 16(a) forms that
they file. Based on our review of copies of the reports which we received, and
on written representations by certain reporting persons that no Forms 5 were
required, we believe that the reporting persons complied with their Section
16(a) filing requirements in a timely fashion, except for Tseng Yun Tsai, a
principal shareholder. Mr. Tsai has not filed a Form 5, Annual Statement of
Beneficial Ownership of Securities, for the 2000 fiscal year to report one late
transaction. Management is working with Mr. Tsai to ensure that his Form 5 will
be filed shortly.

         ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth all compensation awarded to, earned by,
or paid to our Chief Executive Officer and our other officers by our company for
their services in all capacities rendered during 2000, 1999 and 1998.

                           Summary Compensation Table
<TABLE>
<CAPTION>
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
          Name                   Principal Position           Year        Salary        Bonus          Options
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
<S>                         <C>                              <C>           <C>        <C>            <C>
Enghe Chimood              Chief Executive Officer,
                           President and co-chairman of
                           the Board of Directors             2000         $ 70,500             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1999           71,015             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1998 (1)       56,193             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
Rocco DiCarlo              President                          2000           96,339             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1999          120,000             -    1,500,000 (2)
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
Thomas Yang                Chief Operating Officer and
                           co-chairman of the Board of
                           Directors                          2000           72,807             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1999           78,652             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1998 (1)       46,537             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
Ke-ou Chao                 Chief Technical Officer,
                           Secretary and a Director           2000           72,808             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1999           70,769             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
                                                              1998 (1)       56,193             -                -
-------------------------- ------------------------------- ----------- ------------- ------------- ----------------
</TABLE>

(1)      This individual was a founder of and employed by ATC LLC prior to its
         merger with us on July 6, 1998. Compensation received from ATC LLC is
         not included above.

                                       58
<PAGE>

(2)      Mr. DiCarlo was appointed Vice President in December 1998 but received
         no compensation until 1999. The terms and conditions of the long term
         compensation options granted to Mr. DiCarlo are more fully described
         below. Mr. DiCarlo's employment was terminated in September 2000.

         The amount of other annual compensation received by each named
executive officer consisted primarily of the use of company-owned vehicles and
did not exceed either $50,000 or 10% of each executive's annual salary and
bonus.

Excessive Compensation Prohibited

         Under the merger agreement, during the first year following the merger,
no prior member of ATC LLC may receive annual compensation with a cash value
exceeding $60,000. The agreement further provides that the compensation may be
increased to $70,000 during the second year following the merger and that the
Board may override these restrictions by unanimous vote based on extraordinary
efforts. By the unanimous adoption of a resolution on September 30, 1998, the
Board of Directors increased the $60,000 limit during the first year following
the merger to $70,000, based on the extraordinary efforts of the prior members
of ATC LLC. Messrs. Chimood, Yang and Chao are prior members of ATC LLC; Mr.
DiCarlo is not a prior member of ATC LLC.

Option Grants and Option Exercises in Fiscal Year 2000 and Year-End Option
Values

         We did not grant any of the executives named above in the Summary
Compensation Table any stock options in 2000; and, none of the named executives
exercised any options during 2000. Rocco DiCarlo is the only named executive who
currently owns stock options. On Mr. DiCarlo's date of employment, December 16,
1998, we agreed to grant options to purchase 1,500,000 shares of common stock at
the exercise price of $.10 per share. These options were to vest upon the
attainment of certain performance milestones.

         At December 31, 1999, Mr. DiCarlo had attained the first milestone,
namely, his completion of our research and development plan; and, as a result,
the option to purchase 300,000 shares was exercisable. Mr. DiCarlo's options
expire 10 years from the date of grant and the remaining options to purchase
1,200,000 shares were to vest upon the attainment of certain sales levels.
However, Mr. DiCarlo's employment was terminated on September 11, 2000, in
connection with the reorganization of our sales and marketing division. As of
that date, none of the additional milestones had been attained. In connection
with Mr. DiCarlo's termination, we negotiated the treatment of these
unexercisable options and have agreed to extend the expiration date of Mr.
DiCarlo's options, both vested and unvested, for one from the date of his
termination, and have further defined the performance criteria governing the
vesting of Mr. DiCarlo's unvested options. As of December 31, 2000, Mr. DiCarlo
has not met any of the performance criteria related to his unvested options.
Based on the fair market value of our common stock as of December 31, 2000, the
300,000 exercisable options Mr. DiCarlo holds had an aggregate value of $72,000,
and his 1,200,000 unexercisable unvested options had an aggregate value of
$288,000.

Directors' Compensation

         The directors receive no cash compensation for their services as
directors. All of the members of the Board, Messrs. Chimood, Yang and Chao, are
also executive officers and receive salaries and other compensation as described
above.

                                       59
<PAGE>

1997 Employee Stock Compensation Plan

         Our predecessor, Diversified Technologies, Inc., adopted the 1997
Employee Stock Compensation Plan (the ESC Plan) for employees, officers,
directors and advisors to the company on January 18, 1997. Pursuant to the terms
of the merger agreement, this plan remained in effect after the merger's
effective date. Under the terms of this plan, 1,000,000 shares of common stock
were reserved for issuance upon the grant of awards under this plan. The ESC
Plan expires on January 17, 2002. The Board of Director's Compensation Committee
(or the full Board) is responsible for the administration of the ESC Plan and
has sole power to award common shares pursuant to the plan. Awards of ESC Plan
shares may be made as compensation for services rendered, directly or in lieu of
other compensation payable, as a bonus in recognition of past service or
performance, or may be sold to eligible persons. ESC Plan shares awarded other
than for services rendered may not be sold for less than their fair value on the
grant date. As of December 31, 2000, 194,000 common shares had been awarded
under this plan.

1997 Compensatory Stock Option Plan

         Our predecessor, Diversified Technologies, Inc., adopted the 1997
Compensatory Stock Option Plan (the CSO Plan) for employees on January 18, 1997.
Pursuant to the terms of the merger agreement, this plan remained in effect
after the merger's effective date. Under the terms of the CSO Plan, as modified
in 1999, 4,500,000 shares of common stock were reserved for issuance upon the
exercise of options granted under this Plan and our 1999 New Hired Employee
Stock Compensation policy. The CSO Plan provides for the issuance of
non-statutory stock options that are not intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended. The plan expires on January 17, 2007. Our Board of Directors may
appoint the Board's Compensation Committee (provided it consists of at least two
members of the Board who are Non-Employee Directors) as administrator of this
plan. Currently, the full Board is responsible for the duties allocated to the
Compensation Committee. CSO Plan options will be granted at exercise prices
determined by the Board of Directors, but the exercise price may not be less
than 85% of the fair market value of the common stock on the date of the option
grant. As of December 31, 2000, 2,348,583 have been granted under this plan. On
May 1, 1999, the Board of Directors, by resolution, authorized 3,000,000 shares
of common stock to be issued and added to the CSO Plan, in conjunction with its
establishment of the 1999 New Hired Employee Stock Compensation policy.

Executive Employment Agreements

         On April 22, 1999, we entered into an executive employment agreement
with Thomas Yang, and on January 20, 2000, we entered into executive employment
agreements with Ke-Ou Chao and Enghe Chimood. The employment agreements are
attached as Exhibits 10.1, 10.2 and 10.3. The agreements terminate on June 30,
2002, without a renewal option. During the term of the agreements, Mr. Chimood
shall serve as Chief Executive Officer and Co-Chairman the Board; Mr. Yang shall
serve as Chief Operating Officer and Co-Chairman of the Board; and Mr. Chao
shall serve as Vice President, Engineering and Director.

         The executives shall devote substantially all of their business time
and effort to our business. Under the agreements, the executives receive the
following annual base salaries:

<TABLE>
<CAPTION>
                     -------------------   --------------------   ----------------------
                        Enghe Chimood           Thomas Yang             Ke-ou Chao
                     -------------------   --------------------   ----------------------
<S>                   <C>                    <C>                      <C>
4/22/99 to 6/30/99           N/A             $60,000, prorated              N/A
7/1/99 to 6/30/00            N/A                  $70,000                   N/A
1/20/00 to 6/30/01    $70,000, prorated             N/A              $70,000, prorated
7/1/00 to 6/30/01       $150,000 (1)            $150,000 (1)           $150,000 (1)
7/1/01 to 6/30/02         $170,000                $150,000               $150,000
</TABLE>

                                       60
<PAGE>

(1)      In July 2000, this executive decided to defer $80,000 of his base
         salary, for the period beginning July 1, 2000 and ending June 30, 2001,
         until a later date.

         In addition, under the terms of the agreements, the above executives
will also receive customary employee benefits which include health and life
insurance and use of a company leased vehicle.

         The employment agreements also contain provisions in the event of our
change of control if the executive's employment is involuntarily terminated,
without serious cause, as defined in the agreements, and without breach of the
agreement's non-compete, confidentiality and certain other provisions, by the
entity acquiring control of us we must pay the executive his earned but unpaid
base salary and incentive compensation as of the date of termination; and any
shares of Series A voting convertible preferred stock owned by the executive
will automatically convert into shares of our common stock.

         These executives must also maintain the confidentiality of certain
information about us and have agreed that any intellectual property they develop
resulting from their services with us will belong to us, the presumption being,
as stated in the agreements, that any intellectual property developed or worked
on by the executive at any time during his employment will be the result of his
services under his employment agreement. The agreements also contain a
non-compete provision, whereby the executives agree not to compete directly or
indirectly with us during their employment and for two years following their
termination of employment.

Executive Severance Package

         In September 2000, we decided to relocate our sales and marketing
function from Canada to our Maryland headquarters. In connection with this
consolidation, we terminated all of our Canadian sales and marketing
consultants, including Mr. Rocco DiCarlo, our then President. We did not enter
into a written employment agreement or severance arrangement with Mr. DiCarlo.
We have recently negotiated a severance package with Mr. DiCarlo, which includes
extending the expiration period of his 300,000 previously vested options
exercisable at $0.10 per share for one year. Further, Mr. DiCarlo's vesting
period for options to purchase up to 1,200,000 shares at an exercise price of
$0.10 per share, based upon the attainment of certain quarterly sales goals was
to be extended for one year.

     In addition, Mr. DiCarlo has agreed to return to us all office equipment we
provided him to perform his duties and we have agreed to pay him his unused
vacation time. The net of these benefits was not significant and we do not we
believe that Mr. DiCarlo's termination will have an impact on our future sales
and marketing efforts.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following tables set forth information, as of December 31, 2000,
with respect to the following beneficial owners of our common stock for:

         o        each person or group of persons, who we know beneficially own
                  more than 5% of any class of our outstanding stock;

         o        each of our executive officers named in the Summary
                  Compensation Table;

         o        each of our directors; and

                                       61
<PAGE>

         o        all executive officers and directors as a group.

         In general, under the SEC's rules, a person is deemed to be a
"beneficial owner" of a security if that person has or shares the power to vote
or direct the voting of such security or has the power to dispose or direct the
disposition of such security. A person is also deemed to be the beneficial owner
of any securities of which the person has the right to acquire beneficial
ownership within 60 days.

         At December 31, 2000, 24,956,500 shares of our common stock were issued
and outstanding, along with approximately 4,483,125 shares reserved for issuance
upon the exercise of outstanding options and warrants eligible for exercise into
shares of common stock, or for issuance pursuant to employee stock awards,
within 60 days. At December 31, 2000, we also had 2,066,667 issued and
outstanding shares of Series A voting convertible preferred stock which is the
only issued and outstanding series of preferred stock. As of March 23, 2001,
1,033,334 of these Series A shares are eligible for conversion into shares of
common stock at a conversion rate of 6:1, pursuant to the merger agreement and
our amended Articles of Incorporation.

         Unless otherwise indicated, the address for each listed stockholder is:
c/o TEK DigiTel Corporation, 20030 Century Blvd., Suite 201, Germantown,
Maryland 20874. To the best of our knowledge, except as indicated in the
footnotes to this table and pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common and Series A preferred stock.

                                       62
<PAGE>

      The following table provides information on the beneficial ownership of
our securities as of December 31, 2000.

<TABLE>
<CAPTION>
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
                                                                                Percent of      Percent of      Percent of
                                                                Shares of      Outstanding        Voting          Voting
                                                Percent of       Series A         shares        Ownership,      Ownership,
                                               Outstanding     Convertible     Convertible     Convertible      Convertible
                                Shares of     shares Common      Series A        Series A        Series A        Series A
                              Common Stock        Stock         Preferred       Preferred       Preferred        Preferred
  Name and Address of 5%      Beneficially     Beneficially    Stock Owned        Stock         Stock Not          Stock
          Holder                  Owned         Owned (1)          (2)         Beneficially   Converted (3)    Converted (4)
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
<S>                                  <C>            <C>              <C>           <C>              <C>             <C>
Si Tsong Chang
13759 Saratoga Vista
Saratoga, CA  95070                  694,043        3%               286,533       14%              5%              6%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
Glocom, Inc.
20010 Century Blvd
Suite 300
Germantown, MD                     1,073,468        4%               357,813       17%              7%              9%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
Tseng Yun Tsai
218 Sec. 2 Tun
Hwa S. Rd.
Taipei, Taiwan                    10,000,000       40%                     -        -              32%              27%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
Enghe Chimood                        971,664        4%               323,884       16%              6%              8%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
Thomas Yang                        1,127,780        5%               375,922       18%              7%              9%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
Ke-ou Chao                           896,458        4%               298,822       14%              6%              7%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
Executive Officers and
Directors, as a Group (3
persons)                           2,995,902       12%               998,628       48%             19%              24%
---------------------------- ---------------- --------------- --------------- --------------- --------------- ----------------
</TABLE>

(1)      Percentage calculated based on 24,952,500 shares of common stock issued
         and outstanding. Calculation excludes common stock issuable upon
         conversion of preferred shares eligible for conversion.

(2)      The Series A voting convertible preferred shares are eligible for
         conversion into shares of common stock at a rate of six shares of
         common stock for each share of preferred stock owned under certain
         conditions as described below.

(3)      Each share of Series A voting convertible preferred stock entitles its
         holder to cast three votes on every matter placed before stockholders
         for consideration. Each share of common stock entitles its holder to
         one vote. As a result, percentages are calculated based on a total of
         6,200,001 votes for all outstanding Series A voting convertible
         preferred stock and 24,952,500 votes for common stock outstanding.
(4)      The Series A voting convertible preferred shares are eligible for
         conversion into shares of common stock at a rate of six shares of
         common stock for each share of preferred stock owned under certain
         conditions described below. As a result, percentages are calculated
         based on the sum of 2,066,667 shares of outstanding Series A voting
         convertible preferred stock being converted into 12,400,002 shares of
         common stock and the 24,952,500 votes for common stock issued and
         outstanding at December 31, 2000.

                                       63
<PAGE>

         The following table provides information concerning the Series A
preferred stock, which is convertible into six fully paid, non-assessable shares
of common stock, subject to the following conversion conditions:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------     --------------- -------------------------
                                                                                  Conversion
Conversion Conditions *                                                              Rate               Status
---------------------------------------------------------------------------     --------------- -------------------------
<S>                                                                                 <C>          <C>
1/4 of the shares of Series A preferred stock held may be converted when
in our two-port Voice Server has successfully completed
original beta testing by a customer, as evidenced by the customer's final                       Condition achieved
written acceptance specifying all testing carried out and test results. **           6:1        May 1999
---------------------------------------------------------------------------     --------------- -------------------------
1/4 of the shares of Series A preferred stock held may be converted when our
four-port Voice Server has as of September 30, 2000 successfully completed
original beta testing by a customer, as evidenced by the
customer's final written acceptance specifying all testing carried out                          Condition achieved in
and test results. **                                                                 6:1        March 2001
---------------------------------------------------------------------------     --------------- -------------------------

1/4 of the shares of Series A preferred stock held may be converted
when the company and all subsidiaries have on a combined basis achieved
an aggregate of $5,000,000 in booked sales, evidenced by firm purchase
orders, firm distribution agreements, license agreements, royalty
agreements or other written agreements committing contracting parties
to purchase a minimum specified dollar amount of product (collectively,
the "Sales Agreements"), subject to no condition, contingency or
limitations other than product delivery and satisfying technical                                Condition not achieved
specifications made part of the Sales Agreements. ***                                6:1        as of December 31, 2000
---------------------------------------------------------------------------     --------------- -------------------------
1/4 of the shares of Series A preferred stock held may be converted
when the company and all subsidiaries have on a combined basis achieved
an aggregate of $10,000,000 in booked sales, evidenced by Sales
Agreements that are not subject to any condition, contingency or
limitation other than product delivery and satisfying technical                                 Condition not achieved
specifications made part of the Sales Agreements. ***                                6:1        as of December 31, 2000
---------------------------------------------------------------------------     --------------- -------------------------
Automatic Conversion at Maximum Conversion Rate. Notwithstanding the
provisions above, if the Company has not realized $1,000,000 in cash or
other value from an offering of our securities prior to deduction of
offering-related expenses and other non-operating expenses not to
exceed $100,000, (the Qualifying Amount) within 6 months following the
date of original issuance of the Series A preferred stock (July 7,
1998), then each share of Series A preferred stock shall, automatically
and without any requirement to satisfy any conversion conditions and
without need of any further action on the part of holders of Series A
preferred stock except to surrender the Series A preferred stock
certificates to the company's secretary for conversion, be converted
into and thereafter represent 6 shares of our common stock; provided                            Condition triggered as
however, that if on the date which is 6 months following the original                           of March 8, 1999, but
issue date, a total of at least $650,000 has then been realized by the                          waived by unanimous
company in cash or other value from an offering of our securities prior                         written agreement of
to deductions, then the six-month period in which the company must                              all Series A preferred
raise the Qualifying Amount shall be extended to 8 months following the                         stockholders on April
original issue date.                                                                 6.1        24, 2000
---------------------------------------------------------------------------     --------------- -------------------------
</TABLE>

*        The four conversion conditions need not be satisfied in any particular
         order, nor is the satisfaction of any conversion condition dependent
         upon the prior satisfaction of any other conversion condition.

**       In addition to the customer's final written acceptance as called for,
         full board of directors must by unanimous vote determine that the
         customer's beta testing occurred as represented in the final written
         acceptance and that such testing was reasonably appropriate to evaluate
         fitness of the tested device for its intended use.

***      In addition to the booked sales required, our full board of directors
         must by unanimous vote determine that all Sales Agreements which
         evidence the booked sales are valid, arm's length agreements and
         appropriate to our operations.

                                       64
<PAGE>

         In addition, pursuant to a unanimous written agreement of all Series A
preferred stockholders dated April 24, 2000, attached hereto as Exhibit 4.3, all
Series A preferred stock may be converted on the fifth anniversary date of the
original issuance, which is July 7, 2003, regardless of whether the above
described milestones have been met.

         ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Apart from the employment agreements described under Item 10, and the
issuance of stock, warrants and stock options to our directors, officers and
principal shareholders, as described elsewhere in this annual report under Items
1, 10 and 11, during 2000 we have not entered into and currently do not intend
to enter into any material transactions with any of our directors, executive
officers, principal stockholders, or their associates, except as described
below.

         During 2000, Glocom, Inc., one of our major shareholders, provided
iGate assembly services to us for no cost. We determined the fair market value
of these services to be approximately $26,000, which we recorded in our
financial statements as a shareholder contribution.

                                       65
<PAGE>

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits

Exhibit
Numbers            Description
-------------      -------------------------------------------------------------

2                  Agreement and Plan of Merger by and among Diversified
                   Technologies, Inc., ATC Group, Inc. ATC Group L.L.C., dated
                   June 10, 1998. Incorporated by reference to Exhibit 2 of
                   Registrant's Registration Statement on Form 10-SB, filed with
                   the SEC on August 2, 2000, and as finally amended on December
                   21, 2000
3.(i)              Articles of Incorporation of the Registrant, as amended.
                   Incorporated by reference to Exhibit 3(i) of Registrant's
                   Registration Statement on Form 10-SB, filed with the SEC on
                   August 2, 2000, and as finally amended on December 21, 2000.
3.(ii)             Bylaws of the Registrant. Incorporated by reference to
                   Exhibit 3(ii) of Registrant's Registration Statement on Form
                   10-SB, filed with the SEC on August 2, 2000, and as finally
                   amended on December 21, 2000.
4.1                Form of Stock Certificate of Common Stock. Incorporated by
                   reference to Exhibit 4.2 of Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000.
4.2                Form of Stock Certificate for Series A, Convertible Preferred
                   Stock. Incorporated by reference to Exhibit 4.3 of
                   Registrant's Registration Statement on Form 10-SB, filed with
                   the SEC on August 2, 2000, and as finally amended on December
                   21, 2000.
4.3                Waiver of Conversion Rights of Series A Preferred Stock.
                   Incorporated by reference to Exhibit 4.4 of Registrant's
                   Registration Statement on Form 10-SB, filed with the SEC on
                   August 2, 2000, and as finally amended on December 21, 2000.
10.1               Employment Agreement, as amended, dated January 20, 2000,
                   between the Registrant and Enghe Chimood. Incorporated by
                   reference to Exhibit 10.1 of Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000.
10.2               Employment Agreement, dated April 22, 1999, as amended,
                   between the Registrant and Thomas Yang. Incorporated by
                   reference to Exhibit 10.2 of Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000.
10.3               Employment Agreement, dated January 20, 1999, as amended,
                   between the Registrant and Ke-Ou Chao. Incorporated by
                   reference to Exhibit 10.3 of Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000.
10.4               Diversified Technologies, Inc. 1997 Compensatory Stock Option
                   Plan. Incorporated by reference to Exhibit 10.4 of the
                   Registrant's Registration Statement on Form 10-SB, filed with
                   the SEC on August 2, 2000, and as finally amended on December
                   21, 2000.
10.5               Diversified Technologies, Inc. 1997 Employee Stock
                   Compensation Plan. Incorporated by reference to Exhibit 10.5
                   of the Registrant's Registration Statement on Form 10-SB,
                   filed with the SEC on August 2, 2000, and as finally amended
                   on December 21, 2000.
10.6               Unanimous Written Consent of the Board of Directors, dated
                   May 1, 1999, concerning an amendment to the Diversified
                   Technologies, Inc. 1997 Compensatory Stock Option Plan and
                   the 1997 Employee Stock Compensation Plan. Incorporated by
                   reference to Exhibit 10.6 of the Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000.
10.7               Unit Subscription Agreement, dated October 18, 1999, between
                   the Registrant and Tseng Yun Tsai. Incorporated by reference
                   to Exhibit 10.7 of the Registrant's Registration Statement on
                   Form 10-SB, filed with the SEC on August 2, 2000, and as
                   finally amended on December 21, 2000.

                                       66
<PAGE>

10.8               Office Lease - XXI Office Plaza Associates, 20030 Century
                   Boulevard, Suite 201, Germantown, Maryland. Incorporated by
                   reference to Exhibit 10.8 of Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000. This
                   exhibit is located in Registrant's Amendment No. 1 to the
                   Registration Statement on Form 10-SB, filed on October 18,
                   2000.
10.9               Memorandum of Understanding between the Registrant and ePHONE
                   Telecom, Inc., dated July 19, 1999, and Amendment, dated
                   September 11, 1999. Incorporated by reference to Exhibit 10.9
                   of Registrant's Registration Statement on Form 10-SB, filed
                   with the SEC on August 2, 2000, and as finally amended on
                   December 21, 2000. This exhibit is located in Registrant's
                   Amendment No. 3 to the Registration Statement on Form 10-SB,
                   filed on December 21, 2000.
10.10              Partnership Agreement between the Registrant and CentreCom,
                   Incorporated, dated November 20, 1999. Incorporated by
                   reference to Exhibit 10.10 of Registrant's Registration
                   Statement on Form 10-SB, filed with the SEC on August 2,
                   2000, and as finally amended on December 21, 2000. This
                   exhibit is located in Registrant's Amendment No. 2 to the
                   Registration Statement on Form 10-SB, filed on November 15,
                   2000.
10.11              Memorandum of Understanding between the Registrant and
                   Arelnet Ltd., dated March 23, 2001. Filed herewith.
                   (Portions omitted pursuant to Registrant's request for
                   confidential treatment, filed with the SEC.)
21                 Subsidiaries of the Registrant. Filed herewith.

(b)      Reports on Form 8-K

         Registrant did not file any reports on Form 8-K during the fourth
         quarter of the fiscal year ended December 31, 2000.


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<PAGE>

                                 SIGNATURE PAGE

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

TEK DigiTel Corporation
(Registrant)


DATE: March 26, 2001                     By: /s/ Enghe Chimood
                                            ----------------------
                                            Enghe Chimood
                                            Chief Executive Officer and
                                            Co-Chairman of the Board

DATE: March 26, 2001                     By: /s/ Thomas Yang
                                            ----------------------
                                            Thomas Yang,
                                            Chief Operating Officer and
                                            Co-Chairman of the Board

DATE: March 26, 2001                     By: /s/ Ke-ou Chao
                                            ---------------------
                                            Ke-ou Chao
                                            Chief Technical Officer and Director

                                       68