EUROTELECOM COMMUNICATIONS, INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

                                                                           PAGE:

Report of BDO Stoy Hayward, Independent Accountants                        F-1

Report of Crouch, Bierwolf & Chisholm, Independent
Certified Public Accountants                                               F-2

Consolidated balance sheet as of June 30, 2000                             F-3

Consolidated statement of operations for the year
ended June 30, 2000, six months ended June 30, 1999
and year ended December 31, 1998                                           F-5

Consolidated statements of stockholders' equity for the year
ended June 30, 2000, six months ended June 30, 1999
and year ended December 31, 1998                                           F-6

Consolidated statements of cash flows
for the year ended June 30, 2000, six months
ended June 30, 1999 and year ended December 31, 1998                       F-9

Notes to consolidated financial statements                                 F-11

                                      -----

<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

INDEPENDENT ACCOUNTANTS' REPORT

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

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EUROTELECOM COMMUNICATIONS, INC.


         We have audited the accompanying consolidated balance sheet of
         EuroTelecom Communications, Inc. and subsidiaries as of June 30, 2000
         and the related statement of operations, stockholders' equity, and cash
         flows for the year then ended. These consolidated financial statements
         are the responsibility of the Company's management. Our responsibility
         is to express an opinion on these consolidated financial statements
         based on our audit.

         We conducted our audit in accordance with generally accepted auditing
         standards 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 from 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 our opinion.

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the consolidated financial
         position of EuroTelecom Communications, Inc. and subsidiaries as of
         June 30, 2000 and the related results of operations, stockholders'
         equity and cash flows for the year then ended in accordance with
         generally accepted accounting principles applied in the United States.




         BDO Stoy Hayward
         London, England


         October 12, 2000

                                      F-1
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT

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

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EUROTELECOM COMMUNICATIONS, INC.


         We have audited the accompanying consolidated statements of operations
         of EuroTelecom Communications, Inc. and subsidiaries and related
         statements of stockholders' deficit, comprehensive loss and cash flows
         for the six months ended June 30, 1999 and the year ended December 31,
         1998. These consolidated financial statements are the responsibility of
         the Company's management. Our responsibility is to express an opinion
         on these consolidated financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the results of operations of
         EuroTelecom Communications, Inc. and subsidiaries and cash flows for
         the six months ended June 30, 1999 and the year ended December 31,
         1998, in conformity with generally accepted accounting principles.

         The accompanying consolidated financial statements have been prepared
         assuming that the Company will continue as a going concern. As
         discussed in Note 10 to the consolidated financial statements, the
         Company's recurring operating losses and lack of working capital raise
         substantial doubt about its ability to continue as a going concern.
         Management's plans in regard to these matters are also described in
         Note 10. The consolidated financial statements do not include any
         adjustments that might result from the outcome of this uncertainty.




         Crouch, Bierwolf & Chisholm
         Salt Lake City, Utah
         October 20, 1999

                                      F-2
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEET

------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                     JUNE 30,
                                                                                       2000
                                                                                  (IN THOUSANDS)
<S>                                                                               <C>
ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                                      $      12,114
   Accounts receivable, net of provision for doubtful accounts of $8,000                  2,869
   Inventories                                                                              898
   Unearned compensation                                                                    170
   Prepaid expenses and other current assets                                              1,792
   Costs and estimated earnings in excess of billings on uncompleted contracts            2,323
                                                                                  --------------

TOTAL CURRENT ASSETS                                                                     20,166
                                                                                  --------------

NON-CURRENT ASSETS
   Property, plant and equipment, net of accumulated depreciation of $263,000             2,374
   Goodwill, net of accumulated amortization of $145,000                                  1,051
   Investment in affiliated company                                                       2,560
                                                                                  --------------

TOTAL NON-CURRENT ASSETS                                                                  5,985
                                                                                  --------------

TOTAL ASSETS                                                                      $      26,151
                                                                                  ==============
</TABLE>

           See accompanying summary of accounting policies and notes
                     to consolidated financial statements.

                                      F-3
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEET (CONTINUED)

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

<CAPTION>
                                                                                     JUNE 30,
                                                                                       2000
                                                                                  (IN THOUSANDS)
<S>                                                                               <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Bank line of credit                                                            $         168
   Accounts payable                                                                       2,827
   Accrued liabilities                                                                    1,150
   Other current liabilities                                                                153
   Other taxes payable                                                                      627
   Current maturities of long-term obligations                                               55
                                                                                  --------------

TOTAL CURRENT LIABILITIES                                                                 4,980
                                                                                  --------------

NON-CURRENT LIABILITIES
   Notes payable                                                                            149
   Less: current maturities of long-term obligations                                        (55)
                                                                                  --------------

TOTAL NON-CURRENT LIABILITIES                                                                94
                                                                                  --------------

TOTAL LIABILITIES                                                                         5,074
                                                                                  --------------

STOCKHOLDERS' EQUITY
   Preferred stock, par value $0.01, 10,000,000 authorized, none issued                       -
   'A' common stock shares $0.01 par value, authorized
    50,000,000;  12,055,118 issued and outstanding                                          120
   Common stock, $0.01 par value, 50,000,000 authorized shares;
    17,946,222 issued and outstanding                                                       180
   Additional paid in capital                                                            51,933
   Less: subscriptions receivable                                                          (132)
   Accumulated deficit                                                                  (31,148)
   Accumulated other comprehensive income                                                   124
                                                                                  --------------

TOTAL STOCKHOLDERS' EQUITY                                                               21,077
                                                                                  --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $      26,151
                                                                                  ==============
</TABLE>

           See accompanying summary of accounting policies and notes
                     to consolidated financial statements.

                                      F-4
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

<CAPTION>
                                                    YEAR ENDED      SIX MONTHS      YEAR ENDED
                                                      JUNE 30,        JUNE 30,     DECEMBER 31,
                                                       2000            1999            1998
                                                      (IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S>                                               <C>             <C>             <C>
REVENUES

Sale of goods sold                                $       4,548   $         975   $           -
Sale of services                                          3,123             348              64
Contract revenues earned                                  2,067               -               -
                                                  --------------  --------------  --------------

                                                          9,738           1,323              64
COST OF REVENUES

Cost of goods sold                                        3,328             658               -
Cost of services                                          2,299             145               -
Cost of contract revenues earned                          1,931               -               -
                                                  --------------  --------------  --------------

GROSS PROFIT                                              2,180             520              64

Selling, general and administrative
 expenses                                                (9,015)         (1,639)         (1,174)
Depreciation and amortization                              (319)            (40)            (23)
Loss from closed subsidiary                                   -            (124)           (292)
                                                  --------------  --------------  --------------

LOSS FROM OPERATIONS                                     (7,154)         (1,283)         (1,425)

Share of loss from affiliated company                       (76)              -               -
Interest income (expense), net                              161             (35)            (54)
Loan stock beneficial conversion expense                      -            (919)              -
                                                  --------------  --------------  --------------

LOSS BEFORE INCOME TAX                                   (7,069)         (2,237)         (1,479)

Income taxes                                                  -               -               -
                                                  --------------  --------------  --------------

NET LOSS                                          $      (7,069)  $      (2,237)  $      (1,479)
                                                  ==============  ==============  ==============

Loss per share
   Basic and diluted                              $       (0.37)  $       (0.29)  $       (0.26)
                                                  ==============  ==============  ==============

Weighted average number of common shares             19,097,390       7,748,049       5,777,816
                                                  ==============  ==============  ==============
</TABLE>

           See accompanying summary of accounting policies and notes
                      to consolidated financial statements.

                                      F-5
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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

<CAPTION>
                                                     NUMBER OF                        NUMBER
                                                    'A' COMMON      'A' COMMON       OF COMMON        COMMON
                                                      SHARES          STOCK           SHARES           STOCK
                                                             (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<S>                                               <C>             <C>             <C>             <C>
Balance as of January 1, 1998                                 -   $           -       5,036,616   $          50

Share issues
   Consulting services                                        -               -       1,280,000              13
   Employee bonuses                                           -               -         151,200               2
   Cash                                                       -               -          51,200               -
Net loss                                                      -               -               -               -

Comprehensive loss
                                                  --------------  --------------  --------------  --------------

Balance as of December 31, 1998                               -   $           -       6,519,016   $          65

(CONTINUED)

                                                                    ACCUMULATED
                                                    ADDITIONAL         OTHER
                                                     PAID-IN       COMPREHENSIVE   ACCUMULATED
                                                     CAPITAL       INCOME (LOSS)     DEFICIT          TOTAL
                                                             (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

Balance as of January 1, 1998                     $      20,205   $          (6)  $     (20,363)  $        (114)


Share issues
   Consulting services                                      485               -               -             498
   Employee bonuses                                          44               -               -              46
   Cash                                                      51               -               -              51
Net loss                                                      -               -          (1,479)         (1,479)
                                                                                                  --------------

Comprehensive loss                                                                                       (1,479)
                                                                                                  --------------
                                                  --------------  --------------  --------------  --------------

Balance as of December 31, 1998                   $      20,785   $          (6)  $     (21,842)  $        (998)
</TABLE>

                                                     F-6
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

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

<CAPTION>
                                                     NUMBER OF                        NUMBER
                                                    'A' COMMON      'A' COMMON       OF COMMON        COMMON
                                                      SHARES          STOCK           SHARES           STOCK
                                                             (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<S>                                               <C>             <C>             <C>             <C>
Balance as of December 31, 1998                               -   $           -       6,519,016   $          65

Share issues
   Cash                                                       -               -       1,381,666              14
   Consulting services                                        -               -         764,000               8
   Employee bonuses                                           -               -          96,000               1
   Subscriptions                                              -               -          27,420               -
   Acquisition of Easy IP                                     -               -         200,000               2
Net loss                                                      -               -               -               -
Effect of foreign currency translation                        -               -               -               -

Comprehensive loss

Loan stock beneficial conversion                              -               -               -               -
Forgiveness of debt                                           -               -               -               -
                                                  --------------  --------------  --------------  --------------

Balance as of June 30, 1999                                   -   $           -       8,988,102   $          90

(CONTINUED)

                                                                    ACCUMULATED
                                                    ADDITIONAL         OTHER
                                                     PAID-IN       COMPREHENSIVE   ACCUMULATED
                                                     CAPITAL       INCOME (LOSS)     DEFICIT          TOTAL
                                                             (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

Balance as of December 31, 1998                   $      20,785   $          (6)  $     (21,842)  $        (998)

Share issues
   Cash                                                     884               -               -             898
   Consulting services                                      296               -               -             304
   Employee bonuses                                         158               -               -             159
   Subscriptions                                             39               -               -              39
   Acquisition of Easy IP                                   329               -               -             331
Net loss                                                      -               -          (2,237)         (2,237)
Effect of foreign currency translation                        -              11               -              11
                                                                                                  --------------

Comprehensive loss                                                                                       (2,226)
                                                                                                  --------------

Loan stock beneficial conversion                            919               -               -             919
Forgiveness of debt                                         146               -               -             146
                                                  --------------  --------------  --------------  --------------

Balance as of June 30, 1999                       $      23,556   $           5   $     (24,079)  $        (428)
</TABLE>

                                                     F-7
<PAGE>


<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

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

<CAPTION>
                                                     NUMBER OF                        NUMBER
                                                    'A' COMMON      'A' COMMON       OF COMMON        COMMON
                                                      SHARES          STOCK           SHARES           STOCK
                                                             (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<S>                                               <C>             <C>             <C>             <C>
Share issues
   Cash                                                       -               -       2,310,000              23
   Loan stock conversion                                      -               -       5,500,000              56
   Shares issued for services                            41,000               -         780,000               8
   Unearned compensation                                      -               -         150,000               1
   Remuneration of directors                                  -               -         218,120               2
   Cash                                              11,220,118             112               -               -
   Acquisition of Q.Ton Limited                         794,000               8               -               -
Share issue costs relating to the 'A'
 common stock shares                                          -               -               -               -
Net loss                                                      -               -               -               -
Effect of foreign currency translation                        -               -               -               -

Comprehensive loss
                                                  --------------  --------------  --------------  --------------

Balance as of June 30, 2000                          12,055,118   $         120      17,946,222   $         180
                                                  --------------  --------------  --------------  --------------

(CONTINUED)

                                                                    ACCUMULATED
                                                    ADDITIONAL         OTHER
                                                     PAID-IN       COMPREHENSIVE   ACCUMULATED
                                                     CAPITAL       INCOME (LOSS)     DEFICIT          TOTAL
                                                             (IN THOUSANDS, EXCEPT NUMBER OF SHARES)

Share issues
   Cash                                                   1,883               -               -           1,906
   Loan stock conversion                                    745               -               -             801
   Shares issued for services                               329               -               -             337
   Unearned compensation                                    249               -               -             250
   Remuneration of directors                                434               -               -             436
   Cash                                                  26,826               -               -          26,938
   Acquisition of Q.Ton Limited                           1,451               -               -           1,459
Share issue costs relating to the 'A'
 common stock shares                                     (3,540)              -               -          (3,540)
Net loss                                                      -               -          (7,069)         (7,069)
Effect of foreign currency translation                        -             119               -             119
                                                                                                  --------------

Comprehensive loss                                                                                        6,950
                                                                                                  --------------
                                                  --------------  --------------  --------------  --------------

Balance as of June 30, 2000                       $      51,933   $         124   $     (31,148)  $      21,209
                                                  --------------  --------------  --------------  --------------

                          See accompanying summary of accounting policies and notes
                                     to consolidated financial statements.

                                                     F-8
</TABLE>
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

<CAPTION>
                                                                    YEAR ENDED      SIX MONTHS      YEAR ENDED
                                                                     JUNE 30,        JUNE 30,      DECEMBER 31,
                                                                      2000            1999             1998
                                                                                  (IN THOUSANDS)

<S>                                                               <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                       $      (7,069)  $      (2,237)  $      (1,479)

ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
 USED IN OPERATING ACTIVITIES
   Depreciation  and amortization                                           319              40              23
   Stock issued for services                                                773             463             544
   Amortization of unearned compensation                                     80               -               -
   Share of loss of affiliate                                                76               -               -
   Loan stock beneficial conversion                                           -             919               -
   Provision against investment                                              44               -               -

CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS
 FROM PURCHASE OF EASY IP
   Accounts payable                                                       2,074            (138)           (338)
   Accrued liabilities                                                    1,039             160            (207)
   Other current liabilities                                                372             274            (292)
   Accounts receivable                                                   (1,911)           (443)            442
   Costs in excess of billings on uncompleted contracts                  (2,323)              -               -
   Inventories                                                             (508)           (213)             77
   Prepaid expenses and other current assets                             (1,596)           (100)            276
                                                                  --------------  --------------  --------------

NET CASH USED IN OPERATING ACTIVITIES                                    (8,630)         (1,275)           (954)
                                                                  --------------  --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Acquisition of Easy IP                                                   (96)            (97)              -
   Acquisition of TimTec                                                 (1,041)              -               -
   Acquisition of Q.Ton                                                  (1,177)              -               -
   Other acquisitions                                                      (330)              -               -
   Net cash paid on fixed assets                                         (1,773)            (43)             (3)
   Cash acquired with subsidiary                                              -             129               -
                                                                  --------------  --------------  --------------

NET CASH USED IN INVESTING ACTIVITIES                                    (4,417)            (11)             (3)
                                                                  --------------  --------------  --------------
</TABLE>

                                                     F-9
<PAGE>

<TABLE>
EUROTELECOM COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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

<CAPTION>
                                                                    YEAR ENDED      SIX MONTHS      YEAR ENDED
                                                                     JUNE 30,        JUNE 30,      DECEMBER 31,
                                                                      2000            1999             1998
                                                                                  (IN THOUSANDS)

<S>                                                               <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds received from issuance of common stock, net                  25,304             898               -
   Proceeds from issuance of debt                                             -             440             870
   Short-term bank line of credit                                          (207)            309              66
   Repayment of debt                                                          -            (372)            (48)
   Payments under financing arrangement                                     (55)              -               -
                                                                  --------------  --------------  --------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                25,042           1,275             888
                                                                  --------------  --------------  --------------

Effects of exchange rate changes on cash                                    119              11               -
                                                                  --------------  --------------  --------------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                     12,114               -             (69)

Cash and cash equivalents at beginning of period                              -               -              69
                                                                  --------------  --------------  --------------

Cash and cash equivalents at end of period                        $      12,114   $           -   $           -
                                                                  ==============  ==============  ==============


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   Cash paid during the year for:
     Interest                                                     $          57   $          35   $          54
   Non cash investing and financing transactions
     Acquisition of assets by financing arrangements              $         135   $           -   $          53
   Acquisition of subsidiary and affiliate for stock:
     Easy IP                                                      $           -   $         331   $           -
     Q.Ton                                                        $       1,459   $           -   $           -
</TABLE>

                                      F-10
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1     THE COMPANY

      EuroTelecom Communications, Inc. ("the Company" or "EuroTelecom") was
      incorporated under the laws of the State of Delaware in December 1996. The
      Company trades principally in the UK through its wholly owned subsidiary,
      EuroTelecom Corporation Limited, and in the US through its wholly owned
      subsidiary, RTC, Inc.

      EuroTelecom carries out its varied businesses under three segments:
      Projects, Services and Communications. The individual lines of business
      under each segment are set out below:

      Projects          -  design and installation of application linking
                           platforms
                        -  supply of computer equipment to the defense
                           industry
      Services          -  provision of consultancy services for the design
                           and installation of secure computer networks to
                           the defense industry
                        -  provision of security services
                        -  contracted fit-outs
                        -  sale and installation of air-conditioning units
      Communications    -  distribution of software products

      As of June 30, 2000, the Company had the following principal
      subsidiaries:

<TABLE>
<CAPTION>
                                                                                                        COUNTRY OF
                                                                                                       INCORPORATION
            NAME OF COMPANY                                 NATURE OF BUSINESS                         AND OPERATION

            <S>                                   <C>                                                      <C>
            EuroTelecom Corporation               Application linking, security, sale of
             Limited ("ECL")                       equipment and consultancy                                UK

            SUBSIDIARIES OF ECL
              Chunlan Limited                     Supplier of air conditioning units                        UK
              Timtec International Limited        Shop fitting and interior fitting out construction        UK
              Easy IP Limited                     Software distribution                                     UK
              EuroTelecom Connect Limited         Internet application service provider                     UK
              Universal Communications            Design and installation of telecommunication
              Solutions Limited                   infrastructure to the oil and gas industry                UK

            RTC, Inc.                             Technical marketing, sales and consulting
                                                   services                                                USA
</TABLE>

      Timtec International Limited is wholly owned by Chunlan Limited.

                                      F-11
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

2     SIGNIFICANT ACCOUNTING POLICIES

      (a)   PRINCIPLES OF CONSOLIDATION

            The consolidated financial statements include the financial
            statements of EuroTelecom and its subsidiaries and affiliate.
            EuroTelecom Secure Networks Limited is recorded as a closed
            subsidiary in the period ended June 30, 1999 since it ceased
            operations on February 19. All significant intercompany transactions
            have been eliminated in consolidation. Investments in affiliates are
            accounted for using the equity method when the Company owns at least
            20% but no more than 50% of such affiliates. Under the equity method
            the Company records its proportionate share of profits and losses
            based on its percentage interest in those affiliates.

      (b)   GOODWILL

            The excess of cost of investments over the fair value of net assets
            acquired which is not otherwise allocated is determined to be
            goodwill and is amortized on a straight-line basis over a period of
            5 years.

      (c)   LONG-LIVED ASSETS

            Long-lived assets, such as property, plant and equipment, goodwill
            and investments in affiliates, are evaluated for impairment when
            events or changes in circumstances indicate that the carrying amount
            of the assets may not be recoverable through the estimated
            undiscounted future cash flows from the use of these assets. When
            any such impairment exists, the related assets will be written down
            to fair value. An impairment write-down related to an investment of
            $44,000 was necessary for fiscal 2000, $Nil for the six months ended
            June 30, 1999 and $Nil for fiscal 1998.

      (d)   PROPERTY, PLANT AND EQUIPMENT

            Property, plant and equipment are stated at cost less accumulated
            depreciation. Depreciation is calculated using the straight-line
            method over estimated useful life of up to seven years.

      (e)   INCOME TAXES

            The Company recognises deferred tax liabilities and assets for the
            expected future tax consequences of events that have been included
            in the financial statements or tax returns. Accordingly, deferred
            tax liabilities and assets are determined based on the difference
            between the financial statement and tax basis of assets and
            liabilities using enacted rates in effect for the year in which the
            differences are expected to reverse. The effect on deferred tax
            assets and liabilities of a change in tax rates is recognised in
            income in the period that includes the enactment date.

            A valuation allowance is established to reduce the deferred tax
            assets when management determines it is more likely than not that
            the related tax benefits will not be realised.

                                      F-12
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

2     SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      (f)   REVENUE RECOGNITION

            Revenues comprise:

              i)    Sale of equipment and software which is recognised when
                    shipped.

              ii)   Provision of consultancy and security services is recognised
                    as services are performed.

              iii)  Provision of maintenance and monitoring services is
                    recognised on a straight line basis over the period of the
                    contract.

              iv)   The Company recognizes revenues from fixed-price and
                    modified fixed-price application linking and fit-out
                    contracts on the percentage of completion method, measured
                    by the percentage of cost incurred to date to estimated
                    total cost for each contract. That method is used because
                    management considers total cost to be the best available
                    measure of progress on the contracts. Because of inherent
                    uncertainties in estimating costs, it is at least reasonably
                    possible that the estimates used will change within the near
                    term.

                    Contract costs include all direct material and labor costs
                    and in the case of fit-out costs an element of indirect
                    costs are included. Selling, general and administrative
                    costs are charged to expense as incurred. Provisions for
                    estimated losses on uncompleted contracts are made in the
                    period in which such losses are determined. Changes in job
                    performance, job conditions, and estimated profitability may
                    result in revisions to costs and income, which are
                    recognized in the period in which the revisions are
                    determined. Changes in estimated job profitability are
                    accounted for as changes in estimates in the current period.

                    The asset "Costs and estimated earnings in excess of
                    billings on uncompleted contracts," represents revenues
                    recognized in excess of amounts billed. The liability,
                    "Billings in excess of costs and estimated earnings on
                    uncompleted contracts," represents billings in excess of
                    revenues recognized.

      (g)   FOREIGN CURRENCIES

            The reporting currency of the Company is the United States dollar.
            The Company's functional currency is the United Kingdom pound
            sterling for the majority of its business.

            For consolidation purposes, the assets and liabilities of overseas
            subsidiaries are translated at the closing exchange rates.
            Consolidated statements of income of such subsidiaries are
            consolidated at the average rates of exchange during the period.
            Exchange differences arising on the translation of subsidiaries'
            financial statements are recorded in the cumulative foreign currency
            translation adjustment account as a component of stockholders'
            equity.

      (h)   CASH EQUIVALENTS

            For purposes of the statements of cash flows, the Company considers
            all investments with an original maturity of three months or less to
            be a cash equivalent.

                                      F-13
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

2     SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      (i)   INVENTORY

            Inventories are stated at lower of cost using the first in first out
            method, or market.

      (j)   USE OF ESTIMATES

            In preparing the consolidated financial statements in conformity
            with generally accepted accounting principles, management is
            required to make estimates and assumptions that affect the reported
            amounts of assets and liabilities and the disclosure of contingent
            liabilities at the date of the consolidated financial statements and
            revenues and expenses during the reported period. Actual results
            could differ from these estimates.

      (k)   FINANCIAL INSTRUMENTS

            Financial instruments held by the Company include cash and cash
            equivalents, accounts receivable and payable, notes payable and
            approximated fair value as of June 30, 2000 due to either short
            maturity or terms similar to those available to similar companies in
            the open market. The investment in affiliated company approximated
            fair value as of June 30, 2000 due to the fact that it was recently
            acquired.

      (l)   ADVERTISING COSTS

            The company expenses advertising costs as incurred. Advertising
            costs in fiscal 2000, six months ended June 30, 1999 and fiscal 1998
            were $129,000, $10,000 and $Nil respectively.

      (m)   COMPREHENSIVE INCOME

            The Company adopted Statement of Financial Accounting Standard
            ("SFAS") No.130, "Reporting Comprehensive Income", which establishes
            standards for reporting and display of comprehensive income, its
            components and accumulated balances. Comprehensive income is defined
            to include all changes in equity except those resulting from
            investments by owners and distributions to owners. Among other
            disclosures, SFAS No.130 requires that all items that are required
            to be recognized under current accounting standards as components of
            comprehensive income be reported in a financial statement that is
            displayed with the same prominence as other financial statements.
            The only item of comprehensive income is foreign currency exchange
            translation adjustments.

      (n)   RESEARCH AND DEVELOPMENT

            The Company incurred research and development costs of $717,000,
            $Nil and $Nil for fiscal 2000, six months ended June 30, 1999 and
            fiscal 1998 respectively.

      (o)   STOCK COMPENSATION

            The Company applies the recognition and measurement provisions of
            Accounting Principles Board (APB) Opinion No. 25, "Accounting for
            Stock Issued to Employees" and the disclosure provisions of SFAS No.
            123, "Accounting for Stock-Based Compensation" in accounting for
            stock options issued to employees.

                                      F-14
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

2     SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      (p)   EARNING PER SHARE

            The Company follows SFAS No. 128, "Earnings per share," which
            requires presentation of basic earnings per share and diluted
            earnings per share by all entities that have publicly traded common
            stock or potential common stock (options, warrants, convertible
            securities or contingent stock arrangements). Basic earnings per
            share is computed by dividing income available to common
            stockholders by the weighted average number of common shares
            outstanding during the period. Diluted earnings per share gives
            effect to dilutive potential common shares outstanding during the
            year. Assumed exercise of options and warrants has not been included
            in the calculation of diluted loss per share since the effect would
            be anti-dilutive. Accordingly, basic and diluted net loss per share
            do not differ for any period presented. The number of options and
            warrants outstanding as of June 30, 2000 is 1,189,362.

      (q)   EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

            In June 1998, the Financial Accounting Standards Board ("FASB")
            issued SFAS No. 133, as amended by SFAS No. 137 "Accounting for
            Derivative Instruments and Hedging Activities," which requires the
            Company to value derivative financial instruments, including those
            used for hedging foreign currency exposures, at current market value
            with the impact of any change in market value being charged against
            earnings in each period. SFAS No. 133 will be effective for and
            adopted by the Company in the first quarter of the fiscal year ended
            June 30, 2001. The Company has not in the past nor does it
            anticipate that it will engage in transactions involving derivative
            instruments, and therefore does not expect this pronouncement to
            have any effect on the financial statements.

            In December 1999, the Securities Exchange Commission issued Staff
            Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This
            bulletin summarizes views of the Staff on applying generally
            accepted accounting principles to revenue recognition in financial
            statements. The Company will be required to adopt SAB No. 101, as
            amended by SAB 101B, in the fourth quarter of fiscal 2001.
            Management believes that the current revenue recognition policy
            complies with the guidelines in SAB No. 101 and, therefore, does not
            believe the adoption of SAB No. 101B will have a material impact on
            the financial position or results of operations.

            In March 2000, the FASB issued Financial Interpretation No. 44,
            "Accounting for Certain Transactions involving Stock Compensation an
            interpretation of APB Opinion 25". Interpretation No. 44 is
            effective July 1, 2000. Interpretation No. 44 clarifies the
            application of APB Opinion 25 for various matters, specifically: the
            criteria for determining whether a plan qualifies as a
            non-compensatory plan; the accounting consequence of various
            modifications to the terms of a previously fixed stock option or
            award; and the accounting for an exchange of stock compensation
            awards in a business combination. Management believes that the
            adoption of Interpretation No. 44 note will not have a material
            impact on the Company's financial position or results of operations.

            In March 2000, the FASB's Emerging Issue Task Force ("EITF") reached
            a consensus on EITF 00-2, "Accounting for Web Site Development
            Costs". EITF 00-2 discusses how an entity should account for costs
            incurred to develop a web site. The EITF is effective in the first
            quarter of fiscal 2001. Management believes that the adoption of
            EITF 00-2 will not have a material impact on the Company's financial
            position or results of operations.

                                      F-15
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

3     INVENTORIES

         Inventories consist of the following:
                                                                     JUNE 30,
                                                                       2000
                                                                  (IN THOUSANDS)

            Finished goods                                        $         643
            Raw materials                                                   255
                                                                  --------------

                                                                  $         898
                                                                  ==============


4     PROPERTY, PLANT AND EQUIPMENT, NET

         Major classes of property, plant and equipment consist of the
         following:
                                                                      JUNE 30,
                                                                       2000
                                                                  (IN THOUSANDS)

            Leasehold improvements                                $         283
            Plant and equipment                                           2,354
                                                                  --------------

                                                                          2,637
            Less: accumulated depreciation                                 (263)
                                                                  --------------

                                                                  $       2,374
                                                                  ==============

         Depreciation expense was approximately $200,000, $14,000 and $23,000
         for fiscal 2000, six months ended June 30, 1999 and fiscal 1998
         respectively

                                      F-16
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

5     UNCOMPLETED CONTRACTS

         Costs, estimated earnings, and billings on uncompleted contracts are
         summarized as follows:

                                                                     JUNE 30,
                                                                       2000
                                                                  (IN THOUSANDS)

            Costs incurred on uncompleted contracts               $       2,299
            Estimated earnings*                                              24
                                                                  --------------

                                                                          2,323
            Billings to date                                                  -
                                                                  --------------
            Costs and estimated earnings in excess of
             billings on uncompleted contracts                    $       2,323
                                                                  ==============


         *   Does not include the 49% of estimated earnings on the contract with
             Q.Ton, the Company's affiliated company - Refer also to Note 15.


6     ACQUISITIONS

      (a)   EASY IP

            On April 19, 1999 the Company acquired a software distribution
            business known as Easy IP Limited. The transaction has been
            accounted for as a purchase.

            The consideration for the business and assets, including acquisition
            costs, was $586,050, payable as to $193,200 in cash of which $96,625
            was deferred and 200,000 shares of common stock valued at $331,250.
            The Company acquired net assets of $178,300 resulting in goodwill of
            $407,750.

            The results for Easy IP have been included in the consolidated
            financial statements from April 19, 1999.

                                      F-17
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

6     ACQUISITIONS (CONTINUED)

      (a)   EASY IP (CONTINUED)

            The unaudited pro forma statement for the Company as if the
            acquisition had occurred on January 1, 1998 and January 1, 1999, is
            set out below:
                                                    SIX MONTHS      YEAR ENDED
                                                     JUNE 30,      DECEMBER 31,
                                                       1999            1998
                                                          (IN THOUSANDS)

            Revenues                              $       1,860   $       2,027
                                                  ==============  ==============

            Loss from operations                         (1,269)         (1,361)
                                                  ==============  ==============

            Net loss                                     (2,231)         (1,457)
                                                  ==============  ==============

            Loss per share                        $       (0.29)  $       (0.24)
                                                  ==============  ==============

      (b)   TIMTEC

            On April 18, 2000, a newly incorporated wholly owned subsidiary of
            Chunlan Limited purchased the trade and assets of Timtec
            International Limited ("Timtec") for a total consideration of
            $1,041,000. The purchase consideration was allocated $583,000 to
            equipment acquired and the balance of $458,000 attributed to
            goodwill which will be amortized over 5 years. Timtec was in
            administration at the time of the acquisition and following the sale
            changed its name. The company which acquired the trade and assets
            then changed its name to Timtec International Limited. The
            transaction has been accounted for as a purchase.

            The results of Timtec have been included in the consolidated
            financial statements from April 18, 2000.

                                      F-18
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

6     ACQUISITIONS (CONTINUED)

      (b)   TIMTEC (CONTINUED)

            The unaudited pro-forma results of operations for the Company as if
            the acquisition had occurred on January 1, 1998, January 1, 1999 and
            July 1, 1999 is set out below:

<TABLE>
<CAPTION>
                                                   YEAR ENDED       SIX MONTHS      YEAR ENDED
                                                    JUNE 30,         JUNE 30,      DECEMBER 31,
                                                      2000             1999            1998
                                                                  (IN THOUSANDS)

            <S>                                          <C>             <C>             <C>
            Revenues                                     11,020           6,498          10,752
                                                  ==============  ==============  ==============

            Loss from operations                         (7,374)         (1,397)         (1,704)
                                                  ==============  ==============  ==============

            Net loss                                     (7,300)         (2,410)         (1,835)
                                                  ==============  ==============  ==============

            Loss per share                                (0.38)          (0.31)          (0.32)
                                                  ==============  ==============  ==============
</TABLE>


7     INVESTMENT IN AFFILIATED COMPANY

      (a)   On May 10, 2000 ECL acquired 49% of Q.Ton Limited in exchange for
            794,000 shares of Class 'A' Common Stock of EuroTelecom and
            $1,139,025 payable in cash. The fair value of the 794,000 shares
            issued was $1,459,076. Total consideration paid, including
            acquisition costs, was $2,635,953.

            The fair value of the net assets acquired was $1,948,000 resulting
            in a premium of $1,688,000 which is being amortized over a 5 year
            period.

                                                                     JUNE 30,
                                                                       2000
                                                                  (IN THOUSANDS)

            Investment at cost                                            2,636

            Share of loss for the period                                    (51)
            Amortization of premium on acquisition in the period            (25)
                                                                  --------------

                                                                  $       2,560
                                                                  ==============

                                      F-19
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

7     INVESTMENT IN AFFILIATED COMPANY (CONTINUED)

      (b)   Summarised financial information on Q.Ton Limited as of June 30,
            2000 and for the year ended June 30, 2000
                                                                     JUNE 30,
                                                                       2000
                                                                  (IN THOUSANDS)

            Current assets                                        $       1,615
            Non-current assets                                              993
                                                                  --------------

                                                                  $       2,608
                                                                  ==============

            Current liabilities                                   $         777
                                                                  ==============

            Revenues                                              $           -
                                                                  ==============

            Loss from operations                                  $        (194)
                                                                  ==============

            Net loss                                              $        (160)
                                                                  ==============


8     STOCKHOLDERS' EQUITY

         In the year ended December 31, 1998 the Company issued 1,280,000 shares
         for services, 151,200 shares to employees (101,200) and a director
         (50,000) and 51,200 shares for cash.

         In the six months ended June 30, 1999, the Company issued 1,381,666
         shares for cash, 764,000 shares for services, 123,420 shares in respect
         of employee bonuses and subscriptions, and 200,000 shares for the
         acquisition of Easy IP.

         In the year ended June 30, 2000 the Company had the following stock
         transactions:

         (a)  issued 2,310,000 shares of common stock shares for cash;

         (b)  convertible notes previously categorised as debt in the amounts of
              $80,000, $360,000 and $360,000 were converted into 550,000,
              2,475,000 and 2,475,000 restricted common stock shares
              respectively at $0.145 per share. Conversion terms were agreed
              prior to June 30, 1999 with the shares being issued on July 1,
              1999. The beneficial conversion terms of $918,750 was reflected in
              finance costs in the six months to June 30,1999;

                                      F-20
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

8     STOCKHOLDERS' EQUITY (CONTINUED)

         (c)  issued 821,000 shares of common stock for services;

         (d)  issued 150,000 shares of common stock in consideration for an
              employment agreement entered into on August 16, 1999 covering a
              period of three years. The value of these shares is being
              amortized over the period of the employment agreement;

         (e)  issued 218,120 common stock shares to directors of the Company;

         (f)  on April 5, 2000 the Company listed a new class of Class 'A'
              common stock on the Alternative Investment Market of The London
              Stock Exchange. A total of 11,220,118 Class 'A' common stock
              shares were sold raising $26,938,283 before costs; and

         (g)  issued 794,000 shares of common stock in connection with the
              acquisition of Q.Ton Limited.

         Shares were valued at the prevailing market price at the date of grant
         in the case of those issued to employees and directors, and at the date
         the parties entered into the settlement agreement to satisfy invoiced
         amounts in the case of professional services and for acquisitions at
         the date of closing the transaction.


9     WARRANTS AND SHARE OPTIONS

         As of June 30, 2000 the Company had 223,600 warrants outstanding
         convertible into common stock shares.

         The warrants are exercisable on the day two years from the first
         effective date of a registration statement being filed by the Company
         in respect of the warrants. No such registration statement has been
         filed and the warrants presently have an indefinite exercise period.
         The exercise price is $2.00 per share.

         On March 28, 2000 the Company approved an Employee Share Option Scheme
         ("Option Scheme") which provided for the grant of options over the
         Company's 'A' class common stock shares of $0.01. As of June 30, 2000
         the Company had granted 965,762 options, of which 210,000 were granted
         to directors of the Company. The options generally will vest after
         three years and will expire ten years after the grant date. None were
         forfeited.

         The number of options which can be issued is restricted based on a
         certain percentage ceilings dependent upon the number of shares in
         issue.

         Exercise price is the higher of market value at the date of grant,
         determined by reference to the average of mid-market quotations on the
         three dealing days preceding the date of grant, and par value. Options
         cannot be exercised, subject to certain specified procedures in the
         Option Scheme, until the expiry of three years from the date of grant.
         The weighted average exercise price is $2.40.

         The option exercise price at each option share is the fair market value
         of the Company's shares of Class A Common stock. Options lapse on the
         option holder ceasing to be either an employee or director of the
         Company.

                                      F-21
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

9     WARRANTS AND SHARE OPTIONS (CONTINUED)

         The Company applies APB Opinion No. 25 and accordingly no compensation
         expense has been recognized for its employee stock options. Had the
         Company determined compensation expense based on the fair value at the
         grant date in accordance with SFAS 123, the Company's net loss would
         have been increased to the pro forma amount indicated below:

                                                                    YEAR ENDED
                                                                     JUNE 30,
                                                                       2000
                                                                   (IN THOUSANDS
                                                                    EXCEPT LOSS
                                                                    PER SHARE)
            Net loss
             - As reported                                        $      (7,069)
             - Pro forma                                                 (7,229)
                                                                  ==============

            Loss per share
             - As reported                                        $       (0.37)
             - Pro forma                                                  (0.38)
                                                                  ==============

         The fair value of the options granted was estimated using the
         Black-Scholes option pricing model assuming no expected dividends, a
         vesting period of three years, risk free rate of 6.4% and volatility of
         93%.


10    LOSS FROM CLOSED SUBSIDIARY

         On September 16, 1997 a wholly owned subsidiary company, Eurotelecom
         Secure Networks Limited (Secure Networks), was incorporated in the UK
         to provide certain internet technology and communication products and
         services. On February 19, 1999, Secure Networks was placed into
         voluntary liquidation in response to the loss of key employees and
         contracts and continuing losses of customers. As a result, the assets
         of Secure Networks were written down to their fair value less the cost
         of their sale in accordance with the provisions of Statement of
         Financial Accounting Standards ("SFAS") No. 121. The full amount of the
         impairment has been classified within operating loss as a loss from
         closed subsidiary in the consolidated statement of operations for the
         six months ended June 30, 1999 and fiscal 1998.

         The amount expensed in the consolidated statement of operations for the
         year ended December 31, 1998 was $291,923. In the period to February
         1999, the company was required to extend further amounts of $123,928 to
         effect the closure of Secure Networks. All liabilities associated with
         the closure of Secure Networks have been extinguished upon the
         liquidation of Secure Networks.

         As of June 30, 2000 EuroTelecom is carrying no assets or liabilities in
         respect of this company.

                                      F-22
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

11    INCOME TAXES

         The Company did not provide any current or deferred US federal, state
         or foreign income tax provision or benefit for any periods presented
         because it has experienced operating losses since inception. The
         Company has provided a full valuation allowance on the deferred tax
         asset, consisting primarily of net operating loss, because of
         uncertainty regarding its realizability.

         As June 30, 2000 the majority of the losses carried forward arise in
         the UK. Under UK legislation the net operating losses can, subject to
         certain restrictions, be carried forward indefinitely.

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

<TABLE>
<CAPTION>
                                                       YEAR ENDED       SIX MONTHS      YEAR ENDED
                                                        JUNE 30,         JUNE 30,      DECEMBER 31,
                                                          2000             1999            1998
                                                                      (IN THOUSANDS)

         <S>                                          <C>             <C>             <C>

         Net operating loss                           $       2,474   $       7,140   $       7,408
         Valuation allowance for deferred tax assets         (2,474)         (7,140)         (7,408)
                                                      --------------  --------------  --------------

                                                      $           -   $           -   $           -
                                                      ==============  ==============  ==============
</TABLE>


12    LEASES

         The Company leases certain office space under lease agreements.

         Future minimum lease payments under non-cancellable operating leases as
         of June 30, 2000, are as follows (in thousands):

                                      2001                        $         290
                                      2002                                  288
                                      2003                                  288
                                      2004                                  288
            Thereafter                                                    1,656
                                                                  --------------

                                                                  $       2,810
                                                                  ==============

         Total rental expense for the fiscal 2000, six months to June 30, 1999
         and fiscal 1998 was $261,000, $27,000 and $1,000 respectively.

                                      F-23
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

13    BUSINESS AND CREDIT CONCENTRATIONS

         The Company's customers are primarily located in the UK. Details of
         corporate customers who account for more than 10% of revenue for fiscal
         2000, six months to June 30, 1999 and fiscal 1998 are as follows:

                                   YEAR ENDED       SIX MONTHS      YEAR ENDED
                                    JUNE 30,         JUNE 30,      DECEMBER 31,
                                      2000             1999            1998

            Customer A                        -             20%               -
            Customer B                       14%            13%               -


14    COMMITMENTS AND CONTINGENCIES

         From time to time the Company is subject to legal proceedings and
         claims in the ordinary course of business.

         The Company is not aware of any legal proceedings or claims against the
         Company that will have, individually or in aggregate a material adverse
         affect on the Company's business, prospects, financial condition and
         results of operations.


15    RELATED PARTY TRANSACTIONS

         The Company was charged $390,000 in fiscal 2000, $Nil in the six months
         to June 30, 1999 and fiscal 1998 in professional fees by a company in
         which one of the directors has a material interest.

         The Company entered into an application linking contract with Q.Ton
         Limited prior to its acquisition of 49% of Q.Ton Limited on May 10,
         2000, an affiliated company. As of June 30, 2000 the contract was
         uncompleted and no amounts had been billed. The amount of cost incurred
         to June 30, 2000 was approximately $1,000,000 with estimated earnings
         of $46,000 as of June 30, 2000. In accordance with the principles of
         equity accounting the Company has only recorded 51% of revenues and
         costs associated with this contract.

                                      F-24
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

16    INDUSTRY AND GEOGRAPHIC AREA SEGMENTS

         The Company and its subsidiaries are engaged in three lines of
         business: Projects, Services and Communications. Operations of the
         subsidiary companies are conducted in the UK and US. The following is a
         summary of the Company's operations by business segment and by
         geographical segment. The accounting policies of the segments are the
         same as those described in Note 2 - Significant accounting policies

<TABLE>
<CAPTION>
                                                                    YEAR ENDED   SIX MONTHS ENDED   YEAR ENDED
                                                                     JUNE 30,        JUNE 30,      DECEMBER 31,
                                                                       2000            1999            1998
                                                                                  (IN THOUSANDS)
         <S>                                                      <C>             <C>             <C>
         (a)  Statement of operations

              Revenues
                  Projects                                        $       2,871   $         443   $           -
                  Services                                                3,914             348              64
                  Communications                                          2,953             532               -
                                                                  --------------  --------------  --------------
                  Revenues for reportable segments
                   and consolidated revenues                              9,738           1,323              64
                                                                  --------------  --------------  --------------
              Loss before tax
                  Projects                                               (6,018)         (1,072)              -
                  Services                                                 (674)            (86)         (1,133)
                  Communications                                           (462)             (1)              -
                  Add: interest, loan beneficial conversion,
                   loss from closed subsidiary and share of
                   loss of affiliated company                                85          (1,078)           (346)
                                                                  --------------  --------------  --------------

                  Total loss for reportable segments              $      (7,069)  $      (2,237)  $      (1,479)
                                                                  ==============  ==============  ==============

              Depreciation and amortization
                  Projects                                        $         214   $           6   $           -
                  Services                                                   94              14              23
                  Communications                                             11              20               -
                                                                  --------------  --------------  --------------

                                                                  $         319   $          40   $          23
                                                                  ==============  ==============  ==============
</TABLE>

                                      F-25
<PAGE>

EUROTELECOM COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

16    INDUSTRY AND GEOGRAPHIC AREA SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                     JUNE 30,
                                                                                                       2000
                                                                                                  (IN THOUSANDS)
      <S>                                                         <C>             <C>             <C>
      (b)   Total assets

            Projects                                                                              $       5,657
            Services                                                                                      3,178
            Communciations                                                                                1,417
            Unallocated                                                                                  15,899

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

                                                                                                  $      26,151
                                                                                                  ==============


                                                                    YEAR ENDED   SIX MONTHS ENDED   YEAR ENDED
                                                                     JUNE 30,        JUNE 30,      DECEMBER 31,
                                                                      2000             1999            1998
                                                                                  (IN THOUSANDS)
      (c)   Geographic analysis of revenue

            United Kingdom                                        $       9,385   $       1,323   $          64
            United States                                                   353               -               -
                                                                  --------------  --------------  --------------

                                                                          9,738           1,323              64
                                                                  ==============  ==============  ==============


17    RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
                                                                                                SIX MONTHS ENDED
                                                                                                    JUNE 30,
                                                                                                      1998
                                                                                                  (IN THOUSANDS,
                                                                                              EXCEPT LOSS PER SHARE)

         Revenues                                                                                 $          32
                                                                                                  ==============

         Gross profit                                                                                        32
                                                                                                  ==============

         Selling, general and administrative expenses                                                       676
                                                                                                  ==============

         Net loss                                         c                                                 (656)
                                                                                                  ==============

         Loss per share                                                                           $       (0.12)
                                                                                                  ==============
</TABLE>

                                      F-26