|SECURITIES
AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549FORM 10-K


ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001 COMMISSION FILE NUMBER 0-2564


TELESOURCE
INTERNATIONAL, INC.


(EXACT NAME OF
REGISTRANT AS SPECIFIED IN ITS CHARTER)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|DelawareState or other jurisdiction ofIncorporation or organization | 6770PRIMARY STANDARD INDUSTRIAL CLASSIFICATIONCODE NUMBER | 59-3671568I.R.S. Employer IdentificationNo.
|------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------

|REGISTRANTS
TELEPHONE NUMBER, INCLUDING AREA CODE(630) 620-4787


SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:


COMMON STOCK, PAR VALUE
$.01 PER SHARE(Title of each class)


SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


NONE


Indicate by check mark
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 [X] No [_]


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. [X]


The aggregate market value
of the Registrants voting stock held by non-affiliates of the Registrant
on December 31, 2001 was approximately $5,205,000.


Number of shares of $0.01 par value Common Stock
outstanding as of the close of business on April 10, 2002: 15,000,000 shares.


DOCUMENTS
INCORPORATED BY REFERENCE


Portions of the
registrants definitive proxy statement for its 2002 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A are incorporated by
reference into Part III of this Form 10-K.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|TABLE OF CONTENTS
|-----------------

|                                                                          | PAGE
|------------------------------------------------------------------------- | ----
|PART I                                                                   
|Item 1.  Business                                                         |     
|General                                                                   |     
|The Business                                                              |     
|Competition                                                               |     
|Employees                                                                 |     
|Item 2.  Properties                                                       |     
|Item 3.  Legal Proceedings                                                |     
|Item 4.  Submission of Matters to a Vote of Security Holders              |     
|                                                                         
|PART II                                                                  
|                                                                         
|Item 5.  Market for the Registrants Common Equity and Related            |     
|Stockholder Matters                                                       |     
|Item 6.  Selected Financial Data                                          |     
|Item 7.  Managements Discussion and Analysis of Results of Operations    |     
|and Financial Condition                                                   |     
|Item 8.  Financial Statements and Supplementary Data                      |     
|Item 9.  Changes in and Disagreements with Accountants on Accounting      |     
|and Financial Disclosure                                                  |     
|                                                                         
|PART III                                                                 
|                                                                         
|Item 10.  Directors and Executive Officers of the Registrant              |     
|Item 11.  Executive Compensation                                          |     
|Item 12.  Security Ownership of Certain Beneficial Owners and Management  |     
|Item 13.  Certain Relationships and Related Transactions                  |     
|                                                                         
|PART IV                                                                  
|                                                                         
|Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K |     

|2
|-

|PART I



ITEM 1. BUSINESS




GENERAL


Telesource International,
Inc. was formed in 1994 to facilitate various intra-corporate activities and,
until July 1999, was a wholly owned subsidiary of Sayed Hamid Behbehani &
Sons Co. W.L.L. (SHBC), a Kuwait-based civil, electrical and
mechanical construction company. Telesource International is an international
engineering and construction company, constructing single family homes,
airports, radio towers and in the construction and operation of energy
conversion power plants. In Tinian, an island in the Commonwealth of the
Northern Mariana Islands, a U.S. Territory, Telesource operates a diesel fired
electric power generation plant for the sale of electricity to the local power
grid. Telesource Internationals facility in Lombard, Illinois, handles the
procurement, export and shipping of U.S. fabricated products for use by its
subsidiaries or for resale to customers outside of the mainland.


Telesource International
conducts its operations through three subsidiaries: (i) Telesource CNMI, handles
construction and management of the energy conversion facilities in the
Commonwealth of the Northern Mariana Islands and operates a branch office in
Guam; (ii) Commsource International, which is an international export company
that facilitates the purchase of equipment in the U.S. (the business activities
of Commsource have been assumed by Telesource); and (iii) Telesource Fiji, Limited,
that handles the construction activities in Fiji.


Telesource has three main
operating segments: construction services, brokerage of goods and services and
power generation and construction of power plants. The power generation
activities commenced in March 1999.


Construction
Services


Telesource
Internationals Micronesian construction services are primarily carried out
through Telesource Internationals Mariana subsidiary. In late 1996,
Telesource Internationals Mariana subsidiary was subcontracted by
Telesource Internationals then-parent corporation to build a radio relay
station in the Commonwealth of the Northern Mariana Islands for the United
States Information Agency.


In 1999, through a
competitive bidding process, Telesource International was awarded a contract to
build 45 housing units for the Northern Mariana Housing Agency, a government
agency. These are government-subsidized, low-income housing units. This project
was completed as of December 31, 2001. Management believes that
there may be additional contracts or phases to this project in the future,
though there can be no assurances that additional phases will be contracted or
whether Telesource International would be successful in being awarded the
contract.
3
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|In 2000, through a
competitive bidding process, Telesource was awarded a contract to expand two
existing power generation stations in Fiji. The project contemplated the
expansion of the building housing the power plant and the addition of two power
generation engines at each of the two sites. The total power production capacity
to be added for both sites is approximately 16 Mwh. This project was completed
as of December 31, 2001.


In November 2000, through a
competitive bidding process, Telesource International was awarded a contract to
construct a 7,800 linear foot airport runway on the Island of Tinian. This
contract is valued at $16,949,105 and was 47.5% complete at December 31, 2001.
This contract has a required completion date of July 2002 and has an estimated
net profit of $2,249,000.


In August 2001, through a
competitive bidding process, Telesource International was awarded a contract to
construct a radio broadcast station in Lebanon. This contract is valued at $1.5
million and was 82.9% complete at December 31, 2001.


In December 2001, through a
competitive bidding process, Telesource was awarded a contact to install on
overhead transmission line on the island of Tinian. This contract is valued at
$1.0 million and will begin construction in early 2002 with a completion during
the second quarter of 2002.


In February 2002, through a
competitive bidding process, Telesource was awarded a contract to construct a
334-bed prison in accordance with the requirements as specified by the U.S.
Department of Justice. The notice to proceed on the construction of the this
project was issued in March 2002. This contract is valued at $17.3 million and
is expected to be completed in spring of 2004.


With Telesources
expansion into Guam to take advantage of the growing U.S. military presence
there, Telesource International is seeking opportunities for construction
services not only in Micronesia, but also throughout the Pacific basin.


Specialized
Construction Processes


Building an airport or a
broadcasting facility is not like the construction of a more conventional
building. Because of the high levels of radio frequency emissions or the
generation of electrical currents, every part of the structure is integrated
into the overall design and plays a role in making the overall facility safer
and more efficient.


The building of these
specialized structures requires additional engineering skills, the knowledge of
specialized construction techniques and relationships with specialized
subcontractors. The situation is made harder when building offshore, where
distance from raw materials and subcontractors becomes a risk factor.
4
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|Past and
Present Power Generation Construction Projects


Telesource
Internationals power generation business involves:
|------------------------------------------------------------------------------------------------------------------------

| |  | * |  | Building
the power plants
| |  | - |  | -------------------------

| |  | * |  | Operating
the power plants for a contracted period of time
| |  | - |  | ----------------------------------------------------------

| |  | * |  | Selling
wholesale power to the client to be distributed on their power grid
| |  | - |  | ---------------------------------------------------------------------------

| |  | * |  | The
transfer of the ownership of the properties to the clients at the end of the contract.
| |  | - |  | ------------------------------------------------------------------------------------------

|In 1997, a governmental
agency located in the Commonwealth of the Northern Mariana Islands, awarded
Telesource Internationals Mariana subsidiary a contract to design, build
and operate a 10-30 megawatt power plant.


The initial 10 megawatts
are now on-line, completed within budget and on time and the plant has been
operational since March 1999. The second phase of the project was completed in
March 2000, also within budget and on time. The third phase will be constructed at
the discretion of Telesource Internationals Mariana subsidiary as the
demand for power increases. Accordingly, if power demand fails to meet
Telesource Internationals projections, this phase may never be
constructed.


In 2000, Telesource
International was contracted to expand two existing power stations in Fiji and
to add additional power generators with a combined production capacity of 32 Mwh
for a fixed price of approximately $12.1 million. This project was completed in
late 2001 at a cost of $11.1 million. Performance for this contract was divided
between Telesource International and a subsidiary of Telesource International,
Telesource Fiji, Ltd., based on the location and type of service to be
performed. The construction services were recognized under Telesource Fiji, Ltd.
while the purchasing of the power generation engines was recognized on a net
basis under Telesource International. The contract with the customer reflects
this arrangement. This contract was a performance pay contract (i.e., as specified
milestones are reached, Telesource bills the customer and receives payments
within 30 days).


Power Plant
Operation and Maintenance


Our agreement with the governmental agency in
the Commonwealth of the Northern Mariana Islands is an example of a power plant
operation and maintenance project. Under the terms of this agreement, Telesource International designed, financed
and built the power plant. Telesource International obtained financing for the project through a
$25,000,000 line of credit from the Commercial Bank of Kuwait, New York Branch.
For the construction of the first phase of this power plant Telesource
International is paid $180,000 per month for ten years by the governmental
agency. Each monthly payment is secured by a promissory note in the amount of
$180,000 issued by the Commonwealth Utilities Corporation.
5
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Telesource International
has a 20-year lease on the land on which the power plant is built, plus title to
the entire plant and a two-month escrow account of no less than $360,000 on
which Telesource International has a first lien. In the event the
governmental agency is unable to meet their obligations either to make payments of
monthly maintenance fees or on the promissory notes, Telesource International
may sell, lease, assign or transfer the power plant or any of the plant
equipment.


In the first phase of the project, the
governmental agency also pays Telesource a production fee of $.02 per kilowatt-hour for
each kilowatt-hour produced on its behalf for the first 5,140,000-kilowatt hours per
month. In the second phase, which 10-megawatts of capacity the governmental agency has
agreed to pay Telesource International an additional production fee of $.065 per
kilowatt-hour produced over the initial 5,140,000-kilowatt hours per month.


In addition, the
governmental agency pays Telesource a service fee of $50,000 per month for operating and
maintaining the power plant.


The governmental agency has
the right to terminate the contract for operation and maintenance at any time
with six months notice. In this event, Telesource International would
still have title to the power plant until fully repaid.


In May 2001, the
governmental agency and Telesource executed Change Order No. 3 to the Tinian
Power Plant Contract. Change Order No. 3 provides a suspension in the Escalator
on the variable payments from January 1, 2001 to December 31, 2005. This Change
Order extends the term of the contract from an expiration of 10 years following
commissioning of the last constructed phase (currently Phase II was commissioned
in March 2000 and therefore the contract was to have expired in March 2010) to
an new expiration date of March 31, 2020. Change Order No. 3 does not include an
expansion of the power generation capacity of the power plant. The power plant
will continue to operate at its current maximum generation capacity of 20 Mwh.
Effectively the contract has been extended for an additional 10 years. Power
rates agreed to under the original contract and Change Order No. 1 remain
unchanged. Change Order No. 3 does provide the customer with an early
termination option of the extended agreement beginning on March 31, 2010 and
available annually thereafter; however, the customer is required to give a six
month notice and pay an early termination fee of $6,000,000. Change Order No. 3
prohibits the customer from purchasing power from any source other than
Telesource for the first 30 MW. The expanded agreement executed under Change
Order No. 3 only extends the power generation contract term and does not require additional
performance by Telesource, with respect to construction activities.




6
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|Potential
Future Power Plant Construction and Power Supply


Based on previous
experience, management believes there will be a growing demand for power around
the world; however competition and deregulation could eliminate the financial
feasibility of these projects and thereby prevent Telesource International from
taking advantage of the expected growth in demand. In the U.S., two-thirds of the
countrys installed plants are 25 or more years old and need to be replaced
and repowered, principally with new gas combustion turbines. The worlds
use of electricity is projected to increase by two-thirds over the forecast
horizon, from 13 trillion kilowatt hours in 1999 to 22 trillion kilowatt-hours
in 2020. The strongest growth rates in electricity consumption are projected for
the developing world. The most rapid expansion in electricity use in the
reference case is expected for developing Asia and Central and South America,
with average annual growth rates exceeding 3.5 percent between 1999 and 2020. In
the industrialized world, electricity consumption is expected to grow at a
more modest pace. Slower population and economic growth, along with the market
saturation of certain electronic appliances (such as washers and dryers) and
efficiency gains from electrical appliances help to explain the expected slower
growth of electricity use in the industrialized nations, although growing
computer usage and the introduction of new electronic devices could modulate
that trend in the future. Telesource International also believes that those
situations where the local governments lack the up-front funding to build the
additional power plants will represent an opportunity for Telesource
International to find alternative solutions up to and including having
Telesource International locate the needed project financing. Without the
additional energy, Telesource International believes that many of the
infrastructure upgrades envisioned by local governments cant take place.
In Telesource Internationals experience, in return for securing project
financing in a manner similar to that obtained for the project in the
Commonwealth of the Northern Mariana Islands, local governments will be willing
to enter into contracts which guarantee Telesource International a minimum
amount of power consumption, coupled with long-term operations and maintenance
contracts similar to Telesource Internationals contract with the
governmental agency in the Commonwealth of the Northern Mariana Islands.


Telesource International
anticipates that these contracts will generally be secured by governmental
guarantees, promissory notes, liens and collateral in the land and in the
physical power plants.


Sales and
Marketing Strategies


Most of Telesource Internationals
jobs are obtained through a public bid process, and clients are either
governments or governmental agencies. In obtaining contracts:


*
Telesource International performs significant market research. Telesource International
analyzes potential markets, looking for future building plans or plans to expand the
capital infrastructure. Telesource Internationals research also includes analyzing
numerous government documents and reviewing previous and current requests for bids.


*
Telesource International is actively involved in public relations with the governments
and agencies that might contract for Telesource Internationals services. Much of this
effort is informational, learning the specific needs of each governmental agency while at
the same time explaining what services Telesource International has to offer.
7
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*
Telesource International has created and provides to potential clients a survey to help
governmental agencies evaluate whether Telesource Internationals resources and services
might be more efficient and cost-effective than their current system.


Telesource International
maintains three full-time salaried marketing executives to help sales and
marketing efforts; one in the Illinois headquarters and two offshore.



Competition


The independent power
industry has grown rapidly over the past twenty years. There are a large number
of suppliers in the wholesale market and a surplus of capacity, which has led to
intense competition in this market. The principal sources of competition in this
market include traditional regulated utilities who have excess capacity,
unregulated subsidiaries of regulated utilities, energy brokers and traders,
energy service companies in the development and operation of energy-producing
projects and the marketing of electric energy, equipment suppliers and other
non-utility generators like Telesource International. Competition in this
industry is substantially based on price with competitors discovering lower cost
alternatives for providing electricity. The electric industry is also
characterized by rapid changes in regulations, which Telesource International
expects could continue to increase competition. Telesource International does
not believe the Tinian power plant would be significantly impacted by
competition in the wholesale energy market since its revenues are subject to
contracted rates which are substantially fixed for several years.


Telesource International
also competes in the market to develop power generation facilities. The primary
bases of competition in this market are the quality of development plans, the
ability of the developer to finance and complete the project and the price. In
some cases, competitive bidding for a development opportunity is required.
Competition for attractive development opportunities is expected to be intense
as there are a number of competitors in the industry interested in the limited
number of opportunities. Many of the companies competing in this market have
substantially greater resources. Telesource International believes its project
development experience and its experience in creating strategic alignments with
other development firms with greater financial and technical resources could
enable Telesource to continue to compete effectively in the development market
if and when opportunities arise. Presently, Telesource International believes
there are a number of opportunities for additional project development worldwide
for projects similar to those previously developed by Telesource. However,
Telesource International is currently evaluating whether it should seek
development opportunities in other areas outside of the south pacific to
diversify its activities.


Presently, there is
significant merger and consolidation activity occurring in the electric
industry. From time to time, Telesource International may consider merger and
acquisition proposals when they appear to present an opportunity to enhance
stockholder value. Telesource International is not involved in any of these
discussions or negotiations at this time.
8
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|Energy
Regulation


Telesource
Internationals projects are subject to regulation under federal and local
energy laws and regulations. Telesource International is subject to the
requirements established by its permitting authorities, i.e. the Department of
Environmental Quality (DEQ) and the Environmental Protection Agency
(EPA).


Presently, neither the
Customer Choice Act nor proposed legislation dealing with U.S. energy policy directly impacts Telesource
International because the legislation and restructuring plan pertain to the
retail market or new contracts in the wholesale market. However, as discussed
above, Telesource International could possibly be impacted in the future by,
among other things, increases in competition as a result of deregulation.
Telesource International is actively monitoring these developments in energy
proceedings in order to evaluate the impact on existing projects and also to
evaluate new business opportunities created by the restructuring of the electric
industry.


Environmental
Regulation


Telesource
Internationals projects are subject to regulation under federal, foreign
and local environmental laws and regulations and must also comply with the
applicable laws pertaining to the protection of the environment, primarily in
the areas of water and air pollution. These laws and regulations in many cases
require a lengthy and complex process of obtaining and maintaining licenses,
permits and approvals from federal and local agencies. As regulations are
enacted or adopted in any of these jurisdictions, Telesource International
cannot predict the effect of compliance therewith on its business. Telesource
Internationals failure to comply with all applicable requirements could
result in delays in proceeding with any projects under development or require
modifications to operating facilities. During periods of non-compliance,
Telesource Internationals operating facilities may be forced to shutdown
until the instances of non-compliance are corrected. Telesource International is responsible
for ensuring compliance of its facilities with applicable requirements and,
accordingly, attempts to minimize these risks by dealing with reputable
contractors and using appropriate technology to measure compliance with the
applicable standards.


Insurance and
Bonding


Telesource International
maintains general and excess liability, construction equipment, and
workers compensation insurance; all in amounts consistent with industry
practices. Telesource International believes its insurance programs are
adequate.


Telesource International
was required to provide bonding for the airport runway project on the island of
Tinian. This project has partial funding from the U.S. Government (the FAA) and
consequently, U.S. Treasury Listed Bonding was required. Telesource
Internationals ability to obtain additional surety bonding depends upon
its capitalization, working capital, past performance, management expertise and
other factors, which may change from time to time. Currently Telesource
is required to provide collateral equal to 100% of the surety bond by Telesource
Internationals surety company.
9
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|Employees


Telesource International
presently employs 179 people, consisting of 16 employees in management, 27
engineers and technical staff members, 15 support staff members and 121 hourly
employees. All of Telesource Internationals employees are nonunion
workers, although Telesource International may employ union subcontractors from
time to time.


Ninety percent of
Telesource Internationals crews include engineers and technical staff,
due to the technical nature of its construction contracts. Working on a power
plant, broadcasting facility or other technical construction site requires a
higher level of expertise and a greater attention to safety issues.


Telesource
Internationals non-engineering level employees are hourly workers, while
its engineering and supervisory staffs are on monthly salaries.



ITEM 2.
PROPERTIES


Properties


Telesource International
maintains leased office space leases and land leased for storage of construction
equipment. Telesource Internationals Mariana subsidiarys head office
in the Commonwealth of the Northern Mariana Islands is leased for an additional
two years. In Guam, Telesource has an office leased by the year with 90 days
notice for termination of lease. In Fiji, Telesource has an office leased on a
month-to-month basis. Telesource Internationals corporate offices in
Illinois are leased on a month-to-month basis. Additionally, Telesource has
approximately five leased vehicles in its fleet.



ITEM 3. LEGAL
PROCEEDINGS


Telesource is involved in
legal proceedings and claims asserted by and against Telesource, which have
arisen in the ordinary course of business. Telesource believes it has a number
of valid defenses to these actions, and Telesource intends to vigorously defend
or assert these claims and does not believe that a material liability will
result.



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


None
10
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|ITEM 4(a).
EXECUTIVE OFFICERS OF THE REGISTRANT


The names, ages and backgrounds
of Telesource Internationals executive officers are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------

|Name and Age; YearsServed as Director       |  | Principal Occupation for Past Five Years; Other Directorships                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Khajadour SemikianAge 48Director Since 1995 |  | Khajadour Semikian, President, joined Telesource International in September 1996. From January 1986 to December 1996,
Mr. Semikian was Assistant General Manager with Sayed Hamid Behbehani & Sons. Mr. Semikian has also served as a
director for Computhink Incorporated since 1994, Telebond Insurance Corporation and Retsa Development Incorporated since
1998, and as President of Telebond Insurance Corporation since 1998.

|Nidal ZayedAge 40Director Since 1998 |  | Nidal Zayed, Executive Vice President, joined Telesource International in
January 1996. He is also engaged in the practice of law. He received a law
degree from Loyola University School of Law in 1985 and a B.A. in Accounting
from Loyola University of Chicago in 1982. He serves as Chairman for Computhink
Incorporated and has been a director for Computhink since 1994.
|------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Bud CurleyAge 38 |  | Mr. Curley joined Telesource International as its Chief Financial Officer in
September 1999. Prior to September 1999, Mr. Curley served as the Chief
Financial Officer, Secretary and Executive Vice President for Surety Capital
Corporations and Surety Bank, N.A. from 1996 to 1999. From 1993 to 1996, Mr.
Curley served as Surety Capital Corporation and Surety Bank, N.A.s
Controller and Senior Vice President. In 1989, Mr. Curley received a B.A. in
Business Administration from the University of Texas. He has also served as
a director for Surety Capital Corporation and Surety Bank, N.A. from 1998 to
1999.
|---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Jeff Karandjeff Age 34 |  | Mr. Karandjeff joined Telesource International as Secretary in 1997. From
October 1996 to February 1997, Mr. Karandjeff was an Associate with
Schoenberg, Fisher, Newman & Rosenberg, LTD. He received a law degree from
Loyola University School of Law in 1993 and a Bachelors Degree from
Massachusetts Institute of Technology in 1983.
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11
|--

|PART II



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


MARKET INFORMATION. On
November 1, 2001, Telesources common stock began trading on the
Over-the-Counter Bulletin Board under the symbol TSCI. Prior to that
time, Telesources common stock was not listed for trading.


The following table sets
forth high and low sales prices for the common stock for the periods indicated
as reported by the Over-the-Counter Bulletin Board since November 1, 2001:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2001           | HIGH | LOW  
|-------------- | ---- | -----
|Fourth Quarter |      | $2.05

|As of April 10, 2002, the
latest stock quote for Telesource was $1.35 per share.


HOLDERS. As of April 8, 2002, there
were 192 shareholders of record.


DIVIDENDS. Telesource did not
pay dividends on its common stock during 2001 or 2000, and it does not
anticipate that it will pay dividends on its common stock in the foreseeable
future. Telesources working capital credit facility limits the payment of
dividends on its common stock.

12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 6.
  SELECTED FINANCIAL DATA                
               (IN THOUSANDS, EXCEPT PER SHARE DATA)


The following selected financial
data as of and for the years ended December 31, 2001, 2000, 1999 and 1998, has been derived
from the audited consolidated financial statements of Telesource International, Inc. and subsidiaries.
The consolidated financial statements as of December 31, 2001 and 2000, and for each of the
years in the three-year period ended December 31, 2001, are included elsewhere in the Form 10-K.
The selected financial data as of and for the year ended December 31, 1997 was derived from the
unaudited financial statements of Telesource International. This selected financial data should be read in
conjunction with the consolidated financial statements and the notes thereto included
elsewhere in this Form 10-K.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                     | Twelve Months EndedDecember 31,
|-------------------------------------------------------------------- | -------------------------------
|
|
|                                                                     |                                
|Income Statement Data: ($ in 000s)   Construction revenues          |                                
|Construction revenues  related party                                |                                
|Construction revenues on power plants                                |                                
|Service fees        power generation plant                          |                                
|Sales, net                                                           |                                
|Sales, net  related party                                           |                                
|Other revenues                                                       |                                
|Other revenues  related party                                        |                                
|                                                                     |                                
|Gross revenues                                                       |                                
|                                                                    
|Construction costs                                                   |                                
|Construction costs on power plants                                   |                                
|Operations & maintenance costs  power
             generation plant |                                
|Loss on sale of power plant                                          |                                
|                                                                     |                                
|Gross profits                                                        |                                
|                                                                    
|Salaries and employee benefits                                       |                                
|Occupancy and equipment                                              |                                
|General and administrative expenses                                  |                                
|Impairment of long-lived asset                                       |                                
|                                                                     |                                
|Operating (loss) income                                              |                                
|Other income (expense):                                              |                                
|Interest income                                                      |                                
|Interest expense                                                     |                                
|Other income, net                                                    |                                
|                                                                     |                                
|Total other expense                                                  |                                
|Loss before taxes                                                    |                                
|Income tax expense                                                   |                                
|                                                                     |                                
|Net loss                                                             |                                
|                                                                     |                                
|Common Share Data:                                                   |                                
|Net loss per share                                                   |                                
|Weighted average common shares outstanding      (in 000s)           |                                
|Period end shares outstanding (in 000s)                             |                                
|                                                                    
|Balance Sheet Data:                                                  |                                
|Total assets                                                         |                                
|Working capital (deficit)                                            |                                
|Short-term debt                                                      |                                
|Long-term obligations                                                |                                
|Shareholders equity (deficit)                                       |                                
|                                                                    
|Performance Data:                                                    |                                
|Loss on total assets                                                 |                                
|                                                                    
|Capital Ratios:                                                      |                                
|Quick ratio                                                          |                                

|13
|--

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


HIGHLIGHTS


Revenues for the year ended
December 31, 2001 were $18.3 million, compared to $12.6 million and $6.1 million
for the years ended December 31, 2000 and 1999, respectively. Net loss was $7.3
million for 2001, an increase of $3.5 million, or 93.6%, from $3.7 million for
2000. For 1999, net loss was $768,344. Basic and diluted net loss per share on net loss was
$0.52 per share for 2001, compared to $0.36 per share for 2000 and $0.08 per
share for 1999.


OPERATING
SEGMENTS


Telesources business
consists of the following operating segments: power generation and construction
of power plants, trading, and construction services. Power generation activities
did not commence until March 1999. Revenue of the power generation and construction of power plants segment
includes sales-type lease revenues. The power generation activities
occurred in the CNMI and construction of power plants occurred in Fiji.
Construction services occurred in the Commonwealth of the Northern Mariana Islands
(CNMI) and trading activities occurred in the United States and the CNMI.


RESULTS OF
OPERATIONS


Telesources
significant accounting policies are described in Note 2 to the consolidated
financial statements included in Item 8 of this Form 10-K. Telesource believes
its most critical accounting policy is revenue recognition from long-term
contracts for which Telesource uses the percentage-of-completion method of
accounting. Percentage of completion accounting is the preferred method of
accounting for long-term contracts under accounting principles
generally accepted in the United States of America, and accordingly, is the method
used for revenue recognition within Telesources industry.
Percentage-of-completion is measured principally by the percentage of costs
incurred to date for each contract to the estimated total costs for each
contract at completion. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Application of
percentage-of-completion accounting results in the recognition of costs and
estimated earnings in excess of billings on uncompleted contracts within the
consolidated balance sheets. Costs and estimated earnings in excess of billings
on uncompleted contracts reflected on the consolidated balance sheets arise when
revenues have been recognized but the amounts cannot be billed under the terms
of the contracts. Such amounts are recoverable from customers upon achievement of various
measures of performance, including achievement of certain milestones, completion
of specified units or completion of the contract. Costs and estimated earnings
in excess of billings on uncompleted contracts also includes amounts Telesource
seeks or will seek to collect from customers or others for errors or changes in
contract specifications or design, contract change orders in dispute or
unapproved as to both scope and price, or other customer-related causes of
unanticipated additional contract costs. Such amounts are recorded at estimated
net realizable value. Due to uncertainties inherent within estimates employed to
apply percentage-of-completion accounting, it is possible that estimates will be
revised as project work progresses. Application of percentage of completion
accounting requires that the impact of those revised estimates be reported in
the consolidated financial statements prospectively.

Liquidity

As of December 31, 2001,
the Companys current liabilities exceeded its current assets by
$14,331,462, and the Company had a total stockholders deficit of
$18,566,269. The Company has been and expects to continue to seek support from
its principal stockholder, SHBC, for its operations, for working capital needs,
debt repayment and business expansion as may be required (see Note 8). SHBC has
agreed to guarantee certain of the Companys obligations, and if necessary,
repay these borrowings, and has also arranged for letters of credit to secure
the repayment of certain loans. At December 31, 2001, the Company had
$35,500,000 in debt outstanding, $15,500,000 of which is due and payable in
2002. SHBC has also agreed that any additional funding from SHBC to the Company
will not be due until after December 31, 2002. As of December 31, 2001, there
was $29,900,000 in total debt which is either guaranteed by SHBC or which is
secured by a letter of credit from SHBC.
14
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|Impairment of
Long-Lived Assets


When we undergo changes in
our business, including the closure or relocation of facilities, we may have
equipment and other assets that are no longer needed in our business. When this
occurs, we estimate how much we believe we are likely to receive upon disposal
of the assets and we record an impairment charge if this amount is less than the
net carrying value. If actual market conditions for these assets are less
favorable than those projected by management, additional impairment charges may
be required.


The investment in
sales-type lease along with our property, plant and equipment are considered to
be a long-lived assets. Based on the anticipated cash flows for the assets along
with the current revenues and expenses and an evaluation of future changes in
the market and economic outlook as well as the length of the contractual commitment, Telesource
does not believe any impairment was indicated at December 31, 2001.


REVENUES


Overview


Telesource International is
an international engineering and construction company, which has among its
operations power generation and specialty construction services in the
Commonwealth of the Northern Mariana Islands. Telesource International operates
a diesel fired electric power generation plant for the sale of electricity to
the local power grid in CNMI. Telesource Internationals facility in Lombard,
Illinois handles the procurement, export and shipping of U.S. fabricated
products for use by Telesource Internationals subsidiaries or for resale
to customers outside of the mainland.


Telesource International
was formed in 1994 to facilitate various intra-corporate activities and, until
July 1999, was a wholly owned subsidiary of SHBC, a Kuwait-based civil,
electrical and mechanical construction company. Operations are conducted
primarily through subsidiaries. Telesource International currently has three
subsidiaries. Telesource CNMI, Inc. handles construction and management for the
power facilities in the Commonwealth of the Northern Mariana Islands. Telesource
CNMI, Inc. has branch offices in Guam, Telesource International Pacifica and
Pacifica Power Resources. Commsource International located in Chicago, Illinois,
is an international export company that facilitates the purchase of equipment
fabricated in the U.S. The business activities of Commsource have been assumed
by Telesource. Telesource Fiji, Ltd. was established to oversee Telesource International, Inc.s
power plant construction activities within Fiji, which currently involves the
installation of additional power generators for existing power plants in Fiji.


Telesource International
has three main operating segments: construction services, trading activities,
and power generation and construction of power plants.

15
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Revenue from construction
and construction of power plants is recognized using the
percentage-of-completion method of accounting based upon costs incurred and
projected costs. Construction revenue includes revenues recognized by Telesource
International, Inc.s power plant construction segment and from other
projects ranging from housing development to the construction of airports and
prisons. The construction of power generation plants is considered by management
to be a part of Telesource International, Inc.s power generation and
construction of power plants segment. Cost of revenue consists of direct costs
on contracts; including labor and materials, amounts payable to subcontractors,
direct overhead costs, equipment expense (primarily depreciation, maintenance
and repairs), interest associated with construction projects and insurance
costs. Depreciation is provided using straight-line methods for construction
equipment. Contracts frequently extend over a period of more than one year and
revisions in cost and profit estimates during construction are reflected in the
accounting period in which the facts that require the revision become known.
Losses on contracts, if any, are provided in total when determined, regardless
of the degree of project completion. Claims for additional contract revenue are
recognized in the period when it is probable that the claim will result in
additional revenue and the amount can be reliably estimated. The foregoing as
well as the stage of completion, and mix of contracts at different margins may
cause fluctuations in gross profit between periods.


Construction revenues on
power plants are recognized using the percentage-of-completion method of
accounting, based upon costs incurred and projected costs. This revenue is
separated on the face of the consolidated financial statements due to its origin
within Telesource Internationals power generation and construction of
power plants segment. Cost of revenue consists of direct costs on contracts;
including labor and materials, amounts payable to subcontractors, direct
overhead costs, equipment expense (primarily depreciation, maintenance and
repairs), interest associated with construction projects and insurance costs.
Depreciation is provided using straight-line methods for construction equipment.
Contracts frequently extend over a period of more than one year and revisions in
cost and profit estimates during construction are reflected in the accounting
period in which the facts that require the revision become known. Losses on
contracts, if any, are provided in total when determined, regardless of the
degree of project completion. Claims for additional contract revenue are
recognized in the period when it is probable that the claim will result in
additional revenue and the amount can be reliably estimated. The foregoing as
well as the stage of completion, and mix of contracts at different margins may
cause fluctuations in gross profit between periods.


Telesource accounts for its
leasing activities in accordance with the requirements of Statement of Financial
Accounting Standards No. 13, Accounting for Leases.Revenue
associated with the sale of the Tinian power plant constructed and sold under a
sales-type lease, measured as the present value of non-cancelable rents, was
recognized in connection with recording the loss on sale in 1997 and 1998.
Telesource recognizes finance lease revenue on the resulting sales-type lease
receivable at a constant rate using the interest method. Service revenues
received from operating and maintaining the Tinian power plant for the duration
of the lease are recognized as earned based on actual kilowatt hours of
electricity produced and delivered to the lessees customers. To the extent
that variable payments based on kilowatt hours of production exceed the fair
value of operation and maintenance services provided, Telesource recognizes such
contingent payments as additional finance lease revenue as they are earned.
16
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|Sales revenues are derived
from brokering of U.S. fabricated goods and management of various projects
outside of Telesource Internationals construction and power generation
segments. Sales of goods exported are recognized at the time of shipment. When
an order is received, the customers product specifications are sent to the
manufacturer and upon completion the goods are shipped from the manufacturer
directly to the customer. In most cases, the risk of loss during shipping is
either borne by the manufacturer or the customer. Telesource International is
responsible for payment to the manufacturer; however, Telesource normally
collects payment from the customer before the manufacturer is paid. The sales
revenues are recognized net of cost of goods sold. In 1999, Telesource entered
into an agreement with its primary customer, SHBC, to charge a flat fee of 7.5%
of the invoice amount for all orders executed by Telesource on behalf of SHBC.


Service revenues are recognized in
the period in which the work is performed. Service revenues consist of amounts billed to
SHBC for project management of the radio relay station and for other types of services
provided to local customers for small projects. The cost on services provided was not recorded
separately, and therefore was included in the general and administrative expenses.


Rental income consists of fees
collected on rental of equipment to SHBC for use in construction of the radio relay
station as well as to local customers. The rental fees are billed on a monthly basis for
equipment used during the billing period. Telesource recognizes rental revenue on the
accrual basis pursuant to contractual arrangements between Telesource and its customers.


Finance lease revenues are
recognized on the amortization of the minimum lease payments for the power plant
located on the Island of Tinian that were discounted upon execution of the
contract in June of 1997 at an interest rate of 6.74%. The amortization of the
minimum lease payments began in March 1999 at an effective interest rate of
9.40% and will fully amortize in March 2010.


Construction costs are
comprised of both variable and semi-variable expenses, including labor and
materials, amounts payable to subcontractors, direct overhead costs, equipment
expense (primarily depreciation, maintenance and repairs), interest associated
with construction projects and insurance costs. Depreciation is provided using
straight-line methods for construction equipment.


Construction costs on power
plants are comprised of both variable and semi-variable expenses, including
labor and materials, amounts payable to subcontractors, direct overhead costs,
equipment expense (primarily depreciation, maintenance and repairs), interest
associated with construction projects and insurance costs. Depreciation is
provided using straight-line methods for construction equipment. These costs are
disclosed separately from construction costs due to their origin within the
power generation segment.
17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Operations and maintenance
costs  power generation plant consist of labor, direct overhead costs,
equipment expense (primarily maintenance and repairs), and insurance costs.
These costs are recognized as incurred.


Salaries and employee
benefits consist of all wages and benefits for management and staff wages and
benefits that are not directly associated with a particular project.
Telesources principal market, the Commonwealth of the Northern Mariana
Islands, allows employers to import guest employees. The local labor laws
require employers importing guest employees, principally from the Philippines,
to execute a one-year employment contract with the guest employee. Since
Telesource has a few large contracts, this can lead to short periods of
inactivity for some employees. As Telesource continues to grow, this issue is
expected to be minimized; however, it can have a significant impact on
Telesources operating results.


Occupancy and equipment expense
consist of rent, utilities and office equipment for Telesource Internationals
offices in Lombard, Illinois; Saipan, Tinian, Guam and Fiji.


General and administrative expenses
consist primarily of depreciation, telephone expense, insurance, travel, financial and
legal expenses and a gross revenue tax incurred on Telesource Internationals operations in
the Commonwealth of the Northern Mariana Islands.


Telesource International, Inc.,
Commsource International, Inc., Telesource CNMI, Inc. and Telesource Fiji, Ltd. file
separate corporate income tax returns. Telesource International, Inc. and Commsource
International, Inc. are U.S. corporations that file separate U.S. corporate tax returns.
Telesource CNMI, Inc. is a Commonwealth of the Northern Mariana Island corporation and
files a corporation tax return for this commonwealth. Telesource Fiji, Ltd. is a Fijian
corporation and files a Fijian corporation tax return.



Deferred income taxes are
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective income tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

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|TINIAN POWER
PLANT


Phase I


In June 1997, Telesource
International entered into a contract to construct and operate a power plant on
the island of Tinian. The June 1997 agreement (hereafter referred to as Phase I)
called for Telesource International to construct a 10Mwh power generation plant
with the capacity to add an additional 20Mwh of power at later dates, and to
operate the power plant for a period of 10 years from the date of commissioning.
Phase I was commissioned in March 1999. The terms for Phase I call for fixed
payments of $180,000 per month plus a production fee of $0.02 per Kwh produced
for the first 5,140,000 Kwh produced each month (hereafter referred to as the
Base Load). The agreement also provides that Telesource International will
receive a monthly service fee of $50,000 for a period of 10 years from the date
of commissioning. Following the conclusion of that 10-year period, the only
payments Telesource International will receive for the Base Load is a production
fee of $0.03 per Kwh produced, as adjusted for inflation per the agreement.


Phase II


In November 1998,
Telesource International received a change order instructing Telesource to add
an additional 10Mwh of power generation capacity (hereafter referred to as Phase
II). This change order provided for Telesource International to receive only variable
payments in the form of a production fee of $0.065 per Kwh produced in excess of
the Base Load (hereafter referred to as the Expansion Rate) and for these
payments to occur over a ten-year period commencing upon the commissioning of
Phase II. After the completion of the ten-year period, the production fee
changes from $0.065 per Kwh to $0.03 per Kwh for all power produced. Phase II
was commissioned in March 2000 and increased the power plants total
generation capacity to its maximum current level of 20Mwh.


Expanded
Agreement


In May 2001, Telesource
International received a third change order extending the term of the agreement
for an additional ten years or to March 31, 2020 (hereafter referred to as the
Expanded Agreement). The Expanded Agreement leaves the option to expand the
power plant by adding an additional 10Mwh of generation capacity unchanged. The
power generation plant currently has 20Mwh of production capacity, which can be
increased to 30Mwh by installing the appropriate power generators. The
production rates for the Base Load and the Expansion Rate do not change from the
amounts originally agreed upon. In summary, Telesource will receive $0.03
(adjusted for inflation) per Kwh produced after March 31, 2010 for all power
produced.
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|Accounting for
the Construction of the Power Plant


Telesource accounts for its
leasing activities in accordance with the requirements of Statement of
Financial Accounting Standards No. 13, Accounting for Leases.Revenue
associated with the sale of the Tinian power plant constructed and sold under a
sales-type lease, measured as the present value of non-cancelable rents, was
recognized in connection with recording the loss on sale in 1997 and 1998.
Telesource recognizes finance lease revenue on the resulting sales-type lease
receivable at a constant rate using the interest method. Service revenues
received from operating and maintaining the Tinian power plant for the duration
of the lease are recognized as earned based on actual kilowatt hours of
electricity produced and delivered to the lessees customers. To the extent
that variable payments based on kilowatt hours of production exceed the fair
value of operation and maintenance services provided, Telesource recognizes such
contingent payments as additional finance lease revenue as they are earned.


The original net investment
in sales-type lease was recognized in June 1997, the date the contract was
executed. The components of the net investment in sales-type lease are as
follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | December 31, | June 10, 1997Inception
|------------------------------------------- | ------------ | ----------------------
|
|Total minimum lease payments to be received |              | $15,480,000           
|Add:  Operation and maintenance fee         |              | 4,300,000             
|                                            |              |                       
|Minimum lease payments receivable           |              | 19,780,000            
|                                            |              |                       
|Less: unearned income                       |              | 5,427,360             
|                                            |              |                       
|Net investment in sales-type lease          |              | $14,352,640           
|                                            |              |                       

|When Telesource recognized
the net investment in sales-type lease at the inception of the agreement in June
1997, Telesource also recognized a loss on the sale of Phase I in the amount of
$1,748,713. In 1998, Telesource recognized a loss on the sale of Phase II in the
amount of $12,521,457 (equal to the entire amount of the construction costs for
Phase II), as there were no additional minimum lease payments related to this
phase. The loss recognized on the sale of Phase II was recognized when the contract
for Phase II was executed in November 1998.


Phase I of the power plant
was commissioned in March of 1999. Phase II was commissioned in March of 2000.
Telesource recognized power generation revenues from billings at the rate of
$0.02 per Kwh produced of $858,336, $692,160 and $304,920 for the years ended
December 31, 2001, 2000 and 1999, respectively. No power generation income was
recognized during 1998.


Revenues for this contract
consist of the present value of the total contractual minimum lease payments
which were recognized at lease inception. The minimum lease payments were
discounted using an interest rate of 6.74% and the minimum lease payments are
comprised of a guaranteed monthly payment along with an operation and
maintenance fee. Interest earned on the minimum lease payments, which is
recognized over the lease term so as to yield a constant percentage return on
the net investment in the lease beginning in March 1999, is included in
finance lease revenues in the statement of operations.


Telesource also receives
variable monthly payments as compensation for its production of power. The
variable payments are recognized based upon power produced and billed to the
customer as earned during each accounting period.
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|The total construction
costs for the power plant were $32,120,170. A substantial portion (approximately
$14,270,000) of the repayment to Telesource International for these construction
costs is expected to come from the variable production fees that will be
recognized as revenue when power is produced and billed to the customer. Due to
the fact that the agreement does not provide for any minimum production fees,
there is no guarantee that Telesource International will recover all of the
construction costs incurred to construct the power plant; however, the agreement
does require the customer to purchase 100% of its power from Telesource
International until the maximum power generation capacity has been reached each
month. The future minimum lease payments to be collected by Telesource are
$2,760,000 each year through March 2009.


Future revenue related to
the construction and operation of the power plant will be recorded as service
fees until the amount exceeds the estimated fair value of the services
performed. Amounts in excess of the fair value of the services performed will be
accounted for as additional finance lease revenue.


Results of
Operations


The following table sets
forth results of operations expressed as a percentage of total revenues:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Twelve Months EndedDecember 31,
|------------------------------------- | -------------------------------
|
|Revenues:                             |                                
|Construction revenues                 |                                
|Construction revenues  related party |                                
|Construction revenues on power plants |                                
|Service fees  power generation plant |                                
|Sales, net                            |                                
|Sales, net  related party            |                                
|Rental income                         |                                
|Rental income  related party         |                                
|Management fees  related party       |                                
|Finance lease revenues                |                                
|                                      |                                
|Gross revenues                        |                                
|Costs and expenses:                   |                                
|Construction costs                    |                                
|Construction costs on power plants    |                                
|Operations & maintenance costs -      |                                
|power generation plant                |                                
|                                      |                                
|Gross profit                          |                                
|Operating expenses:                   |                                
|Salaries and employee benefits        |                                
|Occupancy and equipment               |                                
|General and administrative            |                                
|                                      |                                
|Total operating expenses              |                                
|Operating income                      |                                
|Other income (expense):               |                                
|Other interest income                 |                                
|Interest expense                      |                                
|Other income, net                     |                                
|                                      |                                
|Total other expense                   |                                
|Loss before income taxes              |                                
|Income tax expense                    |                                
|                                      |                                
|Net loss                              |                                
|                                      |                                

|21
|--

|Backlog


The following schedule
shows a reconciliation of backlog representing the amount of revenue Telesource
International expects to realize from work to be performed on uncompleted
contracts accounted for using the percentage-of-completion method of accounting
in progress at December 31, 2001:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Contracts as of December 31, 2000                 |  | $18,848,579  | 
|------------------------------------------------- |  | ------------ | 
|New contracts and change orders added during 2001 |  | 6,643,606    | 
|                                                  |  |             
|                                                  |  | 25,492,185   | 
|Less: Contract revenue for 2001                   |  | 15,876,372   | 
|                                                  |  |             
|Balance at December 31, 2001                      |  | $  9,615,813 | 
|                                                  |  |             

|Subsequent to the year-end,
Telesource was awarded a $17.3 million project to construct a federal prison on
Saipan. The ground breaking for the project occurred on April 8, 2002. The
prison project award did not occur until 2002 and is not included in the backlog
balance at December 31, 2001.


Comparison of the twelve
months ended December 31, 2001 and 2000


Revenues


Construction Revenues.
Construction revenues, including related party, increased 36.5% to $11.8 million in 2001
from $8.7 million in 2000. The growth in construction revenues is attributed to the
commencement of the $17 million airport expansion project during 2001. The airport
expansion project is expected to be completed by July 2002. The growth in construction
revenues is expected to continue in future periods but not at the pace experienced in
2001. The backlog was $9.7 million at December 31, 2001 and was $18.9 million at December
31, 2000. The backlog of $9.7 million at December 31, 2001 does not include a contract
awarded to Telesource in February 2002 to construct a federal prison on Saipan for $17.3
million. Construction revenues from SHBC were none and 9.8% of total construction
revenues for the years ended December 31, 2001 and 2000, respectively.


Construction Revenues on Power
Plants. Construction revenues on power plants increased to $4.1 million in 2001 as
compared to $536,210 for 2000. These revenues were recognized on a contract Telesource
International has to expand two existing power stations in Fiji by expanding the
facilities and installing additional power generators with a combined output of 32 Mwh.
This contract is being accounted for under the percentage-of-completion method of
accounting and was completed during 2001. Construction revenues on power plants will
decrease in future periods until Telesource is successful in being awarded additional
contracts.


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|Service Fees 
Power Generation Plant. Service fees  power generation plant increased
24.0% to $858,336 in 2000 from $692,160 in 1999. The growth in service fees
 power generation plant is attributed to two factors. The local casino on
Tinian was not connected to the local power grid until November 2001 and,
secondly, there was an increase in power demand by the radio relay broadcast
station in Tinian during 2001.



Sales Revenues, Net. Sales revenues
decreased 87.8% to $130,674 in 2001 from $872,680 in 2000. The decrease is
attributed to the completion of the project in Fiji during 2001. The equipment
sales for this project were executed in late 2000 and were accordingly
recognized during 2000 in the amount of approximately $700,000. Sales to SHBC
decreased to $256 in 2000 from $197,845 in 1999. The substantial decrease in
sales to SHBC is a result of an order from SHBC for U.S. fabricated goods for a
project SHBC had in the Middle East that was completed during 2000. Sales to
SHBC are not expected to increase in future periods.


Rental Income.
Rental income decreased to none in 2001 from $59,658 in 2000. The decrease in
rental income is a result of the completion of the radio relay station on the
island of Tinian. Telesource provided equipment for use in the construction of
the radio relay station and charged a rental fee for use of this equipment to
SHBC.


Service Fees. Service fees decreased to none from $31,625. The
decrease is a result of the completion of the radio relay station for SHBC. The
completion of this project represents the completion of the only project
Telesource International has had for SHBC whereby service fees were earned for
the management of the project.


Finance Lease Revenues. Finance lease
revenues decreased 7.8% to $1.4 million in 2001 from $1.5 million in 2000.
Finance lease revenue for the Tinian power plant will decrease each year until
the investment in sales type lease is fully amortized in March 2010.


Expenses


Construction Costs.
Total construction costs (includes related party and third party) increased
73.3% to $12.4 million from $7.1 million for 2001 and 2000, respectively. The
growth in construction costs is a direct result of an increase in construction
activities, primarily due to the airport expansion project which began in
November 2000 and has revenues of approximately $17 million; however, the notice
to proceed on this project was delayed until late February 2001 due to
permitting delays and additional costs incurred on the Koblerville housing
project. Construction costs as a percentage of construction revenues were 104.7%
and 82.5% for 2001 and 2000, respectively. The negative gross margin on
construction revenues is primarily attributed to a cost over run on the
Kobblerville housing project due to delays encountered as a result of inclement
weather. Additionally, there were delays in the processing of Telesource
Internationals invoices by the Federal Housing Authority which resulted in
a delay in the collection of payments for the Kobblerville project. This
ultimately led to an increase in interest expense incurred directly on this
project, as well as increased costs for supplies. The weather delays and the
delay in the processing of Telesources invoices occurred during the first
quarter of 2001 and were identified in connection with managements
quarterly project review process. These delays have resulted in a decline in the
margin for third party construction revenues since 2000. The costs estimates for
the Kobblerville project were revised to $6,153,417 during 2001 from an
estimated total costs of $4,830,000. The estimated profit for the Kobblerville
project was reduced from $1,480,000 to $136,583. The change in estimate
decreased profit on third party construction revenues by $1,343,417 and was
reflected in 2001 operating results. This increase in estimated costs was
recognized during 2001 and is attributed to the delays encountered in completing
the project. The Kobblerville project was completed in December 2001. Telesource
expects the construction segment to return to profitability in 2002.
23
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|Construction Costs on
Power Plants. Construction costs on power plants were $3.5 million in 2001
as compared to $496,655 in 2000. The growth in construction costs on power
generation plants is a result of the contract Telesource International has in
Fiji. The net margin realized in 2001 on the construction of power generation
plants was 13.5%.


Operation and
Maintenance Costs  Power Generation Plant. Operation and maintenance
costs  power generation plant increased 17.0% to $1.2 million in 2001 from
$990,541 in 2000. The increase in operations and maintenance costs for the
Tinian power plant is attributed to additional staffing for the power plant
 to meet the expected future demand increases for power from the radio
relay broadcast station along with the local casino. Telesource recognized a
loss on power generation activities of $300,796 and $298,381 for the twelve
months ended December 31, 2001 and 2000, respectively. The net loss on
operations and maintenance at the power plant on Tinian was 35.0% in 2001 and
43.1% in 2000, and is attributed to management and staffing costs associated
with the power plant exceeding the power production revenues.


Salaries and Employee
Benefits. Salaries and employee benefits increased 17.1% to $1.9 million in
2001 from $1.6 million in 2000. The increase in salaries and employee benefits
is attributed to growth within Telesources management team and the
transition between projects. Telesource currently hires guest workers from the
Philippines for staffing its projects within the Commonwealth of the Northern
Mariana Islands. These guest workers are under contract for one year and the
existence of these contractual obligations results in an increase in salaries
and employee benefits when transitioning between large projects.


Occupancy and
Equipment. Occupancy and equipment expenses rose 4.8% to $560,476 in 2001
from $534,876 in 2000. The increase in occupancy and equipment expense is
attributed to the additional office space added in Fiji during late 2000.
Occupancy and equipment expenses are expected to decrease in future periods due
to efforts by management to reduce these costs.


General and
Administrative Expenses. General and administrative expenses increased 11.2%
to $3.7 million in 2001 from $3.4 million in 2000. The increase is attributed to
increased professional fees, telephone expense, bank service charges, insurance,
travel and entertainment and gross revenue taxes associated with the growth and
development of the business.


Other Expense, Net.
Other expense increased 4.6% to $2.3 million in 2001 from $2.2 million in 2000.
The increase is a result of additional interest expense on a larger balance of
borrowings for Telesource International.



Income Tax Expense. Income tax
expense in 2001 was $19,440. Telesource had a net operating loss carryforwards
at December 31, 2001 of approximately $22,000,000, however, Telesource
Internationals subsidiary in Fiji had taxable income during 2001 and
incurred an estimated tax liability of $19,440.
24
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Comparison of the twelve
months ended December 31, 2000 and 1999


Revenues


Construction
Revenues. Construction revenues, including related party, increased 165.7%
to $8.7 million in 2000 from $3.3 million in 1999. The growth in construction
revenues is attributed to the completion of the construction of the power plant
located on Tinian. The construction of the power plant on Tinian represented a
significant amount of Telesources activity during 1999 and these
activities are being accounted for under the sales-type lease accounting method.
The growth in construction revenues is expected to continue in future periods
but not at the pace experienced in 2000. The backlog was $18.9 million at
December 31, 2000 and was $7.3 million at December 31, 1999. Construction
revenues from SHBC were 9.8% and 66.9% of total construction revenues for the
years ended December 31, 2000 and 1999, respectively.


Construction Revenues on
Power Plants. Construction revenues on power plants increased to $536,210 in
2000. These revenues were recognized on a contract Telesource International has
to expand two existing power stations in Fiji by expanding the facilities and
installing additional power generators with a combined output of 32 Mwh. This
contract is being accounted for under the percentage-of-completion method of
accounting and was 66.0% complete as of December 31, 2000.


Service Fees 
Power Generation Plant. Service fees  power generation plant increased
127.0% to $692,160 in 2000 from $304,920 in 1999. The growth in service fees
 power generation plant is attributed to two factors. The power plant was
not commissioned until late March 1999 and therefore 1999 does not include
twelve months of activity. The increase in service fees  power generation
plant was affected also by the amount of power being sold locally. The average
monthly amounts billed for 2000 was $57,680, an 89.2% increase over the average
monthly amount billed in 1999 of $30,492.


Sales Revenues, Net.
Sales revenues increased 212.7% to $1.1 million in 2000 from $342,328 in 1999.
The increase is a result of the project in Fiji. Sales for the project in Fiji
are reported on a net basis for a net yield on sales for this project of 7.4%.
Gross sales revenues for the twelve months ended December 31, 2000 for the Fiji
project were $7,869,096. Sales to SHBC increased 9.2 % to $197,845 in 2000 from
$181,118 in 1999. The increase in sales to SHBC is a result of an order from
SHBC for U.S. fabricated goods for a project SHBC has in the Middle East which
was completed during 2000.


Rental Income.
Rental income decreased 90.2% to $59,658 in 2000 from $610,918 in 1999. The
decrease in rental income is a result of the completion of the radio relay
station on the island of Tinian. Telesource provided equipment for use in the
construction of the radio relay station and charged a rental fee for use of this
equipment to SHBC.


Service Fees.
Service fees decreased 84.6% to $31,625 from $204,628. The decrease is a result
of the completion of the radio relay station for SHBC. The completion of this
project represents the completion of the only project Telesource International
has had for SHBC whereby service fees were earned for the management of the
project.

25
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Finance Lease Revenues. Finance lease revenues increased 12.6%
to $1.5 million in 2000 from $1.4 million in 1999. The increase in 2000 was a
result of the commencement of the amortization of the minimum lease payments
beginning in March 1999. This resulted in the recognition of twelve months of
interest on the minimum lease payments received in 2000 versus ten months in
1999. On an annualized basis, lease revenue for the Tinian power plant were
below the 1999 level, and will decrease each year until full amortization in
March 2010.


Expenses


Construction Costs. Construction costs
increased 143.7% to $7.2 million in 2000 from $2.9 million in 1999. The growth
in construction costs is a direct result of the increase in construction
activities in 2000. The net margin on construction activities increased to 17.5%
or $1.5 million in 2000 versus 10.1% or $327,856 in 1999. The growth in the net
margin on construction activities is attributed to the increased general
construction activities and an effort by management to increase the net margin
by raising the hurdle rate for project bidding to 20%. Exceptions to this hurdle
rate will be made only after senior management has reviewed the proposal and
determined that Telesource expects to derive additional benefits beyond the
project revenues as proposed, for example, Telesource may elect to perform a
project below Telesource Internationals hurdle rate as a part of
Telesource Internationals efforts to improve the local community. The 20%
hurdle rate was implemented in late 2000 and is intended to give the project
development team a guideline to be used in assessing potential projects. Due to
exceptions to the 20% guideline, Telesource Internationals net margin will
be below 20%. Construction costs as a percentage of construction revenues were
82.5% and 89.9% for the years ended December 31, 2000 and 1999, respectively.
The improvement is attributed to change orders received on the radio relay
station project. Work performed as a modification generally carries a higher
margin than work performed under a fixed price contract. These change orders
carried a higher margin as demonstrated through the returns realized on our
related party construction revenues. The related party construction costs as a
percentage of the related party construction revenues were 44.5% and 98.9% for
the years ended December 31, 2000 and 1999, respectively, with the improvement attributed to
the change orders on the radio relay station. Third party construction costs as
a percentage of the third party construction revenues were 88.0% and 71.9% for
the years ended December 31, 2000 and 1999, respectively. The increase in the
construction costs as a percentage of construction revenues is attributed to
Telesources decision to accept the college expansion project, the Marpo
Well project and the transmission line project at lower margins as a part of
Telesources desire to make a contribution to the local community and to
strengthen its relationship with its existing customers.


Construction Costs on
Power Plants. Construction costs on power plants were $496,655 in 2000 as
compared to none in 1999. The growth in construction costs on power generation
plants is a result of the contract Telesource International has in Fiji. The net
margin realized in 2000 on the construction of power generation plants was 7.4%.
26
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Operation and
Maintenance Costs  Power Generation Plant. Operation and maintenance
costs  power generation plant increased 55.2% to $990,541 in 2000 from
$638,062 in 1999. The growth in operation and maintenance costs  power
generation plant is due to the commissioning date of the power plant (March
1999) and the additional staffing added to support the operations of the plant.
By annualizing the costs incurred in 1999, the growth rate in power generation
costs is reduced to 16.4%. Telesource recognized a loss on power generation
activities of $298,381 and $333,142 for the twelve months ended December 31,
2000 and 1999, respectively. The net margin (loss) on operations and maintenance
at the power plant on Tinian was (43.1)% in 2000 and (109.3)% in 1999, and is
attributed to management and staffing costs associated with the power plant
exceeding the power production revenues. Service fees  power generation
plant are expected to increase upon completion of the runway under construction
on Tinian that will allow for direct flights from Asia and is expected to result
in the construction of additional hotels and casinos on the island.


Salaries and Employee
Benefits. Salaries and employee benefits increased 127.8% to $1.6 million in
2000 from $693,426 in 1999. The increase in salaries and employee benefits is
attributed to growth within Telesources management team, the transition
between projects and the additional staffing required in connection with the
opening of a new office in Fiji. Telesource added a President, Chief Financial
Officer and an Executive Vice President in late 1999. Telesource currently hires
guest workers from the Philippines for staffing its projects within the
Commonwealth of Northern Mariana Islands. These guest workers are under contract
for one year and the existence of these contractual obligations results in an
increase in salaries and employee benefits when transitioning between large
projects.


Occupancy and
Equipment. Occupancy and equipment expenses rose 117.8% to $534,876 in 2000
from $245,551 in 1999. The increase is a direct result of additional office
space added for the Saipan, Guam and Fiji offices.



General and Administrative
Expenses. General and administrative expenses increased 126.9% to $3.4
million in 2000 from $1.5 million in 1999. The increase is attributed to
increased professional fees, telephone expense, bank service charges, director
fees, insurance, travel and entertainment and gross revenue taxes associated
with the growth and development of the business.


Other Income, Net.
Other income increased 156.3% to an expense of $2.2 million in 2000 from an
expense of $866,909 in 1999. The increase is a result of increased interest
expense on borrowings for Telesource International.


Income Tax Expense.
Income tax expense in 2000 was $4,746. Telesource had a net operating loss
carryforwards at December 31, 2000 of approximately $15,000,000, however,
Telesource Internationals subsidiary in Fiji had taxable income during
2000 and incurred an estimated tax liability of $4,746.



27
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Liquidity and
Capital Resources


Since 1994, Telesource Internationals
primary sources of operating funds have been bank borrowings, contributions of
equity capital and profits realized on projects completed. On December 31, 2001,
15,000,000 shares of Telesource Internationals common stock were issued
and outstanding. Telesource had 13,000,000 shares issued and outstanding until
on June 29, 2001, when SHBC exercised the 2,000,000 warrants it held for the purchase
of Telesource International common stock at $1.00 per share.


Cash used in operating
activities during the twelve months ended December 31, 2001 and 2000 were $4.4
million and $4.6 million, respectively. Significant collections
on accounts receivables and payments on accounts payable were made in 2001.
During 2001, there was $5.4 million in collections on receivables which mainly
consisted of amounts collected on sales for the Fiji project which was offset by
a $2.9 million reduction in accounts payable. The increase in costs and
estimated earnings in excess of billings was principally due to the West Tinian
Airport project getting under way.


Cash provided by investing
activities was $196,308 for the twelve months ended December 31, 2001 as
compared to net cash used in investing activities of $843,567 for 2000. During
2001, a certificate of deposit held at a financial institution in the
amount of $1.0 million matured, thereby generating most of the
cash provided by investing activities for the year. The cash used in investing
activities was used in the purchase of equipment to be used on projects.


Cash provided by financing
activities generated $3.4 million for the twelve months ended December 31, 2001
as compared to $5.7 million for the same period in 2000. The cash generated by
financing came from additional borrowings and the proceeds from the exercise of
stock purchase warrants by SHBC. An increase in interest rates of 1.0% at December 31, 2001
would increase Telesource's interest expense on adjustable loans by approximately $319,000
per year. A decrease in interest rates of 1.0% would result in savings on interest
expense of approximately the same amount, $319,000.


Cash used in operating
activities during 2000 and 1999 was $4.6 million and $8.6 million, respectively.
The principal reason for the significant amount of cash used in operating
activities is attributed to an increase in accounts receivables of $7.8 million,
mainly related to amounts due on the Koblerville housing project and the power
plant expansion project in Fiji. The balance of receivables outstanding at
year-end 2000 on the Koblerville and Fijian projects were collected subsequent
to year-end.


Cash used in investing
activities was $843,567 for the year ended December 31, 2000 as compared to net
cash used in investing activities of $2.5 million for 1999. The decrease in the
amount of cash used in investing in 2000 is attributed to the decrease in the
amount of capital expenditures made by Telesource International as well as the
purchase of a certificate of deposit in 1999.


Cash provided by financing
activities generated $5.7 million during 2000 as compared to $11.0 million for
1999. The cash generated by financing came from $6.1 million in additional
borrowings.
28
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Telesource International
had a working capital deficit of $14.3 million at December 31, 2001 and $3.4
million at December 31, 2000. The sharp increase in the deficit is a result of
all loans, with the exception of $20.0 million owed on the Commercial Bank of
Kuwait credit line, becoming short term as of December 31, 2001. On December 11,
2001, the Company refinanced the $25,000,000 loan from the Commercial Bank of
Kuwait which now has principal payments due as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Payment Due       |  | Principal Payment
| | ----------------- |  | -----------------
| | February 18, 2002 |  | $  2,500,000     
| | August 19, 2002   |  | 2,500,000        
| | February 19, 2003 |  | 1,750,000        
| | May 19, 2003      |  | 1,750,000        
| | August 19, 2003   |  | 1,750,000        
| | November 19, 2003 |  | 1,750,000        
| | February 19, 2004 |  | 1,750,000        
| | May 19, 2004      |  | 1,750,000        
| | August 19, 2004   |  | 1,750,000        
| | November 19, 2004 |  | 1,750,000        
| | February 21, 2005 |  | 1,500,000        
| | May 21, 2005      |  | 1,500,000        
| | August 21, 2005   |  | 1,500,000        
| | November 23, 2005 |  | 1,500,000        
| |                   |  |                  
| | Total             |  | $  25,000,000    
| |                   |  |                  

|Since January 1, 2002,
Telesource International has made some reductions to loans outstanding at
December 31, 2001. Telesource has made a $2.5 million reduction on the
Commercial Bank of Kuwait credit line. Telesource has also paid off the $3.0
million outstanding at December 31, 2001 to the Kuwait Real Estate Bank and paid
off the $2.0 million due the Hongkong and Shanghai Banking Corporation.
Telesource has obtained a $7.5 million credit line secured by a letter of
credit from SHBC with the Hongkong and Shanghai Banking Corporation during the
first quarter of 2002, which was used to make most of the debt repayments made
in the first quarter of 2002. This credit line matures in November 2002.


The following debt repayments have occurred since January 1, 2002:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Debt that has been paid-off                     |  |           
| | ----------------------------------------------- |  | ----------
| | The Hongkong and Shanghai Banking               |  |           
| | Corporation debt due January 31, 2002           |  | $2,000,000
|
| | Citytrust Bank loan due May 17, 2002            |  | 1,000,000 
|
| | Kuwait Real Estate Bank loan with $1.0  million | 
| | due on January 31, 2002 and $2.0 million due    | 
| | on March 31, 2002                               |  | 3,000,000 
| |                                                
| | Commercial Bank of Kuwait loan with $2.5        | 
| | million due on February 18, 2002                |  | 2,500,000 
| |                                                 |  |           
| | Total debt reductions since                     | 
| | December 31, 2001                               |  | $8,500,000
| |                                                 |  |           

|29
|--

|The Company borrowed $5.3
million from SHBC during the first quarter of 2002 in order to make required debt
payments (principal and interest) on debt due to the Kuwait Real Estate Bank and the
Commercial Bank of Kuwait which came due during the first quarter of 2002. The
Company repaid this short- term facility to SHBC in April 2002, when it
established a new line of credit with the Hongkong and Shanghai Banking
Corporation in the amount of $7.5 million. This line of credit is secured by a
$7.5 million standby letter of credit from SHBC along with three promissory
notes from the Tinian power plant with a par value of $540,000, and is payable
on demand but in no event later than November 2002. This credit line
matures in November 2002. After first securing an extension to April 15, 2002,
the Company repaid the $2.0 million credit facility with the Hongkong and
Shanghai Banking Corporation with a portion of the proceeds from the $7.5
million credit line.


Telesource is substantially dependent upon SHBC to provide resources
for operating, working capital, and business expansion.  SHBC has either given a
guarantee or provided a letter of credit for a majority of the credit facilities
in place as of March 31, 2002.  If Telesource is unable to make a scheduled payment
on one of the credit facilities guaranteed by SHBC or secured by a standby
letter of credit from SHBC, SHBC has committed to provide the funds necessary to make the
payment and will not require repayment from Telesource until after January 31,
2003.


To address its working
capital deficit and reduce its dependence on debt financing obtained with the
support of SHBC, Telesource plans on making some reductions on existing lines
and renewing the credit lines. The amount of the reductions is dependent upon
the amounts of capital raised by Telesource International within the next twelve
months. Telesource has engaged an investment banking firm, Fletcher Spaght, Inc.
of Boston, to assist Telesource in identifying the appropriate type of offering
and amount to be raised during 2002.


Telesource International
currently expects that its existing cash balance along with credit lines established in 2002
together with funds available through SHBC will be sufficient to meet
anticipated cash requirements for at least the next 12 months. Telesource
International had a $17 million from the Gulf Bank for the prison project at
December 31, 2001. The prison project was awarded in March 2002 and the project-related line of credit
from the Gulf Bank was finalized in March 2002.


Telesource has forecasted
cash inflows for the next twelve months from projects of $38.9 million, $20
million from a planned capital raising in 2002, and $2.4 million in additional borrowings.
Telesources forecasted cash outflows consist of $20.2 million in principal
and interest payments on credit lines and $33.5 million for project costs and
general and administrative expenses. Telesource had a cash on hand balance at
December 31, 2001 of $64,752 and a forecasted cash on had after these
collections and payments of $7.6 million in December of 2002. This forecast does
include cash available from the planned offering by Telesource during 2002.
Ultimately, the success of the proposed offering will determine the amount of
principal reductions on outstanding debts. Currently, the amount expected from
an offering is estimated to be $20.0 million, while the principal and interest
payments on debt during 2002 are expected to be $20.2 million.
30
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|While Telesource
International believes it has sufficient financing for its current working
capital needs, Telesource is considering bidding on additional projects in
addition to the current backlog. There can be no assurance that Telesource
Internationals present capital and financing will be sufficient to finance
future operations thereafter. Telesource International may seek to raise
additional capital in 2002 through the sale of equity to reduce the existing
credit line borrowings as well as to provide capital needed for growth. There
can no assurance that Telesource will be successful in such efforts. If
Telesource International sells additional shares of common stock to raise funds,
the terms and conditions of the issuances and any dilutive effect may have an
adverse impact on the existing stockholders. If additional financing beyond
current levels becomes necessary, there can be no assurance that the financing
can be obtained on satisfactory terms if at all. In this event, Telesource International
could be required to restrict its operations.


NEW ACCOUNTING
PRONOUNCEMENTS


In July 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS
141) and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142). SFAS
141 requires all business combinations to be accounted for using the purchase
method of accounting and that certain intangible assets acquired in a business
combination be recognized as assets apart from goodwill. SFAS 141 was effective
for all business combinations initiated after June 30, 2001. SFAS 142 requires
goodwill to be tested for impairment under certain circumstances, and written
down when impaired, rather than being amortized as previous standards required.
Furthermore, SFAS 142 requires purchased intangible assets other than goodwill
to be amortized over their useful lives unless these lives are determined to be
indefinite. SFAS 142 is effective for fiscal years beginning after December 15,
2001. All companies have six months subsequent to the date of adoption to
complete the initial goodwill impairment test. Telesource has does not have any
existing goodwill and therefore believes that SFAS 142 will not have an impact
on Telesources financial statements.


In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 establishes a single accounting model, based on the framework
established in Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (SFAS 121), for long-lived assets to be
disposed of by sale, and resolves significant implementation issues related to
SFAS 121. This statement also supercedes the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, (APB 30) for the disposal of a segment of a
business. The provisions of SFAS No. 144 are effective for the fiscal years
beginning after December 15, 2001. Telesource believes that the adoption of SFAS
144 will not have a material impact on its results of operations, financial
position or cash flows.
31
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SUBSEQUENT
EVENTS


Telesource executed a
contract during the first quarter of 2002 with the Department of Public Works in
the CNMI to construct a prison on the island of Saipan. Known as the CNMI Adult
Correctional Facility, Telesource will have turnkey responsibility for the
construction of a 344-bed prison in accordance with the requirements as
specified by the U.S. Department of Justice. Completion of the project is
expected in spring of 2004. The CNMI government has secured funding for the
project with matching funds from the U.S. Government. The contract is valued at
$17.3 million.


In January 2002, Telesource
agreed to issue warrants to SHBC for the option to purchase of 1,000,000 shares
of Telesources common stock at an exercise price of $3.00 per share in
connection with SHBCs agreement to provide a standby letter of credit to
Telesource to be used to secure financing with The Hongkong Shanghai Banking
Corporation Limited. These warrants will expire on December 31, 2003.


In January 2002, Telesource
engaged Fletcher Spaght, Inc, a Boston based investment-banking firm to provide
financial advisory and investment banking services to the Company. Telesource is
in the process of evaluating available options to raise capital during 2002.
32
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7A.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Telesource is exposed to
market risk for changes in interest rates for borrowings under some of its
credit facilities. These credit facilities that bear interest at variable rates,
and the fair value of the borrowings are not significantly affected by changes
in market interest rates.


Amounts invested in Telesources
foreign operations (Telesource Fiji, Ltd.) are translated into U. S. dollars at the
exchange rates in effect at year end. The resulting translation adjustments are recorded
as accumulated other comprehensive loss, a component of stockholders equity, in the
consolidated balance sheets.


An increase in interest rates of 1.0%
at December 31, 2001 would increase Tesesources interest expense on
adjustable loans by approximately $319,000 per year. A decrease in interest
rates of 1.0% would result in a savings on interest expense of approximately the
same amount, $319,000.


THIS ANNUAL REPORT ON FORM
10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, PARTICULARLY STATEMENTS REGARDING MARKET
OPPORTUNITIES, MARKET SHARE GROWTH, COMPETITIVE GROWTH, GROSS PROFIT, AND
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND THE INVESTMENT CONSIDERATIONS
LISTED BELOW. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY SUCH
FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT
LIMITED TO ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS, INCLUDING CHANGES IN
THE SPECIFIC MARKETS FOR TELESOURCES SERVICES, ADVERSE BUSINESS
CONDITIONS, DECREASED OR LACK OF GROWTH IN THE MECHANICAL AND ELECTRICAL
CONSTRUCTION AND FACILITIES SERVICES INDUSTRIES, INCREASED COMPETITION, PRICING
PRESSURES AND RISK ASSOCIATED WITH FOREIGN OPERATIONS AND OTHER FACTORS.


Investment
Considerations


Telesource International  Risks
related to construction activities



Telesource International
will likely experience significant fluctuation in quarterly results, which makes
it difficult for investors to make reliable period-to-period comparisons of its
business.

33
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Telesource
Internationals quarterly operating results will depend on revenues from
contracts for major projects. Telesource International can only undertake a
specific number of projects at any one time. If Telesource International
finishes one large project and does not have another large project to start on,
revenues and results of operations within the quarter and possibly subsequent
periods could suffer. Customers may also cancel or defer existing contracts
resulting in reduced revenues for the quarter. Though management intends to take
steps to adjust spending in a timely manner to compensate for any unexpected
revenue shortfalls, it may not be successful. For example staffing reductions
cannot be implemented quickly due to local labor and employment laws in the
Commonwealth of Northern Mariana Islands which limit our ability to release
employees at will and losses could result. Accordingly, any such revenue
shortfalls could result in continued operating losses.


Telesource
Internationals revenues are derived mainly from fixed-price contracts that
may lead to variations in profits due to a failure to control costs.


All of Telesource
Internationals construction revenues are derived from fixed-price
contracts. Because Telesource International assumes the risk of performing such
contracts at the stipulated price, any change in the estimate of ultimate costs
to be incurred under the contract or to control costs during contract
performance could result in losses or reduced profits for particular fixed-price
contracts, which, in turn, could result in periods of operating losses.


Telesource
Internationals principal market is highly competitive, and if Telesource
International is unable to compete successfully in this market, it may be unable
to increase its operations or become profitable.


The market for construction
services is highly competitive and rapidly changing. Telesource International
competes directly with other firms that focus on providing general construction
services as well as services for more sophisticated structures, including power
plants and broadcasting facilities. Many of Telesource Internationals
competitors have well-established reputations for building residential and
technical structures and have longer operating histories and significantly
greater financial, technical, marketing, personnel and other resources than
Telesource International has. Telesource International is subject to competition
that is expected to increase in the future. If Telesource International does not
successfully compete in its market, its growth opportunities will be
limited and its business will not grow and its revenues may be
reduced.


Telesource International
relies on third parties for important raw materials and technical expertise.
Telesource Internationals ability to enter into new engagements or to
engage the business in a profitable manner will be harmed if its access to these
important resources is limited or becomes too costly.


Telesource International
relies on third-party suppliers for raw materials like wood, steel and concrete;
for fabrication of technical equipment subsystems including diesel generations,
antennas, towers and transmitters, and for providing technical expertise.
34
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Telesource
Internationals ability to obtain raw materials, fabrication services and
technical assistance is subject to a number of external factors which are
outside of its control, including:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Third-parties may increase the price of the raw materials, fabrication services or
technical assistance they provide.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | Third-party raw material suppliers, fabricators or technical expertise providers may
decide not to provide Telesource International with materials or services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Telesource International has no long-term contracts with third-party suppliers of raw
materials, fabrication services or technical expertise providers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Telesource Internationals third-party contracts are usually short term in duration and
are cancelable by such third party.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

|If Telesource International
fails to obtain what it needs from these providers, it may not be able to
successfully compete for new business or to complete exisiting engagements
profitably.


Telesource International
is subject to substantial claims for warranty coverage which, if such claims
arise, could harm its financial condition.


Telesource International
offers warranties on its construction services and power generating plants.
Telesource International does not maintain any material warranty reserves because these
warranties are usually backed by warranties from its vendors. Should Telesource
International be required to cover the cost of repairs not covered by the
warranties of Telesource Internationals vendors or should one of
Telesource Internationals major vendors be unable to cover future warranty
claims, Telesource International could be required to outlay substantial funds,
which could harm its financial condition.


Telesource International  Risks
related to power generation activities



Telesource
Internationals power-generating facility could be shut down unexpectedly,
making it difficult to sustain revenues and cash flow.


Telesource International
owns a diesel fired electric generating facility with a maximum power generation
capacity of 20 mega-watts (Mw) located on the island of Tinian, in the
Commonwealth of the Northern Mariana Islands, a U.S. possession. This facility from
time to time may experience both scheduled and unscheduled shutdowns.
Periodically, the facility will incur scheduled shutdowns in order to perform
maintenance procedures to equipment that cannot be performed while the equipment
is operating. The facility may also incur unscheduled shutdowns or may be
required to operate at reduced capacity levels following the detection of
equipment malfunctions, or following minimum generation orders received by the
utility. During periods when the facility is shutdown or operating at reduced
capacity levels, Telesource International may incur losses due to the loss of
its operating revenues and/or due to additional costs which may be required to
complete any maintenance procedures. It is not possible for it to predict the
frequency of future unscheduled shutdowns or to predict the extent of
maintenance that may be required during shutdowns related to equipment
maintenance.
35
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Telesource International
depends on a single customer at its power-generation facility. The loss of this
single customer could cause Telesource Internationals revenues to decline.


Since March 1999,
Telesource International began deriving a portion of its revenues from the
sale of electric power. Under Telesource Internationals agreement with a
governmental agency, the electrical power generated at Telesource
Internationals power generation facility is owned by the governmental
agency. Telesource International is paid a fee to produce the electric power.
The governmental agency in turn sells the electric power to the various users
throughout the Island of Tinian. If the end-user customer defaults or increases
in power use do not materialize as anticipated, Telesource Internationals
revenues base may not grow to support other operations.


Telesource
Internationals insurance or reserves may be insufficient to cover future
claims on Telesource Internationals power generation activities.


Telesource
Internationals power generation activities involve significant risks of
environmental damage, equipment damage and failures, personal injury and fines
and costs imposed by regulatory agencies. Though management believes its
insurance programs are adequate, if a liability claim is made against it, or if
there is an extended outage or equipment failure or damage at Telesource
Internationals power plant for which it is inadequately insured or subject
to a coverage exclusion, and Telesource International is unable to defend
against these claims successfully or obtain indemnification or warranty
recoveries, Telesource International may be required to pay substantial amounts,
which could have a materially adverse effect on its financial condition.


Telesource International  Other
risks



Telesource International
is subject to several inherent risks of conducting business internationally.


Telesource
Internationals international operations are subject to the inherent risks
of doing business abroad. The loss of any or all of Telesource
Internationals international suppliers and customers could harm Telesource
Internationals ability to deliver Telesource Internationals
construction services and power services on time and cause Telesource
Internationals sales to decline. Telesource Internationals financial
performance could be harmed by many events and circumstances relating to
international operations, including:
36
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| |  | * |  | Shipping
delays and cancellations;
| |  | - |  | ----------------------------------

| |  | * |  | Increases
in import duties and tariffs;
| |  | - |  | ---------------------------------------

| |  | * |  | Foreign
exchange rate fluctuations;
| |  | - |  | -----------------------------------

| |  | * |  | Changes
in foreign laws and regulations; and
| |  | - |  | --------------------------------------------

| |  | * |  | Political
and economic instability.
| |  | - |  | -----------------------------------

|Telesource International
is subject to government regulation. Both the costs of compliance and the
penalties imposed for a failure to comply could be substantial.


Although management does
not believe that compliance with applicable regulatory requirements has harmed
Telesource Internationals operations in the past relative to its
competitors, government regulations can change, which could increase Telesource
Internationals costs of compliance with these requirements. In addition,
Telesource Internationals aggregate materials operations require operating
permits granted by governmental agencies. Telesource International believes that
tighter regulations for the protection of the environment and other factors will
make it increasingly difficult to obtain new permits and renewal of existing
permits may be subject to more restrictive conditions than currently exist.
Failure to comply with these laws and regulations could result in fines,
additional licensing requirements or the revocation of the Telesource
Internationals licenses in the particular jurisdiction. The costs of
compliance could affect adversely operating results. If a substantial fine or
other penalty is imposed, Telesource Internationals business and financial
condition could be harmed.


If Telesource
International does not manage its growth effectively, its future business
prospects could be harmed.


Telesource International
will need to expand in anticipation of a growing user base and larger demand for
Telesource Internationals services. The focus on development of new
business could cause disruptions of existing operations adversely affecting
Telesource Internationals business. Expansion will require Telesource
International to make significant up front expenditures for increasing
Telesource Internationals sales and marketing efforts and to hire and
train additional project managers, engineers and facilities operators as well as
incur costs in connection with constructing power plants to be owned by
Telesource. Telesource may not be successful in expanding its operations or
maintaining adequate management, financial and operating systems and controls of
its larger business base.


Telesource
Internationals largest stockholder and its affiliates will own
approximately 75.6% of the common stock, and their interest may not be the same
as the minority stockholders who will have little or no influence over
Telesource Internationals activities.


The largest stockholder,
SHBC, is able to control the outcome of all matters submitted to a vote of the
holders of common stock, including the election of directors, amendments to
Telesources certificate of incorporation and approval of significant
corporate transactions. SHBC owns beneficially approximately of 75.6% of the
common stock.

37
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 8.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Independent
Auditors Report


The Board of DirectorsTelesource
International, Inc.:



We have audited the
accompanying consolidated balance sheets of Telesource International, Inc. and
subsidiaries (the Company) as of December 31, 2001 and 2000 and the related
consolidated statements of operations, changes in stockholders
deficit and comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2001. 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 auditing standards generally accepted in the United States of
America. 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 financial position of Telesource International, Inc. and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | /s/ KPMG LLP
|------------------------------- | ------------
|Chicago, IllinoisApril 10, 2002 |             

|F-1
|---

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESConsolidated Balance SheetsDecember 31, 2001 and
2000
|----------------------------------------------------------------------------------------------------

|                                                                     | 2001 | 2000          
|-------------------------------------------------------------------- | ---- | --------------
|Assets                                                               |      |               
|Current assets:                                                      |     
|Cash and cash equivalents                                            |      | $      204,752
|Certificate of deposit (pledged as collateral for loan  see note 8) |      |              
|Accounts receivable                                                  |      | 3,150,617     
|Accounts receivable  related party                                  |      |              
|Current portion of net investment in sales-type lease                |      | 1,473,229     
|Costs and estimated earnings in excess of billings                   |      | 3,039,607     
|Prepaid expenses and other current assets                            |      | 388,129       
|                                                                     |      |               
|Total current assets                                                 |      | 8,256,334     
|Net investment in sales-type lease-long term                         |      | 12,879,411    
|Property, plant and equipment, net                                   |      | 2,690,935     
|Other assets                                                         |      | 194,847       
|                                                                     |      |               
|                                                                    
|Total assets                                                         |      | $ 24,021,527  
|                                                                     |      |               
|Liabilities and Stockholders Deficit                                |     
|                                                                    
|Current liabilities:                                                 |     
|Current portion of long-term debt                                    |      | $ 15,500,000  
|Accounts payable                                                     |      | 3,443,127     
|Accounts payable  related party                                     |      |              
|Accrued expenses                                                     |      | 3,123,074     
|Billings in excess of costs and estimated earnings                   |      | 333,651       
|Income taxes payable                                                 |      | 19,440        
|Other current liabilities                                            |      | 168,504       
|                                                                     |      |               
|Total current liabilities                                            |      | 22,587,796    
|                                                                    
|Long-term debt                                                       |      | 20,000,000    
|                                                                     |      |               
|Total liabilities                                                    |      | 42,587,796    
|                                                                     |      |               
|Stockholders deficit:                                               |     
|Common stock, $0.01 par value, 50,000,000 shares                     |     
|authorized; 15,000,000 and 13,000,000 shares issued and              |     
|outstanding at December 31, 2001 and 2000, respectively              |      | 150,000       
|Additional paid-in capital                                           |      | 5,797,225     
|Accumulated deficit                                                  |      | (24,545,584   
|Accumulated comprehensive income (loss) -                            |     
|foreign currency translation                                         |      | 32,090        
|                                                                     |      |               
|Total stockholders deficit                                          |      | (18,566,269   
|                                                                    
|Commitments and contingencies (note 14)                              |     
|                                                                     |      |               
|Total liabilities and stockholders deficit                          |      | $ 24,021,527  
|                                                                     |      |               

|See accompanying notes to
consolidated financial statements.
F-2
|----------------------------------------------------------------

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESConsolidated Statements of OperationsYears ended
December 31, 2001, 2000, and 1999
|---------------------------------------------------------------------------------------------------------------------------------

|                                                         | 2001 | 2000            | 1999
|-------------------------------------------------------- | ---- | --------------- | ----
|Revenues:                                                |      |                 |     
|Construction revenues                                    |      | $ 11,823,772    |     
|Construction revenues  related party                    |      |                |     
|Construction revenues on power plants                    |      | 4,052,600       |     
|Service fees  power generation plant                    |      | 858,336         |     
|Sales, net                                               |      | 130,674         |     
|Sales, net  related party                               |      | 256             |     
|Rental income                                            |      | 1,675           |     
|Rental income  related party                            |      |                |     
|Service fees  related party                             |      |                |     
|Finance lease revenue                                    |      | 1,418,456       |     
|                                                         |      |                 |     
|Gross revenues                                           |      | 18,285,769      |     
|                                                        
|Costs and expenses:                                      |     
|Construction costs                                       |      | 12,381,495      |     
|Construction costs on power plants                       |      | 3,504,258       |     
|Operation and maintenance costs  power generation plant |      | 1,159,132       |     
|                                                         |      |                 |     
|Gross profit                                             |      | 1,240,884       |     
|                                                         |      |                 |     
|Operating expenses:                                      |     
|Salaries and employee benefits                           |      | 1,848,905       |     
|Occupancy and equipment                                  |      | 560,476         |     
|General and administrative                               |      | 3,735,179       |     
|                                                         |      |                 |     
|Total operating expenses                                 |      | 6,144,560       |     
|                                                         |      |                 |     
|Operating income (loss)                                  |      | (4,903,676      | )   
|                                                         |      |                 |     
|Other income (expense):                                  |     
|Interest income                                          |      | 32,829          |     
|Interest expense                                         |      | (2,399,145      | )   
|Other income, net                                        |      | 43,658          |     
|                                                         |      |                 |     
|Total other expense                                      |      | (2,322,658      | )   
|                                                         |      |                 |     
|Loss before income taxes                                 |      | (7,226,334      | )   
|                                                        
|Income tax expense                                       |      | 19,440          |     
|                                                         |      |                 |     
|Net loss                                                 |      | $(7,245,774     | )   
|                                                         |      |                 |     
|Basic and diluted net loss per share                     |      | $         (0.52 | )   
|                                                         |      |                 |     
|Weighted average shares outstanding                      |      | 13,849,315      |     
|                                                         |      |                 |     

|See accompanying notes to consolidated
financial statements.
F-3
|----------------------------------------------------------------

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESConsolidated
Statements of Stockholders Deficit and Comprehensive Income (Loss)Years ended December 31, 2001,
2000, and 1999
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Common stock |            | Additional
      paid-in
      capital |          | Accumulated
      deficit |           | Accumulated other
      comprehensive
      income (loss) |             | Accumulated
      comprehensive
      income (loss) |            | Total
      stockholders
      deficit |         
|--------------------------------- | ------------ | ---------- | -------------------------------------- | -------- | ------------------------- | --------- | --------------------------------------------------------- | ----------- | --------------------------------------------------- | ---------- | --------------------------------------- | --------
|
|Balance at December 31, 1998      |              | 10,000,000 |                                        | $100,000 |                           | 847,225   |                                                           | (12,789,164 | )                                                   |           |                                         |        
|Net loss                          |              |           |                                        |         |                           |          |                                                           | (768,344    | )                                                   | (768,344   | )                                       |        
|                                  |              |            |                                        |          |                           |           |                                                           |             |                                                     |            |                                         |         
|Comprehensive income (loss)       |              |            |                                        |          |                           |           |                                                           |             |                                                     | (768,344   | )                                      
|                                  |              |            |                                        |          |                           |          
|Balance at December 31, 1999      |              | 10,000,000 |                                        | 100,000  |                           | 847,225   |                                                           | (13,557,508 | )                                                   |            |                                         |        
|Issuance of 3,000,000 shares of  
|common stock at $1 per share     
|in satisfaction of trade payables |              | 3,000,000  |                                        | 30,000   |                           | 2,970,000 |                                                           |            |                                                     |           |                                         |        
|Net loss                          |              |           |                                        |         |                           |          |                                                           | (3,742,302  | )                                                   | (3,742,302 | )                                       |        
|Foreign currency translation     
|adjustment                        |              |           |                                        |         |                           |          |                                                           |            |                                                     | (181,057   | )                                       | (181,057
|                                  |              |            |                                        |          |                           |           |                                                           |             |                                                     |            |                                         |         
|Comprehensive income (loss)       |              |            |                                        |          |                           |           |                                                           |             |                                                     | (3,923,359 | )                                      
|                                  |              |            |                                        |          |                           |          
|Balance at December 31, 2000      |              | 13,000,000 |                                        | 130,000  |                           | 3,817,225 |                                                           | (17,299,810 | )                                                   |            |                                         | (181,057
|Exercise of 2,000,000 warrants   
|for common stock at              
|$1 per share                      |              | 2,000,000  |                                        | 20,000   |                           | 1,980,000 |                                                           |            |                                                     |           |                                         |        
|Net loss                          |              |            |                                        |          |                           |           |                                                           | (7,245,774  | )                                                   | (7,245,774 | )                                       |        
|Foreign currency translation     
|adjustment                        |              |           |                                        |         |                           |          |                                                           |            |                                                     | 213,147    |                                         | 213,147 
|                                  |              |            |                                        |          |                           |           |                                                           |             |                                                     |            |                                         |         
|Comprehensive income (loss)       |              |            |                                        |          |                           |           |                                                           |             |                                                     | (7,032,627 | )                                      
|                                  |              |            |                                        |          |                           |          
|Balance at December 31, 2001      |              | 15,000,000 |                                        | $150,000 |                           | 5,797,225 |                                                           | (24,545,584 | )                                                   |            |                                         | 32,090  
|                                  |              |            |                                        |          |                           |           |                                                           |             |                                                     |            |                                         |         

|See accompanying notes to
consolidated financial statements.

F-4
|-----------------------------------------------------------------

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESConsolidated Statements of Cash FlowsYears ended
December 31, 2001, 2000, and 1999
|---------------------------------------------------------------------------------------------------------------------------------

|                                                           |  | 2001            |   | 2000       |   | 1999        |  
|---------------------------------------------------------- |  | --------------- | - | ---------- | - | ----------- | -
|Cash flows from operating activities:                      |  |                 |   |            |   |             |  
|Net loss                                                   |  | $(7,245,774     | ) | (3,742,302 | ) | (768,344    | )
|Adjustments to reconcile net loss to net                   | 
|cash used in operating activities:                         | 
|Depreciation and amortization                              |  | 411,425         |   | 436,178    |   | 363,789     |  
|Changes in assets and liabilities:                         | 
|Receivables                                                |  | 5,357,495       |   | (7,797,272 | ) | (519,762    | )
|Other current assets                                       |  | 140,328         |   | 138,964    |   | (552,612    | )
|Costs and estimated earnings in excess of billings         |  | (3,114,724      | ) | 1,251,639  |   | (629,724    | )
|Net investment in sales-type lease                         |  | 1,341,544       |   | 1,221,630  |   | 934,186     |  
|Other assets                                               |  | 40,621          |   | (22,423    | ) | (145,428    | )
|Accounts payable                                           |  | (2,884,056      | ) | 5,228,596  |   | 3,146,095   |  
|Accrued expenses                                           |  | 1,521,035       |   | 162,352    |   | 680,892     |  
|Income taxes payable                                       |  | 14,694          |   | 4,746      |   |            |  
|Other liabilities                                          |  | 34,999          |   | (193,043   | ) | 134,540     |  
|Estimated costs to complete power plant                    |  |                |   | (1,321,029 | ) | (11,200,428 | )
|                                                           |  |                 |   |            |   |            
|Net cash used in operating
      activities                |  | (4,382,413      | ) | (4,631,964 | ) | (8,556,796  | )
|                                                           |  |                 |   |            |   |            
|Cash flows from investing activities:                      | 
|Proceeds from maturity of certificate of deposit           |  | 1,000,000       |   |           |   |            |  
|Purchase of certificate of deposit                         |  |                |   |           |   | (1,000,000  | )
|Proceeds from sale of equipment                            |  | 30,267          |   |           |   |            |  
|Capital expenditures                                       |  | (833,959        | ) | (843,567   | ) | (1,534,962  | )
|                                                           |  |                 |   |            |   |            
|Net cash provided by (used
      in) investing activities  |  | 196,308         |   | (843,567   | ) | (2,534,962  | )
|                                                           |  |                 |   |            |   |            
|Cash flows from financing activities:                      | 
|Proceeds from long-term debt                               |  | 6,500,000       |   | 6,050,000  |   | 11,000,000  |  
|Payments of long-term debt                                 |  | (5,148,118      | ) | (401,882   | ) |            |  
|Proceeds from exercise of stock warrants                   |  | 2,000,000       |   |           |   |            |  
|                                                           |  |                 |   |            |   |            
|Net cash provided by financing
      activities            |  | 3,351,882       |   | 5,648,118  |   | 11,000,000  |  
|                                                           |  |                 |   |            |   |            
|Net increase (decrease) in
      cash and cash equivalents |  | (834,223        | ) | 172,587    |   | (91,758     | )
|                                                          
|Cash and cash equivalents at beginning of year             |  | 1,038,975       |   | 866,388    |   | 958,146     |  
|                                                           |  |                 |   |            |   |            
|Cash and cash equivalents at end of year                   |  | $    204,752    |   | 1,038,975  |   | 866,388     |  
|                                                           |  |                 |   |            |   |            
|Supplemental disclosure:                                   | 
|Cash paid during the year for interest                     |  | $ 2,879,739     |   | 2,880,248  |   | 1,953,320   |  
|Cash paid during the year for income taxes                 |  |                |   |           |   | 55,537      |  
|Amount of interest capitalized during the year             |  |                |   | 353,215    |   | 930,241     |  
|                                                           |  |                 |   |            |   |            
|Noncash transactions:                                      | 
|Issuance of common stock in satisfaction of trade payables |  | $              |   | 3,000,000  |   |            |  
|                                                           |  |                 |   |            |   |            

|See accompanying notes to consolidated
financial statements.

F-5
|-----------------------------------------------------------------

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements
December 31, 2001 and 2002
|--------------------------------------------------------------------------------------------------------------------

|(1) |  | Background
|--- |  | ----------

| | Telesource
International, Inc. (Telesource or the Company) was incorporated in Delaware in 1994.
Telesource was formed in 1994 to facilitate various intra-corporate activities and, until
July 1999, was a wholly owned subsidiary of Sayed Hamid Behbehani & Sons Co. W.L.L.
(SHBC), a Kuwait-based civil, electrical, and mechanical engineering and construction company. Telesource
is an international engineering and construction company, engaged in constructing single
family homes, airports, and radio towers, and in the construction and operation of energy
conversion power plants. In Tinian, an island in the Commonwealth of the Northern Mariana Islands
(U.S. Territory), the Company operates a diesel fired electric power generation plant for
the sale of electricity to the local power grid. The Companys facility in Lombard,
Illinois, handles the procurement, export, and shipping of U.S. fabricated products for use by the Companys subsidiaries or for
resale to customers outside of the mainland.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company conducts its operations through three subsidiaries. The Companys Mariana
subsidiary, Telesource CNMI, Inc., handles construction and management of the Companys
energy conversion facilities in the Commonwealth of the Northern Mariana Islands and operates a branch
office in Guam. The Companys second
subsidiary, Commsource International, is an international export company that facilitates
the purchase of equipment in the U.S. The Companys third subsidiary, Telesource Fiji,
Ltd., handles the Companys construction activities in Fiji.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Telesource
has three main operating segments: construction services, brokerage of goods and
services, and power generation and construction of power plants. The power generation
activities commenced in March 1999.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
1999, Telesource entered into an agreement for a merger with Sixth Business Service
Group, a registered company with the Securities and Exchange Commission (SEC) located in
Tampa, Florida. Telesource completed the merger with and into Sixth Business Service
Group on September 7, 2001, pursuant to which the stockholders of Telesource received
shares of Sixth Business Service Group in exchange for their shares of Telesource stock.
Sixth Business Service Group is the surviving corporation, and after the merger was
completed, Sixth Business Service Group changed its name to Telesource International,
Inc. Upon completion of the merger, Telesource made application for listing its common
stock with the NASD and Telesource was approved for listing on the NASD Over The Counter
Bulletin Board in October 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Summary
of Significant Accounting Policies
|--- |  | ------------------------------------------

| | Principles
of Consolidation
| | ---------------------------

| | The
consolidated financial statements include the accounts of the Company and its wholly
owned subsidiaries: Telesource CNMI Inc., Commsource International, and Telesource Fiji,
Ltd. All significant intercompany transactions and accounts have been eliminated.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Liquidity
| | ---------

| | As of December 31, 2001,
the Companys current liabilities exceeded its current assets by
$14,331,462, and the Company had a total stockholders deficit of
$18,566,269. The Company has and expects to continue to seek support from
its principal stockholder, SHBC, for its operations, for working capital needs,
debt repayment and business expansion as may be required (see Note 8). SHBC has
agreed to guarantee certain of the Companys obligations, and if necessary,
repay these borrowings, and has also arranged for letters of credit to secure
the repayment of certain loans. At December 31, 2001, the Company had
$35,500,000 in debt outstanding, $15,500,000 of which is due and payable in
2002. SHBC has also agreed that any additional funding from SHBC to the Company
will not be due until after December 31, 2002. As of December 31, 2001, there
was $29,900,000 in total debt which is either guaranteed by SHBC or which is
secured by a letter of credit from SHBC.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
Equivalents
| | ----------------

| | Telesource
records as cash and cash equivalents all highly liquid short-term investments with
original maturities of three months or less.
| | ------------------------------------------------------------------------------------------------------------------------------------------

|F-6
|---

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Summary
of Significant Accounting Policies, continued
|--- |  | -----------------------------------------------------

| | Foreign
Currency
| | ----------------

| | All
assets and liabilities denominated in foreign currencies are translated at the exchange
rate on the balance sheet date. Revenues, costs, and expenses are translated at average
rates of exchange prevailing during the period. Translation adjustments are deferred as a
separate component of stockholders equity. Gains and losses resulting from foreign
currency transactions are included in the consolidated statements of earnings.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deposits
in Excess of Federal Deposit Insurance Corporation Insurance
| | ---------------------------------------------------------------------

| | The
Company maintains cash in accounts in excess of the Federal Deposit Insurance
Corporations insured limit of $100,000.
| | --------------------------------------------------------------------------------------------------------------------------

| | Certificate
of Deposit
| | ----------------------

| | The
Company held a certificate of deposit at the Bank of Hawaii in the amount of $1,000,000.
The certificate of deposit bore an interest rate of 5.25% per annum and matured on April
27, 2001. The certificate of deposit was used as collateral on a line of credit with the
Bank of Hawaii. The proceeds from the maturity of this certificate of deposit were used
to pay off a $1,000,000 credit line at the Bank of Hawaii during 2001.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
Recognition
| | -------------------

| | Revenue
from construction contracts and construction revenues on power plants, with the exception
of the power plant constructed on Tinian which is accounted for using the sales-type
lease method of accounting as discussed below, is recognized using the
percentage-of-completion method of accounting, based upon costs incurred and projected
costs. Cost of revenue consists of direct costs on contracts, including labor and
materials, amounts payable to subcontractors, direct overhead costs, equipment expense
(primarily depreciation, maintenance, and repairs), interest associated with construction
projects and insurance costs. Contracts frequently extend over a period of more than one
year and revisions in cost and profit estimates during construction are recognized in the
accounting period in which the facts that require the revision become known. Losses on
contracts, if any, are provided in total when determined, regardless of the degree of
project completion. Claims for additional contract revenue are recognized in the period
when it is probable that the claim will result in additional revenue and the amount can
be reasonably estimated.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounts for its leasing activities in accordance with the requirements of
Statement of Financial Accounting Standards No. 13, Accounting for Leases. Revenue
associated with the sale of the Tinian power plant constructed and sold under a
sales-type lease, measured as the present value of noncancelable rents, was recognized in
connection with recording the loss on sale in 1997 and 1998. The Company recognizes
finance lease revenue on the resulting sales-type lease receivable at a constant rate
using the interest method. Service revenues received from operating and maintaining the
Tinian power plant for the duration of the lease are recognized as earned based on actual
kilowatt hours of electricity produced and delivered to the lessees customers. To the
extent that variable payments based on kilowatt-hours of production exceed the fair value
of operation and maintenance services provided, the Company recognizes such contingent
payments as additional finance lease revenue as they are earned.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-7
|---

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Summary
of Significant Accounting Policies, continued
|--- |  | -----------------------------------------------------

| | The
Company also receives variable monthly payments as compensation for its production of
power. The variable payments are recognized based upon power produced and billed to the
customer as earned during each accounting period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
from the Companys brokering of U.S. fabricated goods is recognized at the time of
shipment. The sales revenues for U.S. fabricated goods are recognized net of costs of
goods sold due to title transferring from the manufacturer directly to the Companys
customer, with the risk of loss is borne by the customer at the time of transfer. The Company recognizes management
fees and energy sales revenue in the period in which the commodity is delivered or at the
time the work is performed. Telesource recognizes rental revenue on the accrual basis
pursuant to contractual arrangements between the Company and its customers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Property,
Plant, and Equipment
| | ------------------------------

| | Property,
plant, and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method at rates sufficient to amortize the cost over the
estimated economic lives of the assets. Depreciable lives used for financial reporting
purposes are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Asset description |                                      | Estimateduseful life
| | ----------------- | ------------------------------------ | --------------------
| |                   | Leasehold improvements               |                     
| |                   |                                      |                     
| |                   | Automobiles                          |                     
| |                   | Construction machinery and equipment |                     
| |                   | Office furniture and fixtures        |                     
| |                   | Computer and communication equipment |                     

| | Cost
and accumulated depreciation are eliminated from the accounts when assets are sold or
retired and any resulting gain or loss is reflected in operations in the year of
disposition.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Impairment
of Long-lived Assets and Long-lived Assets to Be Disposed Of
| | -----------------------------------------------------------------------

| | The
Company accounts for long-lived assets in accordance with the provisions of Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-8
|---

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Summary
of Significant Accounting Policies, continued
|--- |  | -----------------------------------------------------

| | Income
Taxes
| | ------------

| | Telesource
International, Inc., Commsource International, Inc., Telesource CNMI, Inc., and
Telesource Fiji, Ltd. file separate corporation income tax returns. Telesource
International, Inc. and Commsource International, Inc. are U.S. corporations that file
separate U.S. corporate income tax returns. Telesource CNMI, Inc. is a Commonwealth of
Northern Mariana Islands corporation and files a corporation tax return for this
commonwealth. Telesource Fiji, Ltd. is a Fijian corporation and files a Fijian
corporation tax return.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
income taxes are accounted for under the asset and liability method. Deferred tax assets
and liabilities are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective income tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys subsidiary, Telesource CNMI, Inc., in the Commonwealth of the Northern Mariana
Islands (CNMI) prepares its corporate income tax returns based on the local tax code. The
tax code used is outlined in the Covenant to Establish a Commonwealth of the Northern Mariana
Islands in Political Union with the United States, which adopted the Internal Revenue Code as
the local territorial income tax. Beginning January 1, 1985, 95% of any income tax due on
the CNMI source income is rebated to the extent that it exceeds local business gross
receipts taxes (GRT). In 1995, the rebate percent was decreased and currently ranges from
90% decreasing to 50% depending upon the amount of taxable income. The amounts paid for
the gross receipts tax amounted to $567,301, $438,859, and $243,627 in 2001, 2000, and
1999, respectively, and are included in general and administrative expenses on the
accompanying consolidated statement of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of Estimates
| | ----------------

| | The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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 reporting period. Actual results
could differ from those estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair
Value of Financial Instruments
| | -----------------------------------

| | The
Companys financial instruments include cash and cash equivalents, certificate of
deposit, receivables, short-term debt, accounts payable, and long-term debt. The gross
carrying amount of the notes receivable related to the sales-type lease approximates fair
value as the notes have been discounted at a rate approximating the Companys borrowing
rate. The carrying amount of the long-term debt approximates fair value due to the
variable interest rates. The carrying amounts of other assets and liabilities
approximates fair value because of the short maturities of those instruments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
Based Compensation
| | ------------------------

| | The
Company uses the intrinsic value method of accounting for its stock based compensation programs.
| | ----------------------------------------------------------------------------------------------------

|F-9
|---

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Customer
and Credit Concentration
|--- |  | ---------------------------------

| | The Company has a concentration with three major customers. The Company was contracted by
the Commonwealth Utilities Corporation (CUC) to construct and operate a
power generation facility. In March 1999, the power
generation plant became operational. Power revenues from this plant began in March 1999
and are earned under the terms of a long-term power energy conversion agreement with this
customer. Revenues from the CUC were $2.3 million, $2.2 million and $1.7 million for
2001, 2000 and 1999, respectively. Another major customer, SHBC, is the Companys parent corporation and
principal stockholder. In 1997, the Company was contracted to construct a radio relay
station for SHBC and completed the project in 1998. The radio relay station contract
provided for the Company to be compensated for the project based on cost plus a fee in
the amount of 7.5% of the costs of any local products used in the construction of the
radio relay station. SHBC is a major customer of the Companys subsidiary, Commsource
International, which is involved in the trading of U.S. fabricated products. Revenues
from SHBC were 0%, 10.0%, and 83.4% of the Companys total revenues for 2001, 2000, and
1999, respectively. Receivables from SHBC were $0 and $2,096 at December 31, 2001 and
2000, respectively. The third major customer is the Commonwealth Ports Authority (CPA).
In 2001, the Company was contracted to construct an airport expansion project on the island of
Taiwan by the CPA. The Company recognized revenues of $7.9 million, $0 and $0 from the CPA for 2001,
2000 and 1999, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Upon commissioning of the Companys power plant on the island of Tinian for
Phase I in March 1999, the Company received 120 promissory notes each in the
amount of $180,000 representing the guaranteed payment due from the customer
over the term of the agreement. The par value balance of promissory notes
outstanding was $15,480,000 and $17,640,000 as of December 31, 2001 and 2000,
respectively, and the discounted value of the promissory notes was $11,232,501
and $12,282,405 at December 31, 2001 and 2000, respectively and the discounted
value of the operation and maintenance fee were $3,120,139 and $3,411,779 at
December 31, 2001 and 2000, respectively. The promissory notes have been
included in the original net investment in sales-type lease as discussed in note
7. Revenues from the Tinian power plant were 12.5% and 17.7% of the
Companys revenues for 2001 and 2000, respectively. Gross receivables for
the investment in sales-type lease were $19,780,000 and $22,540,000 at December
31, 2001 and 2000, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Accounts
Receivable
|--- |  | -------------------

| | Accounts
receivable consist of the following at December 31, 2001 and 2000:
| | ---------------------------------------------------------------------------

| |  | December 31,                                    
| |  | ------------------------------------------------
|
| |  | Construction contracts completed and in progress
| |  | Construction material sales                     
| |  | Retainages                                      
| |  | Other                                           
| |  |                                                 
| |  |                                                 
| |  | Related party receivables                       
| |  |                                                 
| |  |                                                 
| |  |                                                 
| |  |                                                 

| | Retainages
are all due within the next 12 months. Provisions taken as an allowance for doubtful
accounts during 2001 and 2000 were $1,365 and $160, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-10
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Costs
and Estimated Earnings In Excess of Billings on Uncompleted Contracts
|--- |  | ---------------------------------------------------------------------------

| | Long-term
construction contracts in progress accounted for using the percentage-of-completion
method consisted of:
| | ------------------------------------------------------------------------------------------------------------------

| |  | December 31,                                                               
| |  | ---------------------------------------------------------------------------
|
| |  | Costs incurred on uncompleted contracts                                    
| |  | Estimated (loss) earnings                                                  
| |  |                                                                            
| |  |                                                                            
| |  |                                                                            
| |  | Less billings to date                                                      
| |  |                                                                            
| |  |                                                                            
| |  |                                                                            
|
| |  | Included in the accompanying balance sheet under the following    captions:
| |  | Costs and estimated earnings in excess of billings                         
| |  | Billings in excess of costs and estimated earnings                         
| |  |                                                                            

| | See Note 3 for a description of customer concentrations.
| | --------------------------------------------------------

|(6) |  | Property,
Plant, and Equipment
|--- |  | ------------------------------

| |  | 2001                                           | 2000
| |  | ---------------------------------------------- | ----
| |  | Leasehold improvements                         |     
| |  | Automobiles                                    |     
| |  | Construction machinery and equipment           |     
| |  | Office furniture and equipment                 |     
| |  | Computer and communication equipment           |     
| |  | Construction in progress                       |     
| |  |                                                |     
| |  |                                                |     
|
| |  | Less accumulated depreciation and amortization |     
| |  |                                                |     
| |  | Net property, plant and equipment              |     
| |  |                                                |     

| | Total depreciation expense was $411,425, $436,178 and $368,789 in 2001, 2000 and
1999, respectively. Depreciation for construction machinery and equipment is
recognized as a project expense when appropriate.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-11
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Investment
in Sales-type Lease
|--- |  | ------------------------------

| | The Companys contract with one customer, (Commonwealth Utilities
Corporation (CUC)), for the construction and operation of a power
plant on the island of Tinian is accounted for as a sales-type lease. The
minimum lease payments due under the agreement began upon commissioning of the
first phase of the power plant and are comprised of a guaranteed monthly payment
of $180,000 for one hundred and twenty (120) months and an operation and
maintenance fee due under the agreement of $50,000 due monthly for one hundred
and twenty (120) months. These minimum lease payments were discounted at an
interest rate of 6.74%, which was the ten-year U.S. Treasury note rate in June
1997, the time of contract execution. The minimum lease payments were discounted
to June 1997, and amortization of the minimum lease payments began in March 1999
when the plant was commissioned and the Company began collecting the promissory
notes and service fee for operating the plant. The Company also receives
variable monthly payments as a part of its production fee of $0.02 per Kwh
produced for the first 5,140,000 Kwh produced each month (Base Load) plus $0.065
per Kwh for any amount produced beyond the Base Load of 5,140,000 each month.
The variable payments are recognized based upon power produced and delivered to
the customer as earned during each accounting period. Service fees earned in
2001 and 2000 were not in excess of the estimated fair value of the services
performed.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
original net investment in sales-type lease was recognized in June 1997, the date the
contract was executed. The components of the net investment in sales-type lease are as
follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | December 31,                            | June 20, 1997inception
| |  | --------------------------------------- | ----------------------
|
| |  | Guaranteed monthly payment              |                       
| |  | Minimum operation and maintenance fee   |                       
| |  |                                         |                       
| |  | Total minimum lease payments receivable |                       
| |  | Less unearned income                    |                       
| |  |                                         |                       
| |  | Net investment in sales-type lease      |                       
| |  |                                         |                       

| | The
future minimum lease payments to be collected by the Company are $2,760,000 each year
through 2009.
| | -------------------------------------------------------------------------------------------------------

| | When
the Company recognized the net investment in sales-type lease at the inception of the
agreement in June 1997, the Company also recognized a loss on the sale of Phase I in the
amount of $1,748,713. The Company recognized a loss on the sale of Phase II for the
entire amount of the construction costs for Phase II, as there were no additional minimum
lease payments related to this phase. The loss recognized on the sale of Phase II
was recognized when the contract for Phase II was executed in November 1998, and amounted to
$12,521,457.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Phase I of the power plant was commissioned in March of 1999. Phase II was
commissioned in March of 2000. The Company recognized power generation revenues
from billings at the rate of $0.02 per Kwh produced of $858,336, $692,160, and
$304,920 for the years ended December 31, 2001, 2000 and 1999,
respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-12
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Long-term
Debt and Credit Arrangements
|--- |  | --------------------------------------

| | Long-term
debt consists of the following at December 31, 2001 and 2000:
| | -----------------------------------------------------------------------

|                                                                              | December 31,
|----------------------------------------------------------------------------- | ------------
|
|Kuwait Real Estate Bank loan, due in lump sum payment on May 25, 2001,        |             
|with interest of 3-month LIBOR plus 2.5% (6.4% at December 31,                |             
|2000); paid in full in 2001.                                                  |             
|                                                                             
|The Hongkong and Shanghai Banking Corporation, Limited, advances on           |             
|$2,000,000 credit line, due in full on January 31, 2002 including interest of |             
|1.5% above the banks base lending rate (6.3% and 9.5% at December            |             
|31, 2001 and 2000, respectively), secured by nineteen (19)                    |             
|Commonwealth Utilities Corporation negotiable promissory notes                |             
|valued at $3,420,000 and a corporate guarantee of Telesource                  |             
|International, Inc. (see additional discussion).                              |             
|                                                                             
|Bent Marketing Limited loan, bearing interest of 7.0% per annum, unsecured,   |             
|matures on January 31, 2003.                                                  |             
|                                                                             
|Bank of Hawaii loan, due in lump sum on April 15, 2002, interest              |             
|payable monthly including interest of 0.5% above the Bank Base Rate,          |             
|(4.75% at December 31, 2001) secured by an irrevocable standby letter         |             
|of credit for $2,000,000 issued by Alahli Bank of Kuwait guaranteed           |             
|by SHBC.                                                                      |             
|                                                                             
|Bank of Hawaii loan, advances on credit line, due in full on July 1,          |             
|2002, including interest of 1.5 percent above Bank Base Rate,                 |             
|(4.75% at December 31, 2001) secured by twenty-one (21)                       |             
|Commonwealth Utilities Corporation negotiable promissory                      |             
|notes valued at $3,780,000 and a corporate guarantee of                       |             
|Telesource International, Inc.                                                |             
|                                                                             
|Bank of Hawaii loan, advances on credit line, due in full on April 27,        |             
|2001, interest payable monthly at a rate of 6.25% per annum;                  |             
|paid in full in 2001.                                                         |             

|F-13
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Long-term
Debt and Credit Arrangements, continued
|--- |  | -------------------------------------------------

|Citytrust Bank loan, due in monthly payments of $21,262, including
          interest of 11.5% per annum through January 1, 2002; paid in full in 2001. |  |             |  | 258,118    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ---------- | 
|                                                                                                                                                       
|Citytrust Bank loan, borrowings on $1,000,000 revolving line of credit,                                                                                 |  |              |  |            | 
|which expires on May 17, 2002. Due in 90 days from date of                                                                                              | 
|drawdown including interest of 11.5 percent per annum, secured                                                                                          | 
|by assignment of specific invoice from billing on the West Tinian                                                                                       | 
|Airport Airside improvement project, guaranteed by Telesource                                                                                           | 
|International Inc. and one of its officers (see additional discussion below).                                                                           |  | 1,000,000    |  |           | 
|                                                                                                                                                       
|Bank of Hawaii loan, advances on credit line, interest due monthly and                                                                                  | 
|principal due in full on May 31, 2001; including interest of 10.5%                                                                                      | 
|per annum, paid in full in 2001.                                                                                                                        |  |             |  | 1,890,000  | 
|                                                                                                                                                       
|Kuwait Real Estate Bank loan advances on $3,000,000 credit line, due in three                                                                           | 
|installments of $1,000,000 on January 31, 2002 and $2,000,000 on March 31,                                                                              | 
|2002, including interest of LIBOR plus 3 percent. The loan is guaranteed by                                                                             | 
|Sayed Hamid Behbehani and Sons Co., WLL (a related party) (see additional                                                                               | 
|discussion below).                                                                                                                                      |  | $  3,000,000 |  | 2,000,000  | 
|                                                                                                                                                       
|Commercial Bank of Kuwait loan, due in installments, including interest,                                                                                | 
|from February 18, 2002 to November 23, 2005. The note bears                                                                                             | 
|interest at LIBOR plus 3 percent. The loan is guaranteed by Sayed                                                                                       | 
|Hamid Behbehani and Sons Co., WLL (a related party). The schedule                                                                                       | 
|of maturities is detailed below. Should the Company default on an                                                                                       | 
|installment payment, the entire loan and accrued interest become due                                                                                    | 
|and payable (see additional discussion below).                                                                                                          |  | 25,000,000   |  | 25,000,000 | 
|                                                                                                                                                        |  |              |  |           
|                                                                                                                                                        |  |             
|Notes payable to banks                                                                                                                                  |  | 35,500,000   |  | 34,148,118 | 
|Less current portion                                                                                                                                    |  | 15,500,000   |  | 7,127,493  | 
|                                                                                                                                                        |  |              |  |           
|Total
      long-term debt                                                                                                                              |  | $20,000,000  |  | 27,020,625 | 
|                                                                                                                                                        |  |              |  |           

| | There were no unused credit line balances available at December 31, 2001. At
December 31, 2001, there was $29,900,000 in total debt either guaranteed
directly by SHBC or secured by an irrevocable letter of credit obtained by SHBC,
$4,500,000 fully collateralized by lease and project receivables and $1,100,000
unsecured (Bent Marketing Limited loan maturing on January 31, 2003). As of
March 31, 2002, there was $31,900,000 in total debt guaranteed by or supported
by letters of credit obtained through SHBC, $2,500,000 fully collateralized by
lease receivables and $1,100,000 unsecured.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-14
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Long-term
Debt and Credit Arrangements, continued
|--- |  | -------------------------------------------------

| | The largest loan held by Telesource International, a $25,000,000 loan from the Commercial
Bank of Kuwait is due in installments of principal as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------

|Payment Date      |  | Principal Payment
|----------------- |  | -----------------
|February 18, 2002 |  | $  2,500,000     
|August 19, 2002   |  | 2,500,000        
|February 19, 2003 |  | 1,750,000        
|May 19, 2003      |  | 1,750,000        
|August 19, 2003   |  | 1,750,000        
|November 19, 2003 |  | 1,750,000        
|February 19, 2004 |  | 1,750,000        
|May 19, 2004      |  | 1,750,000        
|August 19, 2004   |  | 1,750,000        
|November 19, 2004 |  | 1,750,000        
|February 21, 2005 |  | 1,500,000        
|May 21, 2005      |  | 1,500,000        
|August 21, 2005   |  | 1,500,000        
|November 23, 2005 |  | 1,500,000        
|                  |  |                  
|Total             |  | $25,000,000      
|                  |  |                  

| | The
Companys debt agreements contain various covenants. The Company was in compliance with
these covenants or had obtained waivers as of and for the year ended December 31, 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Scheduled
maturities of debt outstanding as of December 31, 2001 are as follows:
| | --------------------------------------------------------------------------------

| |  |                         
| |  | ------------------------
| |  | Year ending December 31,
| |  | 2002                    
| |  | 2003                    
| |  | 2004                    
| |  | 2005                    
| |  |                         
| |  |                         
| |  |                         

|F-15
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Long-term
Debt and Credit Arrangements, continued
|--- |  | -------------------------------------------------

| | The Company has made the following debt repayments have occurred since January 1, 2002:
| | ---------------------------------------------------------------------------------------

| | Description                                    |  | Amount    
| | ---------------------------------------------- |  | ----------
| | The Hongkong and Shanghai Banking              |  |           
| | Corporation debt due January 31, 2002          |  | $2,000,000
| |                                               
| | Citytrust Bank loan due May 17, 2002           |  | 1,000,000 
| |                                               
| | Kuwait Real Estate Bank loan with $1.0 million | 
| | due on January 31, 2002 and $2.0 million due   | 
| | on March 31, 2002                              |  | 3,000,000 
| |                                               
| | Commercial Bank of Kuwait loan with $2.5       | 
| | million due on February 18, 2002               |  | 2,500,000 
| |                                               
| | Total debt reductions
      since              | 
| | December
      31, 2001                        |  | $8,500,000
| |                                               

| | The Company borrowed $5.3 million from SHBC during the first quarter of 2002 in
order to make required payments (principal and interest) on debt due to the Kuwait Real
Estate Bank and the Commercial Bank of Kuwait during the first quarter of 2002.
The Company repaid this short-term facility to SHBC in April 2002 when it
established a new line of credit with the Hongkong and Shanghai Banking
Corporation in the amount of $7.5 million. This line of credit is secured by a
$7.5 million standby letter of credit through SHBC along with three promissory
notes from the Tinian power plant with a par value of $540,000, and is payable
on demand but in no event later than November 2002. The Company repaid the $2.0
million outstanding under the credit facility with the Hongkong and Shanghai Banking Corporation after
first securing an extension to April 15, 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Stockholders
Equity
|--- |  | --------------------

| | On
December 31, 2001, 15,000,000 shares of the Companys common stock were issued and
outstanding.
| | --------------------------------------------------------------------------------------------------

| | In January 2001, 2,000,000 warrants were issued to SHBC in connection with an
agreement whereby SHBC granted a $10,000,000 letter of credit to the Company.
Each warrant allowed SHBC to receive one share of the Companys common
stock at an exercise price of $1 per share. The warrants were exercised on June
29, 2001 resulting in an additional 2,000,000 shares of the Companys
common stock being issued.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In January 2001, the Companys Board of Directors adopted the 2001 Non-Employee Directors
Stock Option Plan that provides for the issuance of non-qualified stock options to
outside directors. Under the terms of this plan, under which 285,000 shares of common
stock were reserved for issuance, options to purchase common stock are granted at not
less than fair market value, become exercisable over a 3 year period from the date of
grant (vesting occurs annually on the grant date at 33.3% of the grant), and expire 10
years from the date of grant.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-16
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Stockholders
Equity, continued
|--- |  | -------------------------------

| | In January 2001, the Companys Board of Directors adopted the 2001 Incentive Stock Option
Plan that provides for the issuance of qualified stock options to employees. Under the
terms of this plan, under which 888,000 shares of common stock were reserved for
issuance, options to purchase common stock are granted at not less than fair market
value, become exercisable over a 3 year period from the date of grant (vesting occurs
annually on the grant date at 33.3% of the grant), and expire 10 years from the date of
grant.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In January 2001, the Companys Board of Directors adopted the 2001 Non-Qualified Stock
Option Plan that provides for the issuance of non-qualified stock options to employees.
Under the terms of this plan, under which 27,000 shares of common stock were reserved for
issuance, options to purchase common stock are granted at less than fair market value,
become exercisable immediately on the date of grant, and expire 10 years from the date of
grant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On December 31, 2000, 13,000,000 shares of the Companys common stock were issued and
outstanding. The Company had 10,000,000 shares issued and outstanding for most of 2000
until the Company sold an additional 3,000,000 shares to its principal stockholder, SHBC,
to settle $3.0 million in trade payables due to the same stockholder. The Company
had no remaining debt owed to SHBC at December 31, 2000. During the years ended December
31, 1999, the Company had 10,000,000 shares of common stock issued and outstanding.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Earnings
Per Share
|---- |  | ------------------

| | In accordance with the disclosure requirements of Statement of Financial Accounting
Standards No. 128, earnings per share (SFAS 128), a reconciliation of
the numerator and denominator of basic and diluted earnings per share is provided as
follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Years ended December 31,                       
| |  | -----------------------------------------------
|
| |  | Numerator  basic and diluted loss per share   
| |  |  net loss                                     
| |  |                                                
| |  | Denominator  basic earnings per share  common
| |  | stock outstanding                              
| |  |                                                
| |  | Basic and diluted earnings per share           
| |  |                                                

| | Excluded 225,000 options which were anti-dilutive.
| | --------------------------------------------------

|F-17
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Financial
Instruments With Off-balance Sheet Riskand Concentrations of Credit Risk
|---- |  | ----------------------------------------------------------------------------------

| | Derivative
financial instruments  Historically the Company has not engaged in hedging activities
and currently does not hold any hedging instruments to minimize exchange rate risk.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair
value disclosures  The carrying amounts of cash and cash equivalents, trade receivables,
other current assets, accounts payable, amounts included in investments and accruals
meeting the definition of financial instruments and short-term debt approximate fair
value.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Standby
letters of credit and financial guarantees  In the ordinary course of business with
customers, vendors and others, the Company is contingently liable for performance under
letters of credit and other financial guarantees totaling approximately $17 million at
December 31, 2001. The Companys management does not believe it is practicable to
estimate the fair values of these financial instruments and does not expect any losses
from their resolution.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Related-party
Transactions
|---- |  | --------------------------

| | Certain
of the Companys executive officers, directors, and major stockholders are also owners,
officers, and/or directors of SHBC located in Kuwait. SHBC is a civil, electrical, and
mechanical engineering firm and construction contractor with 750 employees and over 30 years of experience.
SHBC and its affiliates were the sole stockholder of Telesource International prior to
July 1999 and now owns approximately 75.6% of the common stock outstanding. SHBC and
Telesource International bid and compete within the same industries; however, SHBC has
agreed in writing to not bid projects within the United States and its possessions.
Additionally, SHBC and SHBCs majority stockholders, Fouad Behbehani and Nasrallah
Behbehani, have signed as guarantors on Telesource CNMIs promissory note for $25,000,000
with the Commercial Bank of Kuwait, New York Branch, and as guarantors on a $3,000,000
credit facility for Telesource CNMI with Kuwait Real Estate Bank. SHBC and SHBCs
majority stockholders have also signed as guarantors on a $2,000,000 letter of credit
issued to the Bank of Hawaii to secure a $1,900,000 credit facility. The $25,000,000
promissory note is used by Telesource to finance the construction activities on the power
plant, the credit facility with the Kuwait Real Estate Bank is being used to finance the
West Tinian Airport Expansion project and the letter of credit for the Bank of Hawaii is
being used as project financing. Also see note 8.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Additionally,
from time-to-time the Company may hire, on a part time or temporary basis, individuals
employed by SHBC to provide assistance to Telesource on certain projects in the Northern
Mariana Islands. The rates paid do not exceed the fair market value of similar services
provided by unrelated third parties.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-18
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Related-party
Transactions, continued
|---- |  | -------------------------------------

| | In
1996, the Company was subcontracted by SHBC to build a radio relay station in the
Commonwealth of Northern Mariana Islands for the United States Information Agency. The
agreement between SHBC and the Company included payment to the Company on a monthly basis
for all time and material plus a fee of 7.5% on local purchases and procurements. The
radio relay station project was completed in early 1999, however, an addition to the
radio relay station was approved and the Company was hired by SHBC to perform additional
construction services on the radio relay station under the same terms as the original
agreement. This project concluded in 2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table provides a summary of financial information related to all
services provided to SHBC by the Company.
| | ------------------------------------------------------------------------------------------------------------------------

| |  | Years ended December 31,    
| |  | ----------------------------
|
| |  | Construction revenues       
| |  | Sales                       
| |  | Rental income               
| |  | Service fees                
| |  |                             
| |  | Total related party revenues
| |  |                             

| | The
following table summarizes all balances related to transactions with SHBC as of the end
of each period.
| | -----------------------------------------------------------------------------------------------------------

| |  | 2001                      | 2000
| |  | ------------------------- | ----
| |  | Accounts receivable       |     
| |  | Accounts payable          |     
| |  | Other current liabilities |     
| |  |                           |     

| | The
related party amounts recorded and disclosed in the consolidated financial statements are
not necessarily indicative of the amounts which would have been incurred had comparable
transactions been entered into with independent parties.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company held an investment in Telebond Insurance Corporation at December 31,
2001, in the amount of $126,500. The Company purchased insurance from Telebond
and paid premiums of $23,566, $158,278 and $138,203 during the years ended
December 31, 2001, 2000 and 1999, respectively. Telebond provides employment
bonds along with bid, performance and payment bonds for the Companys
projects. Telebond is not a U.S. Treasury listed bonding company. Most bid,
performance and payment bonds for the Company are secured from third party
vendors. The Companys President and CEO, K.J. Semikian, serves on Telebond
Insurance Corporations board of directors and as President of Telebond,
and owns 10% of the stock of Telebond.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company paid legal fees to an employee and director of the Company in the
amount of $84,000 during 1999. There were no legal fees paid to any employee or
director of the Company during 2001 or 2000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-19
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Income
Taxes
|---- |  | ------------

| | Income
tax expense consists of:
| | -------------------------------

| |  | Current                       | Deferred | Total    
| |  | ----------------------------- | -------- | ---------
| |  | Year ended December 31, 2001: |          |          
| |  | U.S. Federal                  |          | $       
| |  | State and local               |          |         
| |  | U.S. possession               |          |         
| |  | Foreign                       |          | 19,440   
| |  |                               |          |          
| |  |                               |          | $19,440  
| |  |                               |          |          
| |  | Year ended December 31, 2000: |          |          
| |  | U.S. Federal                  |          | $       
| |  | State and local               |          |         
| |  | U.S. possession               |          |         
| |  | Foreign                       |          | 4,746    
| |  |                               |          |          
| |  |                               |          | 4,746    
| |  |                               |          |          

| | The foreign tax was incurred in connection with the Companys operations in
Fiji and is based upon earnings within Fiji. The average tax rate on these
earnings was 35%. In 2001, 2000 and 1999, the Company recorded a loss for
financial reporting purposes as well as a loss for income tax reporting purposes
and therefore, no current U.S. income tax expense has been reflected in the
accompanying statements of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2001 and
2000 are presented below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | 2001 | 2000            
|-------------------------------- | ---- | ----------------
|Deferred tax assets:             |      |                 
|Contribution carry over          |      | $         10,000
|Net operating loss carryforwards |      | 12,486,194      
|                                 |      |                 
|Total gross deferred tax assets  |      | 12,496,194      
|                                 |      |                 
|                                 |      |                 
|Less valuation allowance         |      | (12,416,059     
|                                 |      |                 
|Net deferred tax asset           |      | 80,135          
|                                 |      |                 
|Net deferred tax liability       |      | $        (80,135
|                                 |      |                 

|F-20
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Income
Taxes, continued
|---- |  | -----------------------

| | The
valuation allowance for deferred tax assets as of December 31, 2001 and 2000 was
$12,416,059 and $5,165,170, respectively. The net change in the total valuation allowance
for the years ended December 31, 2001 and 2000 was an increase of $7,250,889 and an
increase of $1,150,789, respectively. The net deferred tax asset at December 31, 2001 and
2000 was also fully reserved. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management believes that the valuation
allowance reduces the recognition of deferred tax assets to a level that reflects the
amount that is more likely than not to be realized, considering the tax planning
strategies available to the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2001, the Company has net operating loss carryforwards of approximately
$22,000,000. The net operating loss carryforwards expire in the years 2017 through 2021.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | Commitments
and Contingencies
|---- |  | -----------------------------

| | Minimum
rental commitments under all noncancelable-operating leases, primarily related to property,
vehicles, and construction equipment, in effect at December 31, 2001 are:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ending December 31: |  |                    
|------------------------ |  | -------------------
|                         |  | 2002               
|                         |  | 2003               
|                         |  | 2004               
|                         |  | 2005               
|                         |  | 2006 and thereafter
|                         |  |                    
|                         |  |                    
|                         |  |                    

| | Lease
expense was $452,045, $410,848, and $181,726 for the years ended December 31, 2001, 2000,
and 1999, respectively.
| | -----------------------------------------------------------------------------------------------------------------------

| | Telesource entered into an employment agreement with Khajadour Semikian in June
1999, Nidal Zayed in August 1999 and Bud Curley in April 2001. The term of the
agreement with Mr. Semikian is from July 1, 1999 to July 1, 2002. Under the
terms of the agreement, Mr. Semikian is required to devote his full time to the
Companys business. The Company has agreed to pay him an annualized base
salary of $220,000 during 1999, increased to $270,000 during 2000 and remaining
at $270,000 per year until July 1, 2002. The payment of cash bonuses to Mr.
Semikian will be at the Boards discretion. The Company has agreed to
provide Mr. Semikian with health insurance for him and his family. The term of
the agreement with Mr. Zayed is from September 1, 1999 to September 1, 2002.
Under the terms of the agreement, Mr. Zayeds responsibilities comprise
serving as the number two operating officer accountable for the full range of
operations. The Company has agreed to pay him an annualized base salary of
$125,000 per year for the term of the agreement. The payment of cash bonuses to
Mr. Zayed will be at the Boards discretion. The Company has also agreed to
provide Mr. Zayed with health insurance for him and his family along with a
company car. The term of the agreement with Mr. Curley is from April 1, 2001 to
October 1, 2003. Under the terms of the agreement, Mr. Curley is required to
devote his full time to the Companys business. The Company has agreed to
pay him an annualized base salary of $165,000 during the period from April 1,
2001 to October 31, 2001, and $175,000 from November 1, 2001 to
October 1, 2003. The payment of cash bonuses to Mr. Curley will be at the
Boards discretion. The Company has agreed to provide Mr. Curley with
health insurance for him and his family. The Company has agreed to provide Mr.
Curley with a $10,000 per year car allowance for the term of this
agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-21
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(14) |  | Commitments
and Contingencies, continued
|---- |  | ----------------------------------------

| | The
Company is involved in various litigation proceedings arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Companys financial position, results of
operations, or liquidity.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Business
Segment Information
|---- |  | ----------------------------

| | The
Company adopted SFAS No. 131, Disclosure About Segments of an Enterprise and
Related Information, in 1998. Segments were determined based on products and
services provided by each segment. Telesource has three operating segments:
power generation and construction of power plants, trading, and construction
services. Power generation activities did not commence until March 1999. The
power generation and construction of power plants segment includes sales-type
lease revenues recognized. There were no material amounts of transfers between
segments. Any inter segment revenues have been eliminated. The following table
sets forth certain segment information for the periods
indicated:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | December 31, 2001
|----------------------------- | -----------------
|
|Revenue                       |                  
|Interest income               |                  
|Interest expense              |                  
|Depreciation and amortization |                  
|Income tax expense            |                  
|Net loss                      |                  
|Total capital expenditures    |                  
|Total assets                  |                  
|                              |                  

|F-22
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Business
Segment Information, continued
|---- |  | ---------------------------------------

|                              | December 31, 2000
|----------------------------- | -----------------
|
|Revenue                       |                  
|Interest income               |                  
|Interest expense              |                  
|Depreciation and amortization |                  
|Income tax expense            |                  
|Net loss                      |                  
|Total capital expenditures    |                  
|Total assets                  |                  
|                              |                  

|                              | December 31, 1999
|----------------------------- | -----------------
|
|Revenue                       |                  
|Interest income               |                  
|Interest expense              |                  
|Depreciation and amortization |                  
|Income tax expense            |                  
|Net loss                      |                  
|Total capital expenditures    |                  
|Total assets                  |                  
|                              |                  

| | SHBC represented 0%, 10.0%, and 83.4% of the Companys consolidated
revenues during 2001, 2000, and 1999, respectively. SHBC represented 0%, 10.0%,
and 83.4% of the Companys consolidated revenues during 2001, 2000, and
1999, respectively. Another customer, the Commonwealth Utilities Corporation,
represented 12.5%, 17.7% and 27.4% of the Companys consolidated revenues
during 2001, 2000, and 1999, respectively. Another customer, the Commonwealth
Ports Authority, represented 43.2%, 0% and 0% of the Companys consolidated
revenues during 2001, 2000 and 1999, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
basis used to attribute revenues to individual countries is based upon where the services
are provided.
| | -----------------------------------------------------------------------------------------------------------

| | The
power generation segment includes revenues from the Companys power station on Tinian,
Commonwealth of the Northern Mariana Islands in the amount of $2,276,792, $2,230,530, and
$1,670,734 for 2001, 2000, and 1999, respectively. The construction revenues recognized
for the expansion of two power plants in Fiji is included under the power generation
segment and were $4,052,600, $536,210 and none for 2001, 2000 and 1999, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-23
|----

|TELESOURCE
INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements, continued
December 31, 2001 and 2002
|-------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Business
Segment Information, continued
|---- |  | ---------------------------------------

| | Revenues from the Companys related party, SHBC, were $256, $1,134,485, and
$3,177,347 for 2001, 2000, and 1999, respectively. The revenues recognized from
SHBC under the construction segment were none, $851,912, and $2,180,683 for
2001, 2000, and 1999, respectively. The revenues recognized from SHBC under the
trading segment were $256, $197,845, and $181,118 for 2001, 2000, and 1999,
respectively. The Company recognized $1,191,585 in construction revenues for a
project to construct a radio broadcast station in Lebanon. All other revenues
recognized within the construction segment for all periods presented were earned
within in the Commonwealth of Mariana Islands. Rental income and service fees
earned from SHBC were $0, $84,728 and $815,546 for 2001, 2000 and 1999,
respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trading revenues generated by the Companys Guam office were $130,205, $267,742 and $81,627
for 2001, 2000 and 1999, respectively. All other revenues recognized within the
trading segment for all periods presented were earned at our location in
Lombard, Illinois.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Long-lived
assets located in the Commonwealth of the Northern Mariana Islands were $15,695,131 and
$19,741,796, and $19,920,356 as of December 31, 2001, 2000, and 1999, respectively. The
Company had no long-lived assets located in Fiji as of December 31, 2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-24
|----

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


Not Applicable


PART III



ITEM 10.  
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


The sections entitled
Election of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance are incorporated by reference from the definitive
proxy statement to be filed with the Securities and Exchange Commission in
connection with the Companys 2002 annual meeting of stockholders.
Information about the Companys executive officers is set forth in Item
4(a) in Part I of this Report.



ITEM 11.  
EXECUTIVE COMPENSATION


The section entitled
Executive Compensation excluding the Board Compensation Committee
Report and the stock price performance graph is incorporated by reference from
the definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with the Companys 2002 annual meeting of
stockholders.



ITEM 12.  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The section entitled
Ownership of Securities is incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with the Companys 2002 annual meeting of
stockholders.



ITEM 13.  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


The section entitled
Certain Transactions is incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with the Companys 2002 annual meeting of
stockholders.


PART IV



ITEM 14.  EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)(1) The following consolidated
financial statements of Telesource International, Inc. and Subsidiaries are included in
Part II, Item 8:
39
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Financial Statements:


Consolidated Balance
SheetsDecember 31, 2001 and 2000


Consolidated Statements of
OperationsYears Ended December 31, 2001, 2000 and 1999


Consolidated Statements of Cash
FlowsYears Ended December 31, 2001, 2000 and 1999


Consolidated Statements of
Stockholders Equity and Comprehensive Income  Years Ended December
31, 2001, 2000 and 1999


Notes to Consolidated Financial
Statements


Report of Independent Public
Accountants


(a)(2) The following
financial statement schedules are included in this Form 10-K report:


None.


(b) Reports on Form 8-K:


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


ITEM 14(a)(3).
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS


The following executive compensation
plans and arrangements are listed as Exhibits in this Form 10-K:


Employment Contract between K.J.
Semikian and Telesource International, Inc.     Employment Contract between Nidal Z. Zayed
and Telesource International, Inc.     Employment Contract between Bud Curley and Telesource
International, Inc.     Telesource International, Inc. 2000 Incentive Stock Option Plan
     Telesource International, Inc. 2000 Non-Qualified Stock Option Plan     Telesource
International, Inc. 2000 Non-Employee Director Stock Option Plan
40
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SIGNATURES


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 THEREUNTO DULY AUTHORIZED.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date       April 11, 2002 |  | TELESOURCE
INTERNATIONAL, INC.    (Registrant)By: /s/ K.J. Semikian
K.J. SemikianPresident 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
INDICATED ON APRIL 11, 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|/s/ Ralph Beck
Ralph Beck |  | Chairman of the Board of Directors
|-------------------------------------- |  | ----------------------------------

|/s/ K.J. Semikian
K.J. Semikian |  | Director, President and Chief Executive Officer
|-------------------------------------------- |  | -----------------------------------------------

|/s/ Nidal Z. Zayed
Nidal Z. Zayed |  | Director and Executive Vice President
|---------------------------------------------- |  | -------------------------------------

|/s/ Max Engler
Max Engler |  | Director
|-------------------------------------- |  | --------

|/s/ Jeffery Adams
Jeffery Adams |  | Director
|-------------------------------------------- |  | --------

|/s/ Weston Marsh
Weston Marsh |  | Director
|------------------------------------------ |  | --------

|/s/ Ibrahim Ibrahim
Ibrahim Ibrahim |  | Director
|------------------------------------------------ |  | --------

|/s/ Bud Curley
Bud Curley |  | Chief Financial Officer
|-------------------------------------- |  | -----------------------

|41
|--

|EXHIBIT INDEX
|-------------

|EXHIBITNUMBER |  | EXHIBIT DESCRIPTION
|------------- |  | -------------------

|2.01 |  | Amended
and Restated Agreement and Plan of Merger and Plan of Reorganization among Sixth Business
Service Group and Telesource International, Inc. Appendix A**
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.01 |  | Certificate
of Incorporation of Telesource International **
|---- |  | -----------------------------------------------------------

|3.02 |  | By-laws
of Telesource International **
|---- |  | --------------------------------------

|10.01 |  | Agreement
for Design, Supply of Plant and Equipment, Private Construction, Maintenance and
Operation, and Transfer of Ownership dated June 10, 1997**
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|10.02 |  | Agreement
for Design, Supply of Plant and Equipment, Private Construction, Maintenance and
Operation, and Transfer of Ownership, Change Order Number 1, dated November 30, 1998**
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.03 |  | Agreement
for Design, Supply of Plant and Equipment, Private Construction, Maintenance and
Operation, and Transfer of Ownership, Change Order Number 2, dated November 30, 1998**
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.04 |  | Agreement
and Contract for Construction of Koblerville Expansion Project between the Northern
Mariana Islands and Telesource International dated July 28, 1998**
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.06 |  | Memorandum
of Understanding between Sayed Hamid Behbehani & Sons, Co. W.L.L. and Telesource
International, Inc. regarding right of first refusal for certain areas**
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.07 |  | Memorandum
of Understanding between Sayed Hamid Behbehani & Sons, Co. W.L.L. and Telesource
International, Inc. regarding commission fees **
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Note
Agreement between the Commercial Bank of Kuwait, New York Branch, and Telesource
International CNMI, Inc. dated August 20, 1998**
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------

|10.10A |  | Note
Agreement between the Commercial Bank of Kuwait, New York Branch, and Telesource CNMI,
Inc. dated December 11, 2001 (filed herewith)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Term
Loan Agreement between the Kuwait Real Estate Bank and Telesource International CNMI,
Inc. dated May 2, 1999**
|----- |  | -------------------------------------------------------------------------------------------------------------------

|10.12 |  | Line
of Credit Agreement between the Bank of Hawaii and Telesource International CNMI, Inc. )**
|----- |  | -----------------------------------------------------------------------------------------------

|10.13 |  | Credit
Agreement between Hongkong and Shanghai Bank Corporation, Limited and Telesource CNMI,
Inc. dated January 21, 2000**
|----- |  | ---------------------------------------------------------------------------------------------------------------------------

|10.13A |  | Credit
Agreement between Hongkong and Shanghai Bank Corporation, Limited and Telesource CNMI,
Inc. dated March 26, 2002 (filed herewith)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | Lease
of Tinian Land between the Commonwealth Utilities Corporation and Telesource
International CNMI, Inc.**
|----- |  | -------------------------------------------------------------------------------------------------------------

|10.15 |  | Employment
Contract between K.J. Semikian and Telesource International, Inc.**
|----- |  | ------------------------------------------------------------------------------

|10.16 |  | Employment
Contract between Nidal Z. Zayed and Telesource International, Inc.**
|----- |  | -------------------------------------------------------------------------------

|10.17 |  | Employment
Contract between Bud Curley and Telesource International, Inc. (filed herein)
|----- |  | ----------------------------------------------------------------------------------------

|10.18 |  | Adoption
Agreement for Aetna Life Insurance and Annuity Company Standardized 401(k) Profit Sharing
Plan and Trust between Aetna Life Insurance and Annuity Company and Commsource
International, Inc. dated November 13, 1998**
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Agreement
for Design, Supply of Plant and Equipment, Private Construction, Maintenance and
Operation, and Transfer of Ownership, Change Order Number 3 dated May 11, 2001**
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Telesource
International, Inc. 2000 Incentive Stock Option Plan **
|----- |  | ------------------------------------------------------------------

|10.21 |  | Telesource
International, Inc. 2000 Non-Qualified Stock Option Plan **
|----- |  | ----------------------------------------------------------------------

|10.22 |  | Telesource
International, Inc. 2000 Non-Employee Director Stock Option Plan **
|----- |  | ------------------------------------------------------------------------------

|10.23 |  | Warrant
to Purchase 1,000,000 Shares of Common Stock between SHBC and Telesource International,
Inc. (filed herewith)
|----- |  | ---------------------------------------------------------------------------------------------------------------------

|** |  | Previously
filed on Form S-4 Declared Effective on August 13, 2001
|-- |  | ------------------------------------------------------------------

|42
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