<PAGE>

================================================================================
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

                             ____________________
                                 FORM 10-K/A-1
(Mark One)
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934
       For the fiscal year ended December 31, 1999
                                       OR
[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the transition period from __________ to _______________
                       Commission file number: 000-28113
                                TELEMONDE, INC.
            (Exact name of registrant as specified in its charter)
                     Delaware                                   62-1795931
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                   Identification Number)

230 Park Avenue, 10/th/ Floor, New York, New York                10169
     (Address of Principal Executive Offices)                 (Zip Code)

      Registrant's telephone number, including area code: (646) 435-5645

          Securities registered pursuant to Section 12(b) of the act:
                                      None.

          Securities registered pursuant to Section 12(g) of the act:

                   Common Stock, $.001 Par Value Per Share
                              (Title of class)

       Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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        No    X
                                               _____     -----

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [_]

       As of March 22, 2000, Telemonde, Inc. had outstanding 80,613,355 shares
of common stock, $.001 par value per share.

       The aggregate market value of Telemonde, Inc. common stock held by
nonaffiliates of Telemonde, Inc., i.e., by persons other than officers or
directors of Telemonde, Inc., was $178,488,134 as of December 31, 1999 (based on
a 12/31/99 closing stock price of $3.0313/share).

                      DOCUMENTS INCORPORATED BY REFERENCE
       Portions of the registrant's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days after the
end of the fiscal year covered by this Report, are incorporated by reference in
Part III hereof.

================================================================================
<PAGE>

                                TELEMONDE, INC.
                                --------------
                        1999 ANNUAL REPORT ON FORM 10-K
                        -------------------------------

<TABLE>
<CAPTION>
                                            TABLE OF CONTENTS                               Page Number
                                            -----------------                               -----------
<S>                                                                                         <C>
Forward-Looking Statements                                                                         1

                                                 PART I

Item 1.           Business                                                                         2

Item 2.           Properties                                                                      44

Item 3.           Legal Proceedings                                                               46

Item 4.           Submission of Matters to a Vote of Security Holders                             46

                                                 PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters           47

Item 6.           Selected Consolidated Financial and Operating Data                              50

Item 7.           Management's Discussion and Analysis of Financial Condition and Results
                  of Operations                                                                   51

Item 7A.          Quantitative and Qualitative Disclosures About Market Risk                      64

Item 8.           Financial Statements and Supplementary Data                                     66

Item 9.           Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure                                                            66

                                                PART III

Item 10.          Directors and Executive Officers of the Registrant                              66

Item 11.          Executive Compensation                                                          66

Item 12.          Security Ownership of Certain Beneficial Owners and Management                  66

Item 13.          Certain Relationships and Related Transactions                                  67

                                                 PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K                 67

Signatures                                                                                        71
</TABLE>
<PAGE>

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes "forward-looking statements" within the
meaning of the federal securities laws. Forward-looking statements are any
statements other than those relating to historical information or current
condition, including without limitation, statements regarding future margin
performance, customer retention capabilities, future revenues, strategy, and
pricing of services. Forward-looking statements can often be identified by the
use of forward-looking words such as "believes," "estimates," "expects,"
"intends," "may," "will," "should," or "anticipates." In addition, from time to
time, we or our representatives have made or may make forward-looking
statements, orally or in writing. Forward-looking statements also may be
included in various filings that we have made or may make with the Securities
and Exchange Commission, in press releases or in oral statements made by or with
the approval of one of our authorized executive officers.

The forward-looking statements referred to above involve predictions. We cannot
assure you that the future results will be achieved or that, if achieved, such
results will be indicative of the results in later periods. The inclusion of
forward-looking statements in this Annual Report should not be regarded as a
representation by us or any other person that our objectives or plans will be
achieved or that our operating expectations will be realized. Actual events or
results may differ materially as a result of certain risks which are described
in this Annual Report, including but not limited to, in the Business section
under the caption "Risk Factors." Such risks include:

     .     Our ability to increase our capital base.

     .     The rate at which we add new customers and the prices those customers
           pay for our bandwidth and other services.

     .     Our ability to obtain trans-Atlantic and other bandwidth capacity on
           favorable terms.

     .     Customer payment terms where customers require a deferred payment
           plan for their purchase or lease of our IRUs.

     .     The speed and extent to which we add networking and related services,
           including but not limited to e-commerce services, to our portfolio of
           products and services.

     .     The ability of our local relationships in emerging markets to support
           our customers and meet our obligations.

     .     The completion of the planned expansion of our networks and
           infrastructure.

     .     General economic, financial, competitive, legislative, regulatory,
           and other factors that are beyond our control.

We undertake no obligation to publicly update or revise any forward-looking
statement. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained in this annual report.

                                       1
<PAGE>

                                    PART I


ITEM 1.  BUSINESS.

You should read this description of our business together with our management's
discussion and analysis of financial condition and results of operations and the
financial statements and related notes appearing elsewhere in this annual
report.

Overview

We are an international communications company that is creating a global network
which will connect developed countries and regional centers in emerging markets.
We offer voice, data and Internet services which use our network and content
capabilities. We also manage the bandwidth that we provide to our customers. One
of the aims of our services is to enable emerging markets to have access to the
telecommunications facilities of the developed world. These services will enable
people in developing countries to participate in the international
communications community. Our target customers include leading global
telecommunications carriers, public telephone operators in developing countries,
Internet service providers and multimedia service providers. We seek to
capitalize on the increasing demand for high quality international
communications services which is being driven by the globalization of the
world's economies, the worldwide trend toward telecommunications deregulation,
and growth of voice, video, data and Internet traffic.

General Development of Business

We were formed on March 10, 1998 as Telemonde Investments Limited, a British
Virgin Islands company. We began to purchase and sell trans-atlantic bandwidth
through various wholly-owned subsidiaries in April 1998.

Telemonde, Inc. (formerly Pac-Rim Consulting, Inc.) acquired Telemonde
Investments Limited on May 14, 1999. Pac-Rim Consulting, Inc. was a dormant
shell company with no operating history but was listed on the NASD Over-the-
Counter Bulletin Board. Following the acquisition, Pac-Rim Consulting, Inc.
changed its name to Telemonde, Inc. On November 9, 1999 Telemonde, Inc. became a
Delaware corporation by merging into a newly formed Delaware subsidiary.

In August 1999, we acquired TGA (UK) Limited, which provided telecommunications
switch services.

We also established telemonde.net SA, in August 1999. telemonde.net will develop
and sell telecommunications and Internet services to Internet service providers
and multimedia service providers in Western Europe.

                                       2
<PAGE>

On November 8, 1999 we acquired EquiTel Communications Limited, a United Kingdom
company. EquiTel provides telecommunications route management services and
intelligent network services, which include a complete telephony card service,
voice mail, fax mail, prepaid mobile calls, premium rate services, short message
services, intelligent routing and single number services, mainly to emerging
markets. The maximum aggregate value of the consideration for the purchase of
EquiTel is $69 million, which is mostly dependent upon its future earnings and
which is to be satisfied by the issue of restricted shares of common stock in
Telemonde, Inc.

In December 1998, Desert Telecommunications Services, LLC, an Oman company, was
formed through a joint venture between EquiTel and an individual. Desert
Telecommunications Services, in which EquiTel holds a 49% interest, provides
intelligent network services in Oman.

The following chart shows our current organization:


<TABLE>
<CAPTION>
                                   =====================================================
                                                    TELEMONDE, INC.
                                                 a Delaware corporation

                                   =====================================================
<S>                     <C>                    <C>                   <C>                    <C>                  <C>
---------------------   ---------------------  -------------------   ---------------------  -------------------  -------------------
telemonde.net, S.A.          Telemonde           TGA (UK) Limited,     Telecities Limited,       EquiTel         Telemonde Networks,
   organized in          Investments Limited,        a United           a United Kingdom      Communications      Limited, a United
   Switzerland             a British Virgin          Kingdom                company          Limited, a United    Kingdom company
                           Islands company           company                                  Kingdom company

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


          -----------------------------------------------                           -----------------------------------------
               Telemonde International Bandwidth,                                            EquiTel Card Services
           Limited, a British Virgin Islands company                                                Limited
                                                                                             a United Kingdom company
          -----------------------------------------------                           -----------------------------------------
             Telemonde Bandwidth (Bermuda) Limited, a                                            Teleroute Limited,
                        Bermuda company                                                      a United Kingdom company

          -----------------------------------------------                           -----------------------------------------
                Telemonde International Bandwidth                                                Telesource Limited,
                       (Bermuda) Limited,                                                     a United Kingdom company
                       a Bermuda company
          -----------------------------------------------                           -----------------------------------------
                                                                                     Desert Telecommunications Services, LLC
                                                                                            (49%), organized in Oman

                                                                                    -----------------------------------------
</TABLE>

* All Companies are 100% owned unless otherwise indicated

                                       3
<PAGE>

The principal operating subsidiaries of the Telemonde group are:

 .    telemonde.net SA                  Established to sell fast Internet-related
                                       services to European Internet Service
                                       Providers and media companies

 .   Telemonde Investments Limited      Holding company for three bandwidth
                                       subsidiaries

 .   Telemonde International            Sells bandwidth capacity supplied by
    Bandwidth Limited                  Gemini

 .   Telemonde Bandwidth (Bermuda)      Sells bandwidth capacity supplied by
    Limited                            Global Crossing

 .   Telemonde International            Sells bandwidth capacity supplied by MCI
    Bandwidth (Bermuda) Limited        WorldCom

 .   EquiTel Communications Limited     Sells network and telecommunications
                                       services

 .   Desert Telecommunications          Joint venture company, providing network
    Services LLC                       services in Oman

 .   Telemonde Networks Limited         Provides technical, network, marketing
                                       and administrative services to other
                                       Telemonde group companies and to third
                                       party customers.

Telecities Limited, EquiTel Card Services Limited, Teleroute Limited and
Telesource Limited are dormant companies, which have no operating history.
TGA(UK) Limited is now a dormant company because its assets and business have
been transferred to other companies in the Telemonde group.

Business Description

Introduction

Our business consisted solely of sales of bandwidth and related services until
the acquisition of EquiTel on November 8, 1999. EquiTel is a subsidiary whose
revenue will represent a separate industry segment. The EquiTel business is
described separately from the description of the Telemonde business. However, it
is our intention to fully integrate EquiTel's operations with those of
Telemonde. We therefore describe our plan of operation and strategy as for the
combined business, towards the end of this section.

                                       4
<PAGE>

Telemonde's markets

Bandwidth Capacity.

Bandwidth is the ability to transmit information, packaged as a stream of bits,
from one destination to another without losing or distorting the content of the
bits. Typically bandwidth is transmitted down systems of fiber optic lines
across oceans and land masses. Fiber optic systems use laser-generated light to
transmit bandwidth through fine strands of glass and are generally characterized
by large circuit capacity, good sound quality and resistance to external signal
interference. Recent advances in bandwidth technology called wave division
multiplexing allow us to activate the fiber and increase the transmission speed
and capacity of the fiber optic lines. Wave division multiplexing and its next
generation variation, dense wave division multiplexing take information bits and
transmit them across increasing numbers of wavelengths or light streams,
multiplying the capacity of the fiber optic line by more than one hundred times.

We believe that the demand for bandwidth will continue to grow, primarily
because of the growth of the Internet and the increase in the size and number of
private networks. We estimate that bandwidth demand will more than double in the
next two years, from approximately 1,000 Gbps in 1999 to 2,500 Gbps in 2001.

International long distance carriers are often categorized according to
ownership and use of bandwidth capacity. No carrier exclusively utilizes its own
facilities for transmission of all of its long distance traffic. Carriers vary
from being primarily facilities-based, meaning that they own and operate their
own land-based and/or undersea cable, satellite-based facilities and switches,
to those that are purely resellers of another carrier's transmission facilities.
We fall into the category of carriers that purchase transmission facilities from
other carriers and break down and sell or lease the capacity.

Under a typical operating agreement, each carrier owns or leases its portion of
the transmission facilities between two countries. A carrier gains ownership
rights in digital undersea fiber optic systems by: (1) purchasing direct
ownership in a particular system (usually prior to the time the system is placed
into service); (2) acquiring an Indefeasible Right of Use, or IRU (which is the
right to use capacity for the time and bandwidth to which the right applies;
e.g., a long term lease of a specific amount of capacity), in a previously
installed system; or (3) by leasing or otherwise obtaining capacity from another
long distance provider that has either direct ownership or IRUs in a cable. We
acquire IRUs from previously installed systems and then lease or sell the IRU to
our customers.

The cost of an IRU to Telemonde from its bandwidth suppliers depends on the
market price for bandwidth capacity at the time of purchasing or committing to
purchase the IRU. Our aggregate cost for bandwidth to date includes bandwidth
inventory not yet drawn down from suppliers. The other costs of delivering and
installing the IRU for Telemonde's customer consist of the purchase cost of
connectivity from the cable landing station or from a carrier hotel facility to
the customer's premises

                                       5
<PAGE>

and of the cost of installation and testing at the customer's premises. The
customer's capacity is maintained under an annual maintenance contract, for
which the customer pays an annual or quarterly maintenance fee. This fee is
based on the annual maintenance charge which Telemonde pays its suppliers for
the maintenance of the cable capacity of the IRU.

Internet and Data Services.

Internet connectivity and enhanced Internet and data services represent two of
the fastest growing segments of the telecommunications services market. The
popularity of the Internet with consumers has driven the rapid proliferation of
the Internet as a commercial medium. Businesses are increasingly:

     .    establishing websites and corporate intranets and extranets to expand
          their customer reach and improve their communications efficiency;

     .    recognizing that the Internet can significantly enhance communications
          among geographically distributed offices and employees as well as with
          customers and suppliers; and

     .    utilizing the Internet for mission critical applications such as
          sales, customer service and project coordination.

In addition, technology trends over the past decade have removed the distinction
between voice and data segments. Today, voice conversations are routinely
converted into digital signals and sent together with other data over high-speed
lines. In order to satisfy the high demand for low-cost communication, software
and hardware developers have developed technologies capable of allowing the
Internet to be utilized for voice communications. Several companies now offer
Internet telephony services which provide real-time voice conversations over the
Internet.

The rapid growth of the Internet has meant that quality of service and features
have often been overlooked. There is a market for companies providing secure and
fast Internet services for Internet Service Providers to be able to add value to
their customers as well as ensuring that the Internet is dimensioned to handle
the next generation of content which includes video, audio and software media.

We believe that there is significant market opportunity for an integrated
approach to the supply of destination-to-destination bandwidth capacity,
telehousing facilities, network management and content in order for our
customers to focus upon their core activities.

Telemonde's products and services

We are designing a network to enable us to offer customized products and
services to a wide range of customers with sophisticated voice and data
transmission requirements. We can provide capacity in varying amounts over all
or part of our network utilizing a variety of transmission technologies. We
believe that this range and flexibility will enable us to effectively market our
products to public

                                       6
<PAGE>

telephone operators, alternative operators, Internet service providers,
resellers and other carriers comprising our target market.

Telecommunications operators and carriers seeking to acquire cross-border
bandwidth capacity have, until recently, acquired that capacity by leasing
international private leased circuits from public telephone operators.
International private leased circuits have traditionally been formed by
combining half-circuits from two public telephone operators between customer
locations. Our existing destination-to-destination products and planned
international network are designed as an alternative to these arrangements.

We offer the following options and services:

Flexible Capacity Options. We offer customers flexible managed bandwidth
capacity options that include multiples in varying amounts ranging from 45 Mbps
(DS-3) to multiples of 155 Mbps (STM-1). We also offer the same customer
different bandwidth capacity over different geographic segments of our network.

Fast Internet Access. We offer our Internet customers global Internet access
services over non-overbooked circuits. This enables our customers to be able to
provide quality and direct Internet connectivity without the long delays facing
many Internet users today.

Backhaul Capacity and Local Connectivity. Backhaul is capacity on terrestrial
fiber optic cables from cable system landing stations to metropolitan areas.
Since we offer customers end-to-end management of the circuit and termination at
local sites, we must provide backhaul capacity and local connectivity. Although
certain of our trans-atlantic contracts provide associated backhaul capacity, we
are always in active negotiations to ensure that we have sufficient backhaul and
local connectivity to meet the needs of our customers. However, there can be
high and unexpected costs in providing local connections due to initial
installation costs, annual local tail rentals, lack of availability of fiber
between connection points, difficulty in obtaining permission to install fiber
and a small number of alternative suppliers.

Flexible Transmission Technologies. Our network can support a variety of
transmission technologies, including synchronous digital hierarchy, asynchronous
transfer mode and Internet protocol transmission technologies.

Flexible Customer Agreements. Our customers can obtain capacity on our network
either under lease or Indefeasible Right of Use terms. Our lease agreements are
typically 12 to 36 months depending on the customer's requirements. We offer our
customers the ability to upgrade and expand these agreements as their needs
evolve and grow.

Support Services. In connection with our bandwidth products, we offer services
that provide us with an opportunity to develop customer loyalty and to
anticipate a customer's need. As part of our standard service package, we
provide 24-hour customer service and network management, and

                                       7
<PAGE>

service level agreements. In addition, we intend to develop a secure Internet
website which will allow customers to remotely monitor the performance of their
network configuration on our network. For an additional fee, we will also
install, configure, monitor and manage customer equipment beyond our network,
thereby providing a single point of contact for our customers.

Tailored infrastructure and connectivity solutions. We provide customized
capacity and Internet connectivity to Internet service providers and multimedia
service providers. This service uses our network capabilities, combined with
agreements with leading Internet connectivity providers. As part of this
service, we offer comprehensive service level agreements, as well as flexible
payment terms to ensure that the Internet service provider or multimedia service
provider has the best overall solution for its business.

EquiTel's markets

International Long Distance.

The international long distance telecommunications services industry consists of
transmissions of voice and data that originate in one country and terminate in
another.

The industry is undergoing a period of fundamental change that has resulted, and
is expected to continue to result, in significant growth in the usage of
international telecommunications services. According to Telegeography 1999, a
leading telecommunications industry source, in 1997 the international long
distance industry accounted for $66 billion in revenues and 82 billion minutes
of use. This is an increase from $27 billion in revenues and 22 billion minutes
of use in 1988. Furthermore, the Company believes that the industry is projected
to reach approximately $80 billion in revenues and 159 billion minutes of use by
the year 2001.

We believe that a number of trends in the international telecommunications
market will continue to drive growth in international traffic, including:

     .    globalization of the world's economies and the worldwide trend toward
          deregulation and privatization of telecommunications markets;

     .    the growth of data and Internet traffic;

     .    declining prices and a wider choice of products and services driven by
          greater competition resulting from privatization and deregulation;

     .    increased telephone accessibility resulting from technological
          advances and greater investment in telecommunications infrastructure,
          including deployment of wireless networks; and

     .    increased international business and leisure travel.

The different rates at which these trends have developed in regions of the world
have presented innovative telecommunications service providers with unique
opportunities in emerging markets.

                                       8
<PAGE>

International Switched Long Distance Services.

International switched long distance services are provided through switching and
transmission facilities that automatically route calls to circuits based upon a
predetermined set of routing criteria. An international long distance call
typically originates on a local exchange carrier's network and is transported to
the caller's domestic long distance carrier. The domestic long distance provider
picks up the call and carries the call to its own or another carrier's
international gateway switch, where an international long distance provider
picks it up and sends it directly or through one or more other long distance
providers to a corresponding gateway switch in the destination country. Once the
traffic reaches the destination country, it is routed to the party being called
through that country's domestic telephone network.

Emerging Markets

In many emerging markets, access to bandwidth to transport voice and data
traffic remains highly constrained and continues to represent a considerable
barrier to entry into these markets. Furthermore, the public telephone operators
in these markets have been slow to introduce new intelligent network services
such as voicemail, conference calling and prepaid and postpaid calling cards.

We believe that emerging markets are attractive because their telecommunications
rates are high and remain very profitable. While settlement costs are globally
decreasing, we believe that developing countries' local authorities will be slow
to liberalize their markets in order to protect the public telephone operators
and to continue to receive high margin revenues and much needed international
currencies. We believe that working in partnership with the public telephone
operators in emerging markets will allow us to provide end-to-end,
facilities-based services to and from these markets.

In addition, as the world's economies continue to globalize, emerging markets
are increasingly focusing on the need to provide local businesses and end-users
with Internet connectivity as well as local Internet content. Through our
planned provision of point-to-point bandwidth and voice services in emerging
markets, we believe that we will be uniquely positioned to expand our service
offering to include enhanced Internet and data services.

EquiTel's products and services

We offer a broad array of communications services through our network and
interconnections with the networks of other carriers. Our decision to offer
certain services in a market is based on competitive factors and regulatory
restraints within the market. Below is a summary of services we offer:

International Route Management. Our international route management services
involve the development of operating agreements with the public telephone
operators of our chosen markets for delivery of international traffic in both
directions. Our route management activities effectively

                                       9
<PAGE>

utilize unsold and available bandwidth and provides us with access to
competitive traffic termination in those markets.

In addition to basic switch voice services, we provide enhanced route management
services such as:

     .    Development of routes for licensed international operators;

     .    Development of inbound settlement payment processes;

     .    Counter-balancing the impact of re-origination (the transfer of
          international telephone traffic via a third party carrier); and

     .    Connection services that allow access between traditional operators
          and new licensees in liberalized markets.

We currently have arrangements for route management into the Russian Federation,
the Middle East and South East Asia.

Intelligent Network Services. Our intelligent network services include complete
telephony card services with all the necessary surrounding services such as
marketing and distribution, tariff models and traffic management. The card
platform can also be used to provide enhanced services such as voice mail, fax
mail, prepaid mobile calls, premium rate services, short message services,
intelligent routing and single number services.

Intelligent network services are well developed in the liberalized markets but
have rarely been deployed in most emerging markets. Such services are attractive
to the public telephone operators in emerging markets because they offer
significant opportunities to increase their revenues and enhance their
profitability.

We often create a joint venture with strategic local partners in an emerging
market. The joint venture then works with the public telephone operator to
deliver our intelligent network services into a particular market. For example,
as part of our joint venture in Oman, Desert Telecommunications Services LLC
(DeserTel), we are providing in partnership with OmanTel, the Omani public
telephone operator, pre-paid calling cards in Oman. The cards are currently
being marketed and distributed in the Muscat region and are useable on any
telephone in Oman. We are establishing joint ventures with local partners in
South Africa, Malaysia and Bangladesh.

Advisory Services. We also provide advisory services to telecommunications
operators. We target our advisory services to public telephone operators in
emerging markets and provide them with the senior management expertise and
experience we have gained in developed markets. The scope of our advisory
services is flexible. However, we anticipate particular interest from customers
for:

     .    Board level support in strategic and general business planning;

     .    Support for the development of international business; and

     .    Development of business plans and strategies in support of
          privatization and fund raising.

                                       10
<PAGE>

Our network

Bandwidth. We have acquired capacity on an IRU basis on the Gemini system and on
Atlantic Crossing ("AC-1"). We take delivery of the AC-1 capacity in cable
stations at Brookhaven, New York, United States and at Whitesands, United
Kingdom. We take delivery of the Gemini capacity in cable stations at Manasquan,
New Jersey, United States and at Porthcurno, United Kingdom. We carry the
traffic inland on a backhaul network to Telehouse in London and 60 Hudson Street
and 111 8th Avenue in New York.

Specifically, we have an agreement with Gemini Submarine Cable System Limited
dated April 3, 1998, which provides for the acquisition of two (2) STM-1's on
the Gemini system, one purchased and the other leased on a monthly basis. We
also have two agreements with MCI WorldCom for the purchase of an additional
four (4) STM-1's on the Gemini system, dated December 31, 1998 and March 31,
1999, respectively. The term of our agreements with both Gemini and MCI WorldCom
is for the life of the submarine cables, which is anticipated to be 25 years
from the date of the agreements. Finally, we have an agreement with Atlantic
Crossing dated June 10, 1998, which provides for the purchase of an aggregate of
sixteen (16) STM-1's on the AC-1 cable for a term of 25 years from the date of
the agreement. All of our capacity purchase agreements require additional annual
payments of maintenance charges and provide us with IRUs in the STM-1s until
expiration of the term of or a default under the agreements. At December 31,
1999, eleven (11) Global Crossing STM-1's remain in Telemonde's inventory, three
(3) Global Crossing and Four (4) MCI WorldCom STM-1's remain in Telemonde's
property, plant and equipment and one (1) Gemini STM-1 remains in Telemonde's
trade accounts payable (since it was leased).

We are currently negotiating an agreement which would allow us to draw down
capacity on: (1) fiber optic systems in Western Europe, including the United
Kingdom, France, Belgium, the Netherlands, Germany, Spain, Italy and Luxembourg;
(2) a continental United States system; (3) a trans-Pacific system which should
be available during the first quarter of 2000; and (4) mid-Atlantic and South
American capacity which should be available in late 2000. The enlarged network
will consist of high-capacity fiber optic cable capable of supporting high
quality voice, video, Internet protocol and data traffic.

Each of our systems will be subject to the risks inherent in a large-scale,
complex fiber optic telecommunications system. The operation, administration,
maintenance and repair of these systems require the co-ordination and
integration of sophisticated and highly specialized hardware and software
technologies and equipment located throughout the world. There can be no
assurance that our systems will function as expected or in a cost-effective
manner.

The submarine fiber optic cables are subject to additional risks. Outages can
occur at sea from anchor drag and fouling by fishing vessel gear over which we
have little or no control and for which repair times can be long. However, our
planned network will provide for transferability on both the Gemini and Global
Crossing cables. Therefore, when our network is installed, any breaks in the
cable loop will not interfere with our system's ability to transmit traffic
successfully. This will give

                                       11
<PAGE>

our engineers time to work with the cable owner to resolve the problem
associated with the break in the cable loop.

Intelligent Network Platforms. In order to provide our route management
services, we acquired TGA(UK) Limited in August 1999, which had a central switch
located in London that interfaces with multiple carriers. We transferred TGA
assets and business to other companies in the Telemonde group. In addition, we
have developed strategic relationships with a small number of suppliers for both
satellite links and international private circuits. Our infrastructure, which we
intend to upgrade, provides flexibility and the necessary robustness to enable
us to operate in challenging regions of the world. The enhanced operational
platform increases our ability to handle international traffic trading and
improve our cost base.

Our intelligent networking infrastructure includes a multi-purpose, modular
technology platform with strong signaling capabilities to provide transit
switching facilities and high density voice compression. In addition, we
contract for a number of international private circuits with a small number of
suppliers and we work closely with public telephone operators in the markets we
enter.

Network Operation Center and Services. We currently contract our network
operating services to an experienced third party supplier which provides us with
a 24 hours a day, 7 days a week network operating service and which remotely
monitors and configures our network. We are able to monitor our network end-to-
end, from customer premise to customer premise. In 2000, we intend to shift
primary network operations to our London headquarters, retaining our incumbent
third party supplier operating center as a back up and for purposes of disaster
recovery. Our network operations center at our headquarters will be the primary
point of contact for our customers, allowing them to speak directly with our
trained staff.

Carrier Hotel Facility. We have signed a lease agreement with Global Switch
Limited, a "carrier hotel" company specializing in telecommunications and
internet co-location and service management. Global Switch is a recognized
leader in the co-location business, providing high-quality, 24 hours a day,
seven days a week staffed, carrier-neutral facilities designed to house
telecommunications, Internet, data processing, data storage, and related
equipment. Pursuant to the agreement, we have leased, subject to certain
conditions, 11,775 square feet in a London carrier hotel. Once we occupy this
space we will maintain a switch, which will be used to route voice, data and
Internet traffic across our network. We also have agreed to lease space in
carrier hotels in Amsterdam and Paris.

Future Network Enhancements. We intend to further enhance our network by
creating metropolitan area networks in both New York and London. This will
require the purchase of additional fiber capacity and related connectivity to
existing points-of-access. We will then be able to provide access

                                       12
<PAGE>

to multiple customers along the route of this enhanced capacity. Customers will
be able to acquire or lease bandwidth on an "as and when required" basis. This
will create the following advantages:

     .    a simplification in the number of systems and cost savings associated
          with reduced future hardware equipment;

     .    it will allow us to interconnect multiple customers, thus enabling us
          to offer connectivity instantly between any party; and

     .    it will allow bandwidth to be activated and de-activated
          instantaneously and on a pre-set timed basis, if required. As a result
          we will be able to exploit new market opportunities such as offering
          short term leases for connectivity for a few days or hours for special
          events. When these periods end, the cross-connect arrangements will
          allow us to terminate the bandwidth and enable it to be automatically
          reallocated to another customer. In addition, we will program our
          cross-connects to activate new bandwidth at set times and dates to
          ensure that bandwidth intensive customers such as Internet service
          providers have large amounts of continuous bandwidth of varying
          capacities, allowing them to keep up with their fluctuating demands.

History of Operations

From its inception on March 10, 1998 to December 1999, we had revenues, losses
and total assets as shown in the table below. Through November 1999, our
business comprised only one industry segment, which was the sale of trans-
atlantic bandwidth.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                   Period from March 10, 1998             Fiscal Year
                                               to                            Ended
                                        December 31, 1998              December 31, 1999
----------------------------------------------------------------------------------------------
                                                      (Dollars in thousands)
----------------------------------------------------------------------------------------------
<S>                                <C>                                 <C>
Operating Revenues                          29,331                          8,165
----------------------------------------------------------------------------------------------
Net Loss                                   (11,732)                       (61,117)
----------------------------------------------------------------------------------------------
Total Assets at end of period               89,688                         78,474
----------------------------------------------------------------------------------------------
</TABLE>

The above summary information has been derived from our audited financial
statements for the period to December 31, 1998 and for the fiscal year ended
December 31, 1999, which were prepared in accordance with US GAAP. These
financial statements are included in this Annual Report. The table above should
be read in conjunction with these financial statements, the notes thereto, the
selected financial information in Item 7 and the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in this Annual Report.

The audited financial statements at December 31, 1999 show a total stockholders'
deficit of $23,622,000. The financial statements have been prepared assuming
that the Company will continue as a going concern. The report of Moore Stephens,
Chartered Accountants, shown on page F-1

                                       13
<PAGE>

indicates that there is substantial doubt about the ability of the Company to
continue as a going concern. The Company is planning to obtain additional equity
and debt financing, to provide an increased capital base and working capital
facilities. There can be no assurances that the Company will be successful in
this regard.

The audited financial statements for the fiscal year ended December 31, 1999 may
not be indicative of future operations. The Company is in the process of
expanding our services. In particular, future periods will include the business
and revenue from new industry segments. In addition the revenue and results of
our trans-atlantic bandwidth business were impacted by the rapid and severe
decline in market prices for this bandwidth, as set forth in more detail below.
As a result potential customers postponed orders until market price levels had
stabilized, and we were not able to sell our bandwidth inventory until we had
completed our negotiations with our suppliers of trans-atlantic bandwidth.

As a consequence of the significant fall of the market prices for bandwidth and
its impact on our operations and financial results in 1999, we have been unable
to generate sufficient cash flow to meet certain of our debt service
requirements, and have triggered events of default on those obligations. The
events of default include obligations to our two major bandwidth suppliers with
whom we had executed agreements in 1998 and early 1999, and from whom we have
not drawn down bandwidth capacity as scheduled in these agreements. In addition,
we have a debt obligation under a Capacity Option Agreement with Communications
Collateral Limited under which we have been unable to complete the repurchase of
capacity. These events of default are described in detail below and in the
Management's Discussion and Analysis of Financial Condition and Results of
Operation in Item 7.

When Telemonde was formed in March 1998, our business focused solely on sales of
bandwidth and related services. In April 1998, Telemonde, through its now wholly
owned subsidiary Telemonde International Bandwidth (Bermuda) Limited, purchased
IRUs relating to trans-atlantic capacity from Gemini Submarine Cable System
Limited. Specifically, Telemonde agreed to acquire up to a maximum of STM-16.
Due to a subsequent and rapid decline in the market for wholesale
telecommunications bandwidth, the capacity sale agreement was amended by three
letter agreements dated January 27, April 16, and April 22, 1999. These
amendments provided that an IRU for only one (1) STM-1 would be acquired, and a
second STM-1 would be leased for a lump sum payment plus monthly payments for a
three-month period ending July 16, 1999. Further negotiations between the
parties provided that the lump sum payment would fall due on October 7, 1999 in
the form of two promissory notes. Telemonde has paid Gemini the full balance
owing for the IRU relating to the first STM-1 but has not fulfilled its
obligations under two promissory notes in the amount of $2.7 million. Although
this default gives Gemini the right to immediately terminate the Indefeasible
Rights of Use, Gemini has not done so as of the date of this filing and has
continued to support Telemonde and its customers using the services.

In June 1998 Telemonde, through its now wholly-owned subsidiary Telemonde
Bandwidth (Bermuda) Limited, agreed to acquire an aggregate of 16 STM-1(s) on
Segment S-1 from Atlantic Crossing Limited. Since the summer of 1999, we have
not drawn down any capacity from Atlantic

                                       14
<PAGE>

Crossing and have not made any payments under this agreement and are in default
under the payment terms in the amount of approximately $52 million, in addition
to interest and outstanding maintenance payments. Management is in discussions
with Global Crossing, the parent company of Atlantic Crossing, to renegotiate
the terms of the contract, including the extension of capacity drawdowns to
include the entire Global Crossing system, rather than just trans-atlantic
capacity. This will allow Telemonde to expand according to its overall business
strategy.

In December of 1998 and on March 31, 1999, Telemonde, through its now wholly
owned subsidiary Telemonde International Bandwidth Limited, entered into
agreements with MCI WorldCom for the purchase of four units (STM-1's) of
bandwidth capacity on the Gemini network. Specifically, Telemonde acquired the
IRUs in three units of capacity under the December 1998 agreement, and acquired
the right for an additional unit of capacity under the March 1999 agreement.
Under these agreements, Telemonde is also required to pay annual maintenance
charges. Telemonde has paid the amounts due under the March 1999 agreement;
however, as a result of the Company's liquidity problems, Telemonde was unable
to fulfill its obligations to draw down and pay for the three units of capacity
under the December 1998 agreement. Furthermore, Telemonde was delinquent on its
annual maintenance charges under both agreements, resulting in an overall
default to MCI WorldCom in the amount of approximately $26 million.

Telemonde is in negotiations with MCI WorldCom to restructure their existing
agreements. Telemonde has executed a Standstill Letter from MCI WorldCom on
December 31, 1999 in which MCI WorldCom has agreed to refrain from (a) taking
any action to enforce payment of the sums owed to MCI WorldCom under the
capacity purchase agreements; (b) taking any action to enforce or make a demand
under any guarantee, indemnity or security related to the capacity purchase
agreements; and (c) commence any insolvency proceedings against Telemonde or any
of its subsidiaries. The Standstill Letter expires upon the earlier of (i) the
full payment of the sums owed under the capacity purchase agreements; (ii) June
8, 2000; or (iii) Telemonde's failure to comply with a number of terms and
conditions, which includes the prohibition against the sale of assets, dividends
and the borrowing of any additional funds without the signed written consent of
MCI WorldCom's agent other than permitted borrowings.

Telemonde has also executed a letter of intent dated December 31, 1999 termed a
"Capacity Swap Letter" in which MCI WorldCom has agreed to enter into a binding
agreement with Telemonde to permit Telemonde to swap the bandwidth purchased
under the above capacity purchase agreements for new bandwidth on MCI WorldCom's
European Ulysses network. The Capacity Swap Letter is conditional on
satisfaction by Telemonde of its obligations under the Standstill Letter.

Despite the technical defaults with Global Crossing and MCI WorldCom detailed
above, Telemonde has been in extensive negotiations with senior management in
both organizations towards the end of 1999 and continuing into March 2000. It
should also be noted that while the discussions have been held, Telemonde has
made a number of payments to both suppliers for services rendered.

                                       15
<PAGE>

On April 15, 1999, Telemonde, through its now wholly owned subsidiary Telemonde
Investments Limited, entered into a series of agreements with Communications
Collateral Limited, including, among others, agreements for: (1) the sale of an
IRU for bandwidth to Communications Collateral Limited; (2) the grant of an
option to Communications Collateral Limited which, among other things, required
Telemonde to repurchase the bandwidth upon Communications Collateral Limited's
request; and (3) a $1 million loan by Communications Collateral Limited to
Telemonde due and repaid on August 12, 1999. In connection with these principle
agreements, the three subsidiaries of Telemonde Investments Limited guaranteed
the obligations of Telemonde Investments Limited under those agreements,
including its obligation to pay back the loan and to repurchase the bandwidth in
the event that Communications Collateral Limited exercised its option.

On August 14, 1999, Communications Collateral Limited exercised its option to
require Telemonde to repurchase the capacity. Telemonde was unable to complete
this repurchase and, at December 31, 1999, was in default in the amount of
approximately $4.5 million. As a result, Communications Collateral Limited has
the right to foreclose on essentially all of the assets of Telemonde Investments
Limited, including its ownership interests in the three subsidiaries of
Telemonde Investments Limited, all of the assets in any of the foregoing
subsidiaries, including their rights under Telemonde's bandwidth sale contracts;
and any ownership interest the foregoing subsidiaries might have in any other
Telemonde entities until the default is cured. The amount of the foreclosure,
however, would not have exceeded the amount of the indebtedness.

In response to market conditions in the last quarter of fiscal 1999, we
reclassified part of our inventory as property, plant and equipment. This is
because we intend to use that capacity, which has a book value of $19.3 million,
for short term operating lease sales and for international telecommunications
traffic sales. The capacity reclassified represents approximately 48 per cent of
total capacity. The effect of this change in strategy from reseller to operator
will be:

 .  Our revenue stream will be recognised in instalments over the life of the
   contract, rather than at inception
 .  Cash payments from customers will be received over the life of the contract,
   rather than at inception
 .  We will account for the capacity as an asset at cost less depreciation
 .  We do not anticipate that there will be any further significant expenditures
   required to bring our network into service

Plan of Operation

There has been a significant fall in the prices of bandwidth, and as a result,
we find ourselves locked into extremely uneconomical contractual obligations
with our suppliers. The consequence of this has been until such a time as we are
able to complete the negotiation of these supplier contracts our sales have and
will continue to suffer. This in turn has led to severe liquidity problems,
which has obliged us to diversify our business. In November 1999, we acquired
EquiTel, which provides telephone card services and telecommunications route
management services primarily to emerging markets. Our plan of operation for
2000 is to continue to provide bandwidth but to also significantly extend our
business activities and services. In particular, we plan to offer the following
services:

Bandwidth. We will continue to provide bandwidth to leading telecommunications
carriers, new entrants to the developed telecommunications markets and Internet
carriers. We are in negotiations with our suppliers for the right to exchange
our existing inventory of trans-atlantic bandwidth for trans-Pacific, Central
and South American, North American and pan-European fiber capacity. This
expansion will allow us to provide our customers with both regional and global
networks at competitive prices.

Internet Capability. Through telemonde.net SA we intend to offer Internet
service providers and media companies cable-based network platforms, high-speed
Internet connectivity and streaming media services.

                                       16
<PAGE>

Although the basis of telemonde.net's offering to Internet service providers is
Telemonde's high speed fiber optic network, telemonde.net aims to offer its
customers tailored solutions based on a secure pan European broadband Internet
network. telemonde.net will also acquire its own content through partnerships
and an acquisition strategy in order to drive sales of its core product through
value added media packages. telemonde.net is in the process of arranging key
partnership agreements in order to support its core business. Current agreements
in place include GTE-BBN (telemonde.net is regarded as its European
Internet/multimedia partner in the Net alliance program), Europe Online (with a
memorandum of understanding on Internet by Satellite cooperation) and the
European Carrier - GTS. telemonde.net also has begun to work with Cisco in
supporting their business development with marketing efforts and is in the
process of developing this relationship into a potential partnership.

telemonde.net offers the following capabilities, which are packaged according to
the customers' needs:

     .    capacity, which solves customers' speed requirements and enables them
          to deal with the projected rapid growth of the Internet in Europe.
     .    connectivity, providing immediate access to the Internet and web sites
          world-wide.
     .    content, enabling customers to differentiate their offering with
          video, audio and software, using the latest streaming technologies.
     .    e-commerce, enabling customers to transact over the Internet.

Intelligent Network Services. Through EquiTel, we plan to place our intelligent
network services into emerging markets through joint ventures and relationships
with the public telephone operators of developing countries. By targeting
emerging markets we can use our intelligent network solutions as a foundation
from which we can improve the existing telecommunications facilities of the
developing country. We create, in partnership with public telephone operators,
incremental and new revenue opportunities through route management services and
the introduction of enhanced services such as voice mail, fax mail, prepaid
mobile calls and premium rate services.

Managed Voice and Data Services. Through EquiTel we intend to further develop
and enhance our existing switched voice and data services and route management
services. These services will generate more bandwidth sales across the network,
lower the costs per minute of our traffic and generate revenues from utilizing
the competitive international interconnect rates of developed markets.

Streaming video. We plan to provide streaming video Internet content and
services for customers in our markets. Streaming technology enables the playing
of a video or sound extract while it is being downloaded, instead of waiting for
the entire file to be downloaded before playing the extract. By providing a
combination of streaming video and bandwidth solutions, we can become a single
source supplier for the delivery of televised services on-line. We plan to use
our streaming video platform to supply our own content services. These will be
delivered from our own planned media storage facilities to broadband Internet
service providers and media companies.

                                       17
<PAGE>

Our short-term success will depend substantially on sales of bandwidth on our
network and on the prices of such bandwidth sales. The sale of bandwidth and the
associated maintenance revenues accounted for the bulk of our revenues through
the end of 1999. We cannot be certain that we will continue to be successful in
selling capacity on our networks. Our ability to continue to sell capacity will
depend in large part upon our sales and marketing capabilities. We have
assembled an experienced and dedicated sales and marketing staff and we depend
upon the ability of such employees to effectively market and sell capacity.
However, we cannot be certain that we will be able to effectively sell capacity
on our network. If we are unable to effectively sell capacity on our network,
our operational results could be negatively affected.

Our plans for entering into the Internet involves several risks. Whether, and
the manner in which, the market for our products and services to Internet
service providers will continue to grow is uncertain. Any decline in the
Internet market will adversely affect our business. Our business would be
damaged if Internet usage does not continue to grow or the demand for Internet
media services does not take off as planned. Internet usage may be inhibited for
a number of reasons, including:

     .    access costs;
     .    inadequate network infrastructure;
     .    security concerns;
     .    uncertainty of legal and regulatory issues concerning the use of the
          Internet;
     .    inconsistent quality of service; and
     .    lack of availability of cost-effective, high-speed service.

If Internet usage grows, the Internet infrastructure may not be able to support
the demands placed on it or the Internet's performance and reliability may
decline. Similarly, Web sites have experienced interruptions in their services
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays occur frequently, use of the
Internet as a commercial or business medium could, in the future, grow more
slowly or decline. This could adversely affect our business.

We have recently begun offering terrestrial network platforms and high-speed
Internet connectivity, based upon the supply of fiber optic bandwidth between
New York, London and other European cities. We intend to expand our services
worldwide and we anticipate offering a full-range of global connectivity
solutions for European Internet and multimedia service providers over our
existing global network infrastructure, as well as specialist and geographic
Internet packages for our customer base in emerging markets. We have limited
experience in the Internet business and can provide no assurance that we will
successfully establish or expand the business. Currently, we only provide
capacity to two European Internet service providers.

The market for network platforms and value-added Internet services is extremely
competitive. Our primary competitors include other telecommunications businesses
that have a significant national or international presence. Many of these
carriers have substantially greater resources, capital and

                                       18
<PAGE>

operational experience than we do. We also expect we will experience increased
competition from traditional telecommunications carriers that expand into the
market for Internet services. In addition, we will require substantial
additional capital to make investments in our Internet operations, and we may
not be able to obtain that capital on favorable terms or at all.

Our Strategy

In addition to the plan of operation described above, our approach to building
an international communications company is to:

Operate in markets that retain high margins in voice retail and wholesale voice
services. Emerging markets continue to retain high margins in retail and
wholesale voice services. We can bring technology and infrastructure developed
and tested in the liberalized markets to the emerging markets. By working with
public telephone operators to provide enhanced services, we can capitalize on
the higher margins available in the monopolistic markets. In addition, our
partnership with public telephone operators will allow us to develop our local
operations. Therefore, we believe we will be well positioned to become a second
operator in certain of these markets when the markets become liberalized.

Create an international infrastructure capability upon which services can be
offered. This network infrastructure, which will include carrier hotel
facilities, will link with the regional hubs being created in emerging markets
to provide a seamless global infrastructure. A regional hub is a point of
telephony concentration in a geographically distant location. It is created only
for reasons of economy, in that it is cheaper to send or receive traffic and
purchase bandwidth into a single distant point for onward distribution than it
is to individually reach each of the final destinations.

Build Internet capabilities and services. Decreasing bandwidth prices in the
developed markets are allowing us to create a fiber optic network which will
support fast Internet and streaming media services. Through acquisitions and
internal development, we are building the capability to address our customers'
Internet requirements, such as business to consumer and business to business
online electronic transactions, web site development and hosting, streaming
video content and bandwidth provisioning, all of which will be provided through
our international network.

Our strategy is to develop, build, and deploy international fiber optic networks
and international carrier hotels and switch/server capabilities on a "just-in-
time" basis. This will enable us to deliver voice, data, and Internet products
and services to our chosen customers and markets. Key elements of our strategy
are to:

Continue to Build and Expand the Reach of Our International Network. We have
access to trans-atlantic bandwidth capacity. Through negotiations with our
capacity suppliers, we hope to soon offer routes in Europe, the Americas, the
Pacific Rim and the Far East.

                                       19
<PAGE>

Provide Managed Voice and Data Services. We intend to further develop and
enhance our switched voice services, which we use to generate more bandwidth
sales across the network and lower the costs per minute of our traffic.

Pursue Early Entry Into Selected Emerging Markets. We seek early entry into
selected emerging markets worldwide where we can create significant demand for
voice, data and Internet services by introducing technology and infrastructure
already in use in the developed markets. We believe that there is, and will
continue to be for the foreseeable future, substantial growth of such services
in emerging markets. We believe that early entry into these markets will provide
us with competitive advantages as we develop sales channels, establish a
customer base, hire local personnel and establish a strong partnership with the
monopoly public telephone operator prior to competitors entering these markets.
Our objective is to position ourselves as the second telecommunications operator
when and if liberalization occurs in these markets.

Provide Enhanced Internet Services. Through our wholly-owned subsidiary,
telemonde.net, we are setting up peering agreements with other leading Internet
backbone service providers. Internet peering agreements are agreements between
two carriers for the exchange of Internet traffic between their networks and
onwards. Using the latest developments in data transmission for video, audio and
software services, telemonde.net plans to become the host and carrier for
broadband content providers delivering unique full screen Internet broadcast
services to European Internet and media companies.

Expand the Capabilities of Our Network With the Development of Regional
Telecommunications Centers. Through the planned geographic expansion of our
network and development of regional telecommunications centers in emerging
markets, we expect to be able to increase our network traffic and thereby
continue to reduce transmission and operating costs. In addition, we intend to
make focused capital investments to deliver enhanced services and lower costs to
our customers. We will continue to invest in our network to provide a full range
of asynchronous transfer mode, frame relay and Internet protocol-based data and
voice communications over our existing network infrastructure.

Financial Information Regarding Industry Segments

We have included in this Annual Report financial information up to December 31,
1999. From our inception on March 10, 1998 to November 1999, our business
consisted entirely of the sale of trans-atlantic bandwidth and of the management
of bandwidth through maintenance contracts with our customers. See Item 6,
"Financial Information."

Customers and Geographic Concentration

Our target customers include leading international telecommunications carriers,
public telephone operators in emerging markets, Internet service providers,
media service providers and new entrants to the telecommunications market.
Telemonde's business focus is global; while customers may have

                                       20
<PAGE>

a specific geographic location, the bandwidth Telemonde provides them may be
located anywhere in the world. Conversely, EquiTel works in specific geographic
markets through the formation of joint ventures with local partners which could
be a business, an individual or the public telephone operator in that location.

A relatively small number of customers have accounted for a significant amount
of our total revenues to date. Although we intend to expand our customer base as
our business grows and through acquisitions, this dependence on a relatively
small number of customers may continue for the foreseeable future. In 1998 we
delivered bandwidth capacity to three major customers who constituted more than
10% of our revenues for that period and also in 1999 three bandwidth customer
constituted more than 10% of our revenues:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                             Period from                Fiscal Year
                                                          March 10, 1998 to                ended
                                                          December 31, 1998          December 31, 1999
------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                        <C>
Carrier 1 (Switzerland)                                     $10,318,000
------------------------------------------------------------------------------------------------------------
North American Gateway Inc.                                   8,206,000                   827,000
(Canada)
------------------------------------------------------------------------------------------------------------
Unisource Carrier Services A.G.                              10,807,000
(Switzerland)
------------------------------------------------------------------------------------------------------------
Telecom Italia (Italy)                                                                  4,621,000
------------------------------------------------------------------------------------------------------------
Trans Global Network Services Ltd.                                                      2,000,000
(UK)
------------------------------------------------------------------------------------------------------------
</TABLE>

Although we continue to have relationships with these customers (e.g., through
our annual maintenance contracts), none has placed further orders for bandwidth.
Most of our arrangements with large customers do not provide any guarantees that
they will continue using our services at current levels. In addition, if (1) our
customers build their own facilities, (2) our competitors build additional
facilities, or (3) our customers are involved in further consolidations in the
telecommunications industry, we could experience a reduction in the use of our
services, which could have a material adverse effect on our business.

We are exposed to concentrations of credit risk to the extent that we have a
limited number of customers, all of which operate in the telecommunications
sector. We perform on-going evaluations of our customers' financial condition.

As at December 31, 1999 we have customer orders of $19 million which we believe
to be firm and which have not been included in our revenues in 1998 and 1999.
The comparable amount of backlog orders at December 31, 1998 was $5.4 million.
We believe that all of the backlog orders of $19 million should be fulfilled in
2000. However, the fulfillment of these orders is dependent to some extent upon
obtaining working capital financing. There are no seasonal or other material
aspects of the backlog at December 31, 1999.

                                       21
<PAGE>

Since its inception, EquiTel has had contracts with seven customers for its
route management services for traffic to the Russian Federation, the Middle East
and the Far East. EquiTel also operates a pre-paid card service in Oman.
EquiTel's revenue mainly derives from monthly traffic on its routes and usage of
its services. Although EquiTel has contracts for its services, the nature of
EquiTel's business means that there are no backlog orders.

We market our services to our customers through a variety of sales channels, as
summarized below:

Direct Sales. We market our network services primarily through our direct sales
force. As of December 31, 1999, our direct sales force was comprised of 5
full-time employees who focus on selling wholesale services to other
long-distance carriers and resellers. We also have 6 full-time employees who
concentrate on traffic services. Our existing sales force can leverage their
long-term industry relationships and those of our senior management in securing
sales. Our sales force is trained to serve the sophisticated needs of our
customers and is in charge of maintaining existing relationships and
anticipating customers' needs. We currently have sales offices in New York City,
London, and Geneva.

Media and Marketing. We use a variety of print and other media to increase our
name recognition and generate new customers. We have marketing programs that
include our participation in targeted industry conferences, trade shows and
seminars and targeted distributions and mailings of marketing materials.

Although we intend to expand our customer base as our business grows and through
acquisitions, our dependence on a relatively small number of customers may
continue for the foreseeable future. Most of our arrangements with large
customers do not provide any guarantees that they will continue using our
services at current levels. In addition, if (1) our customers build their own
facilities, (2) our competitors build additional facilities, or (3) our
customers are involved in further consolidations in the telecommunications
industry, we could experience a reduction in the use of our services, which
could have a material adverse effect on our business.

Competition

The international communications industry in developed world markets is highly
competitive and significantly affected by regulatory changes, marketing and
pricing decisions of the larger industry participants and the introduction of
new services made possible by technological advances. Privatization and
deregulation have had, and are expected to continue to have, significant effects
on competition in the industry.

The telecommunications industry has relatively limited barriers to entry in the
more deregulated countries with numerous entities competing for the same
customers. We believe that competition in all of our markets is likely to
increase, which could result in greater competition in telecommunications
services offered in these countries. This increase in competition could
adversely affect our net revenues.

                                       22
<PAGE>

At this stage of our development, many of our competitors are significantly
larger than we are, and many of our competitors have:

 .   substantially greater financial, technical, and marketing resources;
 .   larger networks;
 .   a greater ability to support the portfolio of services;
 .   stronger name recognition and customer loyalty; and
 .   long-standing relationships with our prospective customers.

Telemonde's major competitors for international communications bandwidth
services are Gemini, MCI WorldCom, Iaxis, GTS, Level 3, Viatel, KPN/Qwest,
Global Crossing and a rapidly changing number of arbitrage operators and
brokers, such as Transglobal Network Services and Band-X. Telemonde
differentiates its market offering through:

     .    supplier independence whereby Telemonde is able to acquire
          bandwidth, telehousing and switched services from all of its
          suppliers, including its competitors, at least cost;
     .    full network management of services from installation through
          contract life, which allows our customer to concentrate their
          key resource upon their core business activities; and
     .    flexible financial and commercial contracts, which includes the
          ability to exchange bandwidth, provide flexible payment facilities and
          trade bandwidth for our customers capabilities which can be re-sold in
          the market at retail rates.

In addressing the Internet service provider market, our competitors are the
major European Tier 1 carriers, such as British Telecommunications, Deutsche
Telekom, France Telecom, Telecom Italia, Teleglobe and MCI WorldCom. We
differentiate through:

     .    the ability to customize our market offering to meet the
          individual needs of our customers;
     .    a market positioning that does not compete with our customers retail
          services, unlike many of our competitors; and
     .    the delivery of bundled content (Internet shopping, sport and other
          broadcast services, niche programming) and infrastructure (bandwidth,
          telehousing and peering facilities to the Internet backbone network)
          services. This provides a one-stop-shop for emerging Internet service
          providers where financial and resource constraints exist.

EquiTel does not aim to operate in highly competitive markets and is primarily
focused upon working in partnership with the incumbent public telephone
operator. As such, we do not compete in our markets with other operators but
collaborate with the public telephone operator to enhance the service offering
in their market.

                                       23
<PAGE>

Our competitive strengths. We believe that we can compete effectively in the
competitive markets described above, because we have a number of competitive
strengths, including:

     .    Established presence as a network services operator. We have entered
          into major supply contracts for international bandwidth capacity. As a
          result of these contracts and discussions with prospective customers,
          we have established a market presence and created a market awareness
          of Telemonde as a participant in the carrier's carrier market. We are
          responsible for the delivery and maintenance of our customers'
          capacity. Through our subsidiary, Telemonde Networks Limited, our
          technical staff provide quality network services to our customers. The
          recent launch of telemonde.net, S.A., has brought our bandwidth and
          network services to the attention of European Internet service
          providers to meet their demands for high volume digital video, sound,
          software and high speed connectivity to the Internet.

     .    Supplier independence. We do not construct network infrastructure.
          However, our strength, through our independence, is our ability to
          acquire lowest cost facilities at any point in time incorporating the
          latest technology. Also we do not compete with our customer in the
          retail markets, unlike most of our competitors.

     .    Operations and presence in emerging markets. We have established
          operations or a presence in the emerging markets of the Russian
          Federation, the Middle East, and Africa. EquiTel has obtained and
          operates several route management contracts terminating in the Russian
          Federation and South East Asia. Since February 1999, EquiTel has
          provided intelligent networks system in Oman. EquiTel has signed a
          joint-venture agreement with local partners in Bangladesh and is in
          negotiations to place intelligent network services in Malaysia in
          conjunction with local partners. In addition, EquiTel plans to
          establish a new entity to market EquiTel's services in Asia, Africa
          and Middle East. These and similar operations provide the markets for
          our advanced communications services, that are tried and tested,
          enabling EquiTel to expand its revenue base and enhance the services
          available.

     .    Established intelligent networks platform. As discussed above, EquiTel
          has developed and installed a national intelligent network system in
          Oman. Although the Omani system currently supports pre-paid card
          services, the intelligent networks system is capable of providing
          other intelligent network services, including post-paid card services
          and enhanced services for voice mail, fax mail, short message
          services, intelligent routing and single number services. This has
          provided EquiTel with the experience of implementing and operating
          highly technical services in challenging commercial environments.

     .    Experienced management team. Our executive officers have substantial
          industry and management experience. Most of them have many years of
          experience in senior management positions in leading international
          telecommunications businesses. In addition, our executive officers are
          supported by industry-experienced management in

                                       24
<PAGE>

          sales, operational and technical functions. As a result, we have the
          skills and ability to support business growth and to effectively
          manage such growth.

     .    Strategic implementation is progressing. Part of our strategy is to
          create an extensive international infrastructure, which will enable us
          to deliver a broad range of voice, data and Internet products and
          services to our chosen markets. As a result, we will be able to
          provide dedicated "turnkey" solutions to customers in the United
          States and Western Europe, but, in particular, we will use our
          infrastructure and services to enable emerging markets to access the
          telecommunications and Internet services of the developed world. We
          have made some progress in implementing this strategy. Through the
          acquisition and utilization of fiber optic capacity, we are creating a
          network in the developed markets of the United States and Western
          Europe. Through the acquisition of EquiTel, we have developed and we
          are developing business in a number of emerging markets. We are
          therefore well positioned for the further implementation of our
          strategy. We intend to create retail telecommunications companies in
          the emerging markets, in partnership with public telephone operators,
          to offer enhanced telecommunications services to those markets. We
          also intend to develop Internet services for commercial use in both
          the liberalized and emerging markets. In the emerging markets, we will
          supply these services over our planned international infrastructure;
          however, they will be marketed and supported through local
          partnerships.


Government Regulation

As a multinational telecommunications company, we are and will be subject to
varying degrees of regulation in each of the jurisdictions in which we provide
services. Local laws and regulations, and the interpretation of these laws and
regulations, differ significantly among each of the jurisdictions in which we
operate and intend to operate. We can offer no assurance that our interpretation
of existing applicable laws and regulations is correct. Moreover, we can offer
no assurance that future regulatory, judicial or legislative changes will not
have a material adverse effect on our business, financial condition or operating
results or that regulators or third parties will not raise material issues with
regard to our compliance or non-compliance with applicable regulations or that
any changes in applicable laws or regulations will not have a material adverse
effect on our business, financial condition or operating results.

With regard to our current operations, we either have received or have
reasonable expectations of receiving the necessary licenses which we believe are
required to undertake our business and to implement our short-term plans. In
particular in December 1999 we received a Public Telephone Operators License
from the Department of Trade and Industry in the United Kingdom, where our
international operations center and network infrastructure will be based.

We can offer no assurance that our expectations concerning our ability to
operate in compliance with all applicable laws and regulations are correct, that
we will be able to obtain, maintain or renew the required licenses,
authorizations or registrations, or that they will be issued or renewed on terms
or

                                       25
<PAGE>

with fees that are commercially practicable. In addition, other licenses,
authorizations or registrations may be required in the future. The loss of, or
failure to obtain, these licenses, authorizations or registrations or
substantial limitations upon the terms of these licenses, authorizations or
registrations could have a material adverse effect on our business, financial
condition or operating results.

United States Federal Regulations. Pursuant to the Communications Act of 1934,
as amended (the "Communications Act"), the FCC is required to regulate the
telecommunications industry in the United States. Under current FCC policy,
telecommunications carriers reselling the services of other carriers and not
owning their own transmission facilities are considered non-dominant and, as a
result, are subject to streamlined regulation. The degree of regulation varies
between domestic telecommunications services (services which originate and
terminate within the United States) and international telecommunications
services, (services which originate in the United States and terminate in a
foreign country or vice versa).

Non-dominant providers of domestic services do not require prior authorization
from the FCC to provide service. However, non-dominant providers of
international services must obtain authorization from the FCC pursuant to
section 214 of the Communications Act. Although we do not require a U.S. license
in order to carry out our current business, we intend to apply for an
international resale license under section 214 in the near future. Once we have
obtained such authorization we will be required to file a tariff with the FCC,
setting forth the terms and conditions under which we provide international
services. The regulatory requirements in force today impose a relatively minimal
burden on us. However, we cannot provide assurance that the current regulatory
environment and the present level of Federal Communications Commission
regulation will continue.

United Kingdom Regulations. The Telecommunications Act 1984 (the "1984 Act")
provides a licensing and regulatory framework for telecommunications activities
in the United Kingdom. In 1998, the UK regulatory framework was modified to
bring it in line with EU requirements, in particular its provisions on
licensing, interconnection, voice telephony and leased lines. The policy of the
Department of Trade and Industry and Office of Telecommunications, the UK
Regulator, is to grant telecommunications licenses to all operators who meet a
transparent and pre-determined set of criteria. The majority of UK licenses are
either registered to offer International Simple Voice Resale or hold an
individual fixed public telephone operator license.

We were granted in December 1999 a fixed Public Telephone Operators License,
which covers all companies in the Telemonde Group, including EquiTel. Our
subsidiary, TGA (whose assets and business were transferred to other companies
in the Telemonde group), is also licensed to offer International Simple Voice
Resale (ISVR) services, which permits it to buy network capacity from any inter-
connecting UK operator to resell to its customers. Our Public Telephone
Operators License permits us to offer a full range of fixed voice and data
services using its own facilities or through leasing or interconnection of other
operator facilities. Most operators who offer publicly available
telecommunications services and network bearer capabilities are granted
interconnection rights by the Office of Telecommunications. We received our
interconnection rights in January 2000. An

                                       26
<PAGE>

operator with interconnection rights is entitled to negotiate interconnection
with every other operator with interconnection rights.

Swiss Regulations. In Switzerland, a new telecommunications act was adopted in
April 1997 and became effective on January 1, 1998. This new Act provides for
the liberalization of the Swiss telecommunications market and facilitates market
entry by various measures. These measures include:

 .  Notice application procedure for resellers;

 .  Application for a procedures for operators wishing to be granted a license
   for the establishment and operation of the transmission facilities; and

 .  Providing rights of way, subject to authorization, over the public domain to
   facilities based carriers.

A license is required if the telecommunications service involves extensive
independent use of telecommunications installations for transmission. In the
absence of such extensive independent use a simple notification will be
sufficient. Our current operations in Switzerland do not require a license.

Other Government Regulations. Telecommunications activities are subject to
government regulation to varying degrees in every country throughout the world.
To illustrate, in Malaysia our partner has informed us that no license is
required for telecommunications activities. However, in may countries where we
operate, equipment cannot be connected to the telephone network without
regulatory approval, and therefore installation and operation of our operating
platform or other equipment requires such approval. In most jurisdictions where
we conduct business, we rely on our local partner to obtain the requisite
authority. For instance, in Bangladesh our partner has informed us of the need
for a license and has applied for one on our behalf.

Employees

At December 31, 1999, we employed a total of 43 persons. Of these, 7 are the
executive officers of the Telemonde group. Telemonde Networks employs 21
persons, EquiTel employs 8 persons, telemonde.net employs 3 persons and 11
persons are employed on behalf of the entire Telemonde group.

During 1999 we progressively built up a senior management team and a group of
employees with substantial industry experience, longstanding industry
relationship and technical telecommunications and Internet knowledge.
Competition for such personnel is intense and we may not be able to attract,
motivate and retain highly skilled qualified personnel. Loss of services of key
personnel could adversely affect Telemonde's business. We have, however, entered
into employment agreements with members of the senior management team, in
particular with Kevin Maxwell, Adam Bishop,

                                       27
<PAGE>

Harry Pomeroy and with other executive officers. We are in the process of
analyzing and potentially procuring "key person" life insurance policies
covering Kevin Maxwell, Adam Bishop and Harry Pomeroy.

Risk Factors

Our business involves a significant number of material risks. The risks and
uncertainties described below may not be the only ones we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
may be, or may become, material and impair our business and operations.

During our limited operating history we have experienced operating losses,
negative cash flow from operations and net losses.

We were organized in March 1998 and have a limited operating history. Our
financial information relates principally to a period in which we were obtaining
trans-Atlantic capacity and were establishing our business and market presence.
We have incurred operating losses and negative cash flow since our inception.
For the year ended December 31, 1998 and for the year ended December 31 1999,
Telemonde had operating losses of $11,649,000 and $41,214,000 respectively.
Despite recognizing $37,496,000 in revenues, Telemonde incurred a deficit on
total stockholders' equity of $4,474,000 for the period from March 10, 1998 (the
date of inception) through December 31 1999. We expect to continue to incur
operating losses and negative cash flow in 2000 as we build our networks and
expand our services and customer base.

The continuation and magnitude of our operating losses and negative cash flows
in the future will be affected by a variety of factors, including:

          .    The ability to put in place working capital facilities and to
               increase our capital base.
          .    The rate at which we add new customers and the prices those
               customers pay for our bandwidth and internet services.
          .    The mix of our business, including, among other factors, the
               proportion of IRUs compared to leases and short term rentals we
               sell to our customers.
          .    The ability and cost to obtain transatlantic and other bandwidth
               capacity; in particular the cost of bandwidth under the major
               supplier agreements currently under re-negotiation.
          .    Customer payment terms where customers require a deferred payment
               plan for their purchase of our IRUs.
          .    The speed and extent to which we add networking and other related
               services, including but not limited to our telehousing
               facilities, to our portfolio of products and services.
          .    The ability to predict demand for our networking and other
               related services, including but not limited to our telehousing
               facilities.
          .    The ability of our local relationships in emerging markets to
               support our customers and meet our obligations.

                                       28
<PAGE>

          .    The completion of our planned networks and infrastructure and the
               expansion of our networks generally, with completion being
               achieved by currently expected completion dates.
          .    General economic, financial, competitive, legislative,
               regulatory, licensing, and other factors that are beyond our
               control.

We have financed, and expect to continue to finance, our net losses, debt
service, capital expenditures and other cash needs through flexible supplier
payments, the issuance of debt and the proceeds from sales of shares of common
stock.

Our business requires significant amounts of capital and infrastructure
expenditures and our existing working capital facilities are insufficient to
meet our needs.

We expect to continue to make capital expenditures over the next few quarters
building our infrastructure and in organizing our bandwidth and switched
services businesses. This includes the purchase of bandwidth capacity for our
own networks, for planned leasing and rental business, and to meet our
customers' requirements. We hope to fund these expenditures from short-term
bridge financing, vendor financing and from planned equity funding, as well as
from proceeds of future sales.

Beyond the initial amount, we will incur additional capital expenditures to
support our projected growth of the bandwidth business. In particular, we aim to
significantly grow our bandwidth leasing and rental business by purchasing
additional bandwidth capacity to be leased to our customers. We expect to meet
the cash requirements of our capital expenditures from:

     .    cash flow from fiber sales and operations;
     .    income from route management operations;
     .    income from our intelligent network services;
     .    additional equity and/or debt financing; and
     .    supplier financing, if available.

Our failure to accomplish any of the foregoing sources may significantly delay
or prevent capital expenditures. If we are unable to make our capital
expenditures as planned, our business may grow slower than expected with a
material adverse effect on our business, financial condition, results of
operations, and the value of our securities.

We currently do not have the capital base or working capital facilities to meet
our current and projected commitments. If we fail to successfully obtain
necessary capital, or to obtain an insufficient amount of capital, we would harm
our prospects and could jeopardize our existence. We have benefited from the
willingness of suppliers to reschedule commitments and payments and may continue
to require and take advantage of such flexibility in the future. However, this
reliance on supplier flexibility for short term funding inevitably leads to
pressure from suppliers which weakens our commercial position. In addition, it
could result and has resulted in formal events of default,

                                       29
<PAGE>

which could endanger us, especially if this supplier flexibility ceased to be
available. It is for this reason that we plan to seek substantial external debt
and equity funding.

Telemonde has a significant level of indebtedness.

We have incurred a high level of debt. As of December 31, 1999, Telemonde and
EquiTel had a combined $103,047,000 in total liabilities, including:

          .    $78,244,000 to capacity suppliers relating to undrawn bandwidth;
          .    $7,284,000 to all other suppliers; and
          .    $4,445,000 owed to CCL under a Capacity Option Agreement.

The amount of our debt could have important consequences for our future,
including, among other things:

          .    cash from operations may be insufficient to meet the principal
               and interest on our indebtedness as it becomes due;
          .    payments of principal and interest on borrowings may leave us
               with insufficient cash resources for our operations; and
          .    restrictive debt covenants may impair our ability to obtain
               additional financing.

We have been unable to generate sufficient cash flow to meet certain of our debt
service requirements, and have triggered events of default on those obligations.
We cannot assure you that we will be able to successfully renegotiate terms of
our agreements or refinance our indebtedness when required.

We are currently negotiating debt finance and are planning equity raising.

We are in discussions with investment bankers for the potential provisioning of
short-term debt and equity financing. The amount of financing which is required
to meet our commitments is significant. We cannot assure you that our current
negotiations and discussions will be successful. Failure to successfully
complete our current negotiations and discussions will not only impair our
ability to develop our business but may also result in the termination of our
operations.

We have recently negotiated the main terms of our two supplier agreements but
the new supplier contracts are still to be finalized.

The existing agreements with our two major bandwidth suppliers were signed in
1998 and 1999. Since then, the market prices for bandwidth have fallen
significantly. This market decline has resulted in our being unable to draw down
and sell bandwidth capacity above costs.

We have recently re-negotiated the main terms of these agreements with our two
suppliers. Letters of Intent have been executed between the two suppliers and
ourselves. Further negotiations with one

                                       30
<PAGE>

of these two suppliers has recently resulted in execution of a Standstill Letter
and in execution of a Capacity Swap Letter of Intent. The terms in these
agreements enable us to draw down future capacity at prices, and with network
flexibility choices, which will enable us to grow and develop our business. They
establish new terms for drawing down capacity, for future payments for capacity,
and waive past events of default.

We cannot assure you that the two re-negotiated letters of intent will be
contractually closed. In the event that they are not closed, the existing
contracts will remain in force. We are currently behind with our payments based
upon the existing contracts and would therefore have to rely on the suppliers'
flexibility in rescheduling payment terms. The events of default under the
existing contracts could endanger our existence.

Our recently announced acquisition of Global Communication (Holdings) Limited
has not taken effect and is unlikely to proceed.

In the fourth quarter of 1999, we announced that we had reached an agreement to
acquire 100% of Global Communications (Holdings) Limited, a UK based Internet
applications services provider. This agreement, which we signed, contains a
number of conditions before completion of the acquisition may occur. In
particular, the acquisition is dependent upon the ability to raise substantial
amounts of capital in order to fund the acquisition. The acquisition has not
taken effect and is unlikely to proceed.

We do not expect to pay dividends for the foreseeable future.

The loan facility between Telemonde and Communications Collateral Limited
("CCL") restricts our ability to pay dividends on our common stock. Moreover, we
plan to retain all earnings for investment in our business and do not plan to
pay dividends at any time in the foreseeable future. See Part II, Item 5,
"Dividend Policy."

We have not yet completed our transition from a development stage company to an
operating company.

We are still a development stage company. It is anticipated that our network and
operations center will be established in 2000. Although our senior management
team has substantial industry knowledge and experience, this team has been built
up during the course of 1999 and has only recently been completed. EquiTel was
formed in late 1998, signed its initial customer contracts in 1999 and still
needs to be fully integrated into Telemonde.

                                       31
<PAGE>

The transition from a development stage company to an operating company places
significant demands on our management and operations. We are in the process of
expanding the management and operational capabilities necessary for this
transition. Our ability to manage this transition successfully will depend on,
among other things:

          .    expanding, training and managing our employee base, including
               attracting, retaining and motivating highly skilled personnel;
          .    creating customer interface and operations, administrative and
               maintenance systems;
          .    procuring terrestrial capacity to provide connectivity to inland
               cities.

There can be no assurance that we will succeed in developing all or any of these
capabilities, and any failure to do so could have a material adverse effect on
our results of operations.

We currently rely on a relatively small number of major customers.

A relatively small number of customers currently account for a significant
amount of our total revenues. In our bandwidth business three customers
accounted for over 90% of our revenues in 1999. Although we intend to expand our
customer base as our business grows and through acquisitions, this dependence on
a relatively small number of customers may continue for the foreseeable future.

Most of our arrangements with large customers do not provide any guarantees that
they will continue using our services at current levels. In addition, if (1) our
customers build their own facilities, (2) our competitors build additional
facilities, or (3) our customers are involved in further consolidations in the
telecommunications industry, we could experience a reduction in the use of our
services, which could have a material adverse effect on our business.

The domestic and international telecommunications industry is highly competitive
and we may not be able to compete effectively.

The telecommunications industry is highly competitive and is influenced
significantly by the marketing and pricing decisions of the larger industry
participants. The industry has relatively limited barriers to entry in the more
deregulated countries with numerous entities competing for the same customers.
We believe that competition in all of our markets is likely to increase, which
could result in greater competition in telecommunications services offered in
these countries. This increase in competition could adversely affect our net
revenues.

At this stage of our development, many of our competitors are significantly
larger than we are, and many of our competitors have:

          .    substantially greater financial, technical, and marketing
               resources;
          .    larger networks;
          .    a greater ability to support the portfolio of services;

                                       32
<PAGE>

          .    stronger name recognition and customer loyalty; and
          .    long-standing relationships with our prospective customers.

We expect that competition in the international telecommunications market will
intensify in the future. We compete with other international "carriers'
carriers" and submarine cable owners with regard to bandwidth sales, leasing and
switch services. In addition to competition from companies offering similar
services, we may also become subject to competition from existing geosynchronous
satellites as well as low-earth orbit satellite systems that are currently under
construction. The telecommunications industry will continue to experience rapid
changes in technology. Our future success may depend on our ability to adapt to
these changes in the industry. A failure by us to adopt new technology, or our
choice of one technological innovation over another, may have an adverse impact
on our ability to compete or meet customer demands.

Operation of telecommunications networks involves significant risks.

Each of our systems will be subject to the risks inherent in a large-scale,
complex fiber optic telecommunications system. The operation, administration,
maintenance and repair of these systems require the co-ordination and
integration of sophisticated and highly specialized hardware and software
technologies and equipment located throughout the world. There can be no
assurance that our systems will function as expected or in a cost-effective
manner.

The submarine fiber optic cables are subject to additional risks. Outages can
occur at sea from anchor drag and fouling by fishing vessel gear over which we
have little or no control and for which repair times can be long. However, our
planned network will provide for transferability on both the Gemini and Global
Crossing cables. Therefore, when our network is installed, any breaks in the
cable loop will not interfere with our system's ability to transmit traffic
successfully. This will give our engineers time to work with the cable owner to
resolve the problem associated with the break in the cable loop.

We are subject to additional risks due to our international operations.

We will derive substantial revenues from international operations and a key
element of our business strategy is to expand our operations in international
markets. Accordingly, our business is subject to certain risks inherent in
international operations. These risks include:

          .    unexpected changes in regulatory requirements, tariffs, customs,
               duties and other trade barriers;
          .    difficulties in staffing and managing overseas operations;
          .    problems in collecting accounts receivable;
          .    political risks;
          .    fluctuations in currency exchange rates;
          .    foreign exchange controls which restrict or prohibit repatriation
               of funds;
          .    technology export and import restrictions or prohibitions;

                                       33
<PAGE>

     .    delays from customs brokers or government agencies; and
     .    potentially adverse tax consequences resulting from operating in
          multiple jurisdictions with different tax laws.

During our limited operating history we have not experienced any material
adverse effects with respect to our overseas operations arising from such
factors. However, problems associated with such risks could arise in the future.
Finally, managing operations in multiple jurisdictions will place further strain
on our ability to manage our overall growth.

In addition, EquiTel's targeted markets are in emerging markets, including
Africa, the Middle East, most of the Asia Pacific region, the Indian
sub-continent, Southern and Central America, and parts of Eastern Europe.
Political and social instability is widespread in many such areas and EquiTel is
subject to greater risks and potential losses due to unexpected changes in
political regimes.

We rely on local relationships in these emerging markets to support our
customers. Failure on the part of our local contacts to fulfill their
obligations may harm our reputation, business and operations. We, and in
particular our switched services business, utilize local persons to market our
services and provide local training and support. The quality of the local
training and support may be inconsistent and may not reach our "benchmark" of
quality service levels. In this event, customer relations, and possible future
business, may be jeopardized. In addition, our senior management may be diverted
to remedy the failure of our local relationships and this diversion may impede
other projects.

A portion of our net revenue and expenses is denominated, and is expected to
continue to be denominated, in currencies other than United States dollars.
Changes in exchange rates may have a significant effect on our results of
operations. Historically, we have not engaged in hedging transactions, and
currently do not contemplate engaging in hedging transactions, to mitigate
foreign exchange risk.

Telemonde's results of operations may be affected by fluctuations in currency
exchange rates. While all revenues have been earned in U.S. Dollars, a portion
of operating costs are incurred in currencies other than U.S. Dollars, such as
Pounds Sterling. A partial mismatch in operating revenues and expenses could
lead to fluctuations in results of operations due to changes in the value of the
U.S. Dollar relative to foreign currencies. Although we continue to have a
relationship with these customers, for instance through their annual maintenance
contracts, they have not to date placed further orders with us for bandwidth
capacity.

There will also be currency gains or losses on translation of EquiTel's
financial statements, which as a UK company are initially prepared in pounds
sterling, into US dollars for consolidation into Telemonde, Inc.'s consolidated
financial statements.

                                       34
<PAGE>

Telemonde's operations are substantially dependent on key personnel.

Telemonde's success will depend to a significant degree upon the efforts of
senior management, particularly Kevin Maxwell, Adam Bishop, Harry Pomeroy and a
group of employees with longstanding industry relationships and technical
knowledge. Competition for such personnel is intense and we may not be able to
attract, motivate and retain highly skilled qualified personnel. Loss of
services of one or more key personnel could adversely affect Telemonde's
business. We have, however, entered into employment agreements with Kevin
Maxwell, Adam Bishop, Harry Pomeroy and with other executive officers. We are in
the process of analyzing and potentially procuring "key person" life insurance
policies covering Kevin Maxwell, Adam Bishop and Harry Pomeroy.

Certain of our officers and directors may have conflicts of interest with
Telemonde.

Certain of our directors and executive officers also serve as officers and
directors of other companies. Additionally, certain of our officers and
directors are active investors in the telecommunications industry. Although
these directors have fiduciary obligations to Telemonde under Delaware law,
service as a director or officer of Telemonde and as a director or officer of
another company could create conflicts of interest. In particular, we have an
advisory agreement with Sands Brothers, of which Mark Hollo is the managing
director. Mr. Hollo's duties as a manager at Sands Brothers could be in conflict
with his duties as a Telemonde board member. Any of these conflicts of interest
could have a material adverse effect on our financial condition. Telemonde has
not adopted special voting procedures to deal with such conflicts of interest
and resolution of these conflicts may be unfavorable to Telemonde but intends to
adopt such procedures in the near future.

Telemonde may be adversely affected if we do not successfully manage the
expansion of our bandwidth and switched services business and our expansion into
new markets and services.

In conjunction with our acquisition of EquiTel, we intend to expand our switch
services business at a rapid rate. We expect switched services to be a
significant source of growth and revenues in the future. In addition, we plan to
offer new telecommunications services, expand and interconnect its service in
its existing markets, and enter new markets. If we are not successful in
implementing these changes, our operating results will be negatively impacted.

Our ability to manage this expansion depends on many factors, including the
ability to:

     .    attract new customers and sell new services to existing customers;
     .    expand our network and available bandwidth design;
     .    acquire and install transmission and switching facilities;
     .    obtain any required governmental permits and rights-of-way;
     .    implement interconnection with local exchange carriers;
     .    expand, train and manage our employee base;

                                       35
<PAGE>

     .    improve our financial, operating and information systems to
          effectively manage our growth;
     .    acquire suitable telehouse facilities; and
     .    accurately predict and manage the cost and timing of our capital
          expenditure programs.

Even if we are successful in completing the infrastructure to support our
expanded business, that business may not be profitable and may not generate
positive cash flow.

Our short-term success will depend substantially on our sales of bandwidth,
which prices may decline due to the availability of increased capacity.

Our short-term success will depend substantially on sales of bandwidth on our
network and on the prices of such bandwidth sales. The sale of bandwidth and the
associated maintenance revenues have accounted for the bulk of our revenues
during 1999 and expected to continue that way at least through the first half of
2000.

We cannot be certain that we will continue to be successful in selling capacity
on our networks. Our ability to continue to sell capacity will depend in large
part upon our sales and marketing capabilities. We have assembled an experienced
and dedicated sales and marketing staff and we depend upon the ability of such
employees to effectively market and sell capacity. However, we cannot be certain
that we will be able to effectively sell capacity on our network. If we are
unable to effectively sell capacity on our network, our operational results
could be negatively affected.

A number of companies have plans to construct new submarine and terrestrial
fiber optic systems. The additional capacity may create a glut in the market and
cause prices to drop dramatically which could have an adverse impact on our
revenues and operational results. Prices have fallen significantly in recent
quarters for trans-Atlantic bandwidth, and this trend may continue. In the
European terrestrial market, lead times are short and there is significant
competition from new or upgraded systems. Therefore, it is possible that there
will be significant over-capacity in the European market and that prices may
fall significantly in the short-term.

In particular, we have made, and will make in the future, commitments to
suppliers to obtain bandwidth capacity. Market price reductions reduce and can
eliminate the expected margin on bandwidth sales over the purchase price from
the supplier. In addition, we would need to seek price reductions from our
suppliers for future bandwidth capacity purchases in order to restore margins
and the outcome of such negotiations are inevitably uncertain. Therefore our
business, financial condition, and operation results could be materially and
adversely affected by market price declines, now and in the future. We intend to
purchase additional capacity on other cable systems around the world, but to
date have yet entered into any written agreements or negotiations with companies
to purchase this capacity. Any glut in the market or reduction in market price
could also affect our ability to obtain and sell capacity or to swap a portion
of our existing capacity for new capacity on other cable systems at the expected
margins.

                                       36
<PAGE>

We have not yet obtained the licenses we need to offer all of our projected
products and services.

Many of our planned products and services require licenses, registrations, and
authorizations in the relevant jurisdictions in which we operate and plan to
operate. For example, the provision of networking, leasing, and route management
services require government licenses in many jurisdictions.

One of our subsidiaries, TGA (whose assets and business were transferred to
other companies in the Telemonde group) has a ISVR license. We were granted in
December 1999 a fixed Public Telephone Operators License, which covers all
companies in the Telemonde group, including EquiTel. We also intend to apply for
a US international resale section 214 license in the near future to cover both
EquiTel and Telemonde. In addition, EquiTel sometimes needs to apply for local
licenses in overseas countries where it is providing route management and card
services contracts.

We can offer no assurance that our expectations concerning our ability to
operate in compliance with all applicable laws and regulations are correct, that
we will be able to obtain, maintain or renew the required licenses,
authorizations or registrations, or that they will be issued or renewed on terms
or with fees that are commercially practicable. In addition, other licenses,
authorizations or registrations may be required in the future. The loss of, or
failure to obtain, these licenses, authorizations or registrations or
substantial limitations placed upon the terms of these licenses, authorizations
or registrations could have a material adverse effect on our business, financial
condition or operating results.

We depend on local connections that may be difficult and expensive to obtain.

We offer customers end-to-end management of the circuit and termination at local
sites. Therefore, we must provide backhaul capacity and local connectivity.
However, there can be high and unexpected costs in providing local connections
due to initial installation costs, annual local tail rentals, lack of
availability of fiber between connection points, difficulty in obtaining
permission to install fiber and a small number of alternative suppliers. In
addition, local connection agreements may be subject to local regulations. We
may not be able to obtain backhaul and local connectivity at rates that are both
competitive and profitable.

Government regulations significantly affect our business and new laws could harm
our operations.

As a multinational telecommunications company, we are and will be subject to
varying degrees of regulation in each of the jurisdictions in which we provide
services. Local laws and regulations, and the interpretation of these laws and
regulations, differ significantly among each of the jurisdictions in which we
operate and intend to operate. We can offer no assurance that our interpretation
of existing applicable laws and regulations is correct. Moreover, we can offer
no assurance that future regulatory, judicial or legislative changes will not
have a material adverse effect on our business,

                                       37
<PAGE>

financial condition or operating results or that regulators or third parties
will not raise material issues with regard to our compliance or non-compliance
with applicable regulations or that any changes in applicable laws or
regulations will not have a material adverse effect on our business, financial
condition or operating results.

The expected continued growth in the internet service provider market and the
use of the Internet may not materialize or may materialize in a manner we have
not anticipated.

The Internet service provider market is new and rapidly evolving. Whether, and
the manner in which, the market for our products and services to Internet
service providers will continue to grow is uncertain. Any decline in the
Internet service provider market will adversely affect our business.

Our business would be damaged if Internet usage does not continue to grow.
Internet usage may be inhibited for a number of reasons, including:

     .    access costs;
     .    inadequate network infrastructure;
     .    security concerns;
     .    uncertainty of legal and regulatory issues concerning the use of
          the Internet;
     .    inconsistent quality of service; and
     .    lack of availability of cost-effective, high-speed service.

If Internet usage grows, the Internet infrastructure may not be able to support
the demands placed on it or the Internet's performance and reliability may
decline. Similarly, Web sites have experienced interruptions in their services
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays occur frequently, use of the
Internet as a commercial or business medium could, in the future, grow more
slowly or decline. This could adversely affect our business.

We have recently begun offering terrestrial network platforms and high-speed
Internet connectivity, based upon the supply of fiber optic bandwidth between
New York, London and other European cities. We intend to expand our services
worldwide and we anticipate offering a full-range of global connectivity
solutions for European Internet and Multimedia Service Providers over our
existing global network infrastructure, as well as specialist and geographic
Internet packages for our customer base in emerging markets. We have limited
experience in the Internet business and there can be no assurances you that we
will successfully establish or expand the business. Currently, we only provide
capacity to one European Internet service provider.

The market for network platforms and value-added Internet services is extremely
competitive. Our primary competitors include other telecommunications businesses
that have a significant national or international presence. Many of these
carriers have substantially greater resources, capital and operational
experience than we do. We also expect we will experience increased competition
from traditional telecommunications carriers that expand into the market for
Internet services. In addition,

                                       38
<PAGE>

we will require substantial additional capital to make investments in our
Internet operations, and we may not be able to obtain that capital on favorable
terms or at all.

If we do not respond effectively and on a timely basis to rapid technological
change, our business could suffer.

If we do not successfully use or develop new technologies, introduce new
services or enhance our existing services on a timely basis, or if new
technologies or enhancements used or developed by us do not gain market
acceptance, our business could be damaged. The telecommunications industry,
including the Internet, is characterized by rapidly changing technology,
industry standards, customer needs and competition, as well as by frequent new
product and service introductions. Our future success will depend, in part, on
our ability to accomplish all of the following in a timely and cost-effective
manner, all while continuing to develop our business model and rolling-out our
services:

     .    effectively use and integrate leading technologies;
     .    continue to develop our technical expertise;
     .    develop new products and services that meet changing needs of
          telecommunications industry and Internet service providers;
     .    have the market accept our services;
     .    advertise and market our products and services; and
     .    influence and respond to emerging industry standards and other
          changes.

We cannot assure you that we will successfully be able to use new technologies,
introduce new services or enhance our existing services on a timely basis, or
that new technologies or enhancements used by us will achieve market acceptance.
Our pursuit of necessary technological advances may require substantial time and
expense. In addition, we cannot assure you that, if required, we will
successfully adapt our network and services to alternate access devices and
conduits.

Increased competition in the pre-paid card business may force us to lower our
prices and in turn may negatively affect our operating results.

Our operations relating to the pre-paid card business face a number of risks,
which include:

     .    the increased entry into the market by pre-paid card vendors,
          including vendors that are larger than us;
     .    our reliance on independent distributors to place pre-paid cards in
          retail outlets;
     .    our inability to create exclusive pre-paid phone card distribution
          arrangements in certain markets;
     .    the availability of alternative telephony methods;
     .    the cost sensitive nature of consumer demand; and
     .    the lack of customer loyalty to any particular pre-paid card company.

                                       39
<PAGE>

Many of these risks may cause prices to drop throughout the pre-paid card
industry. Because we depend on informal relationships with independent
distributors to market and sell our products, increased competition and lower
prices could force us to further lower our prices to continue to sell pre-paid
cards to these distributors. We cannot guarantee that we will be able to
continue to provide competitively priced pre-paid cards to our distributors or
that lower prices in the pre-paid card marketplace will not have a negative
effect on the results of our operations.

Our pre-paid card business is dependent on a small number of distributors, and
we must retain our current distributors or recruit additional distributors in
order to remain successful.

We must distribute our pre-paid cards through wholesale distributors. As a
result, our success is largely dependent on our ability to recruit, maintain and
motivate a network of individual distributors. As part of our growth strategy we
would like to increase the retail distribution of our products and services by
expanding our distribution network in new markets. We cannot guarantee that we
will successfully recruit, maintain and motivate individual distributors or
prevent our distributors from marketing other pre-paid cards, and, if we are
unable to do this, it could have a negative effect on our business, financial
condition and result of operations.

We recruit a variety of types of distributors, including but not limited to:

     .    persons who currently distribute other types of products to retail
          outlets; and
     .    individuals that we believe have the necessary sales and marketing
          skills to promote our products.

We typically identify and recruit these distributors through existing
distributors, retail outlets, telemarketing and other promotional activities and
through direct inquiries from potential distributors.

We may not successfully integrate our recent acquisitions and we may not
successfully complete or integrate future acquisitions.

A key element of our business strategy is to acquire or make future investments
in complementary assets and businesses. A major portion of our future growth
will be as a result of such acquisitions. Acquisitions, including our recent
acquisitions of EquiTel and TGA (whose assets and business were transferred to
other companies in the Telemonde group) and strategic investments involve
financial and operational risks. In order to effect an acquisition we may incur
indebtedness and will need to service that indebtedness or we may need to issue
additional equity, which will lead to dilution. An acquisition may not provide
the benefits originally anticipated while we continue to incur operating
expenses. There may be difficulty in integrating the service offerings,
distribution channels and networks gained through acquisitions and strategic
investments with our own. Although we attempt to minimize the risk of unexpected
liabilities and contingencies associated with acquired businesses through
planning, investigation and negotiation, such unexpected liabilities
nevertheless may

                                       40
<PAGE>

accompany such strategic investments and acquisitions. We cannot guarantee that
we successfully will:

     .    identify attractive acquisition and strategic investment candidates;
     .    complete and finance additional acquisitions on favorable terms; or
     .    integrate the acquired businesses or assets into our own.

We cannot guarantee that the integration of our business with any acquired
business, including the business of EquiTel and the leased carrier hotel
facilities, will be accomplished smoothly or successfully, if at all. If we
encounter significant difficulties in the integration of the existing services
or technologies or the development of new technologies, resources could be
diverted from our development, and delays in our development could occur.
Successful integration of operations and technologies requires the dedication of
management and other personnel which may distract their attention from our day-
to-day business, the development or acquisition of new technologies, and the
pursuit of other business acquisition opportunities.

In a strategic investment where we acquire less than a majority interest in a
company, we may lack control over the operations and strategy of the business,
and we cannot guarantee that such lack of control will not interfere with the
integration of services and distribution channels of the business with our own.
For example, EquiTel currently holds 49% of the issued share capital of Desert
Telecommunications Services LLC. On November 8, 1999, EquiTel entered into a
letter of intent to acquire from 16% to 51% of Desert Telecommunications
Services from our local partner. On January 1, 2000, EquiTel's profit share from
the joint venture was increased to 75%. EquiTel is responsible for the day-to-
day operations of these intelligent network services, but so long as our local
partner maintains a controlling interest in Desert Telecommunications Services,
he may be able to curtail our management. We cannot assure you that EquiTel will
successfully consummate the acquisition of a controlling interest in Desert
Telecommunications.

Where You Can Find More Information

We filed a Form 10, General Form for Registration of Securities pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, on November 15,
1999. We filed an amendment to the Form 10 (Form 10/A-1) on March 3, 2000, which
updates our information to January 14, 2000, the date the Form 10 became
effective with the SEC.

We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, and will file periodic reports, and other information
relating to our business, financial statements and other matters with the
Securities and Exchange Commission. Our SEC filings are available to the public
over the Internet at the SEC's web site at http://www.sec.gov. You may also read
and copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W. Washington, D.C. 20549 or at the SEC's regional offices at 7 World
Trade Center, New York, New York 10048 and Citicorp Center, 5-West Madison
Street, Chicago, Illinois 60661. Please call the

                                       41
<PAGE>

SEC at 1-800-SEC-0330 for further information on the public reference rooms and
their copy charges.

We maintain a web site on the Internet, which gives selected information about
our business. The Internet address of our web site is: http://www.telemonde.com
                                                       ------------------------

Glossary of Certain Telecommunications Terms

     Asynchronous Transfer Mode (ATM) - A switching and transmission technology
that is one of a general class of packet technologies that relay traffic by way
of an address contained within the first five bits of a standard fifty-three
bit-long packet or cell. ATM-based packet transport was specifically developed
to allow switching and transmission of mixed voice, data and video at varying
rates. The ATM format can be used by many different information systems.

     Bandwidth - The range of frequencies that can be passed through a medium,
such as glass fibers, without distortion. The greater the bandwidth, the greater
the information-carrying capacity of such medium. For fiber optic transmission,
electronic transmitting devices determine the bandwidth, not the fibers
themselves. Bandwidth is measured in Hertz (analog) or Bits Per Second
(digital).

     Bit - A binary unit of information that can have either of two values, 0 or
1. Higher amounts of binary digit are:
          .    kilobit = 1,000 bits
          .    megabit = 1 million bits
          .    gigabit = 1 billion bits
          .    terabit - 1 trillion bits

     Bps - Bits per second. This is the basic measuring unit of speed in a
digital transmission system. The number of bits that a transmission facility can
convey between a sending location and a receiving location in one second.

     Capacity - The information-carrying ability of a telecommunications system,
as defined by its design (number of fibers, system length, and opto/electronic
equipment) and its deployed equipment (amount of opto/electronics in the
station) and measured in bits per second. Capacity is sold in discrete units,
usually system interface levels such as DS-3s and STM-1s, that in the aggregate
are the equivalent of total system capacity.

     Carrier - A third party provider of communications services by wire, fiber
or radio.

     Carrier Hotel - A building (or part of a building) that has either been
specifically designed and built or has been adapted, for use by
telecommunications companies to meet their specific requirements.

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<PAGE>

     Dense Wavelength Division Multiplexing (DWDM) - Similar technology to WDM,
except permitting a larger number of constituent spectrum colors to be signal
carrying, thus further expanding fiber optic cable capacity.

     Digital - A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission/switching technologies employ a
sequence of discrete, distinct pulses to represent information, as opposed to
the continuously variable analog signal. The precise signal transitions preclude
any distortion such as graininess or snow in the case of video transmission, or
static or other background distortion in the case of audio transmission.

     DS-3 - Data transmission rate of approximately 45 Mbps.

     Gbps - Gigabit per second, which is a measurement of speed for digital
signal transmission expressed in billions of bits per second.

     Indefeasible Right of Use (IRU) - A measure of currency in the fiber optic
cable business. The owner of an IRU has the right to use the capacity for the
time and bandwidth to which the IRU applies. In telecommunications, an IRU is
the effective long term lease (temporary ownership) of the capacity of an
international cable.

     Internet - Interconnected computer networks, originally known as the
Defense Advanced Research Projects Agency connecting government and academic
sites. It currently links about 50 million people worldwide who use it for
everything from scientific research to simple electronic mail.

     Internet Service Provider - A company that provides individuals and
companies with access to the Internet and to other related services such as
website access and hosting.

     Internet Peering - An agreement between two carriers for the exchange
of Internet traffic between their networks and onwards, covering the physical
interconnect as well as the financial terms of the interconnect where
applicable.

     Intranet - A private network that uses Internet software. An Intranet is a
private Internet reserved for use by people who have been given the authority
and passwords necessary to use that network Internet Protocol. A standard which
describes software that keeps track of Internet addresses, routes outgoing
messages and recognizes incoming messages.

     Local Loop or Tail - The local loop or tail is that portion of the local
telephone network that connects the customer's premises to the local exchange
provider's central office or switching center. This includes all the facilities
starting from the customer premise interface which connects to the inside wiring
and equipment at the customer premise to a terminating point within the
switching wire center.

                                       43
<PAGE>

     Multimedia - The electronic conversation between two or more people or
groups of people in different places using two or more types of digitally
integrated communication for voice, sound, text, data, graphics, video, image or
presence at the same time. Applications include conferencing, presentations,
training, referencing, games, etc.

     Multiplexing - An electronic or optical process that combines two or more
lower bandwidth transmissions into one higher bandwidth signal by splitting the
total available bandwidth into narrower bands (frequency division) or by
allotting a common wavelength to several transmitting sources one at a time in
sequence (time division).

     Optical Fibers - Thin filaments of glass through which light beams are
transmitted. Enormous capacity, low-cost, low-power consumption, small space,
light-weight, insensitivity to electromagnetic interference characterize this
transport media.

     Physical Point of Presence (POP) - A place where a telecommunications
carrier has a physical presence for access to its network.

     Public Telephone Operator (PTO) - Originally a government owned national
provider of telecommunications services. In countries where deregulation has
occurred, the public telephone operator may be privatized whereas in countries
where deregulation has not occurred, the public telephone operator remains
government owned.

     STM (Synchronous Transfer Mode) - New term for traditional Time Division
Multiple switching to distinguish it from ATM.

     STM-1 - The largest standard circuit unit of capacity, which consists of
155 Mbps. Thus, each Gbps contains enough capacity for 6.4 STM-1 circuits. While
capacity is sold to the largest telecommunications companies in minimum
investment units equal to one STM-1 unit, most telecommunications companies buy
smaller units at a price higher than the equivalent STM-1 price.

     Switch - A sophisticated computer that accepts instructions from a caller
in the form of a telephone number. Like an address on an envelope, the numbers
tell the switch where to route the call. The switch opens or closes circuits or
selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnection circuits to form a transmission path
between users. Switches allow local telecommunications service providers to
connect calls directly to their destination, while providing advanced features
and recording connection information for future billing.

     Synchronous Digital Hierarchy (SDH SONET) - SDH SONET is a set of
standards for optical communications transmission systems that define optical
rates and formats, signal characteristics, performance, management and
maintenance information to be embedded within the signals and the multiplexing
techniques to be employed in optical communications transmission

                                       44
<PAGE>

systems. SDH SONET facilitates transmission between dissimilar vendors'
equipment and benefits customers by minimizing the equipment necessary for
telecommunications applications. SDH SONET also improves the reliability of the
Local Loop connection, historically one of the weakest links in the transmission
of information.

     Wavelength Division Multiplexing (WDM) - A multiplexing technique which
employs more than one light source and director operating at different
wavelengths and simultaneously transmits optical signals through the same fiber
while message integrity of each signal is preserved.

ITEM 2.   PROPERTIES.

As of the date of this filing, Telemonde owned none of its office or operations
facilities. All of Telemonde's operations were located at leased properties, as
set forth below.

<TABLE>
<CAPTION>
                            Location                                     Type
                            --------                                     ----
          <S>                                                            <C>
          Telemonde group (including EquiTel)
            London, England
              40 Portman Square                                             Office
              Aylesbury Street                                            Telehouse
              Harbour Exchange, London Docklands                          Telehouse
              Coriander Avenue, London Docklands                          Telehouse
            New York, New York
              230 Park Avenue                                               Office
              8th Avenue                                                  Telehouse
              Hudson Street                                               Telehouse
          Telemonde Networks Limited
            London, England                                               Switching
          telemonde.net
            Geneva, Switzerland                                            Office
          Desert Telecommunications Services, LLC
            Muscat, Oman                                                   Office
</TABLE>

Telemonde group's executive and administrative offices are located in London.
EquiTel leased this space from its landlord on March 1, 1999 for a period of
seven (7) years. The costs of the lease are allocated between Telemonde and
EquiTel. Telemonde has recently relocated its New York office to 230 Park
Avenue. Effective March 2, 2000, Telemonde will lease this property for an
initial period of approximately four (4) months ending July 31, 2000.
Previously, the New York office of Telemonde was located at 200 Madison Avenue.
After negotiation with the property owner, Telemonde terminated this 200 Madison
Avenue lease in January 2000 and has satisfied its obligations in full to the
property owner.

In London and New York, Telemonde leases "telehouse" facilities to house the
routing and switching equipment that operates Telemonde's network and
interconnects it to the networks of other carriers.

                                       45
<PAGE>

Telemonde's present telehouse facilities also contain space that can be used to
house equipment to operate its local networks in London and New York when those
networks are developed. Telemonde generally leases telehouse facilities for
periods of one year and renews the leases annually.

On November 8, 1999, Telemonde Networks Limited entered into a lease with Global
Switch (London) Limited for space in the London Switch Building, East India
Dock. This facility will be used for switching traffic on Telemonde's network,
as well as providing network switching services to other carriers. Telemonde's
lease with Global Switch is contingent upon the termination of a third party's
prior lease for the same space. We believe this condition will be fulfilled in
the near future, permitting Telemonde to use the switch facility.

We consider the offices and facilities described above to be appropriate for the
current position and size of the business. They enable us to market our
services, serve our customers, house our employees and fulfill our contracts in
a satisfactory manner. As our business grows, we will need to lease additional
space for our equipment, network and employees.

ITEM 3.  LEGAL PROCEEDINGS.

From time to time, the Company is party to litigation or other legal proceedings
that each company considers to be a part of the ordinary course of its business.
The Company is not involved in any legal proceedings nor is it party to any
pending or threatened claims that could reasonably be expected to have a
material adverse effect on its financial condition or results of operations.

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

On November 8, 1999, the stockholders of Telemonde, Inc., a Nevada corporation
("Telemonde (Nevada)"), held a special meeting to approve the merger of
Telemonde (Nevada) with and into Telemonde, Inc., a Delaware corporation and the
existing Telemonde, Inc. corporation ("Telemonde (Delaware)"), which was then a
wholly-owned subsidiary of Telemonde (Nevada). The purpose of the merger was to
change Telemonde's domicile from Nevada to Delaware. Under the terms of the
merger, each share of common stock of Telemonde (Nevada) was converted into and
exchanged for the right to receive one share of common stock of Telemonde
(Delaware). At the special meeting, 55,930,333 shares of Telemonde (Nevada)
common stock were issued and outstanding and entitled to vote and 31,147,000
shares were represented at the special meeting by proxy. The merger was approved
by 31,147,000 shares of Telemonde (Nevada) common stock, which equaled 56% of
the voting power. No stockholder of Telemonde (Nevada) exercised his right to
dissent from the merger, which right was available under Nevada law. Stockholder
approval by Telemonde (Nevada), as the sole stockholder of Telemonde (Delaware),
was not required under Delaware law because Telemonde (Delaware) was the
surviving corporation.

No other matter was submitted to a vote of stockholders of Telemonde during the
fourth quarter of 1999.

                                       46
<PAGE>

                                    PART II

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

Holders

The approximate number of record holders of common stock of Telemonde, Inc. at
December 31, 1999 was 45.

Dividend Policy

We have never declared or paid any dividends on our common stock and we do not
anticipate paying cash dividends on the common stock in the foreseeable future.
We do not expect to generate any net income in the foreseeable future but
anticipate that future earnings generated from operations, if any, will be
retained to finance the expansion and continued development of our business.
Moreover, the loan facility between Telemonde and Communications Collateral
Limited restricts our ability to pay dividends on our common stock. Any future
dividends will be at the discretion of the board of directors and will depend
upon, among other things, our operations, capital requirements and surplus,
general financial condition, contractual restrictions and such other factors as
the board of directors may deem relevant.

Price Range of Common Stock

During 1999 our common stock was traded on the NASD Over-the-Counter Bulletin
Board under the symbol "TLMD." In January 1999 the SEC approved a proposed OTC
Bulletin Board eligibility rule, which permits only those companies that are
required to make current filings under the 1934 Act with the SEC to be quoted on
the OTC Bulletin Board. In order to be required to make filings under the 1934
Act, an issuer must register its class of securities under either the 1933 Act
or the 1934 Act. Further, the registration statement used to register the
securities must have cleared all comments with the SEC and must be effective.
Under the eligibility rule, we had until March 9, 2000 to meet these
requirements. To register our securities under the 1934 Act, we filed a
Registration Statement on Form 10 with the SEC on November 15, 1999, and
received comments from the SEC on January 4, 2000. Our Amendment to the Form 10
(Form 10/A-1), along with our formal response letter to the SEC comments, was
filed on March 3, 2000. As of the date of this filing, we are awaiting further
comments or a no comment letter from the SEC. Accordingly, because we had not
cleared all comments with the SEC by March 9, 2000, we have been removed from
the OTC Bulletin Board and are currently trading on the National Quotation
Bureau's Electronic Quotation Service (EQS) Pink Sheets.

The following table provides the reported high and low sales prices for our
common stock on the NASD Over-the-Counter Bulletin Board for the quarterly
periods indicated. The prices reflect inter-

                                       47
<PAGE>

dealer prices and do not include retail markups, markdowns or commissions. The
stock is not traded on any foreign public trading markets.

                                                     High           Low
                                                     ----           ---
Fiscal 1999
         Fourth Quarter                              4.25           2.13
         Third Quarter                               7.63           3.19
         Second Quarter (May 19 (1) to June 30)      8.50           6.00
         First Quarter                               N/A            N/A

(1)      Date our Common Stock began trading as "TLMD" following our acquisition
         of Pac-Rim.

On March 8, 2000 (which was our last OTC Bulletin Board trading day before being
moved to the EQS pink sheets), the last reported sale price of our stock was
$0.75/share.

RECENT SALES OF UNREGISTERED SECURITIES

No securities of Telemonde which were not registered under the Securities Act of
1933, as amended (the "Securities Act"), have been sold by Telemonde, Inc. or
Pac-Rim Consulting, Inc. during 1999 except as follows:

(a)      On May 14, 1999, Pac-Rim issued and sold 35,297,000 shares of its
         common stock to Rhone Financial Indemnity Re. Ltd., the sole
         shareholder of Telemonde Investments Limited, in exchange for all of
         the issued and outstanding shares of Telemonde Investments Limited.
         Exemption from registration for the sale of Pac-Rim stock to Rhone and
         for the sale of Telemonde Investments stock to Pac-Rim is claimed under
         Section 4(2) of the Securities Act.

(b)      On August 2, 1999, Telemonde issued 33,333 shares of its common stock
         to Mr. Barry F. Nathanson as compensation for executives search
         services rendered by Mr. Nathanson to Telemonde. Exemption from
         registration is claimed under Section 4(2) of the Securities Act.

(c)      On August 13, 1999, Telemonde issued and sold 200,000 shares of its
         common stock to the two shareholders of TGA(UK) Limited in exchange for
         all of the issued and outstanding stock of TGA. Exemption from
         registration is claimed under Section 4(2) of the Securities Act.

(d)      On August 25, 1999, Telemonde issued Atlantic Crossing Ltd. a warrant
         for the purchase of 1,100,000 shares of Telemonde's common stock. The
         consideration for the issuance of the warrant was the execution by
         Atlantic Crossing of a Capacity Purchase Agreement with Telemonde
         Bandwidth (Bermuda) Limited, a subsidiary of Telemonde. The exercise
         price of the warrant is $5.25 per share purchased. The warrant may be
         exercised at any time prior to August 25, 2000. Exemption from
         registration is claimed under Section 4(2) of the Securities Act.

                                       48
<PAGE>

(e)      On September 1, 1999, Telemonde issued to Communications Collateral a
         warrant for the purchase of a number of shares of its common stock
         equal to seven percent of the issued and outstanding common stock as of
         the date of exercise. The number of shares issuable upon the exercise
         of the warrant will fluctuate; if the warrant had been exercised in
         full on March 22, 2000, Communications Collateral would have received
         approximately 5,642,935 shares of Telemonde's common stock. The stated
         exercise price of the warrant, as amended by the Forbearance Agreement
         between Communications Collateral and Telemonde, is $2.70 per share.
         The warrant is exercisable at any time from September 1, 1999 until the
         third anniversary of the closing date of the first transaction that
         raises additional capital for Telemonde of at least $10 million through
         the sale of equity securities. Exemption from registration is claimed
         under Section 4(2) of the Securities Act.

(f)      On October 13, 1999, Telemonde issued 60,000 shares of its common stock
         to IC Capital, LLC, as consideration for IC Capital's agreement to
         provide investor relations services to Telemonde. Exemption from
         registration is claimed under Section 4(2) of the Securities Act.

(g)      On November 8, 1999, Telemonde issued and sold 4,947,917 shares of its
         common stock to the shareholders of EquiTel Communications Limited in
         exchange for the acquisition of all of the issued and outstanding stock
         of EquiTel. These shares were issued as initial consideration for the
         acquisition of EquiTel. As additional consideration for the acquisition
         Telemonde is obligated to issue to the former shareholders of EquiTel
         an additional number of shares valued at $50,000,000, based upon the
         average price of the Telemonde common stock during certain periods, and
         subject to certain conditions relating to the financial performance of
         EquiTel during 2000 and 2001. Assuming that the price of the common
         stock is $1.125, the price of a share of Telemonde common stock on
         March 27, 2000, and assuming that EquiTel satisfies the applicable
         performance criteria, Telemonde will issue an additional 44,444,444
         shares to the former EquiTel shareholders. Exemption from registration
         is claimed under Section 4(2) of the Securities Act.

(h)      On November 10, 1999, Telemonde agreed to issue 6,000,000 shares of its
         common stock to the following persons in exchange for the forgiveness
         of an aggregate of $16.25 million previously loaned by such persons to
         subsidiaries of Telemonde and to EquiTel:

<TABLE>
<CAPTION>
         Name                                                            Shares of Common Stock
         ----                                                            ----------------------
         <S>                                                             <C>
         Eaglescliff Investments Limited, a British Virgin Islands company      1,427,820

         Chirone Investments Limited, a Bahamas company                         1,716,360
</TABLE>

                                       49
<PAGE>

<TABLE>
         <S>                                                                    <C>
         Hamptonne Limited, a Bahamas company                                   1,236,180

         True Blue Enterprises, Inc., a Nevis company                           1,619,640
</TABLE>
         Exemption from registration is claimed under Regulation S of the
         Securities Act.

(i)      On November 10, 1999, Telemonde issued 166,667 shares of its common
         stock to African Ventures Limited, a British Virgin Islands company,
         and 166,667 shares of its common stock to National Empowerment Trust
         Investment Fund, a South African public company, pursuant to a Share
         Purchase Agreement among Telemonde, EquiTel, African Ventures, National
         Empowerment Trust Investment Fund, and NET Industrial Holdings Limited,
         a South African company. The consideration for this issuance was
         EquiTel's purchase of 20% of the issued share capital of NET Industrial
         Holdings Telecommunications Limited, a South African company ("NIHT"),
         and EquiTel's entry into a joint venture with NIHT. Exemption from
         registration is claimed under Regulation S of the Securities Act.

(j)      On November 8, 1999, Telemonde issued 400,000 shares of common stock
         to Mr. Ethelbert Cooper in connection with his employment as Vice
         President of International Operations of EquiTel. Exemption from
         registration is claimed under Section 4(2) of the Securities Act.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data as of and for the years ended
December 31, 1999 and 1998, and for the year ended December 31, 1999 and 1998,
have been derived from, and are qualified by reference to, the Consolidated
Financial Statements of the Company audited by Moore Stephens, Chartered
Accountants, included in this Annual Report and should be read in conjunction
with those Consolidated Financial Statements and Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>
                                                                    Fiscal Year                 Period From
                                                                       Ended                    March 10 to
                                                                December 31, 1999            December 31, 1998
                                                                -----------------            -----------------
Consolidated Statements of Operations Data:                          (in thousands, except per share data)
                                                                     -------------------------------------
<S>                                                                    <C>                         <C>
Operating Revenues                                                    $ 8,165                      $29,331
Operating Expenses:
         Line Costs                                                     6,391                       32,510
         Reserve for inventory                                         40,690                            -
         Cost of Contract Cancellation                                      -                        6,094
         Reserve for Doubtful Accounts                                    923                            -
         Selling, general & administrative expenses                     9,932                        1,055
         Loan arrangement fees                                          1,615                        1,321
         Financing Costs                                                8,976                            -
                                                                       ------                       ------
Total Operating Expenses                                               68,527                       40,980
</TABLE>

                                       50
<PAGE>

<TABLE>
<S>                                                            <C>                         <C>
Operating Loss                                                       (60,362)                     (11,649)

Other Income (Expense)
         Interest Income                                                 582                          247
         Interest Expense                                             (1,337)                        (330)
                                                                      ------                         ----
Total Other Income (Expense)                                            (755)                         (83)

Net Loss                                                            $(61,117)                    $(11,732)

Net Loss Per Share Basic and Diluted                                $  (1.22)                    $  (0.33)

                                                               at December 31, 1999        at December 31, 1998
                                                               --------------------        --------------------
Consolidated Balance Sheet Data:
Cash and Cash Equivalents                                           $     62                     $  2,655
Total Assets                                                          78,474                       89,688
Total Liabilities                                                    103,046                      101,390
Total Stockholders' Equity                                           (23,622)                     (11,702)
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

You should read the following discussion and analysis together with Telemonde's
financial statements, including the notes, appearing elsewhere in this Annual
Report.

Overview

We are an international communications company that is creating an international
network which will connect countries in the developed world with regional
centers in the emerging markets.

Telemonde Investments Limited, a British Virgin Islands company and the holding
company for the Telemonde business, was formed in March 1998. Telemonde, Inc.
(formerly Pac-Rim Consulting, Inc.) acquired Telemonde Investments Limited on
May 14, 1999. In exchange for all of the issued and outstanding shares of
Telemonde Investments Limited, Telemonde, Inc. issued 35,297,000 restricted
shares of Telemonde, Inc.'s common stock. Pac-Rim Consulting, Inc. was a dormant
shell company with no operating history but was listed on the NASD Over-the-
Counter Bulletin Board.

                                       51
<PAGE>

The issuance of common stock by Pac-Rim was accounted for as a reverse purchase
acquisition of Pac-Rim by Telemonde Investments Limited. Although Pac-Rim was
the surviving legal entity in the Reverse, Telemonde Investments Limited is
considered to be the acquirer in the transaction because:

     .    the sole shareholder of Telemonde Investments Limited prior to the
          acquisition became the majority shareholder of Pac-Rim following the
          acquisition;
     .    Telemonde management became Pac-Rim management following the
          acquisition; and
     .    Pac-Rim was simply a shell company rather than an operating business.

Following the acquisition by Telemonde Investments Limited, Pac-Rim Consulting,
Inc.'s name was changed to Telemonde, Inc. On November 9, 1999, Telemonde, Inc.
became a Delaware corporation by merging into a newly formed Delaware
subsidiary.

We have a limited operating history. Our financial information relates
principally to a period in which we were obtaining trans-Atlantic capacity and
were establishing our business and market presence. We have incurred operating
losses and negative cash flow since our inception. Despite recognizing
$37,496,000 in revenues, Telemonde incurred a deficit on total stockholders'
equity of $23,622,000 for the period from March 10, 1998 (the date of inception)
through December 31, 1999. We expect to continue to incur operating losses and
negative cash flow in 2000 as we continue to establish our networks and expand
our services. The continuation and magnitude of our operating losses and
negative cash flows in the future will be affected by a variety of factors,
including:

     .    The ability to put in place working capital facilities and to
          increase our capital base.
     .    The rate at which we add new customers and the prices those customers
          pay for our bandwidth and internet services.
     .    The mix of our business, including, among other factors, the
          proportion of IRUs compared to leases and short term rentals we sell
          to our customers.
     .    The ability and cost to obtain trans-atlantic and other bandwidth
          capacity; in particular the cost of bandwidth under the major supplier
          agreements currently under re-negotiation.
     .    Customer payment terms customers require a deferred payment plan for
          their purchase of our IRUs.
     .    The speed and extent to which we add networking and other related
          services, including but not limited to our telehousing facilities, to
          our portfolio of products and services.
     .    The ability to predict demand for our networking and other related
          services, including but not limited to our telehousing facilities.
     .    The ability of our local relationships in emerging markets to
          support our customers and meet our obligations.

                                       52
<PAGE>

     .    The completion of our planned networks and infrastructure and the
          expansion of our networks generally, with completion being achieved by
          currently expected completion dates.
     .    General economic, financial, competitive, legislative, regulatory,
          licensing, and other factors that are beyond our control.

We have financed, and expect to continue to finance, our net losses, debt
service, capital expenditures and other cash needs through flexible supplier
payments, the issuance of debt and the proceeds from sales of shares of common
stock.

As a development stage company, we have not yet completed our transition to an
operating company. It is anticipated that our network and operations center will
be established by the end of the first half of 2000. Although our senior
management team has substantial industry knowledge and experience, this team has
been built up during the course of 1999 and has only recently been completed.
EquiTel was formed in late 1998, signed its initial customer contracts in 1999
and still needs to be fully integrated into Telemonde.

The transition from a development stage company to an operating company places
significant demands on our management and operations. We are in the process of
expanding the management and operational capabilities necessary for this
transition. Our ability to manage this transition successfully will depend on,
among other things:

     .    expanding, training and managing our employee base, including
          attracting, retaining and motivating highly skilled personnel;
     .    creating customer interface and operations, administrative and
          maintenance systems;
     .    procuring terrestrial capacity to provide connectivity to inland
          cities.

There can be no assurance that we will succeed in developing all or any of these
capabilities, and any failure to do so could have a material adverse effect on
our results of operations.

Industry Trends

The Company believes that bandwidth demand is expected to more than double in
the next two years. This future growth of bandwidth demand will be met by the
building of new cable infrastructure. This will be particularly visible in
Western Europe and in the USA, where a significant number of cable systems will
be brought into service over the next 18-24 months (including TAT-14,
Flag-Atlantic, Level 3's Yellow System, Hibernia, Southern Cross). As Asia
progresses with liberalization, we would expect to see the same broad pattern
develop during the next five years.

We believe that following the recent sharp decline in market price, existing
supply and demand are now well matched. Current prices are cost based to ensure
that existing inventories are run down prior to new cable systems becoming
operational. The future market pricing of bandwidth will be

                                       53
<PAGE>

affected by any future imbalances between supply of capacity and demand per
bandwidth and therefore by the timing of new generation cable systems.

These developments have impacted buyer behavior by shifting some purchase
decisions away from outright capacity ownership (IRUs) to short-term leases
(typically less than 1 year in duration), in anticipation of lower prices in the
near future. Buyers are balancing the cost of purchasing short term bandwidth to
meet user driven demand for bandwidth and service quality in a competitive
market against a forward view of prices for IRUs on the new cable systems and
delivery date expectations. We believe that the demand for bandwidth will be
driven primarily from Internet Protocol (IP) based services and the growing
availability of broad band capacity on the wireline and wireless access
networks. This, coupled to the radically reduced cost base for international
bandwidth, will increase the demand for new high-speed data and Internet
services over the next 18 months due to the abundance of high-quality,
cost-effective bandwidth, particularly on trans-atlantic and intra-European
routes. Services such as high capacity streaming video and content via the
Internet, previously thought to be uneconomical, will develop rapidly as prices
for the underlying bandwidth steps down to the next, technology driven, level.

As the Internet user market continues to be redefined into smaller and more
focused user groups, a key dynamic of this market will be the large number of
smaller service providers using the Internet as a distribution channel for their
content. This presents a major opportunity for wholesale operators to provide a
range of bandwidth, telehousing, commodity content and support services to these
service providers, enabling them to concentrate on their core capabilities. Our
subsidiary, telemonde.net, is ideally placed to exploit these increases in
demand for bundled support services.

Revenues

Operating revenues for the fiscal year ended December 31, 1999 totaled $8.2
million compared with $29.3 million for the period beginning March 10, 1998 and
ending December 31, 1998. The principal reason for the decline in revenues for
the fiscal year ended December 31, 1999 has been the rapid decline of prices in
the trans-atlantic bandwidth capacity industry in 1999. Customers were reluctant
to purchase capacity while prices were falling, and we were unable to sell
capacity profitably until we had renegotiated terms with our suppliers.

Our medium-term contracts for the supply of trans-atlantic bandwidth were
contracted for in 1998 and early 1999 at fixed prices and before the
unexpectedly severe fall in market prices. The details of our Capacity Purchase
Agreements with suppliers are described in detail in the section on "Liquidity
and Capital Resources" below. In order to address this bandwidth price
compression, we have reached agreements in principle but have yet to sign
definitive agreements with our principal suppliers to replace old capacity with
new capacity on higher-value networks that encompass the Atlantic, Pacific,
Europe and South American regions. The Company believes that the carrying value
of the new capacity is equivalent to the cost of the old capacity and that the
final agreements will be executed within a reasonable time on the terms already
agreed upon in principle.

                                       54
<PAGE>

Although we believe that trans-atlantic market prices have now stabilized, we
can give no assurance that prices may not fall further. We have made in the
past, and may make in the future, commitments to suppliers to obtain bandwidth
capacity. Market price reductions reduce and can eliminate the expected margin
on bandwidth sales over the purchase price from the supplier. In addition, we
would need to seek further price reductions from our suppliers for future
bandwidth capacity purchases in order to restore margins and the outcome of such
negotiations are inevitably uncertain. Therefore our business, financial
condition, and operating results could be materially and adversely affected by
market price declines.

A number of companies are constructing or have plans to construct new submarine
and terrestrial fiber optic systems. The additional capacity may create
over-capacity in the market and cause future prices to drop which could have an
adverse impact on our revenues and operational results. In the European
terrestrial market, lead times are short and there is significant competition
from new or upgraded systems. Therefore, it is possible that there will be
over-capacity in the European market and that prices may fall.

To further offset the possible impact of future bandwidth capacity market
fluctuations, we have diversified our revenue streams through the acquisition of
EquiTel and the formation of telemonde.net S.A. We believe that these businesses
will contribute to our revenue stream in 2000.

Although we expect EquiTel's switched services to be a revenue stream in the
future, our operations relating to the pre-paid card business face a number of
risks, which include:

     .    the increased entry into the market by pre-paid card vendors,
          including vendors that are larger than us;
     .    our reliance on a small number of independent distributors to place
          pre-paid cards in retail outlets;
     .    our inability to create exclusive pre-paid phone card distribution
          arrangements in certain markets;
     .    the availability of alternative telephony methods
     .    the cost sensitive nature of consumer demand; and
     .    the lack of customer loyalty to any particular pre-paid card company

Many of these risks may cause prices to drop throughout the pre-paid card
industry. Because we depend on informal relationships with independent
distributors to market and sell our products, increased competition and lower
prices could force us to further lower our prices to continue to sell pre-paid
cards to these distributors. We cannot guarantee that we will be able to
continue to provide competitively priced pre-paid cards to our distributors or
that lower prices in the pre-paid card marketplace will not have a negative
effect on the results of our operations.

                                       55
<PAGE>

Results of Operations

For the fiscal year ended December 31, 1999 compared with the period from March
10, 1998 to December 31, 1998. International traffic revenues increased from nil
in the period ended December 31, 1998 to $0.04 million for the fiscal year ended
December 31, 1999, following the acquisition of Equitel in the last quarter of
1999.

Operating revenues decreased $22.2 million or 72% from $29.3 million for the
period ended December 31, 1998 to $8.2 million for the fiscal year ended
December 31, 1999. Bandwidth Capacity and Leasing sales fell $23.4 million or
81% from $28.9 million for the period ended December 31, 1998 to $5.5 million
for the fiscal year ended December 31, 1999. Backhaul, maintenance and recharge
revenues increased $2.3 million or 569% from $0.4 million in the period ended
December 31, 1998 to $2.7 million in the fiscal year ended December 31, 1999.
The increase in backhaul, maintenance and recharge revenues reflects the fact
that the related sales agreements came into effect part way through the period
ended December 31, 1998 and a $0.9 million non-recurring recharge in fiscal year
1999 due to a late bandwidth drawdown by one of our European customers was also
realized. Revenues are overwhelmingly attributable to the subsidiaries of
Telemonde Investments Limited.

Line costs decreased $26.1 million or 80% from $32.5 million in the period ended
December 31, 1998 to $6.4 million in the fiscal year ended December 31, 1999.
Line costs include the cost of capacity sales and other direct costs. The cost
of capacity sales decreased $19.2 million or 84% from $22.9 million in the
period ended December 31, 1998 to $3.7 million in the fiscal year ended December
31, 1999. Other direct costs decreased 72% or $6.9 million from $9.6 million in
the period ended December 31, 1998 to $2.7 million in the fiscal year ended
December 31, 1999. Capacity sales have fallen by 81% and the decrease in line
costs reflects a consistent gross margin on decreased sales.

Reserve for inventory increased from nil in the period ended December 31, 1998
to $40.7 million in the fiscal year ended December 31, 1999. The reserve
reflects the rapid decline of prices in the trans-atlantic bandwidth capacity
industry in 1999.

Provision for doubtful debts increased from nil in the period ended December 31,
1998 to $0.9 million in the fiscal year ended December 31, 1999. The provision
relates to a 1999 capacity sale made by Telemonde International Bandwidth
(Bermuda) Limited.

The cost of contract cancellation decreased from $6.1 million in the period
ended December 31, 1998 to nil in the fiscal year ended December 31, 1999. On
April 16, 1999, Telemonde terminated a Capacity Purchase Agreement with Gemini.
Under the terms of the Capacity Purchase Agreement Telemonde was committed to
drawing down capacity over a three year period. Under the termination
arrangement, the commitment, other than the capacity already drawn down, has
been cancelled. All costs connected with the termination arrangement have been
expensed in the period ended December 31, 1998 as the decision to terminate the
Capacity Purchase Agreement was made in 1998.

Selling, general and administrative expenses increased $8.8 million or 834%
from $1.1 million in the period ended December 31, 1998 to $9.9 million in the
fiscal year ended December 31, 1999. Staff costs increased from nil in the
period ended December 31, 1998 to $2.2 million in the fiscal year ended December
31, 1999. The increase in staff costs reflects the fact that Telemonde

                                       56
<PAGE>

Networks Limited was incorporated on February 16, 1999 to perform the sales and
marketing functions previously undertaken outside the Company by Telemonde
Limited and to build infrastructure and staff. Legal fees increased $1.7 million
or 258% from $0.6 million in the period ended December 31, 1998 to $2.3 million
in the fiscal year ended December 31, 1999. The increase in legal fees reflects
an increase in corporate finance and potential acquisition activity. Other
selling, general and administrative expenses increased $4.9 million or 1,150%
from $0.4 million in the period ended December 31, 1998 to $5.3 million in the
fiscal year ended December 31, 1999, primarily as a result of an increase in
travel and accommodation costs and other costs.

Financing costs increased from nil in the period ended December 31, 1998 to $9.0
million in the fiscal year ended December 31, 1999. The increase is attributable
to the warrants issued to Communications Collateral Limited and Global Crossing
in 1999. Generally accepted accounting principles in the United States require
that the fair value of the warrants be recorded as an expense over the period of
the related financing.

Loan arrangement fees increased $0.3 million or 22% from $1.3 million in the
period ended December 31, 1998 to $1.6 million in the fiscal year ended December
31, 1999. The increase is attributable to a rise in the aggregate value of
bridging finance in 1999 compared with 1998.

Interest income increased $0.4 million or 136% from $0.2 million in the period
ended December 31, 1998 to $0.6 million in the fiscal year ended December 31,
1999. The increase is attributable to an increase in income from sales interest
on capacity sold on deferred payment terms.

Interest expense increased $1.0 million or 305% from $0.3 million in the period
ended December 31, 1998 to $1.3 million in the fiscal year ended December 31,
1999 since average borrowings increased.

The net loss increased $49.4 million or 422% from $11.7 million in the period
ended December 31, 1998 to $61.1 million in the fiscal year ended December 31,
1999.

The increase in the net loss arises principally from the reduced sales, the
inventory reserve as well as the increase in selling, general, administrative
and financing costs.

Liquidity and Capital Resources

Telemonde's liquidity requirements arise from:

   .    purchases and maintenance of bandwidth capacity and network equipment;
   .    development of intelligent network platforms, which includes pre-paid
        calling cards and other value-added telephony services;
   .    interest and principal payments on outstanding indebtedness;
   .    net cash used in operating activities; and
   .    acquisitions of, and strategic investments in, businesses.

                                       57
<PAGE>

Telemonde has satisfied its liquidity requirements to date through operating
cash flows, vendor finance, short-term bridge financing, shareholder loans and
equity subscriptions.

Net cash used in operating activities was $19.4 million in the fiscal year ended
December 31, 1999, compared to net cash provided by operating activities of $2.7
million in the period from March 10, 1998 to December 31, 1998. The increase in
net cash used in operating activities was primarily due to a fall in receipts
under capacity sales agreements, an increase in payments under capacity purchase
agreements and an increase in general and administrative payments.

Net cash used in investing activities was $7.3 million in the fiscal year ended
December 31, 1999 compared to nil in the period from March 10, 1998 to December
31, 1998. Net cash used in investing activities in the fiscal year ended
December 31, 1999 comprises pre-acquisition advances to EquiTel and purchases of
property, plant and equipment.

Net cash provided by financing activities was $24.1 million in the fiscal year
ended December 31, 1999 compared with $0.03 million in the period from March 10,
1998 to December 31, 1998. Proceeds from the Communications Collateral Limited
Capacity Option Agreement increased from nil in the period ended December 31,
1998 to $4.5 million in the fiscal year ended December 31, 1999. In the period
from March 10, 1998 to December 31, 1998, Telemonde repaid loans of $18.3
million which had been drawn down in the period.

Telemonde's ability to meet its liquidity requirements is dependent on its
ability to generate cash from operations and raise short term or permanent
finance. Since inception through December 31, 1999, Telemonde has had negative
cash flow from operating activities of $16.8 million. In addition, Telemonde
incurred net losses of $11.7 million in the period ended December 31, 1998 and
$61.1 million in the fiscal year ended December 31, 1999. On a pro forma basis,
after giving effect to the acquisition of EquiTel, Telemonde would have had a
net loss of $13.6 million in the period ended December 31, 1998 and $72.6
million in the fiscal year ended December 31, 1999.

Property, plant and equipment has increased from nil at December 31, 1998 to
$20.4 million at December 31, 1999. The increase is attributable to the
reclassification of inventory amounting to $19.3 million, purchases of
telecommunications equipment amounting to $1 million and office equipment
amounting to $0.7 million, less allowance for depreciation amounting to $0.5
million. We have established our own fiber optic cable network by utilizing
capacity from our inventory valued at $19.3 million. The network will be
utilized for telecommunications traffic sales and operating lease sales.

In response to market conditions in the last quarter of fiscal 1999, we
reclassified part of our inventory as property, plant and equipment. This is
because we intend to use that capacity, which has a book value of $19.3 million,
for short term operating lease sales and for international telecommunications
traffic sales. The capacity reclassified represents approximately 48 per cent of
total capacity. The effect of this change in strategy from reseller to operator
will be:

 .  Our revenue stream will be recognised in instalments over the life of the
   contract, rather than at inception
 .  Cash payments from customers will be received over the life of the contract,
   rather than at inception
 .  We will account for the capacity as an asset at cost less depreciation
 .  We do not anticipate that there will be any further significant expenditures
   required to bring our network into service

We expect to continue to make capital expenditures over the next few quarters
building our infrastructure and in organizing our bandwidth and switched
services businesses. This includes the purchase of bandwidth capacity for our
own networks, for planned leasing and rental business, and to meet our
customers' requirements. We hope to fund these expenditures from short-term
bridge financing, vendor financing and from planned equity funding, as well as
from proceeds of future sales.

Beyond the initial amount, we will incur additional capital expenditures to
support our projected growth of the bandwidth business. In particular, we aim to
significantly grow our bandwidth leasing

                                       58
<PAGE>

and rental business by purchasing additional bandwidth capacity to be leased to
our customers. We expect to meet the cash requirements of our capital
expenditures from:

     .   cash flow from fiber sales and operations;
     .   income from route management operations;
     .   income from our intelligent network services;
     .   additional equity and/or debt financing; and
     .   supplier financing, if available.

Our failure to accomplish any of the foregoing sources may significantly delay
or prevent capital expenditures. If we are unable to make our capital
expenditures as planned, our business may grow slower than expected with a
material adverse effect on our business, financial condition, results of
operations, and the value of our securities.

We currently do not have the capital base or working capital facilities to meet
our current and projected commitments. If we fail to successfully obtain
necessary capital, or to obtain an insufficient amount of capital, we would harm
our prospects and could jeopardize our existence. We have benefited from the
willingness of suppliers to reschedule commitments and payments and may continue
to require and take advantage of such flexibility in the future. However, this
reliance on supplier flexibility for short term funding inevitably leads to
pressure from suppliers which weakens our commercial position. In addition, it
could result and has resulted in formal events of default, which could endanger
us, especially if this supplier flexibility ceased to be available. It is for
this reason that we plan to seek substantial external debt and equity funding.

The independent auditors have reported that the financial statements for the
fiscal year ended December 31, 1999 have been prepared assuming that the Company
will continue as a going concern. As discussed in note 1 to the financial
statements, the Company has incurred a net loss of $61.1 million. At December
31, 1999, total liabilities exceeded total assets by $23.6 million. These
factors, and the others discussed in Note 1, raise substantial doubt about the
ability of the Company to continue as a going concern if it fails to raise
additional debt and equity financing. The financial statements do not include
any adjustments relating to the recoverability of recorded assets, or the
amounts of liabilities that might be necessary in the event the Company fails to
raise additional financing and cannot continue in existence.

We have incurred a high level of debt. As of December 31, 1999, Telemonde and
EquiTel had a combined $103,047,000 in total liabilities, including:

         .     $78,244,000 to capacity suppliers relating to undrawn bandwidth.
               Undrawn bandwidth comprises trans-atlantic bandwidth capacity,
               which we have not yet drawn-down and taken delivery of, but to
               which we are committed to draw down at scheduled dates under the
               terms of Capacity Purchase Agreements with our suppliers.
         .     $7,284,000 to all other suppliers.

                                       59
<PAGE>

         .     $4,445,000 owed to Communications Collateral Limited under a
               Capacity Option Agreement.

The amount of our debt could have important consequences for our future,
including, among other things:

         .     cash from operations may be insufficient to meet the principal
               and interest on our indebtedness as it becomes due;
         .     payments of principal and interest on borrowings may leave us
               with insufficient cash resources for our operations; and
         .     restrictive debt covenants may impair our ability to obtain
               additional financing.

We are in discussions with investment bankers for the potential provisioning of
short-term debt and equity financing. The amount of financing which is required
to meet our commitments is significant. We cannot assure you that our current
negotiations and discussions will be successful. Failure to successfully
complete our current negotiations and discussions will not only impair our
ability to develop our business but may also result in the termination of our
operations.

Due to our lack of liquidity resulting from a decline on the market for
wholesale fiber optic bandwidth, we have been unable to generate sufficient cash
flow to meet certain of our debt service requirements and have triggered events
of default under our monetary obligations on a number of our material contracts.
We are, however, renegotiating our capacity purchase agreements with our two
major suppliers, MCI WorldCom and Atlantic Crossing.

MCI WorldCom Capacity Purchase Agreements. In December of 1998 and on March 31,
1999, Telemonde, through its now wholly owned subsidiary Telemonde International
Bandwidth Limited, entered into agreements for the purchase of four units
(STM-1's) of bandwidth capacity on the Gemini network. Specifically, Telemonde
acquired the IRUs in three units of capacity under the December 1998 agreement,
and acquired the right for an additional unit of capacity under the March 1999
agreement. Under these agreements, Telemonde is also required to pay annual
maintenance charges. Telemonde has paid the amounts due under the March 1999
agreement. However, as a result of the Company's liquidity problems detailed
above, Telemonde was unable to fulfill its obligations to draw down and pay for
the three units of capacity under the December 1998 agreement. Furthermore,
Telemonde was delinquent on its annual maintenance charges under both
agreements, resulting in an overall default to MCI WorldCom in the amount of
approximately $26 million.

In light of these circumstances, Telemonde has executed a Standstill Letter from
MCI WorldCom on December 31, 1999 in which MCI WorldCom has agreed to refrain
from (a) taking any action to enforce payment of the sums owed to MCI WorldCom
under the capacity purchase agreements; (b) taking any action to enforce or make
a demand under any guarantee, indemnity or security related to the capacity
purchase agreements; and (c) commence any insolvency proceedings against
Telemonde or any of its subsidiaries. The Standstill Letter expires upon the
earlier of (i) the full

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<PAGE>

payment of the sums owed under the capacity purchase agreements; (ii) June 8,
2000; or (iii) Telemonde's failure to comply with a number of terms and
conditions, which includes the prohibition against the sale of assets, dividends
and the borrowing of any additional funds without the signed written consent of
MCI WorldCom's agent other than permitted borrowings.

Telemonde has also executed a letter of intent dated December 31, 1999 termed a
"Capacity Swap Letter" in which MCI WorldCom has agreed to enter into a binding
agreement with Telemonde to permit Telemonde to swap the bandwidth purchased
under the above capacity purchase agreements for new bandwidth on MCI WorldCom's
European Ulysses network. The Capacity Swap Letter is conditional on
satisfaction by Telemonde of its obligations under the Standstill Letter.

Despite the technical defaults with Global Crossing and MCI WorldCom detailed
above, Telemonde has been in extensive negotiations with senior management in
both organizations towards the end of 1999 and continuing into March 2000. It
should also be noted that while these discussions have been held, Telemonde has
made a number of payments to both suppliers for services. It is the opinion of
Telemonde's management that the ongoing negotiations with both suppliers will
lead to a successful conclusion of the outstanding defaults and provide
Telemonde with much more flexible supply contracts.

In response to market conditions in the last quarter of fiscal 1999, we
reclassified part of our inventory as property, plant and equipment. This is
because we intend to use that capacity, which has a book value of $19.3 million,
for short term operating lease sales and for international telecommunications
traffic sales. The capacity reclassified represents approximately 48 per cent of
total capacity. The effect of this change in strategy from reseller to operator
will be:

 .  Our revenue stream will be recognised in instalments over the life of the
   contract, rather than at inception
 .  Cash payments from customers will be received over the life of the contract,
   rather than at inception
 .  We will account for the capacity as an asset at cost less depreciation
 .  We do not anticipate that there will be any further significant expenditures
   required to bring our network into service

Atlantic Crossing Limited Capacity Purchase Agreement. Telemonde, through its
now wholly-owned subsidiary Telemonde Bandwidth (Bermuda) Limited, agreed to
acquire an aggregate of 16 STM-1(s) on Segment S-1 from Atlantic Crossing
Limited, under a Capacity Purchase Agreement dated June 10, 1998. Since the
summer of 1999, we have not drawn down any capacity from Atlantic Crossing and
have not made any payments under this agreement and are in default under the
payment terms in the amount of approximately $52 million, in addition to
interest and outstanding maintenance payments. Management is in discussions with
Global Crossing, the parent company of Atlantic Crossing, to renegotiate the
terms of the contract, including the extension of capacity drawdowns to include
the entire Global Crossing system, rather than just trans-atlantic capacity.
This will allow Telemonde to expand according to its overall business strategy.

Gemini Capacity Purchase Agreement. On April 3, 1998, Telemonde, through its
now wholly owned subsidiary Telemonde International Bandwidth (Bermuda) Limited,
purchased Indefeasible Rights of Use relating to trans-atlantic capacity from
Gemini Submarine Cable System Limited. Specifically, Telemonde agreed to acquire
up to a maximum of STM-16. Due to a subsequent and rapid decline in the market
for wholesale telecommunications bandwidth, the capacity sale agreement was
amended by three letter agreements dated January 27, April 16, and April 22,
1999. These amendments provided that an IRU for only one (1) STM-1 would be
acquired, and a second STM-1 would be leased for a lump sum payment plus monthly
payments for a three-month period ending July 16, 1999. Further negotiations
between the parties provided that the lump sum payment would fall due on October
7, 1999 in the form of two promissory notes. Telemonde has paid Gemini the full
balance owing for the IRU relating to the first STM-1. However, Telemonde has
not fulfilled its obligations under two promissory notes in the amount of $2.7
million. Although this default gives Gemini the right to immediately terminate
the Indefeasible Rights of Use, Gemini has not done

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<PAGE>

so as of the date of this filing. Furthermore, such a termination would not
substantially effect Telemonde's bandwidth sales contracts, as it only has one
customer operating on the Gemini network under this particular capacity purchase
agreement, and this customer is protected under the agreement with Gemini.

Current Obligations to Communications Collateral Limited. On April 15, 1999,
Telemonde, through its now wholly owned subsidiary Telemonde Investments
Limited, entered into a series of agreements with Communications Collateral
Limited, including, among others, agreements for: (1) the sale of an IRU for
bandwidth to Communications Collateral Limited; (2) the grant of an option to
Communications Collateral Limited which, among other things, required Telemonde
to repurchase the bandwidth upon Communications Collateral Limited's request;
and (3) a $1 million loan by Communications Collateral Limited to Telemonde due
and repaid on August 12, 1999. In connection with these principle agreements,
the three subsidiaries of Telemonde Investments Limited guaranteed the
obligations of Telemonde Investments Limited under those agreements, including
its obligation to pay back the loan and to repurchase the bandwidth in the event
that Communications Collateral Limited exercised its option.

On August 14, 1999, Communications Collateral Limited exercised its option to
require Telemonde to repurchase the capacity. Telemonde was unable to complete
this repurchase and was in default in the amount of approximately $4.5 million.
As a result, Communications Collateral Limited has the right to foreclose on
essentially all of the assets of Telemonde Investments Limited, including its
ownership interests in the three subsidiaries of Telemonde Investments Limited,
all of the assets in any of the foregoing subsidiaries, including their rights
under Telemonde's bandwidth sale contracts; and any ownership interest the
foregoing subsidiaries might have in any other Telemonde entities until the
default is cured. The amount of the foreclosure, however, would not have
exceeded the amount of the indebtedness. In summary, at December 31, 1999 we
were in default in respect of $78.3 million liabilities to capacity suppliers
and $4.5 million liabilities to Communications Collateral Limited. The events of
default could endanger the existence of the corporation by restricting our
ability to sell capacity and raise finance.

Liabilities at December 31, 1999. As at December 31, 1999, Telemonde and EquiTel
had a combined $103.0 million of total liabilities. This included $78.2 million
owed to capacity suppliers relating to undrawn bandwidth and $4.5 million owed
to Communications Collateral Limited. As of December 31, 1999, we therefore had
incurred events of default in respect of $82.7 million of the total liabilities.

We also had the following obligations, included in the total liabilities of
$103.0 million at December 31, 1999:

 .    $1 million in loans to EquiTel from Rhone Financial Indemnity Re Limited,
     repayable when EquiTel's resources permit.
 .    $1 million in loans to Telemonde from Atlas which were repaid by Telemonde
     in January 2000.
 .    $830,000 in loans from Dunloe of which $165,000 was repaid in January 2000.

At December 31, 1999 we had no material capital commitments. We intend to
establish our own operations center, as described in the Network Section of Item
1 of this Annual Report. This will

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<PAGE>

involve capital expenditures in respect of network equipment and connectivity.
The intended sources of funds for these types of expenditures are described
below.

Fund Raising Plans. We currently do not have the capital base or working capital
facilities to meet our projected commitments. We are currently seeking
short-term debt finance, primarily to repay the obligations to Communications
Collateral Limited. In addition we plan to raise additional equity in order to
provide us with an increased capital base for the future.

We can give no assurance that our plans to raise additional equity will be
successful. If we fail to obtain the necessary capital, or if we obtain an
insufficient amount of capital, this would harm our prospects and could
jeopardize our existence. We have benefited in the past from the willingness of
suppliers to reschedule commitments and payments and may continue to require and
take advantage of such flexibility in the future. However, this reliance on
supplier flexibility for short term funding inevitably leads to pressure from
suppliers. In addition, it has resulted in the past and could result in the
future in formal events of default, which could endanger us, especially if this
supplier flexibility ceased to be available. It is for this reason that we plan
to seek substantial external funding.

Recent Events and Transactions

EquiTel. Telemonde acquired EquiTel Communications Limited on November 8, 1999.
The maximum aggregate value of the consideration payable by Telemonde to the
shareholders of EquiTel is $69 million. The consideration is to be satisfied as
follows:

         .    the initial consideration of $19 million was satisfied by the
              issuance to the EquiTel shareholders of restricted shares of
              common stock of Telemonde.

         .    on or before June 30, 2001 or within seven days thereafter, a sum
              not exceeding $30 million will be paid to EquiTel shareholders in
              proportion to their respective interests in EquiTel by the issue
              of restricted shares of common stock of Telemonde, which amount
              will be based upon its earnings.

         .    on or before June 30, 2002 or within seven days thereafter, a sum
              not exceeding $50 million, less the amount paid on June 30, 2001,
              will be paid to EquiTel shareholders in proportion to their
              respective interests in EquiTel by the issue of restricted shares
              of common stock of Telemonde, which amount will be based upon its
              earnings.

TGA Limited. On August 13, 1999 Telemonde acquired 100% of the issued and
outstanding stock of TGA(UK) Limited. The former shareholders of TGA received
200,000 shares of common stock of Telemonde, Inc. as consideration for the TGA
stock. TGA's assets and business were transferred to other companies in the
Telemonde group.

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<PAGE>

Desert Telecommunications Services. EquiTel holds 49% of the issued share
capital of Desert Telecommunications Services LLC, an Omani company which is a
joint venture between EquiTel and a local partner to provide intelligent network
services to Oman. On November 8, 1999 EquiTel entered into a letter of intent to
increase its share of the profits of Desert Telecommunications Services from the
current 50% profit. As a result of the discussions with the local partner, it
was agreed that EquiTel's profit share from the joint venture would be increased
to 75%. An agreement to this effect was signed as of January 1, 2000. The
consideration for this transaction will be satisfied by the issuance of
1,750,000 shares of common stock of Telemonde, Inc. and by the exclusive use of
EquiTel personnel of accommodation services and facilities in Oman from January
2000 to December 2002.

Global Switch (London) Limited. On November 8, 1999, Telemonde Networks entered
into a lease and service agreement, subject to certain conditions, for space in
the London Switch Building and agreed to lease space in Paris and Amsterdam upon
completion of those carrier hotels. The London facility will house Telemonde's
London switching equipment.

Global Communications (Holdings) Limited. On November 5, 1999, Telemonde and
Global Communications signed a letter of intent for the purchase by Telemonde of
the entire share capital of Global Communications (Holdings) Limited , a UK
based Internet applications service provider. The letter of intent contained a
number of conditions on both parties before completion of the acquisition might
occur. Although discussions with Global Communications are continuing some of
the conditions remain unfulfilled and as a result this acquisition is unlikely
to proceed.

Removal from OTC Bulletin Board. In January 1999 the SEC approved a proposed OTC
Bulletin Board eligibility rule, which permits only those companies that are
required to make current filings under the 1934 Act with the SEC to be quoted on
the OTC Bulletin Board. In order to be required to make filings under the 1934
Act, an issuer must register its class of securities under either the 1933 Act
or the 1934 Act. Further, the registration statement used to register the
securities must have cleared all comments with the SEC and must be effective.
Under the eligibility rule, we had until March 9, 2000 to meet these
requirements. To register our securities under the 1934 Act, we filed a
Registration Statement on Form 10 with the SEC on November 15, 1999, and
received comments from the SEC on January 4, 2000. Our Amendment to the Form 10
(Form 10/A-1), along with our formal response letter to the SEC comments, was
filed on March 3, 2000. As of the date of this filing, we are awaiting further
comments or a no comment letter from the SEC. Accordingly, because we had not
cleared all comments with the SEC by March 9, 2000, we have been removed from
the OTC Bulletin Board and are currently trading on the National Quotation
Bureau's Electronic Quotation Service (EQS) Pink Sheets.

Paul E. Donofrio. Paul E. Donofrio joined Telemonde as Executive Vice President
and Chief Financial Officer on March 1, 2000. Under the terms of his employment
agreement, he will serve for three years.

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<PAGE>

Communications Collateral Limited. On January 12, 2000, Communications
Collateral Limited executed a Forbearance Agreement with Telemonde. Under the
terms of the Forbearance Agreement, Communications Collateral Limited agreed not
to exercise its rights of default under its agreements with Telemonde until
February 15, 2000, in consideration of certain additional credit enhancements,
including the issuance of additional shares and the payment of $500,000. As of
February 15, 2000, Telemonde had not fulfilled its obligations under the
Forbearance Agreement, and as a result, Communications Collateral Limited has
the right to foreclose on Telemonde's assets in order to recover amounts due
under the original agreements. As of the date of this filing, Communications
Collateral Limited has not exercised its rights of default.

MCI WorldCom. Telemonde has not yet fulfilled certain of its obligations to MCI
WorldCom under the Standstill Letter of December 31, 1999, which obligations had
a deadline of January 31, 2000 under the terms of the Letter. Accordingly, MCI
WorldCom is no longer bound by the Standstill Letter to refrain from taking
action against Telemonde for Telemonde's breach of its capacity purchase
agreement with MCI WorldCom. As of the date of this filing, MCI WorldCom has
taken no action against Telemonde under its agreements.

ITS (Spain). Telemonde, through its subsidiary EquiTel, entered into an
agreement to acquire ITS Europe, which is a Spanish registered company that
sells and distributes telecommunications products and services, including
pre-paid calling cards. This agreement was conditional on the market price of
the common stock of Telemonde being and remaining above $3 per share, since this
would impact on the value received by the sellers. As a result of the recent
decline in the Telemonde share price, the sellers exercised their right not to
proceed with the agreement.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Telemonde's primary market risk exposures relate to changes in foreign currency
rates. Telemonde is exposed to the risk of fluctuations in foreign currency
exchange rates due to the international nature and scope of its operations. In
the future, Telemonde expects to continue to derive a significant portion of its
net revenue and incur a significant portion of its operating costs outside the
United States, and changes in foreign currency exchange rates may have a
significant effect on Telemonde's results of operations. Telemonde historically
has not engaged in hedging transactions to mitigate foreign exchange risk.

Telemonde's main exchange risk currently arises from fluctuations between the US
dollar and pounds sterling. Its revenue from bandwidth sales is in US dollars.
Although capacity purchases are also made in dollars, Telemonde's sales, general
and administrative costs are mostly incurred in pounds sterling because most of
its employees are based in its executive and administrative offices in London
England.

EquiTel's revenues will be mainly received in the local currency of the country
of operations (for example, in Omani rigals) in the case of the current contract
in Oman). As EquiTel's contracts are

                                       65
<PAGE>

mainly contracted through local joint ventures and partnerships, much of the
cots of the contract are also incurred in the same local currency. However,
there will be an exchange risk on the profit or loss of the local operations or
joint venture arising from the fluctuation of the local currency, against the
pounds sterling (in which currency EquiTel's central sales, general and
administrative costs in London are mainly incurred).

Adoption of New Accounting Standards

The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and how it is designated. For
example, gains or losses related to changes in the fair value of a derivative,
not designated as a hedging instrument, are recognized in earnings in the period
of the change, while certain types of hedges may be initially reported as a
component of other comprehensive income until the consummation of the underlying
transaction.

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter. On that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company believes that the adoption of this standard will not have a material
effect on the Company's consolidated results of operations or financial
position. The FASB has delayed the effective date of SFAS No. 133 by one year to
years beginning after June 15, 2000 by the issuance of SFAS No. 137.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs, and requires that such costs to be expensed as
incurred. SOP 98-5 applies to all non-governmental entities and is generally
effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial statements
previously have not been issued. The adoption of SOP 98-5 is not expected to
have a material impact on results of operations, financial position, or cash
flows of the Company as the Company's current policy is substantially in
accordance with SOP 985.

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<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Report of Independent Accountants, Consolidated Financial Statements and
supplemental financial data required by this Item 8 are set forth on pages F-1
through F-19 of this Report and are incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information relating to our directors and executive officers will be contained
in a definitive Proxy Statement involving the election of directors which we
will file with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than 120 days after December
31, 1999, and such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

Information relating to executive compensation will be contained in the Proxy
Statement referred to above in Item 10, "Directors and Executive Officers of the
Registrant," and such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information relating to security ownership of certain beneficial owners and
management will be contained in the Proxy Statement referred to in Item 10,
"Directors and Executive Officers of the Registrant," and such information is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information relating to certain relationships and related transactions will be
contained in the Proxy Statement referred to in Item 10, "Directors and
Executive Officers of the Registrant," and such information is incorporated
herein by reference.

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<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K.

(a)  (1)  Financial Statements

     Consolidated Statement of Income for the year ended December 31, 1999
     and for the period from March 10, 1998 to December 31, 1998            F-2

     Consolidated Balance Sheet at December 31, 1999 and 1998               F-3

     Consolidated Statement of Cash Flows for the year ended December 31,
     1999 and for the period from March 10, 1998 to
     December 31, 1998                                                      F-4

     Statement of Stockholders' Equity for the year ended December 31, 1999
     and for the period from March 10, 1998 to December
     31, 1998                                                               F-5

     Notes to Consolidated Financial Statements                             F-6

     (2)  Financial Statement Schedules

     The following financial statement schedules included herein should be
     read in conjunction with the financial statements included in pages F-1
     to F-19 of this Annual Report on 10-K.

(b)  Reports on Form 8-K

     The Company has not filed any reports on Form 8-K.

(c)  Exhibits

Exhibit No.                Description
-----------                -----------
3.1(a)*                    Certificate of Incorporation of Telemonde, Inc.,
                           filed June 29, 1999.

3.1(b)*                    Certificate of Merger between Telemonde, Inc., a
                           Nevada corporation, and Telemonde, a Delaware
                           corporation.

3.2*                       By-Laws of Telemonde, Inc.

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<PAGE>

4.1*                       Form of Common Stock Certificate.

4.2*                       Registration Rights Agreement between Telemonde, Inc.
                           and Communications Collateral Limited, dated
                           September 1, 1999.

4.3*                       Registration Rights Agreement between Telemonde, Inc.
                           and Atlantic Crossing, Ltd., dated August 25, 1999.

10.1*                      Warrant from Telemonde, Inc. to Communications
                           Collateral Limited, dated September 1, 1999.

10.2*                      Warrant from Telemonde, Inc. to Atlantic Crossing,
                           Ltd., dated August 25, 1999.

10.3*                      Consulting Agreement between Telemonde, Inc. and
                           Gottfried von Bismarck, dated November 2, 1999 and
                           effective as of July 1, 1999.

10.4*                      Form of Employment Agreement between Executive
                           Officers and Telemonde.

10.4(a)*                   Schedule of Employees covered by Form of Employment
                           Agreement.

10.5*                      Capacity Sales Agreement between Gemini Submarine
                           Cable System Limited and Telemonde International
                           Bandwidth (Bermuda) Limited, April 3, 1998.

10.5(a)*                   Promissory Note from Telemonde, Inc. to Gemini
                           Submarine Cable System Limited, dated August 27, 1999
                           for $1,300,000.

10.5(b)*                   Promissory Note from Telemonde, Inc. to Gemini
                           Submarine Cable System Limited, dated August 27, 1999
                           for $1,400,000.

10.6*                      Capacity Purchase Agreement between Atlantic Crossing
                           Ltd. and Telemonde Bandwidth (Bermuda) Limited, dated
                           June 10, 1998.

10.7*                      Transmission Capacity Agreement among MCI WorldCom
                           Global Networks U.S., Inc., and MFS Cableco (Bermuda)
                           Limited, and, EquiTel Bandwidth Limited, dated
                           December 1998.

10.8*                      Transmission Capacity Agreement among MCI WorldCom
                           Global Networks U.S., Inc., and MCI Worldcom Global
                           Networks Limited, and Telemonde International
                           Bandwidth Limited, dated March 31, 1999.

10.8(a)**                  MCI WorldCom Global Networks U.S., Inc. Standstill
                           Letter to and accepted by Telemonde, Inc., Telemonde
                           International Bandwidth Limited, Telemonde

                                       69
<PAGE>

                           Networks Limited, Kevin Maxwell and Adam Bishop,
                           dated 31 December 1999.

10.8(b)**                  MCI WorldCom Global Networks U.S., Inc. Capacity Swap
                           Letter to and accepted by Telemonde International
                           Bandwidth Limited, dated 31 December 1999.

10.9*                      Transmission Capacity Agreement between Telemonde
                           International Bandwidth Limited and Communications
                           Collateral Limited and Capacity Option Agreement
                           between Telemonde Investments Limited and
                           Communications Collateral Limited, both dated April
                           15, 1999.

10.10*                     Composite Guarantee and Debenture, among (1)
                           Telemonde Investments Limited, (2) Telemonde
                           International Bandwidth (Bermuda) Limited, Telemonde
                           Bandwidth (Bermuda) Limited, Telemonde International
                           Bandwidth Limited, and (3) Communications Collateral
                           Limited, dated April 12, 1999.

10.11*                     Loan Facility Agreement between Telemonde Investments
                           Limited and Communications Collateral Limited, dated
                           April 15, 1999.

10.12**                    Forbearance Agreement, dated 12 January 2000, entered
                           into by and among Communications Collateral Limited,
                           Telemonde Investments Limited, Telemonde
                           International Bandwidth Limited, Telemonde, Inc. and
                           Kevin Maxwell.

10.13**                    Advisor Agreement between Sand Brothers & Co., Ltd.
                           and Telemonde, Inc., dated October 27, 1999, and
                           Amendment No. 1 to Advisor Agreement, dated November
                           10, 1999.

10.14***                   Executive Services Agreement by and between
                           Telemonde, Inc. and Paul E. Donofrio, dated February
                           22, 2000.

21*                        Subsidiaries of Registrant.

23***                      Consent of Independent Auditors.

27                         Financial Data Schedule.

99.1*                      Heads of Agreement between Telemonde, Inc. and the
                           shareholders of Global Communications Holdings
                           (Limited) and Telemonde, Inc., dated November 5,
                           1999.

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<PAGE>

99.2*                      Agreement relating to a Lease and Services Agreement
                           between Global Switch (London) Limited and Telemonde
                           Networks Limited, dated November 8, 1999.

99.3*                      Term Sheet for the purchase of 16% to 51% of
                           DeserTel, dated November 8, 1999.

*   Previously filed as an exhibit to the Registration Statement on Form 10, as
    filed with the SEC on November 15, 1999.

**  Previously filed as an exhibit to the Registration Statement on Form 10/A-1,
    as filed with the SEC on March 3, 2000.

*** Previously filed as an exhibit to the Annual Report on Form 10-K, as filed
    with the SEC on March 30, 2000.

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<PAGE>

                                  SIGNATURES
                                TELEMONDE, INC.

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

                                    TELEMONDE, INC.



Date: June 7, 2000                    By:   /s/ Adam N. Bishop
                                          --------------------
                                              Adam N. Bishop, President and
                                              Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

            Signatures               Title                         Date
            ----------               -----                         ----

/s/ Kevin Maxwell             Chairman and Director            June 7, 2000
----------------------------
Kevin Maxwell

/s/ Adam Bishop               President, Chief Executive       June 7, 2000
----------------------------  Officer, Treasurer and Director
Adam Bishop

/s/ Paul E. Donofrio          Executive Vice President and     June 7, 2000
----------------------------  Chief Financial Officer
Paul E. Donofrio

                              Director and Secretary           June _, 2000
----------------------------
Count Gottfried von Bismarck

                              Director                         June _, 2000
----------------------------
Miguel D. Tirado

/s/ Mark Hollo                Director                         June 7, 2000
----------------------------
Mark Hollo

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<PAGE>

                                 TELEMONDE INC

                       CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1999 AND 1998
<PAGE>

INDEPENDENT AUDITORS' REPORT



To the Stockholders of
Telemonde Inc


We have audited the accompanying consolidated balance sheets of Telemonde Inc as
of December 31, 1999 and 1998, and the related consolidated statements of
income, and cash flows for the periods then ended. These consolidated financial
statements are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Telemonde Inc as of December 31, 1999 and 1998, and the consolidated results of
operations and cash flows for the periods then ended, in conformity with
accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. As discussed in note 1 to
the financial statements, the Corporation has incurred accumulated losses of
$53.7 million and at December 31, 1999, total liabilities exceeded total assets
by $4.5 million. Management plans in this regard are also disclosed in note 1.
There is substantial doubt about the ability of the Corporation to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability of recorded assets, or the amounts of liabilities, that
might be necessary in the event the Corporation cannot continue in existence.

Moore Stephens
Chartered Accountants
St. Paul's House                                       February 7, 2000
London EC4P 4BN                                  (Notes 14 and 17 as of
                                                        March 21, 2000)

                                      F-1
<PAGE>

                                 TELEMONDE INC
                       Consolidated Statement of Income
               For the year ended December 31, 1999 and for the
      period from March 10, 1998 (date of inception) to December 31, 1998
                      (US Dollars expressed in thousands)

<TABLE>
<CAPTION>
                                                                 Note                        1999                       1998
                                                                 ----                        ----                       ----
<S>                                                              <C>                   <C>                       <C>
Operating revenues
Bandwidth revenues                                                 5                   $    8,165                     29,331
                                                                                          -------                    -------

Operating revenues                                                                          8,165                     29,331
                                                                                          -------                    -------
Operating expenses
Line costs                                                                                  6,543                     32,510
Reserve for inventory                                                                      40,690                          -
Cost of contract cancellation                                                                   -                      6,094
Reserve for doubtful debts                                                                    923                          -
Selling, general & administrative expenses                         6                        9,932                      1,055
Loan arrangement fees                                                                       1,615                      1,321
Financing costs                                                   16                        8,976                          -
                                                                                          -------                    -------

Operating expenses                                                                         68,527                     40,980
                                                                                          -------                    -------

Operating loss                                                                            (60,362)                   (11,649)
                                                                                          -------                    -------
Other income (expense)
Interest income                                                                               582                        247
Interest expense                                                                           (1,337)                      (330)
                                                                                          -------                    -------

Other (expense) income                                                                       (755)                       (83)
                                                                                          -------                    -------
Net loss                                                                               $  (61,117)               $   (11,732)
                                                                                          =======                    =======

Net loss per share - basic and diluted                                                 $    (1.22)               $     (0.33)
                                                                                          =======                    =======
</TABLE>

                  See note 1 and other accompanying notes to
                       consolidated financial statements

                                      F-2
<PAGE>

                                 TELEMONDE INC
                          Consolidated Balance Sheet
                       As at December 31, 1999 and 1998
                      (US Dollars expressed in thousands)

<TABLE>
<CAPTION>
                                                      Note                  1999                    1998
                                                      ----                  ----                    ----
<S>                                                   <C>             <C>                       <C>
Assets

Cash and cash equivalents                                             $       62                   2,655
Trade accounts receivable, net of allowance
 for doubtful debts of $923                                                4,852                   9,518
Prepayments and other debtors                                              1,605                       -
Inventory                                               8                 21,465                  77,515
Property, plant and equipment                           9                 19,439                       -
Investments                                            10                      -                       -
Intangible assets                                      11                 31,051                       -
                                                                         -------                --------
Total assets                                                          $   78,474                  89,688
                                                                         -------                --------
Liabilities and stockholders' equity

Trade accounts payable                                 12                 84,578                  76,888
Other creditors and accrued expenses                                       5,720                  20,902
Deferred income                                                            2,657                   3,600
Other loans                                                                9,141                       -
                                                                         -------                --------
Total liabilities                                                        102,096                 101,390
                                                                         -------                --------
Stockholders' equity
Capital stock                                          13                     73                      30
Retained earnings (deficit)                                              (72,849)                (11,732)
Additional paid in capital                                                49,154                       -
                                                                         -------                --------
Total stockholders' deficit                                               (4,549)                (11,702)
                                                                         -------                --------

Total liabilities and stockholders' equity                            $   78,474                  89,688
                                                                         =======                ========
</TABLE>

                  See note 1 and other accompanying notes to
                       consolidated financial statements

                                      F-3
<PAGE>

                                 TELEMONDE INC
                     Consolidated Statement of Cash Flows
         For the year ended December 31, 1999 and for the period from
            March 10, 1998 (date of inception) to December 31, 1998
                      (US Dollars expressed in thousands)

<TABLE>
<CAPTION>
                                                                              1999                 1998
                                                                              ----                 ----
<S>                                                                   <C>                    <C>
Operating activities
Net Loss                                                              $    (61,117)             (11,732)

Adjustments to reconcile net income to net
  cash provided by operating activities:
  Reserve for doubtful debts                                                   923                    -
  Reserve for inventory                                                     40,690                    -
  Amortisation of goodwill                                                     527                    -
  Financing costs satisfied by issuance of warrants                          8,976                    -
  Depreciation                                                                 590                    -
  Fees satisfied by issuance of stock                                          404                    -
  (Increase) decrease in trade accounts receivable                           3,792               (9,518)
  (Increase) decrease in prepayments & other debtors                        (1,120)                   -
  (Increase) decrease in inventory                                          (3,865)             (77,515)
  Increase (decrease) in trade accounts payable                              8,680               76,888
  Increase (decrease) in accrued expenses                                  (16,920)              20,902
  Increase (decrease) in deferred income                                      (943)               3,600
                                                                           -------              -------
Net cash provided by (used in) operating activities                        (19,383)               2,625
                                                                           -------              -------

Investing activities
Pre-acquisition advances to subsidiary                                      (6,014)                   -
Purchase of property, plant & equipment                                     (1,330)                   -
Cash acquired in acquisitions                                                    6                    -
                                                                           -------              -------
Net cash provided by (used in) investing activities                         (7,338)                   -
                                                                           -------              -------
Financing activities
Proceeds from long term debt                                                10,941               18,340
Repayment of long-term debt                                                 (3,100)             (18,340)
Issuance of stock                                                           16,287                   30
                                                                           -------              -------
Net cash provided by (used in) financing activities                         24,128                   30
                                                                           -------              -------
Net increase (decrease) in cash and
   cash equivalents and at end of year                                $     (2,593)          $    2,655
                                                                           =======              =======
Supplemental disclosure of cash flow information:
Interest paid                                                         $        844           $      330
                                                                           =======              =======
Non Cash Flows:
   Reclassification of inventory to property, plant and
     equipment                                                        $     19,225           $        -
                                                                           =======              =======
</TABLE>

                  See note 1 and other accompanying notes to
                       consolidated financial statements

                                       F-4
<PAGE>

                                 TELEMONDE INC
                       Statement of Stockholders' Equity
         For the year ended December 31, 1999 and for the period from
            March 10, 1998 (date of inception) to December 31, 1998
                      (US Dollars expressed in thousands)

<TABLE>
<CAPTION>
                                                                              Additional
                                              Capital          Retained          Paid in
                                                Stock          Earnings          Capital             Total
                                                -----          --------          -------             -----
<S>                                           <C>             <C>             <C>                <C>
At March 10, 1998                                   -                 -                -                 -

Loss for the period                                 -           (11,732)               -           (11,732)

Share capital issued                               30                 -                -                30

                                               ------          --------         --------          --------
At December 31, 1998                          $    30         $ (11,732)       $       -         $ (11,702)


Net loss                                            -           (61,117)               -           (61,117)

Common stock issued                                43                 -           16,244            16,287

Stock issued to acquire
 subsidiaries and investments                       -                 -           23,530            23,530

Financing costs satisfied by
 issuance of warrants                               -                 -            8,976             8,976

Fees satisfied by issuance
 of stock                                           -                 -              404               404
                                               ------          --------         --------          --------
At December 31, 1999                          $    73         $ (72,849)       $  49,154         $ (23,622)
                                               ======          ========         ========          ========
</TABLE>

                  See note 1 and other accompanying notes to
                       consolidated financial statements

                                      F-5
<PAGE>

                                TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


1.     Liquidity

       The consolidated financial statements have been prepared assuming the
       Corporation will continue as a going concern which contemplates the
       realization of assets and the satisfaction of liabilities in the normal
       course of business.

       The Corporation's ability to fund its commitments to draw down capacity
       in 2000 is dependent on its ability to raise equity finance to cover
       working capital requirements. Operating revenues are unlikely to provide
       sufficient immediate working capital.

       Of note:

       (a)     In the year ended December 31, 1999 the Corporation incurred a
               net loss of $61.1 million which has resulted in a deficit of
               $23.6 million as at the balance sheet date. Net cash used in
               operating activities amounted to $19.4 million and cash provided
               by financing activities amounted to $24.1 million. At December
               31, 1999 the Corporation had net cash of $0.1 million.

       (b)     At December 31, 1999 the Corporation was in default in respect of
               $78.3 million liabilities to capacity suppliers. The Corporation
               is currently behind with its payments based upon the existing
               contracts and is relying on the suppliers' flexibility in
               rescheduling payment terms. If we remain in default, our capacity
               suppliers could foreclose on our capacity and other assets valued
               at $40.7 million.

       (c)     At December 31, 1999 the Corporation was in default in respect of
               $4.5 million liabilities to Communications Collateral Limited. As
               a result Communications Collateral Limited has a right to
               foreclose on substantially all of the Corporation's assets.

       (d)     The Corporation has failed to meet its obligations to Gemini
               Submarine Cable System Limited under two promissory notes in the
               amount of $2.7 million. If we remain in default Gemini could
               terminate our agreement which could effect one customer.

Management plans to address the above issues include:

       (a)     The Corporation has retained investment bankers to assist in
               raising finance to include equity capital and issuing debt.
               During 1999 the Corporation has been successful in raising over
               $25 million of debt of which $16.3 million has been converted to
               equity. Based on the management's plans, the Corporation
               estimates that there will be new equity and new debt available in
               2000.

               There can be no assurance that the Corporation will be successful
               in raising finance to cover working capital requirements and
               financial commitments. In March 2000, the Corporation's listing
               on the NASDAQ OTC Bulletin Board was suspended and it is unlikely
               that new equity will be available until such time as the listing
               is reinstated.

                                      F-6
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


1.     Liquidity (Continued)

       (b)     The Corporation has reached agreement in principle but is yet to
               sign final agreements with its principal suppliers to replace the
               Atlantic capacity with new capacity on higher value networks in
               the Atlantic, Pacific, Europe and South America. The management
               are of the opinion that the carrying value of the new capacity is
               at least equivalent to the carrying value of the old capacity and
               that the final agreements will be signed within a reasonable time
               on terms already agreed in principle.

       (c)     Despite the technical defaults with its two bandwidth suppliers,
               Telemonde has been in extensive negotiations with senior
               management in both organizations. Whilst these discussions have
               been held, Telemonde has made a number of payments to both
               suppliers for services rendered and both suppliers have:

           .   agreed to continue to provide services to existing Telemonde
               customers, including maintenance of the cable systems;

           .   not taken up the option to enact the default;

           .   actively supported Telemonde in the development of its strategy
               and network deployment;

           .   allowed further capacity to be taken on a leased basis to assist
               in fulfilling Telemonde's order book;

               As part of these negotiations, Telemonde has recently executed a
               Standstill Letter from MCI WorldCom in which MCI WorldCom has
               agreed to refrain from (a) taking any action to enforce payment
               of the sums owed to MCI WorldCom under the capacity purchase
               agreements; (b) taking any action to enforce or make a demand
               under any guarantee, indemnity or security related to the
               capacity purchase agreements; and (c) commence any insolvency
               proceedings against Telemonde or any of its subsidiaries. The
               Standstill Letter expires upon the earlier of (i) the full
               payment of the sums owed under the capacity purchase agreements;
               (ii) June 8, 2000; or (iii) Telemonde's failure to comply with a
               number of terms and conditions, which includes the prohibition
               against the sale of assets, dividends and the borrowing of any
               additional funds without the signed written consent of MCI
               WorldCom's agent other than permitted borrowings.

               It is the opinion of Telemonde's Management that the ongoing
               negotiations with both suppliers will lead to a successful
               conclusion of the outstanding defaults and provide Telemonde with
               much more flexible supply contracts.


                                       F-7
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


2.     Description of business and organisation

       The Corporation, through its operating subsidiaries, is a
       telecommunications carrier supplying fiber optic bandwidth and added
       value services to the global telecommunications industry.

       On May 14, 1999, the Corporation acquired Telemonde Investments Limited
       in a reverse purchase stock transaction. Pursuant to the Stock Purchase
       Agreement, the corporation issued 35,297,000 shares of common stock to
       the sole shareholder of Telemonde Investments Limited, in exchange for
       all of the issued and outstanding shares of Telemonde Investments
       Limited. As a result, Telemonde Investments Limited became a wholly owned
       subsidiary of the corporation. The Reverse has been accounted for as a
       reverse purchase acquisition in a manner similar to the pooling of
       interests method of accounting. The financial information presented for
       periods prior to May 14, 1999 is for Telemonde Investments Limited.

       During the period the Corporation operated in a single market, the supply
       of fiber optics bandwidth and related maintenance services. All services
       relate to bandwidth on fiber optic cables between the United States and
       Europe.


3.     Accounting policies

       (a)    Basis of accounting

              The consolidated financial statements have been prepared in
              accordance with accounting principles generally accepted in the
              United States.

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

              Estimates are used when accounting for allowance for doubtful
              debts, fair value adjustments to inventory, accrued line costs and
              contingencies.

              The following are the significant accounting policies adopted by
              the Corporation:

       (b)    Consolidation

              The consolidated financial statements incorporate the assets and
              liabilities of the corporation and its wholly-owned or majority
              controlled subsidiaries. All intercompany balances and
              transactions have been eliminated upon consolidation. Minority
              interest in the results of operations and share of net assets is
              recognised unless the relevant subsidiary has a net asset deficit
              and there is no binding obligation on the minority to make good
              the deficit.

                                       F-8
<PAGE>

                                TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


3.     Accounting policies (continued)

       (c)    Revenues

              Customers of the Corporation enter into capacity sales agreements
              to acquire an Indefeasible Right of Use in units of capacity from
              the Corporation's inventory of fiber optic cable capacity. The
              Corporation regards the capacity sales agreements as direct
              financing leases as defined by SFAS 13. The difference between the
              gross investment in the capacity sales agreement and the cost of
              the capacity is initially recorded as deferred interest income.
              Deferred interest income is amortized to interest income so as to
              produce a constant periodic rate of return on the net investment
              in the capacity sales agreement. Under the terms of substantially
              all capacity sales agreements, the purchase price is due in full
              when the capacity is ready for service. In such cases, revenue is
              recognised when the capacity is ready for service. Customers who
              have entered into capacity sales agreements have paid deposits
              toward the purchase price and such amounts have been included as
              deferred revenue in the consolidated balance sheet. Maintenance
              revenues due under capacity sales agreements are recognised on a
              time apportioned basis.

              In June 1999 the Financial Accounting Standards Board issued
              interpretation No. 43 ("FIN43") which states that SFAS 66 applies
              to all sales of real estate, including real estate with property
              improvements or integral equipment.

              The corporation adopted FIN 43 on July 1, 1999. As a result,
              capacity sales agreements entered into subsequent to June 30, 1999
              are bifurcated into an equipment portion and a real estate
              portion. The real estate portion is classified as an operating
              lease. Revenues are recognised on a straight line basis over the
              life of the agreement. The equipment portion of a capacity sales
              agreement is classified as a direct financing sub lease. The
              difference between the gross investment in the capacity sales
              agreement and the cost of the capacity is initially recorded as
              deferred interest income. Deferred income is amortized to interest
              income so as to produce a constant periodic rate of return on the
              net investment in the capacity sales agreement. Under the terms of
              substantially all capacity sales agreements, the purchase price is
              due in full when the capacity is ready for service. In such cases,
              revenue is recognised when the capacity is ready for service.

              Customers of the Corporation have entered into operating leasing
              agreements to lease capacity on its fiber optic network. These
              agreements grant the customer a right to use capacity for periods
              of time which are substantially less than the design life of the
              capacity. Revenue is recognised on a straight line basis over the
              life of the lease. Telecommunications traffic revenues are
              recognised in the period when the traffic is transmitted.
              Telephone card service income earned by our joint venture, Desert
              Telecommunication Services, LLC, is initially deferred then
              recognised ratably over the period of the card. Route management
              services income earned by our joint venture is recognised rateably
              over the period when services are rendered.

       (d)    Expenses

              Costs of acquiring capacity are expensed in the period the sale is
              recognised. Related costs, including inland line costs and local
              network costs are recorded at the present value of future payments
              required to be made by the Corporation for such capacity, which
              may be a realistic estimate of an amount to purchase the service
              over the life of the contract.

       (e)    Inventory

              Bandwidth capacity acquired under capital leases is initially
              recorded as an obligation at an amount equal to the present value
              at the beginning of the lease term of minimum lease payments
              during the lease term. Thereafter it is stated at the lower of
              carrying value and fair value.

              In June 1999 the Financial Accounting Standards Board issued
              interpretation No. 43 ("FIN43") which states that SFAS 66 applies
              to all sales of real estate, including real estate with property
              improvements or integral equipment.

              The corporation adopted FIN 43 on July 1, 1999. As a result,
              capacity purchase agreements entered into subsequent to June 30,
              1999 are bifurcated into an equipment portion and a real estate
              portion. The real estate portion is classified as an operating
              lease. Leasing costs are recognised on a straight line basis over
              the life of the agreement. The equipment portion of a capacity
              purchase agreement is classified as a capital lease. Capacity
              acquired under capital leases is initially recorded as an
              obligation at an amount equal to the present value at the
              beginning of the lease term of minimum lease payments during the
              lease term. Thereafter it is stated at the lower of carrying value
              and fair value.

       (f)    Fair value of financial instruments

              The carrying amounts for cash, cash equivalents, accounts
              receivable, accounts payable and accrued liabilities approximate
              their fair value.

                                       F-9
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


3.     Accounting policies (continued)

       (g)    Cash and cash equivalents

              For the purposes of the consolidated statements of cash flows,
              demand and time deposits with original maturities of three months
              or less are considered equivalent to cash.

       (h)    Property, plant and equipment

              The Corporation's fiber optic cable network acquired under capital
              leases is initially recorded as an asset and an obligation at an
              amount equal to the present value at the beginning of the lease
              term of minimum lease payments during the lease term. Thereafter
              it is depreciated on a straight line basis over the estimated
              useful life of 10 years from the date of being brought into use.
              Telecommunications and office equipment is depreciated over 4
              years.

       (i)    Goodwill

              Goodwill arising on the acquisition of subsidiaries is capitalised
              and amortised over its estimated useful life, taken to be 10 years
              from the date of acquisition.

       (j)    Intangible assets

              Intangible assets other than goodwill are recorded at cost and
              amortised over their estimated useful lives, taken to be 5 years
              from the date of acquisition.

       (k)    Investments in Joint Ventures

              Investments in joint ventures are accounted for under the equity
              method, whereby the corporation recognises its share of profits
              and losses reported by the joint venture. In cases where the
              corporation's funding commitments are uncertain, full provision is
              made for 100% of losses reported by joint ventures.

       (l)    Financing Costs

              The costs associated with short and long term debt are amortised
              over the life of the related debt on a straight line basis.

4.     Adoption of new accounting standards

       The Financial Accounting Standards Board ("FASB") has issued Statement of
       Financial Accounting Standard ("SFAS") No. 133, "Accounting for
       Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
       accounting and reporting standards for derivative instruments, including
       certain derivative instruments embedded in other contracts and for
       hedging activities. SFAS No. 133 requires that an entity recognise all
       derivatives as either assets or liabilities in the statement of financial
       position and measure those instruments at fair value. The accounting for
       changes in the fair value of a derivative depends on the intended use of
       the derivative and how it is designated. For example, gains or losses
       related to changes in the fair value of a derivative, not designated as a
       hedging instrument, is recognised in earnings in the period of the
       change, while certain types of hedges may be initially reported as a
       component of other comprehensive income until the consummation of the
       underlying transaction.

                                      F-10
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


4.     Adoption of new accounting standards (continued)

       SFAS No. 133 is effective for all fiscal quarters of fiscal years
       beginning after June 15, 1999. Initial application of SFAS No. 133 should
       be as of the beginning of a fiscal quarter, on that date, hedging
       relationships must be designated anew and documented pursuant to the
       provisions of SFAS No. 133. Earlier application of all of the provisions
       of SFAS No. 133 is encouraged, but it is permitted only as of the
       beginning of any fiscal quarter. SFAS No. 133 is not to be applied
       retroactively to financial statements of prior periods. The corporation
       believes that the adoption of this standard will not have a material
       effect on the corporation's consolidated results of operations or
       financial position. The FASB has delayed the effective date of SFAS No.
       133 by one year to years beginning after June 15, 2000 by the issuance of
       SFAS no. 137.

       In June 1999 the Financial Accounting Standards Board issued
       interpretation No. 43 ("FIN43") which states that SFAS 66 applies to all
       sales of real estate, including real estate with property improvements or
       integral equipment.

       The corporation adopted FIN 43 on July 1, 1999. As a result, capacity
       sales agreements entered into subsequent to June 30, 1999 are bifurcated
       into an equipment portion and a real estate portion. The real estate
       portion is classified as an operating lease. Revenues are recognised on a
       straight line basis over the life of the agreement. The equipment portion
       of a capacity sales agreement is classified as a direct financing sub
       lease. The difference between the gross investment in the capacity sales
       agreement and the cost of the capacity is initially recorded as deferred
       interest income. Deferred interest income is amortized to interest income
       so as to produce a constant periodic rate of return on the net investment
       in the capacity sales agreement. Under the terms of substantially all
       capacity sales agreements, the purchase price is due in full when the
       capacity is ready for service. In such cases, revenue is recognised when
       the capacity is ready for service.

       Capacity purchase agreements entered into subsequent to June 30, 1999 are
       bifurcated into an equipment portion and a real estate portion. The real
       estate portion is classified as an operating lease. Leasing costs are
       recognised on a straight line basis over the life of the agreement. The
       equipment portion of a capacity purchase agreement is classified as a
       capital lease. Capacity acquired under capital leases is initially
       recorded as an obligation at an amount equal to the present value at the
       beginning of the lease term of minimum lease payments during the lease
       term. Thereafter it is stated at the lower of carrying value and fair
       value.

5.     Bandwidth Income and Expenses

       During the year the Corporation acted as a provider of worldwide long
       distance telecommunications facilities and related services, and as such
       is engaged in only one business and geographical segment.

       The following are the customers, together with their country of
       incorporation, that comprise 10% or more of operating revenues:

                                                         1999         1998
                                                         ----         ----

       Carrier 1 (Switzerland)                      $          -   10,318,000
       North American Gateway Inc (Canada)          $    827,000    8,206,000
       Unisource Carrier Services AG (Switzerland)  $          -   10,807,000
       Telecom Italia (Italy)                       $  4,621,000            -
       Trans Global Network Services (England)      $  2,000,000            -
                                                       =========   ==========

       The Corporation has entered into Capacity Purchase Agreements with two
       suppliers of trans-atlantic bandwidth. All bandwidth purchases are
       attributable to these two suppliers.

       The Corporation is exposed to concentrations of credit risk to the extent
       that it has a limited number of customers, all of which operate in the
       telecommunications sector. The Corporation performs on-going evaluations
       of its customers' financial condition.

6.     Taxation

       The corporation has incurred operating losses. In the event that the
       corporation generates taxable earnings in the future, operating losses
       incurred in 1999 and 1998 would not necessarily be applied against future
       taxable earnings. Accordingly, no tax provisions or deferred tax benefit
       was recorded in 1999 or 1998.

                                     F-11
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998

7.     Earnings per share

       The calculation of basic earnings per share is as follows:-

                                                         1999             1998
                                                         ----             ----

       Net income available to common
         stockholders                             (61,117,000)     (11,732,000)

       Average common shares issued and
         outstanding (1998 - as restated)          50,186,654       35,319,179
                                                  -----------      -----------

       Basic and diluted earnings per share     $       (1.22)    $      (0.33)
                                                  ===========      ===========

       No adjustment to earnings per share arises on the issue of warrants as
       the effect is antidilutive.

       On the date of the reverse transaction referred to in Note 1 above, the
       Corporation issued 35,297,000 shares of common stock in exchange for the
       35,297 shares in Telemonde Investments Limited. For the purposes of
       calculating basic earnings per share the increase in nominal share
       capital was deemed to take place at the beginning of the period.


8.     Inventory

       Inventory consists of bandwidth capacity which is held for resale but has
       not been sold at the balance sheet date. The Corporation may have
       drawndown the capacity or have an obligation to do so by a set date. All
       inventory was acquired under capital leases. At December 31, 1999 and
       1998 inventory consisted of the following:

                                                   1999                1998
                                                   ----                ----

       Capacity to be drawndown
         within one year                   $ 40,230,000        $ 55,440,000

       Capacity to be drawndown
         within one to two years                      -          19,440,000
                                             ----------          ----------
       Total undrawn bandwidth               40,230,000          74,880,000

       Capacity drawndown                     2,700,000           2,635,000

       Reserve for inventory                (21,465,000)                  -
                                             ----------          ----------
                                           $ 21,465,000        $ 77,515,000
                                             ==========          ==========

       The carrying value of inventory was reduced to market value by making a
       reserve which reflects the decline of prices in transatlantic capacity
       in the summer of 1999.


                                     F-12
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


9.     Property, Plant and Equipment

       Property, plant and equipment consists of the following:-

                                                      1999          1998
                                                      ----          ----

       Fiber optic network                    $ 18,275,000       $     -

       Telecommunications equipment              1,049,000             -

       Office equipment                            705,000             -
                                                ----------        ------
                                                40,204,000             -

       Less depreciation                          (742,000)            -
                                                ----------        ------
                                              $ 39,462,000       $     -
                                                ==========        ======

       The fiber optic network was reclassified from inventory to property,
       plant and equipment because we intend to use the capacity for short-term
       operating lease sales and international telecommunications traffic sales.

       The fiber optic network represents bandwidth the Corporation intends to
       use in its own operations, either for short term leasing or for
       telecommunications traffic. The network was acquired under capital
       leases. At December 31,1999 the asset consisted of the following:

       Bandwidth available for leasing, net of
          depreciation of $152,000                  $  4,973,000

       Undrawn bandwidth                              13,150,000
                                                      ----------
                                                    $ 18,123,000
                                                      ==========

       At December 31, 1999 all leasing commitments were for twelve months or
       less.


10.    Investments

       (a)     On May 25, 1999 Equitel Communications Limited entered into a
               Share Purchase Agreement to acquire a 20% equity interest in Net
               Industrial Holdings Telecommunications Limited, a South African
               company established to develop opportunities in the Sub-Sahara
               telecommunications sector. On the same day the subsidiary entered
               into a Joint Venture Agreement with Net Industrial Holdings
               Telecommunications Limited to establish a new company, Tele
               Afrique Limited, to develop telecommunications business in
               Africa. Tele Afrique Limited is jointly owned by the two parties.

                                      F-13
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


10.    Investments (Continued)

               The total commitment under the above agreement is (pound)2.375
               million, consisting of cash payments of $1.125 million and the
               balance in shares of the Corporation. At December 31, 1999 all of
               the shares have been issued and $900,000 of the cash paid.

               At December 31, 1999 the two companies had not commenced
               operations and the investment is stated at nil.

       (b)     Equitel Communications Limited has a 49% interest in Desert
               Telecommunication Services LLC, an Omani company. The balance
               sheet of Desert Telecommunication Services LLC is summarised:-

                                                                 1999
                                                                 ----

               Assets
               Cash and cash equivalents                   $  104,495
               Trade accounts receivable                        2,813
               Prepayments and other debtors                   22,718
               Property, plant and equipment                  361,945
               Inventory                                      111,736
                                                             --------
                                                           $  603,707
                                                             ========


               Liabilities and Stockholders' Equity

               Bank borrowings                             $  146,521
               Trade accounts payable                         206,376
               Accrued expenses and other payables            310,608
               Shareholder loans                              331,337
                                                             --------
               Total liabilities                              994,842
                                                             --------

               Stockholders' Equity
               Share capital                                  388,601
               Accumulated losses                            (779,736)
                                                             --------
                                                             (391,135)
                                                             --------
                                                           $  603,707
                                                             ========

               Equity share of investment                  $      Nil
                                                            =========

                                      F-14
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


10.    Investments (Continued)

       Full provision for the joint venture's losses has been made in the
       financial statements of Equitel Communications Limited.


11.    Intangible Assets

<TABLE>
<CAPTION>
                                                                        Other
                                                                   Intangible
                                                    Goodwill           Assets            Total            1998
                                                    --------           ------            -----            ----
<S>                                            <C>               <C>              <C>
       Customer base                                       -        3,898,000        3,898,000               -
       Employees                                           -          900,000          900,000               -
       Goodwill                                   26,781,000                -       26,781,000               -
                                                  ----------        ---------       ----------        --------
                                                  26,781,000        4,798,000       31,579,000               -

       Amortisation charge for the period           (395,000)        (132,000)        (527,000)              -
                                                  ----------        ---------       ----------        --------
                                               $  26,386,000     $  4,666,000     $ 31,052,000     $         -
                                                  ==========        =========       ==========        ========
</TABLE>

       The Corporation will assess the carrying value of intangible assets at
       each balance sheet date for impairment based on a market value comparison
       method and make any necessary provisions. There are no comparable
       balances since the intangible assets were acquired in 1999.


12.    Accounts Payable

       Included in accounts payable is $78.3 million due within one year under
       capital leases to capacity suppliers. In the event that the corporation
       fails to meet its obligations to the capacity suppliers. They could
       foreclose on assets with a book value of $40.7 million. If they foreclose
       on our assets, we will be unable to generate revenues from existing
       capacity sales agreements.

                                      F-15
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


13.    Capital Stock
                                                        1999           1998
                                                        ----           ----

       Authorised:
       1999: Telemonde Inc - 145,000,000
       shares of common stock $0.001 par
       value per share                               145,000              -

       5,000,000 shares of preferred stock
       $0.001 par value per share                      5,000              -

       1998:  Telemonde Investments Ltd -
       50,000 ordinary shares of $1 each            $      -         50,000
                                                     =======        =======

       Issued
       1999:  65,211,584 shares issued and
       7,892,858 shares to be issued,
       totalling 73,104,442 shares                    73,104              -

       1998:  Telemonde Investments Ltd -
       29,630 ordinary shares of $1 each            $      -         29,630
                                                     =======        =======


14.    Related party transactions

       (a)    During the year the corporation made payments to Argonaut Limited
              and Harley Consultants Limited amounting to $225,000 (1998:
              $37,000) for directors and consultancy services. Mr. Michael
              Collins, a director of Telemonde Investments Limited, is a
              director of both Argonaut Limited and Harley Consultants Limited
              and has a controlling interest in Argonaut Limited.

       (b)    During the period from March 10, 1998 to December 31, 1998
              payments amounting to $452,000 were made to Westbourne
              Communications Limited for the services of an executive and a
              consultant and as reimbursement for expenses paid by Westbourne
              Communications Limited on behalf of the Corporation.

       (c)    During the year the Corporation made payments to Equitel
              Communications Limited amounting to $428,000 (1998: $898,000) for
              commissions earned on sales contracts. The directors and
              shareholders of Equitel Communications Limited include directors
              of Telemonde Inc.

       (d)    The vendors of Equitel Communications Limited included Janet
              Pomeroy, Adam Bishop and Telcoworld Limited. Kevin Maxwell is
              associated with Telcoworld Limited. Kevin Maxwell and Adam Bishop
              are directors of Telemonde Inc. Kevin Maxwell was a director of
              Equitel Communications Limited and Harry Pomeroy is a director of
              Equitel Communications Limited.

                                      F-16
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


15.    Acquisitions

       (a)    Equitel Communications Limited

              On November 8, 1999, Telemonde Inc, acquired the entire issued
              share capital of Equitel Communications Limited, a
              telecommunications services company incorporated in the United
              Kingdom. The combination has been accounted for under the purchase
              method and the results have been included from the date of
              acquisition. Under the terms of the Share Purchase Agreement, the
              consideration payable to the vendors is $19,000,000 satisfied by
              the issue of 4,947,917 shares of common stock of Telemonde Inc.


       Possible contingent consideration is listed below:

       (1)    An additional sum calculated by multiplying reported earnings
              before interest and tax for the year ending December 31, 2000 by
              6, subject to a maximum of $30,000,000, payable on June 30, 2001.

       (2)    A further additional sum calculated by multiplying reported
              earnings before interest and tax for the year ending December 31,
              2001 by 5, subject to a maximum of $50,000,000 less the amount
              paid under (1) above, payable on June 30, 2002.

              The additional sums under (1) and (2) above are to be satisfied by
              shares in the Corporation. If any additional sums become payable,
              goodwill and the related amortisation charge will increase
              accordingly.

              The purchase consideration has been allocated as follows:-

              Fair value of other net liabilities acquired       (11,402,000)
              Goodwill                                            25,604,000
              Customer base                                        3,898,000
              Employees                                              900,000
                                                                  ----------

                                                               $  19,000,000
                                                                  ==========


              The pro-forma income statement for the year ended December 31,
              1999, giving effect to the transaction as if it had occurred on
              January 1, 1999 is summarised:

                                         Telemonde   Adjustments      Pro-Forma
                                               Inc   -----------      ---------
                                               ---

              Revenues               $   8,165,000        68,000      8,233,000
              Net Income             $ (61,117,000)  (11,440,000)   (72,557,000)
              Earnings per share     $       (1.22)        (0.23)         (1.45)
                                        ==========    ==========     ==========

                                      F-17
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


15.    Acquisitions (Continued)

       (b)    TGA (UK) Limited

              On August 9, 1999, Telemonde Inc acquired the entire issued share
              capital of TGA (UK) Limited, a switching services company based in
              the United Kingdom. The combination has been accounted for under
              the purchase method and the results have been included from the
              date of acquisition. The price paid was 200,000 shares of common
              stock of Telemonde Inc, valued at $1,312,000. This has been
              allocated as follows:-

              Fair value of net assets acquired                 135,000
              Goodwill                                        1,177,000
                                                             ----------
                                                           $  1,312,000
                                                             ==========

       (c)    Others

              On November 5, 1999 Telemonde Inc. entered into a Heads of
              Agreement to acquire Global Communications (Holding) Limited, a UK
              internet, e-commerce and telecommunications business, for
              (pound)100,000,000 ($ 165 million) to be satisfied by cash of
              (pound) 500,000 ($ 825,000), loan notes of (pound) 49.5 million ($
              81.7 million) and shares of (pound) 50 million ($ 82.5 million).
              The acquisition has not taken effect and is unlikely to proceed.


16.    Financing

       The Corporation has entered into the following financing arrangements:-

       (a)    The Corporation sold capacity to Communications Collateral
              Limited, although Communications Collateral Limited has exercised
              an option to require the Corporation to repurchase the capacity.
              Communications Collateral Limited has granted the Corporation a
              facility of US $1 million (of which $500,000 has been used to pay
              a facility fee) and the Corporation has granted collateral over
              certain assets to Communications Collateral Limited.

              In view of this option the sale has been treated as a financing
              transaction and disclosed within "other loans".

              Communications Collateral Limited is entitled to purchase shares
              equal to 7% of the issued share capital of the Corporation at the
              time of issuance. The exercise price is the lesser of (i) $5.25
              per share or (ii) if the price per share is below $5.25 for 20
              consecutive trading days prior to an equity offering by the
              Corporation of at least $10 million, the average of the per share
              price during such 20 day period. The strike price has subsequently
              been amended to $2.70.

              An associated Registration Rights Agreement, provides that
              Communications Collateral Limited may participate as a selling
              shareholder in the first underwritten public offering of at least
              $10 million. In addition, Communications Collateral Limited may
              have certain additional demand and piggyback registration rights.

              Using the Black-Scholes option pricing model, the warrants have
              been valued at $6.6 million. This has been treated as additional
              paid in capital and amortised in full in 1999. The valuation model
              is based on the prevailing stock price of $5.25 per share and a
              65% volatility factor.

       (b)    On August 25, 1999 the corporation issued warrants to a bandwidth
              capacity supplier which entitle the warrant holder to purchase
              1,100,000 shares of common stock at a price of $5.25 per share.
              The warrants expire on August 25, 2000. Using a Black Scholes
              option pricing model, the warrants have been valued at $2,376,000.
              This has been treated as additional paid in capital and amortized
              in full in the year ended December 31, 1999. The valuation model
              is based on a prevailing stock price of $6.25 per share and a 65%
              volatility factor. The exercise price is subject to adjustment in
              the event of, amongst other things, a merger or issuance of
              warrants. The compensation expense will be adjusted in the period
              any such event occurs.

                                      F-18
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998



17.    Leases

       The Corporation entered into a property operating lease agreement with
       future minimum lease payments as follows:

                                   Year ended
                                  December 31,

                                          2000          $  1,372,000
                                          2001             1,372,000
                                          2002             1,372,000
                                          2003             1,372,000
                                          2004             1,372,000
                                    Thereafter            13,005,000
                                                          ----------
       Total minimum lease payments                     $ 19,865,000
                                                          ==========


       Under the terms of our capacity sales agreements, our customers were
       obliged to pay the full purchase price prior to the balance sheet date.
       As a result, the net investment in direct financing leases amounted to
       nil. There were no future minimum lease payments. The unguaranteed
       residual values accruing to the benefit of the lessor amounted to nil.
       Unearned income amounted to nil. Contingent rentals receivable in the
       year and the period amounted to nil.

       On December 31, 1999, the Corporation re-designated a portion of a
       capacity purchase agreement from a capital lease to an operating lease.
       The life of the lease is 25 years. Under the terms of the capacity
       purchase agreement the minimum lease commitment of $950,000 is payable
       within one year.

                                      F-19
<PAGE>

                                 TELEMONDE INC
                  Notes to Consolidated Financial Statements
                       As of December 31, 1999 and 1998


18.    Subsequent events

       (a)    On January 1, 2000 the Corporation signed an agreement to increase
              its profit share in Desertel Telecommunications Services LLC (an
              Omani joint venture between EquiTel and a local partner) from 49%
              to 75%. The consideration was satisfied by the issuance of
              1,750,000 shares of common stock.

       (b)    On January 12, 2000 the Corporation entered into a forbearance
              agreement with Communications Collateral Limited whereby
              Communications Collateral Limited agreed to extend the terms of
              the Corporation's indebtedness in exchange for up to 1.75 million
              shares of common stock valued at $3.8 million. The terms of the
              warrants issued to Communications Collateral Limited were amended
              so as to reduce the strike price to $2.70. There is no impact on
              the income statement since the value of the warrants is materially
              unchanged.

       (c)    On February 22, 2000 the Corporation entered into an executive
              services agreement with Paul Donofrio. Under the terms of the
              agreement Mr. Donofrio is entitled to a base salary plus bonuses
              and 5,800,000 non-qualified stock options to purchase shares of
              common stock of the Corporation at a price of $.50 per share. The
              options shall be vested and exercisable at dates between June 1,
              2000 and March 1, 2003. The options shall have a life of ten
              years. The Corporation will record a compensation expense over the
              vesting period as follows:

                                  2000             1,320,000
                                  2001               960,000
                                  2002               960,000
                                  2003               240,000
                                                  ----------
                                                $  3,480,000
                                                  ----------

       (d)    On March 2, 2000 the Corporation entered into an office services
              agreement to lease New York accommodation for four months at a
              cost of $9,590 per month. The agreement can be extended for
              periods of three months.

                                      F-20