SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  ------------

                                 Amendment No. 1
                                  FORM 10-KSB/A
        (Mark one)

        [X] Annual report under Section 13 or 15(d) of the  Securities  Exchange
Act of 1934 for the fiscal year ended July 31, 1998
                                       OR

        [ ]  Transition  report  under  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934 for the transition period from -------- to --------

                           COMMISSION FILE NO. 1-13851

                                   SONUS CORP.
                 (Name of small business issuer in its charter)

                       ALBERTA, CANADA              NOT APPLICABLE
               (State or other jurisdiction of     (I.R.S. employer
                incorporation or organization)    identification no.)

              111 S.W. FIFTH AVENUE, SUITE 2390
                       PORTLAND, OREGON                   97204
            (Address of principal executive office)     (Zip code)

                                 (503) 225-9152
                (Issuer's telephone number, including area code)

         Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<S>                                            <C>
           Title of Each Class                  Name of Each Exchange on Which Registered
           -------------------                  -----------------------------------------
</TABLE>

COMMON SHARES, WITHOUT NOMINAL OR PAR VALUE              AMERICAN STOCK EXCHANGE

       Securities registered under Section 12(g) of the Exchange Act: NONE

        Check whether the issuer: (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 [ ]

        Check if there is no disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-B contained herein, and no disclosure will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

        State  the  issuer's   revenues   for  its  most  recent   fiscal  year:
$22,368,000.

        State the  aggregate  market value of the voting and  non-voting  common
equity held by  non-affiliates  of the registrant,  computed by reference to the
price at which the common equity was sold, or the average bid and asked price of
such common equity, as of October 1, 1998: $37,100,723

        State the number of shares  outstanding of each of the issuer's  classes
of common equity: Common Shares, without nominal or par value, 6,119,707 shares,
as of October 1, 1998.

        Transitional Small Business Disclosure.  Format:  Yes----    No   X    

                      DOCUMENTS INCORPORATED BY REFERENCE:

        Portions of the issuer's definitive Management  Information Circular and
Proxy Statement dated November 12, 1998, are incorporated by reference into Part
III of this Form 10-KSB.

<PAGE>
<TABLE>
                                          TABLE OF CONTENTS
                                                                                             PAGE
<S>                                                                                          <C>
   
PART I

None.


PART II

ITEM 6. Management's Discussion and Analysis or Plan of Operation..............................1

ITEM 7. Financial Statements...................................................................5


PART III

ITEM 13. Exhibits and Reports on Form 8-K.....................................................23
</TABLE>
    

                                      -i-
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

During the fiscal year ended July 31,  1998,  the Company  achieved  significant
growth in revenues, primarily due to the acquisition and operation of additional
hearing  care  clinics.  For the fiscal  year ended July 31,  1998,  the Company
generated  total revenues of $22.4  million.  As of July 31, 1998, the Company's
cumulative deficit was $6.7 million and its total shareholders' equity was $23.1
million.  For the fiscal year ended July 31,  1998,  the Company  incurred a net
loss of $4.6 million, compared to a net loss of $1.7 million for the 1997 fiscal
year.

   
ACQUISITIONS

During the fiscal year ended July 31, 1998, the Company  acquired 33 clinics and
one  hearing  care  benefit  administrator  in 18  transactions.  The  aggregate
purchase price consisted of cash payments of $3,650,000, promissory notes issued
by the Company of $1,781,000  generally payable over three years, and $3,072,000
in assumed liabilities.  In addition,  $1,405,000 will be paid and 22,936 Common
Shares that have been issued and are held by the Company will be released over a
three-year  period if certain annual net revenue targets are met. As a result of
the  acquisitions,  the Company  recorded  approximately  $1,186,000 in accounts
receivable,  $137,000 in inventory,  $629,000 in property and equipment, $96,000
in other assets and  $6,455,000  in goodwill,  which  included  costs related to
acquisitions.  The Company also recorded  $623,000 for covenants not to compete,
of which  $157,000  was paid in cash at the time of  closing,  with the  balance
payable over three years.
    

The 34 hearing care  businesses  acquired by the Company  during the fiscal year
ended July 31, 1998,  have combined  historical  revenues for their  immediately
preceding fiscal years of approximately $11.5 million. The Company expects these
clinics to contribute to the Company's  future  revenues  consistent  with their
historical  revenues,  as well as have a positive effect on cash flow and future
liquidity.

As of July 31,  1998,  the  Company had  recorded  $15,611,000  in goodwill  and
$1,578,000  in covenants not to compete.  The  amortization  of the  unamortized
balance totaling  $16,152,000 at July 31, 1998, which represented  approximately
47% of the Company's  total assets,  will result in an annual non-cash charge to
earnings of  approximately  $854,000 in each of the next 20 years. If all of the
covenants  not to  compete  referred  to above  were  currently  in  effect,  an
additional non-cash charge to earnings of approximately  $500,000 in each of the
current and next two fiscal years would also be incurred.

RESULTS OF OPERATIONS

Year Ended July 31, 1998, Compared to Year Ended July 31, 1997

Revenues.  Total  revenues  for the  fiscal  year  ended  July  31,  1998,  were
$22,368,000,  representing a 66% increase over revenues of  $13,462,000  for the
prior fiscal year.  Of this  increase,  $3,760,000  was  attributable  to the 34
businesses  acquired during fiscal 1998. Product sales revenues were $18,792,000
for the  1998  fiscal  year,  up 64%  from  the  $11,472,000  for  fiscal  1997.
Audiological  service  revenues  increased  from  $1,943,000,  or 14%  of  total
revenues in fiscal 1997, to $3,311,000,  or 15% of total revenues,  for the 1998
fiscal year.

   
Gross Profit on Product  Sales.  Product  gross profit for the fiscal year ended
July 31, 1998, was $11,080,000 compared to $6,462,000 for the prior fiscal year.
Gross profit  percentage on product sales was 59% for fiscal 1998 versus 56% for
fiscal  1997.  The  increase in gross  profit  percentage  on product  sales was
primarily  attributable  to higher  volume  discounts,  improved  product  sales
management, and an increase in the percentage of total revenues derived from the
Company's  operations in the United States,  where gross profit  percentages are
higher than those for the Company's operations in Canada.
    

                                       -1-
<PAGE>

Clinical Expenses. Clinical expenses include all personnel, marketing, occupancy
and other  operating  expenses at the clinic  level.  Clinical  expenses for the
fiscal year ended July 31, 1998, were  $12,297,000,  representing an increase of
105% over  clinical  expenses of  $5,985,000  for the prior  fiscal  year.  This
increase  was  primarily  due  to  clinical  expenses  associated  with  the  34
additional  businesses  that were owned by the  Company  during the fiscal  year
ended July 31, 1998,  but not owned  during the prior fiscal year and  increased
marketing  expenses  designed to increase brand  awareness of the Company within
the hearing health industry.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  73% from  $3,410,000  for the fiscal  year ended  July 31,  1997,  to
$5,896,000 for the fiscal year ended July 31, 1998, due to planned  increases in
corporate  staff and other  corporate  expenses  related to the  operation  of a
larger organization as well as one-time expenses incurred in connection with the
implementation  of the Company's  franchise  licensing  program,  consulting and
professional  fees,  and  inventory  revaluations.  As a percentage of revenues,
general and  administrative  expenses rose to 26% for the fiscal year ended July
31,  1998,  versus 25% for the prior fiscal year.  Management  anticipates  that
general and administrative expenses will decrease as a percentage of revenues as
the Company establishes a larger revenue base through its strategic  acquisition
program and enhanced marketing efforts.

Depreciation and Amortization Expense. Depreciation and amortization expense for
the fiscal year ended July 31, 1998, was $1,361,000, an increase of 72% over the
depreciation and amortization expense of $790,000 for the prior fiscal year. The
increase  resulted from the  depreciation  of fixed assets and  amortization  of
goodwill  and  covenants  not to  compete  associated  with  the  34  additional
businesses operated by the Company during the fiscal year ended July 31, 1998.

Interest Income and Expense.  Interest income for the fiscal year ended July 31,
1998, increased to $452,000 from $76,000 for the prior fiscal year. The increase
was due to  higher  balances  of cash  and  short-term  investments  held by the
Company  as a result of the sale of  preferred  stock in  December  1997 and the
exercise  of  warrants to purchase  Common  Shares in  February  1998.  Interest
expense  for the fiscal  year ended July 31,  1998,  was  $149,000  compared  to
$47,000  for the fiscal  year ended July 31,  1997,  due to higher  balances  of
long-term debt incurred in connection with acquisitions.

LIQUIDITY AND CASH RESERVES

For the fiscal year ended July 31, 1998,  net cash used in operating  activities
was $2,203,000  compared to $606,000 for fiscal 1997. The Company  invested cash
of $3,765,000 in business  acquisitions,  $1,414,000 in property and  equipment,
and  $6,408,000  in the purchase of short-term  investments  for the fiscal year
ended July 31, 1998, compared to $2,858,000,  $1,191,000,  and $0, respectively,
for the fiscal year ended July 31,  1997.  During the fiscal year ended July 31,
1998, the Company received cash, net of costs, of $1,984,000 for the issuance of
Common Shares,  primarily in connection  with the exercise of warrants issued in
February  1996,  and  $15,701,000  for  the  issuance  of  13,333,333  Series  A
Convertible Preferred Shares together with warrants to purchase 2,000,000 Common
Shares  for $12 per share,  in a private  placement.  The  Company  also  repaid
long-term  debt of  $1,625,000  and bank  loans  and  short-term  notes  payable
totaling $39,000 during fiscal 1998.

Sonus-Canada,  the  Company's  Canadian  operating  subsidiary,  has a revolving
demand loan with a commercial  bank,  providing for borrowings up to $198,000 at
July 31, 1998. As of July 31, 1998,  $46,000 was outstanding  against this line.
Advances  under the line of credit bear  interest  at 1% above the bank's  prime
rate and are secured by all the assets of Sonus-Canada.

At July 31, 1998,  the Company had working  capital of  $6,309,000  and cash and
short-term  investments totaling $9,128,000.  The Company believes that its cash
and short-term  investments,  along with cash generated  from  operations,  will
provide  it with  sufficient  capital  to fund its  operations  over the next 12
months and to use up to $1,000,000 for acquisitions during that time period. The
Company's   capital   expenditures   during  fiscal  1999  are  budgeted  to  be
approximately  $1,700,000,  with  $533,000  committed  as of  October  1,  1998.
Additional  funding  will be needed to finance  operations  and planned  capital
expenditure  beyond  that time  period  and to fund the  Company's  strategy  to
acquire additional hearing care clinics.  These funding  requirements may result
in the Company incurring long-term and short-term indebtedness and in the public
or private issuance, from time to time, of additional equity or debt securities.
Any such  issuance of equity may be dilutive  to current  shareholders  and debt
financing may impose significant restrictive covenants on

                                       -2-
<PAGE>
the Company. There can be no assurance that any such financing will be available
to the Company or will be available on terms acceptable to the Company.

YEAR 2000

The "Year  2000  problem"  refers to the  possibility  that  computer  and other
systems  could fail or not work properly as a result of these systems using only
the last two digits of a year to refer to that year and  therefore  being unable
to properly  recognize a year that begins with "20" instead of "19". The Company
has undertaken a review of the potential effects of the Year 2000 problem on its
business on a system by system basis.

With respect to its information  technology ("IT") systems, the Company believes
that the computer  hardware and system software of its IBM AS/400  computer,  on
which its patient management system and accounting system operate, are Year 2000
compliant.  Unrelated to Year 2000 issues,  the Company is currently  developing
new patient  management  system  software that its  development  contractor  has
represented  will  meet  Year  2000  standards.  Development  of  the  software,
including related hardware upgrades, is expected to cost approximately  $700,000
of which  approximately  $69,000 had been incurred as of July 31, 1998.  The new
software  is  scheduled  to be  completed  by the  end of  December  1998,  with
implementation  during  the  following  six  months.  The  Company  will also be
installing a new release of its accounting and financial  reporting  software in
November 1998 that the vendor  represents is Year 2000  compliant.  The cost for
installing the new release is expected to be less than $10,000. In the first six
months of 1999,  the Company  will be  surveying  all of its  servers,  personal
computers,   and  network  hardware  to  determine  compliance  with  Year  2000
standards.  All equipment  found to be deficient  will be replaced.  The Company
estimates that the cost of replacement equipment will be less than $50,000.

The  Company  is  currently   reviewing  its  non-IT  systems  (primarily  voice
communications)  for Year 2000  compliance  and expects that this review will be
completed by January 1999.  The Company  estimates  that its cost to replace any
non-IT systems that are found to be non-compliant  with Year 2000 standards will
not exceed $125,000.

The Company also faces the risk that  vendors  from which the Company  purchases
goods and services, such as hearing instrument manufacturers, utility providers,
the banks that maintain the Company's depository accounts and process its credit
card transactions,  and the Company's payroll  processor,  may have systems that
are not Year 2000  compliant.  Significant  disruptions in the operations of its
vendors may have a material adverse effect on the Company.  The Company plans to
monitor the  progress of its major  vendors in achieving  Year 2000  compliance.
However,  the Company  presently  does not  anticipate  the  occurrence of major
interruptions in its business due to Year 2000 issues.

The Company has not  established a contingency  plan to address  potential  Year
2000  noncompliance  with respect to the Company's systems or those of its major
vendors  and is  currently  considering  the  extent  to  which  such a plan  is
necessary.  Due to the Company's dependence on systems outside its control, such
as  telecommunications,  transportation,  and  power  supplies,  there can be no
assurance that the Company will not face unexpected problems associated with the
Year  2000  issue  that may  affect  its  operations,  business,  and  financial
condition.

ACCOUNTING PRONOUNCEMENTS

The Company  will adopt  Statement of Financial  Accounting  Standards  No. 130,
"Reporting  Comprehensive  Income,"  ("SFAS No. 130") for its fiscal year ending
July  31,  1999.  SFAS  No.  130  establishes  requirements  for  disclosure  of
comprehensive  income. The objective of SFAS No. 130 is to report all changes in
equity that result from transactions and economic events other than transactions
with  owners.  Comprehensive  income  is the total of net  income  and all other
non-owner  changes in equity.  The Company does not anticipate  any  significant
impact on reported results of operations due to the adoption of SFAS No. 130.

The Company will also adopt Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information," ("SFAS No.
131") for its fiscal  year ending  July 31,  1999.  SFAS No. 131 changes the way
segment  information  is  reported  for  public  companies  and  requires  those
companies to report selected segment information in interim financial reports to
shareholders. Although the Company has not fully determined its complete impact,
the Company does not foresee any material change due to adoption of SFAS No. 131
on its financial presentation to shareholders.

                                       -3-
<PAGE>
In June 1998,  Statement of Financial Accounting Standards No. 133 , "Accounting
for Derivative  Instruments and Hedging Activities" ("SFAS No. 133") was issued.
SFAS No. 133 standardizes the accounting for derivative instruments by requiring
that an entity  recognize  those items as assets or liabilities in the financial
statements  and  measure  them at fair  value.  SFAS No. 133 is  required  to be
adopted for fiscal years beginning  after June 15, 1999.  Since the Company does
not hold any  derivative  instruments,  SFAS No. 133 is not  expected to have an
impact on the Company's financial statements.

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement  of Position  98-5,  "Reporting  on the Costs of Start-Up  Activities"
("SOP 98-5") which requires that costs of start-up activities and organizational
costs be expensed as incurred.  SOP 98-5 is effective for  financial  statements
for fiscal years beginning after December 15, 1998. Although the Company has not
fully determined its complete impact,  the Company does not foresee any material
change  due  to  adoption  of  SOP  98-5  on  its  financial   presentation   to
shareholders.

                                      -4-
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS

              REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS


TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
SONUS CORP.:


We have  audited the  accompanying  consolidated  balance  sheets of Sonus Corp.
(previously  HealthCare  Capital Corp.) and subsidiaries as of July 31, 1998 and
1997,  and the related  consolidated  statements  of  operations,  shareholders'
equity,  and cash flows for each of the years in the two-year  period ended July
31, 1998. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Sonus
Corp.  and  subsidiaries  as of July 31,  1998 and  1997,  and the  consolidated
results  of their  operations  and their cash flows for each of the years in the
two-year  period  ended July 31,  1998 in  conformity  with  generally  accepted
accounting principles.


                              /s/ KPMG Peat Marwick LLP



Portland, Oregon
October 23, 1998

                                       -5-
<PAGE>
                                   SONUS CORP.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
                                                             July 31,           July 31,
                                                               1998               1997
                                                         ------------------   --------------

                                  ASSETS
Current assets:
<S>                                                      <C>                  <C>          
     Cash and cash equivalents                           $           2,720    $       1,099
     Short-term investments                                          6,408              ---
     Accounts receivable, net of allowance
       for doubtful accounts
       of $684 and $97, respectively                                 3,339            2,514
     Other receivables                                                 515              314
     Inventory                                                         967              425
     Prepaid expenses                                                  270              260
                                                         ------------------   --------------
            Total current assets                                    14,219            4,612

Property and equipment, net                                          3,607            2,277
Other assets                                                           151              136
Goodwill and covenants not to compete, net                          16,152            9,519
                                                         ------------------   --------------

                                                         $          34,129    $      16,544
                                                         ==================   ==============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Bank loans and short-term notes payable             $              46    $          59
     Accounts payable                                                2,879            2,260
     Accrued payroll                                                 1,110              486
     Other accrued liabilities                                       2,595              649
     Convertible notes payable                                         ---            2,600
     Capital lease obligation, current portion                         120              101
     Long term debt, current portion                                 1,160              357
                                                         ------------------   --------------
            Total current liabilities                                7,910            6,512

Capital lease obligation, non-current portion                          223              305
Long term debt, non-current portion                                  1,733              765
Convertible notes payable                                            1,170              127
                                                         ------------------   --------------
            Total liabilities                                       11,036            7,709

Commitments and contingencies (Note 12)

Shareholders' equity:
     Series A convertible preferred stock, no par
          value per share, 13,333,333 and 0 shares,
          respectively, authorized, issued, and outstanding         15,701              ---
     Common stock, no par value per share, unlimited
          number of shares authorized, 6,079,908 and 5,427,657
          shares, respectively, issued and outstanding              14,673           11,131
     Notes receivable from shareholders                               (283)            (124)
     Accumulated deficit                                            (6,711)          (2,117)
     Cumulative translation adjustment                                (229)             (22)
     Treasury stock, 6,960 and 3,960 shares, respectively, at cost     (58)             (33)
                                                         ------------------   --------------
            Total shareholders' equity                              23,093            8,835
                                                         ------------------   --------------

                                                         $          34,129    $      16,544
                                                         ==================   ==============
</TABLE>

           See accompanying notes to consolidated financial statements

                                       -6-
<PAGE>
                                   SONUS CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)


                                                         Years ended
                                                             July 31,
                                                 -----------------------------
                                                    1998             1997
                                                 ------------     ------------

Net revenues                                     $    22,368      $    13,462

Costs and expenses:
     Cost of products sold                             7,712            5,010
     Clinical expenses                                12,297            5,985
     General and administrative expenses               5,896            3,410
     Depreciation and amortization                     1,361              790
                                                 ------------     ------------

Total costs and expenses                              27,266           15,195
                                                 ------------     ------------


Loss from continuing operations                       (4,898)          (1,733)


Other income (expense):
      Interest income                                    452               76
      Interest expense                                  (149)             (47)
      Other, net                                           1                3
                                                 ------------     ------------

Net loss                                         $    (4,594)     $    (1,701)
                                                 ============     ============


Per share of common stock:
    Basic                                        $     (0.89)     $     (0.42)
    Diluted                                      $     (0.89)     $     (0.42)

Average shares outstanding:
    Basic                                              5,167            4,010
    Diluted                                            5,167            4,010

          See accompanying notes to consolidated financial statements.

                                       -7-
<PAGE>
                                   SONUS CORP.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                        (in thousands, except share data)

<TABLE>
                                                Number of        Number of                                Shareholder
                                                  Shares          Shares       Preferred      Common         Notes
                                             Preferred Stock   Common Stock       Stock        Stock      Receivable
                                             ---------------   ------------    ---------      -------     -----------
<S>                                            <C>               <C>           <C>          <C>           <C>      
BALANCE AT JULY 31, 1996                             --          3,565,549     $    --      $   1,925            --
  Stock issued in connection
     with receipt of tax credit                      --             22,560          --             38            --
  Proceeds from exercise of stock options            --            155,000          --            316          (124)
  Stock issued in connection
     with acquisitions                               --            587,876          --          3,291            --
  Stock issued under private
     placement (net proceeds)                        --          1,093,482          --          5,529            --
  Proceeds from exercise of warrants                 --              7,150          --             32            --
  Repurchase of common stock                         --             (3,960)         --             --            --
  Translation adjustment                             --                 --          --             --            --
  Net loss                                           --                 --          --             --            --
                                                 ------          ---------     -------      ---------     --------- 
BALANCE AT JULY 31, 1997                             --          5,427,657     $    --      $  11,131     $    (124)
                                                 ======          =========     =======      =========     ========= 

    Stock issued upon conversion
       of convertible note                           --             25,925          --            128            --
    Stock issued in connection with acquisition
         contingent upon satisfaction of certain
            conditions (Note 2)                      --             22,936          --             --            --
   Repurchase of common stock                        --             (3,000)         --             --            --
  Proceeds from exercise of stock options            --             10,000          --              9            --
  Stock issued in connection with
       Series A convertible preferred
        stock, net of costs                  13,333,333                         15,701             --            --
  Proceeds from exercise
    of warrants                                      --            373,998          --          1,957            --
  Proceeds from exercise
    of stock options                                 --              2,400          --             18            --
  Advance on shareholder notes                       --                 --          --             --          (159)
  Stock issued upon
    conversion of convertible notes                  --            220,000          --          1,430            --
  Payment of cash in lieu of fractional shares       --                 (8)         --             --            --
  Translation adjustment                             --                 --          --             --            --
  Net loss                                           --                 --          --             --            --
                                             ----------          ---------     -------        -------          ----
BALANCE AT JULY 31, 1998                     13,333,333          6,079,908     $15,701        $14,673          (283)
                                             ==========          =========     =======        =======          ====
</TABLE>


<TABLE>
                                                               Cummulative                     Total
                                               Accumulated     Translation     Treasury     Shareholders'
                                                 Deficit        Adjustment       Stock         Equity  
                                               -----------     ------------    --------     -------------
<S>                                            <C>             <C>             <C>            <C>    
BALANCE AT JULY 31, 1996                       $   (416)       $         3     $    --        $ 1,512
  Stock issued in connection                             
     with receipt of tax credit                      --                 --          --             38
  Proceeds from exercise of stock options            --                 --          --            192
  Stock issued in connection
     with acquisitions                               --                 --          --          3,291
  Stock issued under private
     placement (net proceeds)                        --                 --          --          5,529
  Proceeds from exercise of warrants                 --                 --          --             32
  Repurchase of common stock                         --                 --         (33)           (33)
  Translation adjustment                             --                (25)         --            (25)
  Net loss                                       (1,701)                --          --         (1,701)
                                                 ------        -----------     -------        -------
BALANCE AT JULY 31, 1997                         (2,117)       $       (22)    $   (33)       $ 8,835
                                                 ======        ===========     =======        =======

    Stock issued upon conversion
       of convertible note                           --                 --          --            128
     Stock issued in connection with acquisition
         contingent upon satisfaction of certain
            conditions (Note 2)                      --                 --          --             --
   Repurchase of common stock                        --                 --         (25)           (25)
  Proceeds from exercise of stock options            --                 --          --              9
  Stock issued in connection with
     Series A convertible preferred
     stock, net of costs                             --                 --          --         15,701
  Proceeds from exercise
     of warrants                                     --                 --          --          1,957
  Proceeds from exercise
     of stock options                                --                 --          --             18
  Advance on shareholder notes                       --                 --          --           (159)
  Stock issued upon
     conversion of convertible notes                 --                 --          --          1,430
  Payment of cash in lieu of fractional shares       --                 --          --             --
  Translation adjustment                             --               (207)         --           (207)
  Net loss                                       (4,594)                --          --         (4,594)
                                                -------        -----------     -------        -------
  BALANCE AT JULY 31, 1998                      $(6,711)       $      (229)    $   (58)       $23,093
                                                =======        ===========     =======        =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -8-
<PAGE>
                                   SONUS CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
                                                                      Years ended
                                                                        July 31,
                                                              --------------------------
                                                                   1998           1997
                                                              --------------------------

Cash flows from operating activities:
<S>                                                              <C>           <C>      
     Net loss                                                    $ (4,594)     $ (1,701)
     Adjustments to reconcile net loss to net cash
     used in operating activities:
        Provision for bad debt expense                                412            47
        Depreciation and amortization                               1,361           790
     Changes in non-cash working capital:
        Accounts receivable                                           (51)         (530)
        Other receivables                                            (181)         (237)
        Inventory                                                    (405)          (61)
        Prepaid expenses                                               24          (136)
        Accounts payable and accrued liabilities                    1,231         1,222
                                                              ------------   -----------
               Net cash used in operating activities               (2,203)         (606)
                                                              ------------   -----------

Cash flows from investing activities:
     Purchase of short-term investments                            (6,408)          ---
     Purchase of property and equipment                            (1,414)       (1,191)
     Additional costs related to acquisitions                        (198)         (149)
     Deferred acquisition costs and other, net                         (1)          177
     Net cash paid on business acquisitions                        (3,765)       (2,858)
                                                              ------------   -----------
               Net cash used in investing activities              (11,786)       (4,021)
                                                              ------------   -----------

Cash flows from financing activities:
     Net repayments of long-term debt
          and capital lease obligations                            (1,625)          (58)
     Deferred financing costs, net                                    (20)           42
     Advances on (repayments of) bank loans and
          short-term notes payable                                    (39)          ---
     Advances to shareholders                                        (159)         (124)
     Issuance of common stock for cash, net of costs                1,984         5,915
     Issuance of preferred stock for cash, net of costs            15,701           ---
     Acquisition of treasury stock                                    (25)          (33)
                                                              ------------   -----------
               Net cash provided by financing activities           15,817         5,742
                                                              ------------   -----------

Net increase in cash and cash equivalents                           1,828         1,115

Effect on cash and cash equivalents of changes
     in foreign translation rate                                     (207)          (27)

Cash and cash equivalents, beginning of period                      1,099            11

                                                              ============   ===========
Cash and cash equivalents, end of period                          $ 2,720       $ 1,099
                                                              ============   ===========


Supplemental disclosure of non-cash investing and financing activities:
  Interest paid during the period                                 $   149       $    47
  Non-cash financing activities:
     Issuance and assumption of long-term debt in acquisitions    $ 1,781       $   676
     Issuance of convertible notes in acquisitions                $   ---       $ 2,600
     Issuance of common stock in acquisitions                     $   ---       $ 3,291
     Issuance of common stock upon conversion of convertible note $ 1,557       $   ---
</TABLE>

           See accompanying notes to consolidated financial statements

                                       -9-
<PAGE>
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Description of Company
        ----------------------

        Sonus Corp.  (formerly  HealthCare  Capital Corp.),  an Alberta,  Canada
corporation  (the  "Company"),   through  its  primary  operating  subsidiaries,
Sonus-Canada Ltd., a British Columbia, Canada corporation,  and Sonus-USA, Inc.,
a Washington  corporation,  currently  owns and operates a network of 89 hearing
care clinics in the United States and Western Canada. The clinics are located in
the states of Arizona,  California,  Illinois,  Michigan,  Missouri, New Mexico,
North Dakota,  Oregon, and Washington,  and in the Canadian provinces of British
Columbia and Alberta.  Each of the Company's  hearing care clinics  provides its
hearing  impaired  patients  with a full  range  of  audiological  products  and
services.  The Company  intends to expand its network of hearing care clinics by
acquiring  clinics in its  existing,  as well as new,  geographic  markets.  The
Company,  through its recently  acquired  subsidiary Hear PO Corp., a New Mexico
corporation,  also operates as an independent  provider  association and hearing
care benefit  administrator,  which  obtains  contracts to provide  hearing care
benefits to managed care group and corporate health care  organizations  through
its approximately 1,000 affiliated  audiologists and then processes claims under
those contracts on behalf of the audiologists in exchange for a fee.

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

        The consolidated financial statements include the Company's wholly owned
subsidiaries.  All significant inter-company accounts have been eliminated.  The
functional  currency of the Company's Canadian operations is the Canadian dollar
while the  functional  currency of the  Company's  U.S.  operations  is the U.S.
dollar. In accordance with Statement of Financial  Accounting  Standards No. 52,
"Foreign  Currency  Translation",  assets and  liabilities  recorded in Canadian
dollars are  remeasured at current rates in existence at the balance sheet date.
Revenues and expenses are remeasured  using the weighted  average  exchange rate
for the  period  Exchange  gains and  losses  from  remeasurement  of assets and
liabilities  recorded in Canadian  dollars are treated as  unrealized  gains and
losses and reported as a separate component of shareholders' equity

        Revenue Recognition
        -------------------

        Revenues from the sale of hearing instrument  products are recognized at
the time of delivery.  Revenues  from the  provision of hearing care  diagnostic
services  are  recognized  at the time that such  services  are  performed.  Net
revenues consist of the following (in thousands):

                                                                   July 31,
<TABLE>
                                                        1998                           1997
                                                        ----                           ----
<S>                                                   <C>                             <C>    
        Product revenue                               $18,792                         $11,472
        Service revenue                                 3,311                           1,943
        Other revenue                                     265                              47
                                                      -------                         -------
                                                      $22,368                         $13,462
                                                      =======                         =======
</TABLE>

        Income Taxes
        ------------

        The Company  accounts  for income  taxes  under the asset and  liability
method.  Under  the  asset  and  liability  method,   deferred  tax  assets  and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  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 

                                      -10-
<PAGE>
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.

        Cash and Cash Equivalents
        -------------------------

        Cash equivalents  consist of short-term,  highly liquid investments with
original maturities of 90 days or less.

        Short-term Investments
        ----------------------

        Short-term  investments  consist of  available-for-sale  securities,  as
defined by Statement of Financial  Accounting Standards No. 115, "Accounting for
Certain  Investments in Debt and Equity Securities" ("SFAS No. 115"). Under SFAS
No. 115,  unrealized holding gains and losses are reflected as a net amount in a
separate  component of  shareholders'  equity until realized.  At July 31, 1998,
there were no  unrealized  holding  gains or losses as the  market  value of the
Company's available-for-sale  securities approximated cost. Gross realized gains
and losses on sales of  available-for-sale  securities  for fiscal 1998 and 1997
were nominal.  Realized gains and losses are computed by  determining  cost on a
specific identification basis.

        At July 31, 1998, the Company's short-term  investments consisted of the
following debt securities  which had maturities of less than six months and were
carried at cost which approximated market (in thousands):

               Corporate Bonds               $  2,760
               Discount Commercialal Paper      3,648
                                             --------
                                             $  6,408
                                             ========

The Company did not have any short-term investments at July 31, 1997.

        Gross   proceeds  from  sales  and   maturities  of   available-for-sale
investments during fiscal 1998 and 1997 were $18,511,000 and $0, respectively.

        Inventory
        ---------

        Inventories are stated at the lower of cost (first in, first out) or net
realizable value.

        Property and Equipment
        ----------------------

        Property and  equipment are recorded at cost and  depreciated  using the
straight-line method over the following useful lives:

        Professional equipment                      Seven years
        Office equipment                            Five years
        Automotive equipment                        Five years
        Leasehold improvements                      Five years
        Computer equipment                          Five years

        In the year of  acquisition,  depreciation is calculated at one-half the
above noted rates. Property and equipment purchased under capitalized leases are
amortized over the shorter of the lease term or their estimated  useful life and
such  depreciation is included with depreciation  expense.  On November 1, 1997,
the Company  changed the method by which it calculates  depreciation on property
and equipment to the straight-line method.  Previously,  professional  equipment
was depreciated  using the 20% declining  balance method and office and computer
equipment and  automobiles  were  depreciated  using the 30%  declining  balance
method.  The Company also adopted a useful life of seven years for  professional
equipment and five years for office  equipment and  automobiles.  The cumulative
effect of the changes  adopted by the Company for the fiscal year ended July 31,
1998, was not material.

                                      -11-
<PAGE>
        Advertising Expenses
        --------------------

        The Company  defers its  advertising  costs until the  advertisement  is
actually run, at which time the full expense is recognized. Deferred advertising
costs were $0 and $89,000 at July 31, 1998 and 1997,  respectively.  Advertising
expense was  $2,786,000 and $786,000 for the years ended July 31, 1998 and 1997,
respectively.

        Goodwill and Covenants Not to Compete
        -------------------------------------

        The  unallocated  purchase  costs in excess of the net  assets  acquired
(goodwill)  is being  amortized on the  straight-line  basis over twenty  years.
Non-compete  agreements are amortized on the straight-line basis over the period
benefited. Goodwill and covenants not to compete are as follows (in thousands):

<TABLE>
                                                                                 July 31,
                                                                            1998          1997
                                                                            ----          ----
<S>                                                                       <C>           <C>  
                       Goodwill                                           $15,611       $ 8,966
                       Covenants not to compete                             1,578           955
                       Less:  Accumulated amortization                     (1,037)         (402)
                                                                           ------         -----
                                                                          $16,152       $ 9,519
                                                                          =======       =======
</TABLE>

        The Company  assesses the  recoverability  of this  intangible  asset by
determining  whether the amortization of the goodwill balance over its remaining
life can be recovered  through  undiscounted  projected future cash flows of the
acquired  businesses  from which the  goodwill  arose.  Amortization  charged to
operations was $635,000 and $364,000 for the years ended July 31, 1998 and 1997,
respectively.

        Deferred Acquisition and Financing Costs
        ----------------------------------------

        Costs  related to the  acquisition  of clinics are  deferred  and,  upon
successful completion of acquisitions,  are allocated to the assets acquired and
are  subject  to the  accounting  policies  outlined  above.  Costs  related  to
potential  acquisitions  that are  unsuccessful  are  expensed in the periods in
which it is determined  that such  acquisitions  are unlikely to be consummated.
Costs  related  to issuing  shares are  deferred  and upon the  issuance  of the
related shares, are applied to reduce the net proceeds of the issue.

        Earnings Per Share
        ------------------

        In February  1997,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128").  SFAS No. 128 supersedes APB Opinion No. 15, "Earnings Per Share" and
specifies  the  computation,   presentation,  and  disclosure  requirements  for
earnings  per share  ("EPS") for  entities  with  publicly  held common stock or
potential  common  stock.  It replaces  the  presentation  of primary EPS with a
presentation  of basic EPS and fully  diluted EPS with diluted  EPS.  Basic EPS,
unlike  primary  EPS,  excludes  dilution  and is computed  by  dividing  income
available to common shareholders by the weighted-average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or  converted  into common stock or resulted in the issuance of common
stock that  would  then share in the  earnings  of the  entity.  Diluted  EPS is
computed  similarly  to fully  diluted  EPS under APB  Opinion No. 15. All prior
period EPS data have been  restated  to conform to SFAS No.  128.  Common  share
equivalents represented by convertible debt and convertible preferred stock have
not been included in the  calculation  of earnings per share as the effect would
be anti-dilutive.

        Concentrations of Credit Risk
        -----------------------------

        Financial   instruments,   which  potentially  subject  the  Company  to
concentration  of  credit  risk,   consist   principally  of  cash,   short-term
investments, and trade receivables. The Company places its cash with high credit
quality  institutions.  At times,  such  amounts may be in excess of the Federal
Deposit Insurance  Corporation  insurance  limits.  The Company's trade accounts
receivable are derived from numerous private payers, insurance carriers,  health
maintenance organizations and government agencies.  Concentration of credit risk
relating to trade accounts receivable is limited due to the diversity and number
of patients and payers.

                                      -12-
<PAGE>
        Fair Value of Financial Instruments
        -----------------------------------

        The  carrying  value  of  financial  instruments  such as cash  and cash
equivalents,  short-term investments, trade receivables, notes receivable, trade
payables, notes payable, and long-term debt approximate their fair value.

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

        Management of the Company has made a number of estimates and assumptions
relating  to the  reporting  of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities  to prepare  these  financial  statements in
conformity with generally accepted accounting  principles.  Actual results could
differ from those estimates.

        Reverse Stock Split 
        ------------------- 

        Effective February 9, 1998, the Company effected a one-for-five  reverse
stock  split of its common  shares  ("Common  Shares").  All share and per share
information  appearing in the accompanying  financial  statements for the fiscal
year ended July 31, 1997,  has been restated to give effect to the reverse stock
split.

        Reclassifications
        -----------------

        Certain amounts in the 1997 financial  statements have been reclassified
in order to conform to the 1998 presentation.

NOTE 2.  ACQUISITIONS

        During the fiscal  year ended July 31,  1998,  the  Company  acquired 33
clinics and one hearing  care benefit  administrator  in 18  transactions.  Each
transaction was accounted for as a purchase. The acquired assets and liabilities
were recorded at their estimated fair values at the date of acquisition, and the
unallocated  excess  purchase price  (goodwill) is being amortized on a straight
line basis over 20 years.  The operating  results of each  acquisition have been
included  in the  consolidated  statements  of  operations  from the  respective
acquisition date. The aggregate purchase price for the acquisitions consisted of
cash  payments  of  $3,650,000,  promissory  notes  issued  by  the  Company  of
$1,781,000  generally  payable  over  three  years,  and  $3,072,000  in assumed
liabilities. In addition,  $1,405,000 will be paid and 22,936 Common Shares that
have been  issued  but are being held by the  Company  will be  released  over a
three-year  period if certain annual net revenue targets are met. As a result of
the  acquisitions,  the Company  recorded  approximately  $1,186,000 in accounts
receivable,  $137,000 in inventory,  $629,000 in property and equipment, $96,000
in other assets,  and  $6,455,000 in goodwill,  which  included costs related to
acquisitions.  In  addition  to the  purchase  price for the  acquisitions,  the
Company also recorded  $623,000 for covenants not to compete,  of which $157,000
was paid in cash at the time of  closing,  with the balance  payable  over three
years.

   
        During the fiscal  year ended July 31,  1997,  the  Company  acquired 39
clinics in 12  transactions.  Each  transaction was accounted for as a purchase.
The acquired assets and liabilities were recorded at their estimated fair values
at the date of acquisition, and the unallocated excess purchase price (goodwill)
is being  amortized  on a straight  line basis  over 20 years.  The  unallocated
excess  purchase  price  (goodwill) is being  amortized on a straight line basis
over 20 years.  The operating  results of each acquisition have been included in
the consolidated  statements of operations from the respective acquisition date.
The aggregate purchase price for the acquisitions  consisted of cash payments of
$2,091,000,  promissory  notes  issued by the  Company of  $3,277,000  generally
payable  over  three  years,  587,876  Common  Shares  and  $486,000  in assumed
liabilities. As a result of the acquisitions, the Company recorded approximately
$1,629,000 in accounts receivable,  $220,000 in inventory,  $916,000 in property
and equipment,  $493,000 in other assets,  $2,096,000 in current liabilities and
$7,983,000 in goodwill.  In addition to the purchase price for the acquisitions,
the Company  also  recorded  $940,000  for  covenants  not to compete,  of which
$792,000 was paid in cash at the time of closing,  with the balance payable over
three years.
    

NOTE 3.  PROPERTY, PLANT AND EQUIPMENT

        Property and equipment consist of the following (in thousands):

                                      -13-
<PAGE>
<TABLE>
                                                                                  July 31,
                                                                              1998       1997
                                                                              ----       ----

<S>                                                                        <C>         <C>
                Professional equipment                                      $1,521     $  930
                Office equipment                                               705        481
                Automotive equipment                                             2         16
                Leasehold improvements                                         760        405
                Computer equipment                                           2,012      1,144
                                                                             -----      -----
                                                                             5,000      2,976
                Less accumulated depreciation                               (1,393)      (699)
                                                                             -----      -----
                                                                            $3,607     $2,277
                                                                             =====      =====
</TABLE>
NOTE 4.  FINANCING ARRANGEMENTS

        Bank Loan
        ---------

        Sonus-Canada  Ltd.  maintains  a  revolving  bank  demand  loan  bearing
interest at the bank's  prime rate plus 1% per annum (8.5% and 5.75% at July 31,
1998 and 1997,  respectively ), secured by a general security agreement covering
all assets of Sonus-Canada  Ltd. The loan provided for a maximum credit limit of
$198,000 and $182,000 at July 31, 1998 and 1997, respectively,  of which $46,000
and $0 were outstanding at July 31, 1998 and 1997, respectively.

        Short-term Notes Payable
        ------------------------

        At July 31, 1997,  Sonus-USA,  Inc., and  Sonus-Canada  had  outstanding
short-term,   non-interest   bearing  notes  from  certain  hearing   instrument
manufacturers totaling $59,000.

NOTE 5.  LONG-TERM DEBT

        Long-term debt consists of the following (in thousands):
<TABLE>
                                                                                         July 31,
                                                                                     1998       1997
                                                                                     ----       ----
<S>                                                                                <C>         <C>

        Installment notes incurred in connection with acquisitions payable in
        monthly installments due from 1998 to 2002 with a weighted
        average interest rate of 6.5%............................................  $  322     $  348

        Installment notes incurred in connection with acquisitions payable
        in quarterly installments due from 1999 to 2000 with a weighted
        average interest rate of 6%..............................................     150        133

        Installment notes incurred in connection with acquisitions payable
        in annual installments due from 1999 to 2003 with a weighted
        average interest rate of 6.3%............................................   1,910        390

        Non-interest bearing installment obligations for covenants not to compete
        due from 1999 to 2001....................................................     460         94

        Equipment loan from a supplier bearing interest at 10% payable in monthly
        installments due 2000....................................................      51         75

        Equipment loan from suppliers with interest rates from 0%to 9% per annum
        due from 1999 to 2018....................................................     ---         82
                                                                                  -------    -------

                                      -14-
<PAGE>
                                                                                    2,893      1,122
         Less current portion....................................................  (1,160)      (357)
                                                                                  -------    -------
                                                                                  $ 1,733    $   765
                                                                                  =======    =======
</TABLE>

Annual  maturities  of  long-term  debt are as follows  (in  thousands):  1999 -
$1,160; 2000 - $908; 2001 - $598; 2002 - $115; 2003 - $112.

NOTE 6.  CAPITAL LEASES

The  following  is a schedule by year of future  minimum  lease  payments  under
capital leases together with the present value of the net minimum lease payments
as of July 31, 1998 (in thousands):

<TABLE>
<S>                                                                                    <C>  
     1999............................................................................  $ 144
     2000............................................................................    142
     2001............................................................................     98
                                                                                       -----
     Total minimum lease payments....................................................    384
     Less:  amount representing interest.............................................    (41)
                                                                                       -----
     Present value of minimum lease payments.........................................    343
     Less current portion............................................................   (120)
                                                                                       -----
                                                                                       $ 223
                                                                                       =====
</TABLE>

Total assets under  capitalized  leases at July 31, 1998 and 1997, were $271,000
and  $305,000,  net  of  accumulated  depreciation  of  $244,000  and  $131,000,
respectively

NOTE 7.  CONVERTIBLE NOTES PAYABLE

        At July 31, 1997, the Company had outstanding non-interest bearing notes
in the amount of $2,600,000  convertible into 400,000 Common Shares at a rate of
$6.50 per share.  During the fiscal year ended July 31, 1998,  $1,430,000 of the
notes were converted into 220,000 Common Shares. At July 31, 1998, $1,170,000 of
the notes  (convertible  into 180,000 Common Shares)  remained  outstanding  and
mature  August  1,  1999.  At July 31,  1997,  the  Company  had  outstanding  a
non-interest bearing note in the amount of approximately  $127,000 due on demand
and convertible  into Common Shares at the rate of $5.00 per share. The note was
converted into 25,975 Common Shares during the fiscal year ended July 31, 1998.

NOTE 8.  SHAREHOLDERS' EQUITY

        Series A Convertible Preferred Shares
        -------------------------------------

        In December  1997, the Company  issued  13,333,333  Series A Convertible
Preferred  Shares  (the  "Convertible  Shares")  in  a  private  placement.  The
following summarizes certain terms of the Convertible Shares:

        Voting Rights. Each Convertible Share is entitled to one-fifth of a vote
(or such other  number of votes equal to the number of Common  Shares into which
such  Convertible  Share shall be convertible from time to time) in the election
of directors and any other matters  presented to the shareholders of the Company
for action or consideration.

        Dividends.  Each Convertible Share is entitled to receive,  when, as and
if declared by the board of directors of the Company out of the Company's assets
legally  available for payment,  cumulative  dividends from the date of original
issuance,  payable  annually at a rate of 5% per annum on a base amount of $1.35
per share  (the  "Base  Amount").  All  accrued  and  unpaid  dividends  will be
forfeited upon the conversion of the  Convertible  Shares.  The dividend rate is
subject to increase on specified dates in the event that certain conditions (the
"Triggering  Conditions")  have not been met. The  Triggering  Conditions are as
follows:

    (a) The  Common  Shares  are  listed  on the New York  Stock  Exchange,  the
American Stock Exchange,  or the Nasdaq National Market (each a "U.S.  Principal
Market");

                                      -15-
<PAGE>
    (b) The  Common  Shares  are  traded on a U.S.  Principal  Market at a daily
closing  price  greater  than  $12.00  per  Common  Share  on  each  of the  ten
consecutive trading days preceding the applicable date; and

    (c)  The  Company's  net  income  before  income  taxes,  dividends  on  the
Convertible  Shares,  and  amortization of goodwill and covenants not to compete
for the three  consecutive  fiscal quarters  preceding the applicable date shall
have  averaged at least $.35 per fully diluted  Common Share per fiscal  quarter
(for purposes of making this  calculation,  the Common Shares  issuable upon the
exercise of warrants issued in connection  with the Convertible  Shares will not
be counted). If the Triggering Conditions have not been met by:

        (x) January 1, 2003, the dividend rate will  thereafter be 15% per annum
of the Base Amount;

        (y) January 1, 2004, the dividend rate will  thereafter be 18% per annum
of the Base Amount; or

        (z) January 1, 2005, the dividend rate will  thereafter be 21% per annum
of the Base Amount.

        As soon as the Triggering  Conditions have been satisfied,  the dividend
rate will revert to 5% per annum of the Base Amount.

        Liquidation  Preference.  In the event of any  voluntary or  involuntary
liquidation,  dissolution, or winding up of the Company subject to the rights of
holders of any  securities  of the  Company  ranking  senior to the  Convertible
Shares upon liquidation,  the holders of Convertible  Shares will be entitled to
receive,  out of the  assets  of  the  Company  available  for  distribution  to
shareholders,  before  any  distribution  of assets is made to holders of Common
Shares or any other  securities  ranking junior to the  Convertible  Shares upon
liquidation, a liquidating distribution in an amount equal to the greater of (i)
$1.35 per share plus any  accrued and unpaid  dividends  or (ii) the amount that
would  have been  distributable  to such  holders  if they had  converted  their
Convertible  Shares into Common Shares  immediately  prior to such  dissolution,
liquidation,  or winding up, plus any  accrued and unpaid  dividends.  The sale,
conveyance,  mortgage, pledge or lease of all or substantially all the assets of
the Company  will be deemed to be a  liquidation  of the Company for purposes of
the liquidation  rights of the holders of Convertible  Shares.  After payment of
the full amount of the liquidating  distribution to which they are entitled, the
holders of Convertible  Shares will have no right to any of the remaining assets
of the Company.

        Optional  Redemption.  The Convertible Shares may not be redeemed before
January 1, 2003.  Thereafter,  the  Convertible  Shares may be  redeemed  at the
option of the  Company,  in whole or in part.  The  redemption  price will be an
amount  equal to the  greater of (i) $1.35 per share plus any accrued and unpaid
dividends or (ii) the fair market value of a Convertible  Share as determined by
a nationally recognized  independent  investment banking firm selected by mutual
agreement  of the  Company  and the  holder  of a  majority  of the  outstanding
Convertible  Shares.  The  Convertible  Shares  are  not  subject  to  mandatory
redemption or any sinking fund provisions.

        Conversion  Rights. The Convertible Shares may be converted at any time,
in whole or in part, at the option of the holder  thereof,  into Common  Shares.
The  conversion  rate is  presently  equal to one  Common  Share for every  five
Convertible Shares surrendered for conversion. The conversion rate is subject to
further  adjustment for stock dividends,  stock splits,  recapitalizations,  and
other anti-dilution adjustments.  Upon the conversion of any Convertible Shares,
any accrued and unpaid  dividends with respect to such shares will be forfeited.
The Company has the right to force  conversion  of the  Convertible  Shares,  in
whole or in part, upon satisfaction of all the Triggering Conditions.

        Release of Escrowed Shares  
        --------------------------  

        Effective  with the listing of the Common  Shares on the American  Stock
Exchange on February 10, 1998, 850,000 common shares owned by certain members of
the  Company's  management  were  released  from  escrow  by The  Alberta  Stock
Exchange.  The  shares,  which had been  excluded  from the  calculation  of the
average  shares  outstanding  during the fiscal  year ended July 31,  1997,  are
included in such calculation for the fiscal year ended July 31, 1998.

                                      -16-
<PAGE>
        Share Purchase Warrants
        -----------------------

        At July 31, 1998, the Company had the following share purchase  warrants
outstanding:

(1) Share purchase  warrants (the  "September  Warrants") to purchase  1,093,482
Common Shares at an exercise price of $10.00 per share.  The September  Warrants
expired on August 31, 1998, without being exercised.

(2) Share  purchase  warrants (the "Agent  Warrants") to purchase  99,180 Common
Shares  at an  exercise  price of $6.25  per share  issued  in  connection  with
placement of the September Warrants.  The Company issued 39,799 Common Shares in
August 1998 in connection  with the exercise of a portion of the Agent Warrants.
The remaining Agent Warrants expired on August 31, 1998.

(3)  Share purchase warrants issued in connection with the Convertible Shares to
     purchase  2,000,000  Common Shares at an exercise price of $12.00 per share
     until December 24, 2002. The Company may force the exercise of the warrants
     upon satisfaction of all the Triggering Conditions.

     In February  1998,  the Company  issued  373,998 Common Shares at $5.23 per
share pursuant to the exercise of share purchase  warrants issued by the Company
in February 1996.

        Stock Option Plans
        ------------------

        The Company has two stock  option  plans,  the Stock  Option Plan ("1993
Plan") and the Second Amended and Restated  Stock Award Plan ("1996 Plan").  The
Company may grant to officers,  directors,  employees and consultants  incentive
and  non-qualified  options to purchase up to 1,800,000  Common Shares under the
1996 Plan. There are options to purchase 245,000 Common Shares outstanding under
the 1993 Plan;  no further  options  will be  granted  under the 1993 Plan.  The
exercise  price of options  granted under the 1996 Plan may not be less than 75%
of the fair market  value of the  Company's  Common  Shares at the date of grant
(100% for tax-qualified incentive stock options).  Options become exercisable at
the date of grant or in equal annual  installments  over a period of one to four
years from the date of grant.  The options  generally  expire either five or ten
years after the date of grant.

        The 1996 Plan also provides for the grant of stock appreciation  rights,
restricted units,  performance awards and other stock-based  awards. The Company
had no such awards or rights outstanding at July 31, 1998 or 1997.

                                      -17-
<PAGE>
        The activity during the fiscal years ended July 31, 1998 and 1997 was as
follows:


<TABLE>
                                             1998                               1997
                                             ----                               ----
                                                   Weighted-                          Weighted-
                                                    Average                            Average
                                  Options       Exercise Price        Options       Exercise Price
                                  -------       --------------        -------       --------------

<S>                                 <C>                    <C>            <C>                 <C>  
Outstanding - beginning of            488,400              $6.41          340,000             $4.15
year

           Granted                  1,138,000              $8.12          368,400             $6.85
          Exercised                   (12,400)             $2.10         (155,000)            $2.05
          Canceled                    (54,000)             $9.79          (65,000)            $7.50
                                    ---------                             -------

Outstanding - end of year           1,560,000              $7.54          488,400             $6.41
Exercisable at end of year          =========                             =======
                                      363,200              $5.98          177,500             $5.95

Weighted-average fair value of
options granted during the year                            $8.38                              $4.47
</TABLE>

        The  following  table   summarizes   information   about  stock  options
outstanding at July 31, 1998:

<TABLE>
                                Options Outstanding                      Options Exercisable
                   -----------------------------------------------  -------------------------------
                                      Weighted-
                       Number          Average        Weighted-         Number         Weighted -
    Range of        Outstanding       Remaining        Average       Exercisable        Average
Exercise Prices        as of         Contractual      Exercise          as of           Exercise
                   July 31, 1998         Life           Price       July 31, 1998        Price
-----------------  ---------------   -------------  --------------  ---------------   -------------
<S>                       <C>               <C>            <C>             <C>             <C>   
 $1.00-- $2.00             60,000            2.39           $1.26           60,000          $ 1.26
 $2.01-- $3.50             25,000            2.55           $3.31           25,000          $ 3.31
 $3.51-- $5.00                 --              --            $ --               --            $ --
 $5.01-- $6.50            166,000            3.34           $6.25           79,700          $ 6.28
 $6.51-- $8.00            883,000            8.43           $6.95          158,500          $ 7.24
 $8.01-- $9.50            120,000            7.32           $8.58               --            $ --
 $9.51-- $12.00           306,000            9.52          $11.11           40,000          $ 9.10
-----------------  ---------------   -------------  --------------  ---------------   -------------

 $1.00-- $12.00         1,560,000            7.69           $7.54          363,200          $ 5.98
</TABLE>

         The  Company  accounts  for  stock  option  grants in  accordance  with
  Accounting  Principles  Board Opinion No. 25,  "Accounting for Stock Issued to
  Employees."  Accordingly,  no  compensation  cost has been  recognized for its
  stock option grants. Pro forma information regarding net income (loss) and net
  income (loss) per share is required  under  Statement of Financial  Accounting
  Standards No. 123, "Accounting for Stock-Based  Compensation" ("SFAS 123") and
  has been  determined  as if the  Company had  accounted  for all 1998 and 1997
  stock option grants based on the fair value method.  The pro forma information
  presented below is not representative of the effect stock options will have on
  pro forma net income (loss) or net income (loss) per share for future years.

         The fair value of each option  grant is  estimated on the date of grant
  using the Black-Scholes multiple  option-pricing model. The following weighted
  average assumptions were used for grants in 1998 and 1997:  risk-free interest
  rates of 5.5% and 5.94%,  respectively,  an expected option life of 7.69 years
  and  4.92  years,   respectively,   expected   volatility  of  114%  and  96%,
  respectively, and dividend yield of zero.

                                      -18-
<PAGE>
         The  Black-Scholes  method is one of many models used to calculate  the
  fair value of options that are freely  tradable,  fully  transferable and that
  have no vesting  restrictions.  These  models also require  highly  subjective
  assumptions,  including  future stock price volatility and expected time until
  exercise, which greatly affect the calculated values.

         Had compensation cost for these plans been determined based on the fair
  value of awards at the grant date,  as prescribed by SFAS 123, net loss or net
  loss per share would have been as follows:

<TABLE>
                                                                         1998        1997
                                                                         ----        ----
                                                                     (in thousands, except
                                                                         per share data)
         Net loss applicable to common shareholders:
<S>                                                                  <C>          <C>     
             As reported                                             $(4,594)     $(1,701)
             Pro forma (1)                                           $(5,988)     $(3,276)
         Net loss per share (basic and diluted):
             As reported                                              $(0.89)     $ (0.42)
             Pro forma (1)                                            $(1.16)     $ (0.82)
</TABLE>

  (1) SFAS 123  applies  to awards  granted in fiscal  years  that  begin  after
  December 15, 1994.  Consequently,  the effects of applying SFAS 123 shown here
  are not likely to be  representative of the effects in future years due to the
  exclusion  of  awards  granted  in prior  years  but  vesting  (and  therefore
  expensed) in 1997 and 1998.

  NOTE 9.  INCOME TAXES

   
         Sonus Corp. and its Canadian  subsidiary file separate corporate income
  tax returns on a stand-alone basis in Canada.  Sonus-USA,  Inc. files separate
  corporate income tax returns in the United States.

         There was no  provision  for income  taxes for the years ended July 31,
  1998 and 1997 as the Company incurred net operating losses.

         The components of temporary  differences  that give rise to significant
  portions of deferred income taxes are as follows (in thousands):

<TABLE>
                                                                    July 31,
                                                          1998                  1997
                                                          ----                  ----
         Deferred tax assets:
<S>                                                      <C>                   <C>   
           Net operating losses carried forward          $2,443                $  839
           Allowance for doubtful accounts                  277                    44
           Other                                             14                    --
                                                          -----                   ---
                                                          2,734                   883
         Deferred tax liabilities:
           Goodwill and start-up costs                     (240)                  (54)
                                                         ------                  ---- 
                                                          2,494                   829
      Less valuation allowance                           (2,494)                 (829)
                                                         ------                  ---- 
                                                         $  ---                $  ---
                                                         ======                ======

         A  reconciliation  of the  Company's  expected  tax  expense  using the
  statutory income tax rate to the actual effective rate is as follows:

                                                           1998                  1997
                                                           ----                  ----
      Tax benefit at statutory rate                         (34)%                 (34)%
      Adjustment for higher Canadian tax rate                (1)                  ---
      Expenses not deductible for tax purpose                 3                     5
      State taxes, net of federal                            (5)                  ---
      Change in valuation allowance                          37                    29
                                                           ----                  ----
      Tax rate per financial statements                     ---%                  ---%
                                                           ====                  ====
</TABLE>

         At July 31,  1998,  the  Company had  approximate  net  operating  loss
  carryforwards  for tax purposes  which,  if not utilized,  expire in the years
  ended as follows (in thousands):

<TABLE>
                                                                UNITED
                                            CANADA              STATES                  TOTAL
<S>                                <C>                        <C>                   <C>     
         2001                      $         573              $    ---              $    573
         2002                                 26                   ---                    26
         2003                                563                   ---                   563
         2004                                247                   ---                   247
         2005                                294                                         294
         2011                                ---                   639                   639
         2012                                ---                   586                   586
         2013                                                    3,599                 3,599
                                   -------------            ----------               -------
                                   $       1,703                $4,824                $6,527
                                   =============              ========             =========
</TABLE>
    

  NOTE 10.  RELATED PARTY TRANSACTIONS

         William DeJong is a partner in the Calgary,  Alberta law firm of Ballem
  MacInnes  and is a director  of the  Company.  Total fees,  disbursements  and
  government sales tax paid to Ballem MacInnes by the Company for legal services
  as of July  31,  1998  and  1997  were  $196,000  and  $168,000,  respectively
  (converted from Canadian dollars at July 31, 1998 and 1997).

         In connection with the  acquisition of the Midwest  Division of Hearing
  Health  Services,  Inc.,  Sonus-USA,  Inc.  assumed a  promissory  note with a
  balance of $360,000  payable to Kathy A.  Foltner,  an officer of the Company.
  The promissory note, which is payable in equal annual installments of $120,000
  and bears  interest  at 6% per annum,  has one payment  remaining  due July 1,
  1999.

         Gregory J. Frazer, Ph.D., an officer and director of the Company, was a
  shareholder in certain Hearing Care Associates  corporations  that the Company
  acquired  during the fiscal years ended July 31, 1998 and 1997. For the fiscal
  year ended July 31, 1998, the consideration paid to Mr. Frazer and his wife in
  connection  with  the  acquisitions  and  related  non-competition  agreements
  consisted of $242,179 in cash and $80,520 payable in  installments  over three
  years.  The  consideration  paid to Mr.  Frazer and his wife during the fiscal
  year ended July 31, 1997,  totaled  $933,000 in cash and 294,071 Common Shares
  at a price of $5.00 per share.

         On May 8, 1997,  Brandon M.  Dawson,  an officer  and  director  of the
  Company,  exercised  options for 50,000 Common  Shares at $1.35 per share.  In
  connection with the exercise, the Company made loans of $67,500 and $91,000 to
  Mr.  Dawson on May 8, 1997,  and April 24,  1998,  respectively,  to allow Mr.
  Dawson to pay the aggregate  exercise  price of the options and taxes incurred
  as a result of the  exercise.  The loans  mature on  November 1, 1999 and bear
  interest  at 10% and 7.75%,  respectively.  On October  5, 1997,  the  Company
  loaned Mr. Dawson  $85,000 in connection  with the purchase of his  residence.
  The loan was repaid on April 10, 1998, along with interest at 10% per annum in
  the amount of $4,308.  On December 26,  1997,  the Company  loaned Mr.  Dawson
  $32,342 in order to allow Mr.  Dawson to repay a loan  obtained in  connection
  with the  exercise  of options to  purchase  20,000  Common  Shares.  The loan
  matures on November 1, 1999, and bears  interest at 7.75% per annum.  On March
  19,  1998,  the  Company  loaned  Mr.  Dawson  $35,760,  in order to pay taxes
  incurred as a result of option  exercises  in April 1996.  The loan matures on
  November  1, 1999,  and bears  interest  at 7.75% per annum.  The loans to Mr.
  Dawson are secured by 60,000 Common Shares.

                                      -19-
<PAGE>
         On May 19,  1997,  Gene K.  Balzer,  Ph.D.,  a former  director  of the
  Company,  exercised  options for 40,000 Common  Shares at $1.40 per share.  In
  connection  with such  exercise,  the Company loaned Mr. Balzer $56,000 to pay
  the aggregate exercise price of the options.  The loan is secured by the stock
  underlying the exercised options and accrues interest at 10% per annum.

  NOTE 11.  401(K) PLAN

         The Company sponsors a 401(k) plan for all employees who have satisfied
  minimum  service and age  requirements.  Employees may contribute up to 20% of
  their   compensation  to  the  plan.  The  Company  does  not  match  employee
  contributions.

  NOTE 12.  COMMITMENTS AND CONTINGENCIES

         Operating Leases

         The following is a schedule by year of future  minimum  lease  payments
  for non-cancelable operating leases at July 31, 1998 (in thousands):

         1999                                                       $1,393
         2000                                                        1,108
         2001                                                          913
         2002                                                          745
         2003                                                          519
         Thereafter                                                    605
                                                                    ------
         Total minimum lease payments                               $5,283
                                                                    ======

        Rental  expense under  operating  leases was $1,426,000 and $810,000 for
  the years ended July 31, 1998 and 1997, respectively.

         Insurance
         ---------

         In the normal course of business, the Company may become a defendant or
  plaintiff  in  various  lawsuits.  Although a  successful  claim for which the
  Company is not fully  insured  could have a material  effect on the  Company's
  financial condition,  management is of the opinion that it maintains insurance
  at levels sufficient to insure itself against the normal risk of operations.

  NOTE 13.  SUBSEQUENT EVENTS

        In August and  September of 1998,  the Company  acquired 12 hearing care
clinics  in 4  transactions  for a total  purchase  price  of  $1,812,000.  Each
transaction  was accounted for as a purchase.  The aggregate  purchase price for
the  acquisitions  consisted of cash payments of $942,000 and  promissory  notes
issued by the  Company of  $870,000  payable  over  three  years.  In  addition,
$100,000 will be paid in March 2000 if certain net revenue targets are met. As a
result of the acquisitions, the Company recorded $75,000 in accounts receivable,
$70,000 in inventory,  property and equipment,  $89,000 in other assets, $96,000
in current  liabilities and $1,674,000 in goodwill.  In addition to the purchase
price for the acquisitions, the Company also recorded $220,000 for covenants not
to compete payable over three years.

  NOTE 14.  CANADIAN VERSUS U.S. GAAP

        As of July 31, 1998 and 1997, there were no material differences between
  Canadian generally accepted accounting principles ("GAAP") and U.S. GAAP.

                                      -20-
<PAGE>
NOTE 15. QUARTERLY   RESULTS  OF  OPERATIONS   (UNAUDITED  -  SEE   ACCOMPANYING
         ACCOUNTANTS' REPORT)

        The  following is a tabulation  of the  unaudited  quarterly  results of
operations for the years ended July 31, 1998 and 1997 (in thousands,  except per
share data):
<TABLE>
                                                                Quarter ended                  
                                               October 31,    January 31,   April 30,    July 31,
                                                  1997           1998         1998         1998
                                                  ----           ----         ----         ----

<S>                                             <C>           <C>           <C>          <C>   
Net revenues                                    $  5,307      $  4,109      $ 5,719      $ 7,233
Loss from continuing operations                      (79)       (1,135)        (778)      (2,906)
Net loss                                             (96)       (1,085)        (581)      (2,832)

Earnings (loss) before interest,
   depreciation and amortization (1)                 198          (812)        (429)      (2,494)

Net loss per share (basic and diluted)          $  (0.02)     $  (0.24)     $ (0.10)     $ (0.49)


                                                                Quarter ended                  
                                               October 31,    January 31,   April 30,    July 31,
                                                  1996           1997         1997         1997
                                                  ----           ----         ----         ----

Net revenues                                    $  1,268       $ 2,934      $ 4,355      $ 4,905
Loss from continuing operations                     (299)         (657)        (316)        (461)
Net loss                                            (298)         (649)        (290)        (464)

Loss before interest,
   depreciation and amortization (1)                (247)         (440)        (123)        (133)

   
Net loss per share (basic and diluted)          $  (0.11)      $ (0.16)     $ (0.06)     $ (0.10)
</TABLE>
    

---------------
(1) Earnings (loss) before  interest,  depreciation and amortization is provided
    because  it is a  measure  commonly  used by  acquisition  companies.  It is
    presented to enhance an understanding of the Company's operating results and
    is not  intended  to  represent  cash  flow  or  results  of  operations  in
    accordance  with generally  accepted  accounting  principles for the periods
    indicated.

NOTE 16. PRO  FORMA  FINANCIAL   INFORMATION   (UNAUDITED  -  SEE   ACCOMPANYING
         ACCOUNTANTS' REPORT)

        The unaudited pro forma  financial  information set forth below reflects
the  historical  operations  of the clinics  acquired by the Company  during the
fiscal year ended July 31, 1998 (the  "Acquisitions"),  from August 1, 1997,  to
the  date  of  acquisition.  Such  financial  information  .is  not  necessarily
indicative  of the  Company's  combined  financial  position  or the  results of
operations  that  actually  would have  occurred  if the  Acquisitions  had been
consummated  on August 1, 1996,  for the fiscal  year ended July 31,  1997,  and
August 1, 1997,  for the fiscal  year ended July 31,  1998.  In  addition,  such
information is not intended to be a projection of results of operations that may
be  obtained  by the Company in the future.  The  unaudited  pro forma  combined
financial  information  should  be read in  conjunction  with  the  consolidated
financial statements and related notes thereto included elsewhere herein.

                                      -21-
<PAGE>
                   UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JULY 31, 1998


<TABLE>
                                                      ACQUIRED         PRO FORMA       SONUS CORP.
                                    SONUS CORP.       CLINICS(A)     ADJUSTMENTS(B)     COMBINED (C)
                                    -----------       ----------     --------------     ------------
                                                  (in thousands, except per share amounts)

<S>                                     <C>              <C>              <C>               <C>     
Net revenues                            $ 22,368         $ 10,467         $                 $ 32,835

Costs and Expenses:
  Cost of products sold                    7,712            5,051                             12,763
  Operational expenses                    18,193            4,826                             23,019
  Depreciation and
    amortization                           1,361              112               211            1,684
                                        --------         --------         ---------         --------
    Total costs and expenses              27,266            9,989               211           37,466
                                        --------         --------         ---------         --------
    Income (loss) from operations         (4,898)             478              (211)          (4,631)
Other income, net                            304               15                 -              319
Income (loss) before income taxes         (4,594)             493              (211)          (4,312)
Income tax expense                             -               23                 -               23
                                        --------         --------         ---------         --------
Net income (loss)                       $ (4,594)        $     470       $     (211)        $ (4,335)
                                        ========         =========       ==========         ======== 


Pro forma:
  Net loss per common share                                                                 $  (0.84)
                                                                                            ========

  Weighted average number
    of shares outstanding                                                                      5,167
                                                                                               =====
</TABLE>

                                      -22-
<PAGE>
                   UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JULY 31, 1997


<TABLE>
                                                      ACQUIRED         PRO FORMA       SONUS CORP.
                                    SONUS CORP.       CLINICS(A)     ADJUSTMENTS(B)     COMBINED (C)
                                    -----------       ----------     --------------     ------------
                                                  (in thousands, except per share amounts)

<S>                                     <C>               <C>             <C>               <C>     
Net revenues                            $ 13,462          $13,430         $                 $ 26,892

Costs and Expenses:
  Cost of products sold                    5,010            5,821                             10,831
  Operational expenses                     9,395            6,567                             15,962
  Depreciation and
    amortization                             790              188              328             1,306
                                        --------          -------         --------          --------
    Total costs and expenses              15,195           12,576              328            28,099
                                        --------          -------         --------          --------
    Income (loss) from operations         (1,733)             854             (328)           (1,207)
Other income, net                             32               21                -                53
Income (loss) before income taxes         (1,701)             875             (328)           (1,154)
Income tax expense                             -               19                -                19
                                        --------          -------         --------          --------
Net income (loss)                       $ (1,701)         $   856         $   (328)         $ (1,173)
                                        ========          =======         ========          ======== 


Pro forma:
  Net loss per common share                                                                 $  (0.29)
                                                                                            ========

  Weighted average number
    of shares outstanding                                                                      4,010
                                                                                            ========
</TABLE>


(a)     Reflects the historical  operations of the  Acquisitions  from August 1,
        1997, to the date of acquisition.

(b)     To record amortization of goodwill for the Acquisitions in the amount of
        $211,000 and  $328,000  for the fiscal  years ended July 31,  1998,  and
        1997,  respectively,  as if the  Acquisitions  had occurred on August 1,
        1997 and August 1, 1996, respectively.

(c)     The "Sonus Corp.  Combined"  column set forth in the unaudited pro forma
        statement  of  operations  (i) for the year ended July 31,  1998,  gives
        effect to the  Acquisitions  as if they had  occurred on August 1, 1997,
        and  (ii)  for the  year  ended  July  31,  1997,  gives  effect  to the
        Acquisitions as if they had occurred on August 1, 1996.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits  are  listed in the  Exhibit  Index  beginning  on page 25 of this
report. Each management contract or compensatory plan or arrangement required to
be filed as an exhibit to this  report is marked with an asterisk in the Exhibit
Index.

(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during
the last quarter of the fiscal year ended July 31, 1998.

                                      -23-
<PAGE>

                                   SIGNATURES


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
the Registrant has duly caused this Amendment No. 1 to its report on Form 10-KSB
for the  fiscal  year  ended  July 31,  1998,  to be signed on its behalf by the
undersigned, therunto duly authorized on November 6, 1998.

Date:  November 6, 1998                SONUS CORP.

                                        By /s/ Brandon M. Dawson
                                           Brandon M. Dawson
                                           President and Chief Executive Officer


                                      -24-
<PAGE>

                                  EXHIBIT INDEX

Exhibit                Description of Exhibit
-------                ----------------------

3.1                    Articles of Incorporation of the Company. Incorporated by
                       reference to Exhibit 3.1 to  Post-Effective  Amendment No
                       1, filed March 5, 1998 (the "Amendment") to the Company's
                       Registration  Statement on Form SB-2 filed March 12, 1997
                       (File No. 333-23137) (the "SB-2").

3.2                    Bylaws  of the  Company.  Incorporated  by  reference  to
                       Exhibit 3.2 to the Amendment.

10.1                   Securities  Purchase  Agreement  between  the Company and
                       Warburg, Pincus Ventures, L.P. ("Warburg") dated November
                       21,  1997.  Incorporated  by reference to Exhibit 99.2 to
                       the Company's  current  report on Form 8-K dated November
                       25, 1997.

10.2                   Warrant  Agreement  between the Company and Warburg dated
                       December 24, 1997.  Incorporated  by reference to Exhibit
                       10.13 to the Amendment.

10.3                   Stock  Purchase and Sale  Agreement  dated as of February
                       28,  1997,  between  Gregory  J.  Frazer  and  Laurie Van
                       Duivenbode and SONUS-USA,  Inc., a Washington corporation
                       ("Sonus-USA"). Incorporated by reference to Exhibit 10.19
                       to the SB-2.

10.4                   Merger  Agreement dated as of October 1, 1996,  among the
                       Company, Hearing Care Associates-Glendale,  Inc., Hearing
                       Care   Associates-Glendora,   Inc.,   and  Hearing   Care
                       Associates-Northridge,   Inc.,  and  Gregory  J.  Frazer,
                       Carissa  Bennett,  and Jami  Tanihana").  Incorporated by
                       reference to Exhibit 10.20 to the SB-2.

10.5                   Asset  Purchase  Agreement  effective  as of October  31,
                       1996,  among the Company,  Sonus-USA  and Hearing  Health
                       Services, Inc., and Audio-Vestibular Testing Center, Inc.
                       (the  "Midwest  Division  Agreement").   Incorporated  by
                       reference to Exhibit 10.21 to the SB-2.

10.6                   Stock Purchase and Sale Agreement  dated as of January 9,
                       1997,  by and  between  Gregory  J.  Frazer  and  Stephen
                       Martinez  and  Sonus-USA.  Incorporated  by  reference to
                       Exhibit 10.24 to the SB-2.

10.7                   Form of  Convertible  Subordinated  Note  relating to the
                       Midwest Division Agreement.  Incorporated by reference to
                       Exhibit 10.25 to the SB-2.

10.8                   1993 Stock  Option  Plan.  Incorporated  by  reference to
                       Exhibit 10.26 to the SB-2.*

10.9                   Second  Amended and Restated Stock Award Plan (as amended
                       December 18, 1997).  Incorporated by reference to Exhibit
                       10.27 to the Amendment.*

10.10                  Employment  Agreement  dated  October  1,  1996,  between
                       Sonus-USA,   and  Gregory  J.  Frazer.   Incorporated  by
                       reference to Exhibit 10.28 to the SB-2.*

10.11                  Employment  Agreement dated as of November 1, 1996, among
                       the Company,  Sonus-USA, and Kathy Foltner.  Incorporated
                       by reference to Exhibit 10.29 to the SB-2.*

10.12                  Employment Agreement dated December 24, 1997, between the
                       Company and Brandon M. Dawson.  Incorporated by reference
                       to Exhibit 10.30 to the Amendment.*

10.13                  Employment Agreement dated December 24, 1997, between the
                       Company and Edwin J. Kawasaki.  Incorporated by reference
                       to Exhibit 10.31 to the Amendment.*

10.14                  Employment Agreement dated December 24, 1997, between the
                       Company  and  Randall  E.  Drullinger.   Incorporated  by
                       reference to Exhibit 10.32 to the Amendment.*

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<PAGE>
10.15                  Consulting  Agreement  effective  as of  January 1, 1997,
                       between the Company and Hugh T. Hornibrook.  Incorporated
                       by reference to Exhibit 10.33 to the SB-2.*

10.16                  Stock  Purchase and Sale  Agreement  dated as of March 6,
                       1997,  between  Gregory J.  Frazer,  Alfred S. Gaston and
                       Sonus-USA.  Incorporated by reference to Exhibit 10.34 to
                       the SB-2.

10.17                  Stock Purchase and Sale  Agreement  dated as of March 14,
                       1997, by and between Gregory J. Frazer, David N. Jankins,
                       and  Jami  Tanihana  and   Sonus-USA.   Incorporated   by
                       reference to Exhibit 10.35 to Amendment No. 1 to the SB-2
                       filed May 19, 1997.

10.18                  Stock  Purchase and Sale  Agreement  dated as of April 6,
                       1997, by and between Susan Diaz,  Gregory J. Frazer,  and
                       Jami Tanihana and Sonus-USA. Incorporated by reference to
                       Exhibit  10.36 to  Amendment  No. 1 to the SB-2 filed May
                       19, 1997.

10.19                  Promissory  Notes of Brandon M. Dawson dated May 8, 1997,
                       December  26, 1997,  March 19, 1998,  and April 24, 1998,
                       and related Pledge Agreement  between the Company and Mr.
                       Dawson,  dated May 1, 1998.  Incorporated by reference to
                       Exhibits  10.1,   10.2,  10.3,  10.4,  and  10.5  to  the
                       Company's Quarterly Report on Form 10-QSB for the quarter
                       ended April 30, 1998.*

10.20**                Amended and Restated  Promissory  Note of Gene K. Balzer,
                       Ph.D.,  dated  as of May 19,  1998,  and  related  Pledge
                       Agreement between the Company and Mr. Balzer, dated as of
                       May 19, 1997.*

10.21                  Stock  Purchase  Agreement  dated August 27, 1997, by and
                       between Carissa D. Bennett, Gregory J. Frazer, and Evelyn
                       L. Gong and Sonus-USA,  Inc. Incorporated by reference to
                       Exhibit  10.35 to the  Company's  Annual  Report  on Form
                       10-KSB for the fiscal year ended July 31, 1997.

10.22                  Stock  Purchase  Agreement  dated January 5, 1998, by and
                       between   Gregory  J.  Frazer,   Rhonda   Jesperson   and
                       Sonus-USA.  Incorporated by reference to Exhibit 10.41 to
                       the Amendment.

10.23                  Stock Purchase  Agreement dated February 12, 1998, by and
                       between  Gregory  Frazer,  Donald M. Welch and Sonus-USA.
                       Incorporated   by  reference  to  Exhibit  10.42  to  the
                       Amendment.

21                     The  Company's   subsidiaries  are  SONUS-USA,   Inc.,  a
                       Washington  corporation,  Sonus-Canada  Ltd.,  a  British
                       Columbia (Canada)  corporation,  and Hear PO Corp., a New
                       Mexico corporation.

23.1                   Consent of KPMG Peat Marwick LLP.

24**                   Power of attorney of certain officers and directors.

27**                   Financial Data Schedule.

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

  * Management contract or compensatory plan or arrangement.
 ** Previously filed.
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